It’s more than dollars and cents
Has the US lost it’s ‘juice’?
The Rules of the Economic Road
What’s In It for Australia?
No, It’s Not About China
Free Trade Agreements, Like Zombies, Never Die
Précis of the interview with Dr. Bates Gill, head of the U.S. Studies Centre in Sydney.
[Recorded for the business podcast of the American Chamber of Commerce in Australia; edited for brevity]
More than $ and ¢
- First, nearly all 12 current members of the Trans-Pacific Partnership (TPP) already have free trade agreements amongst themselves, typically bilaterally
- The TPP is deeper than simple trade and investment numbers. It deals with regulatory issues that make business easier to conduct in different countries and to do this at a scale across the trans-pacific is really quite unprecedented.
- Tariffs and other fiscal and barriers to trade which exist between nations have more or less been winnowed away over the past 10-15 years because of a variety of free trade agreements already in existence.
- TPP takes it to a new level because it encompasses economies representing 40% of the world’s GDP. That figure alone speaks to the scale and importance of this agreement but to the United States it’s of considerable strategic importance because its part and parcel of a broader strategy for policy that the Obama administration (and predecessors) have pursued in this very dynamic part of the world.
So why the fuss?
There are a lot of objections and concerns.
- First, from a political point of view, free trade is not always accepted as the right thing to do. There’s still a significant strand of protectionism in all countries. Certain industries might have particular political or even cultural importance and the feeling is they need to be protected from the undo competition and the outside world. Rice farmers in Japan for example, In Japan. Every country has their own protected industry.
- Second, some argue that free trade agreements open up too many doors and make it too easy for industries to take their work outside the country, to ship their plants abroad and employ foreigners rather than employing the locals. That’s a topic for serious debate.
- Third, an issue that has arisen for many is that the TPP is not going to be effective or successful because it doesn’t include China. They ask, how can you possibly think of a true trans-pacific partnership free trade agreement without China, the world’s second largest economy, the world’s biggest trading nation? But ultimately these can be overcome though it’s going to continue to be an uphill battle.
10 years Later: the Australia/USA Free Trade Agreement
- The broad consensus is that it’s been good for both countries. There clearly is an uptick in overall trade: bilateral trade between the two countries is up significantly, 50-60% increase in those 10 years; an even more impressive number though is the amazing increase in bilateral investment between the two countries.
- This gets to the essence of really good free trade agreements: it allows for the partners to a great deal more in terms of investing, in terms of building up a presence in manufacturing, in terms of services and other economic activity in the other country and finding value in doing so. So this has been a good deal.
Rules of the Economic Road
- Certainly there will be economic benefits that can be measured in dollars and cents. More important though are political, diplomatic and other related benefits that grow through the relationships arising from closer trade and investment ties.
- More importantly though is that properly constructed these agreements are reinforce certain norms and ways of doing business, the rule of law is enforced, transparency and accountability is improved and enforced; better labour standards environmental standards are integrated into these sorts of agreements.
- The economic benefits build out the broader normative framework, the rules of the road that all partners agree to which underpins relationships. Not just economic but coming to terms with how the world should work, how nations should interact with one another in the economic world which cuts across all societal activities. So it’s not just two businesses signing a contract. It’s reaching an understanding of how those contracts are governed; how disputes are resolved; an understanding of the proper legal and regulatory mechanisms; so it’s not just an agreement about trade. You’re building an agreement about how to work with one another. So it’s not just what it means for the business bottom line, it’s what it means for how a nation wishes to operate in the world.
- The United States has a particularly high stake in this TPP agreement. It’s strategic because it demonstrates America’s continued presence and commitment to this part of the world. It’s high stakes because if the US fails to achieve this it will be interpreted as a signal that the United States simply doesn’t have the ‘juice’, doesn’t have the diplomatic and economic heft to pull it off and continue to be a leader in the Asia-Pacific.
- The TPP isn’t just about trade, it’s about American reputation, it’s about American commitment to friends and allies. It’s about assuring certain rules of the road and ways of doing business continue and that those ways of business have direct long term benefits to the United States and our friends.
What’s in it for Australia?
- What’s in it for Australia is what’s in it for all the partners. A criticism of the TPP is that it’s being negotiated in relative secrecy, but secrecy is normal for government negotiations so we can’t be absolutely clear yet about the specifics of these agreements.
- But the aim is to allow Australian service firms to operate more effectively and easily in places like Japan, South Korea, and Vietnam. In other words, it improves certainty for investors especially in emerging economies where the legal system is not well developed.
- Australian firms could be assured, Australian citizens can be assured, that there would be stricter environmental and labour standards in all member countries. This is particularly relevant in emerging economies that aren’t up to the level Australians would want to see.
- One big selling point for the TPP is that unlike a sort of global trade route where, for better or worse, you settle on least common denominator agreements there’s hope that there is enough common ground among these 12 countries, enough faith in the future of the region and enough belief that free trade will benefit everyone.
- An unspoken aspect which has to be very carefully handled is the notion that the TPP is a counter balance to China. I think this is wrong-headed. It might be tempting to make this case about China but it would be a big mistake to put it that way.
- Even the president has said that not everyone is going to win on free trade agreements, even the TPP, which I thought was a relatively courageous thing for him to say.
- One other aspect here that is worth talking about, that has nothing to do, really, with the economic or the strategic arguments. It’s the old ABC argument, “anybody but Clinton”. Today there is a very strong element of anything but Obama. It’s a small number who simply will not support this president, will not allow any kind of victory for this president under any circumstance. That’s ideological opposition and has nothing to do with economics though it might be disguised as such.
- Trade agreements have this way of never really dying. They’re just re-negotiated until they’re agreed upon so if it doesn’t pass in the next few months it wouldn’t be the end of the TPP; it would be the end of the TPP for the Obama administration to complete it.
- I’m relatively optimistic about it; I think the votes are there on Capitol Hill. A coalition of pro-business Republicans and a goodly number of centrist Democrats want to see this as a demonstration that congress can do something.
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