Canberra Times

Opinion

November 20, 2012

http://www.canberratimes.com.au/opinion/trade-alliances-to-reshape-asia-far-from-settled-20121119-29mc5.html

America's policy 'pivot' to Asia involves intensified diplomacy and shifting US military forces into places where, in co-operation with regional allies and friends, they can more effectively counterbalance the increasingly assertive rise of China.

But there is another leg to the pivot policy, one of economic engagement with Asia, a major trade and investment partner and source of future growth as America tries to hasten its recovery.

This leg has developed a limp and US President Barack Obama, who has made south-east Asia his first overseas destination following his recent re-election, is trying to restore strength to the limb by visiting Thailand, Burma and Cambodia.

The US diplomatic and military pivot to Asia is only one dimension of the strategic jostling between the US and China. The other is a competition for regional economic influence as the world's two top economies support different visions for future trade, investment and business growth.

One plan is centred on Asia and backed by China to enhance its position. The other spans the Pacific Ocean to link the Americas and Asia, and is championed by the US to increase its leverage.

In Phnom Penh on Tuesday, Obama will join leaders from 17 other, mainly Asian, nations for East Asia Summit talks. A centrepiece will be a decision to launch negotiations to form the world's largest economic bloc, an arrangement to liberalise trade, investment and other barriers to business encompassing 16 nations on the Asian side of the Pacific rim.

Foreshadowed by heads of government of the Association of South-East Asian Nations, a year ago, this plan for closer economic integration is known as the Regional Comprehensive Economic Partnership (RCEP).

The 10 ASEAN member states already have free trade agreements in place with the six regional economies - Australia, China, India, Japan, New Zealand and South Korea. The 16 partners will aim to conclude negotiations to consolidate these separate deals into a compatible framework by the end of 2015.

The plan could transform the region, which contains about 3.5 billion people - about half the world's population - into an integrated market. It would account for more than 27 per cent of international trade by value, with an economic output of $US23 trillion ($22.2 trillion), one-third of annual global gross domestic product.

However, the US is not part of the RCEP. Instead, it is promoting an alternative economic arrangement to integrate markets and business practices around the Pacific rim by linking the Americas to Asia.

Known as the Trans-Pacific Partnership, it involves the US and 10 other countries. Four - Brunei, Malaysia, Singapore and Vietnam - are ASEAN members. Two - Australia and New Zealand - are Asia-Pacific nations. The remaining four - Canada, Chile, Mexico and Peru - are from the western hemisphere.

The current 11 TPP members will hold the 15th round of negotiations in New Zealand next month. They aim to conclude a deal by the end of next year.

Meanwhile, Obama wants to build a more impressive coalition of countries to give the TPP more heft.

Thailand has just agreed to explore membership of the TPP. Earlier this month, the government of Japan, the world's third biggest economy, pledged to do the same if it won impending general elections, although that was far from certain.

However, two Asian giants, China and India, are not part of the TPP talks and have opted to join the RCEP. Indonesia, south-east Asia's largest economy, has done likewise as have four other ASEAN states - Cambodia, Laos, Burma and the Philippines, a US ally.

Another notable absentee from the TPP negotiations is South Korea, also a US ally. It has a bilateral free trade agreement with the US.

The US Trade Representative Ron Kirk said in September that there was room for two regional economic integration initiatives.

'We see them as a complementary, not necessarily [in] competition' Kirk said.

Both the RCEP and the TPP, when concluded, will be open to new members that accept the rules. But they are in competition.

Entry requirements are likely to be less demanding for the RCEP than they are for the TPP. That appeals to developing economies and also to industrial states like Japan and South Korea which want to protect their politically sensitive agricultural producers from foreign competition.

Japan and Thailand are not the only countries hedging their bets by taking part in both sets of negotiations. So, too, are Brunei, Australia, Malaysia, New Zealand and Singapore.

None of them want to appear to be aligning economically with either China or the US in case they choose the wrong side and undermine their future growth prospects. The US and China, which together account for a third of world output, are seen as twin sources of economic growth as Europe and Japan stagnate.

Australia has said its highest trade negotiation priority is the conclusion of the TPP but knows it will be difficult. So the Trade Minister Craig Emerson has said that the RCEP would be 'the perfect vehicle for advancing Australia's interests in the Asian century.'

Although the TPP has been limping, the RCEP has yet to take substantial shape. Progress may be slowed by infighting, particularly between China and Japan.

The stakes in the competition between the US-led TPP and the RCEP with China as its leading economy are high. Whichever bloc emerges with the most weight and credibility will be in the best position to attract new members and enmesh them into its network.

Michael Richardson is a visiting senior research fellow at the Institute of South-East Asian Studies in Singapore.

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