Asia-Pacific’s trade architecture to increase in scope and complexity

Ruth le Pla reports from the Asia Pacific Regional Economic Integration and Architecture Conference, which was jointly hosted by New Zealand’s Ministry of Foreign Affairs and Trade, the New Zealand Asia Institute, The University of Auckland Business School, the New Zealand Committee of the Pacific Economic Cooperation Council and AUT University. It took place on 25 March.

A recent Auckland conference on regional economic integration and architecture provided a timely reminder of the significance of trade deals in the Asia-Pacific.

The conference followed hard on the heels of the first round of negotiations in Melbourne to expand the Trans-Pacific Partnership (TPP) beyond its original membership of four.

The timing was not lost on opening speaker Dr Fred Bergsten who described the Obama administration’s participation in the TPP talks as a ‘positive initiative’ that could bring about ‘quite a consequential, and even monumental, change’ to the region. (read his speech)

The talks could be a stepping stone towards both an Asia-Pacific free trade zone and an opportunity for the United States to pursue greater engagement in Asia.

Dr Bergsten, who is a director of the Peterson Institute of International Economics in Washington DC, said both the challenges and opportunities for advancing greater economic integration in the Asia Pacific region are now greater than ever before.

His comments cut to the core of a series of interlocking issues around how the region’s trade architecture could, or should, be jigsawed together for optimum benefit for all concerned.

At the heart of this lies the noodle bowl of overlapping trade agreements which, as speaker Long Guoqiang pointed out, have both grown rapidly and shifted emphasis in recent years.

Long Guoqiang is a senior fellow and director-general, Research Department of Foreign Economic Relations, at the Development Research Centre of the State Council of China. He pointed to the growing number of agreements between the region’s northern and southern nations.

He also noted their increased scope. Many deals no longer stop short at trade in goods. They include issues such as trade in services, economic co-operation, intellectual property rights or competition policies.

There are also increasing numbers of long-distance deals and over 30 bilateral free trade agreements (FTAs).

Competing proposals

In recent years, Australia and Japan have espoused competing proposals on how the region’s trade architecture should be built.

In June 2008 Australian Prime Minister Kevin Rudd introduced his vision of an overarching Asia Pacific Community (APc) in which economic, political and security issues could be handled holistically rather than piecemeal.

Late last year, officials and academics from 22 countries met in Sydney to start building on the idea.

In September last year Japan’s new Prime Minister Yukio Hatoyama announced his vision for an East Asia Community.

Details are still to be filled in but an underpinning motivation is the quest for an ‘East Asian identity’ and a desire for a forum to help harmonise competing interests in the region.

Importantly, any future trade architecture must address the role in the region of international heavyweights the US, China and India.

So far, according to Melbourne University’s Professor Ann Capling, the noodle bowl has proven ‘more annoying than problematic’ for businesses.

Potential pitfalls of Asian integration

But at the conference, Dr Bergsten cautioned that Asian integration raises real risks to Asia-Pacific integration.

He warned the inexorable rise of an Asian economic bloc would carry huge implications for the rest of the world.

“It will discriminate against outsiders, causing negative economic effects on them.”

He argued that a potential division between Asia and the United States would have consequences ranging beyond the purely economic.

“It would eventually and inevitably spill over into the political and even security areas and raise real risks for continued ties between the two sides of the Pacific.”

He said this would be particularly important and worrisome for countries like New Zealand.

It would also impact on many others in the region who have close ties with the United States as well as with their Asian neighbours.

Dr Bergsten argued for the need to move simultaneously on the Asia-Pacific and Asia-only fronts.

Professor Ann Capling noted the need to distinguish between trade-focused agreements and those with a broader mandate and agenda.

“Much of the preferential trade agreement (PTA) activity in our region has been driven as much by political, geostrategic and diplomatic objectives and motivations as it has been by commercial [ones],” she said.

In ASEAN’s case, Ong Keng Yong, Ambassador-at-Large in the Singapore Ministry of Foreign Affairs, suggests the organisation uses a policy of ‘strategic promiscuity’ to overcome problems, and maintain peace and stability in the region.

Others contend that the willingness of China, and now India, to negotiate an FTA with a tiny and already relatively tariff-free player such as New Zealand suggests a warm-up for FTA negotiations with larger developed countries.

Several speakers at the conference noted that regional integration is about much more than commercial gains resulting from lowering tariff barriers and more to do with strategic partnerships.

The noodle bowl

This may be borne out by research published in April last year in an Asian Development Bank Institute (ADBI) working paper “The Asian ‘Noodle Bowl’”.

Survey authors Masahiro Kawai and Ganeshan Wignaraja researched 609 firms in East Asia and found only 22 percent of them said they use FTA preferences: a higher result than the authors expected.
Associate professor Rob Scollay, director of the University of Auckland’s APEC Study Centre, raised the notion of layering. This, he said, may provide a basis for the co-existence of both an East Asian and a Trans-Pacific vision.

“Instead of thinking of integration as an all-or-nothing choice, maybe it would be helpful to think of different layers of integration,” he told conference delegates.

“Maybe those layers of economic integration could be pursued through different organisations.”

So issues such as community-building could be effected through APEC, ASEAN+3, ASEAN+6 and ASEAN. Similarly, ASEAN+3 could continue its current role in monetary and financial integration.

Victoria University senior lecturer in international relations David Capie predicted a Darwinian ‘survival of the fittest’ solution to the region’s challenges.

“Progress may be slow and frustrating... and any changes that occur won’t be tidy,” he warned.

These challenges, he said, stem from deficiencies in current institutions and architecture, and from longer-term shifts in the regional order.

He cited problems with ‘gaps between paper commitments and action’ and ‘too many organisations, too many meetings and still too little substantive co-operation’.

Tony Nowell, chair of the ABAC Liberalisation Working Group and Asia:NZ Trustee, underscored the importance to business of the need to manage trade flows in an era of increased border security.

He said that every day lost out of the Asia-Pacific supply chain costs business, and ultimately consumers, in excess of NZ$425 million.

“The ABAC community strongly believes it is time to do better. It is time for a much more effective response and time for a much more integrated Asia Pacific economic community.”

- By Ruth Le Pla

Photos (courtesy of the University of Auckland):

Prof Nigel Haworth who co-chaired the conference.  He is Professor of Human Resource Development in University of Auckland Management and International Business Department, and the Deputy Director of our New Zealand APEC Study Centre.

University of Auckland business school professor Hugh Whittaker addresses the conference.

Tony Nowell, chair of the ABAC Liberalisation Working Group and Asia:NZ Trustee, outlines the ABAC perspective.

Last updated: 18 Dec 2012