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Professor Crawford Falconer

Beyond TPP

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TPP is big in its own right. But I suspect it will prove to be at least as significant for the powerful momentum shift it represents.

The truth is that, since China (and Taiwan) joined the WTO way back in 2002, there have been no globally significant trade negotiating outcomes. There have been FTA’s. Plenty of them. But nothing really big.

Just big failures, most notably with the WTO Doha process. So much so that the received wisdom was that globally significant trade and Investment negotiations were dead.

Plenty were ready to dance on the grave.

But, against all the nay-sayers, TPP Members have pulled it off. The real question now is how far and fast this shift of momentum will move.

Quite a bit is my guess. Which is a big reason –perhaps the biggest-why New Zealand ought to be relieved that it is well and truly on the inside.

Sure, TPP has yet to enter into force, and that may take a bit of time. Nevertheless, Governments will now see TPP as a firm reality.

This changes the dynamic profoundly.

Commercially, outsiders face straight competitive disadvantage (unless they’re dairy exporters perhaps!). Strategically, they face elevated marginalisation risk.

This is the brutal reality of the “competitive liberalisation” model.

It makes it nigh on inevitable that small and medium players will want to join. South Korea will push hard. No surprise to see President Aquino of the Philippines declare an interest. There will be others.

Slow and steady evolution with one or two newcomers bellying up to the bar every few years would be just what the bureaucrats would want. It’s their Goldilocks nirvana.

But I think the politics will move much faster.

First, the US clock is ticking. TPP happened because the US finally got a mandate. But that window is open only until 2018 (possibly extendable until 2021). If you want to be in, you’ll have to move fast.

Second, there is a potential double whammy from the US’s other big negotiation – TTIP with Europe.

It has been dragging. But, with TPP done, the US has proved it can deliver. That’s a game changer. Europe will try to act unconcerned, all the while talking down TPP or damning it with faint praise. But just watch them scrabbling for their fast forward button. They’ll try hard for this year, or 2017 as fall-back.

TTP and TTIP should not be seen as walled-off mega-agreements just because one is Atlantic and one Pacific based. There is in fact a reasonable chance any US-EU TTIP Agreement will morph into a comprehensive TPP-TTIP Agreement.

And it may happen surprisingly fast. Many of the elements are already there.

Apart from the US, Canada, Mexico, Peru, Singapore and Chile already have FTAs with the EU. Japan has just about finished its negotiation and Malaysia is under way.  The EU is (at last) proposing New Zealand and Australia. That only leaves Vietnam and Brunei.

Putting it together is not quite join up the dots. But it’s not rocket science either.

If you are an outsider and were worried already, you could have twice as many reasons to be worried.

China is too big to be worried in that way.

But no-one should relish the prospect of a world with TPP and TTIP joined up but China outside, even if it is not planned that way. Forget the economics, which may even be roughly manageable for a while. It’s terrible politics. And terrible politics eventually messes up the economics.

China and TPP were just not ready for each other. Demands on China in Investment, intellectual property and Services would have been impossible to meet. Conversely, the political environment in the US for accommodating Chinese market access could hardly have been worse.

But that will change, and possibly soon.

This is because China still has huge economic and trade reforms to make if it is going to avoid the so-called “middle-income trap”. The Chinese Leadership knows this and knows real action is needed soon.

Such changes will mean opening up its inefficient services and state owned enterprise sectors, freeing up its investment regime and liberalising its capital account.

It is not difficult to see – in fact it is stunningly obvious when you take a good look- that there is the making of a grand bargain here for China and its trading partners in the not too distant future.

The obvious home for such a grand bargain should be the WTO-just like it was once before under Mike Moore’s leadership way back in 2002. But, alas, the WTO now is not the WTO then. And Mike Moore isn’t running it now.

As long as the WTO remains ineffectual, the only realistic second-best alternative is to bring China into inclusive regional arrangements here in the Asia Pacific. A successful TPP has created the essential conditions and generated massive momentum for that to happen.

But it won’t happen automatically. It will need leadership and vision.

New Zealand can and should play its honest broker role in bringing the giants together. After all, nothing less than the future of our national economic security is at issue.  All the more reason for strenuous efforts to be made on all sides at reinvigorating a long tradition of transparent and inclusive bipartisanship. Without it, our hand (and our prospects) in future processes will be materially diminished.