Geopolitical Urgency and Economic Liberalization in the Asia-Pacific

Corey Wallace
Teaching Fellow, Political Studies, University of Auckland
New Zealand Youth delegate GM XIX 2010

Keen observers of Asia-Pacific regional integration will not have missed the development of an interesting dynamic in recent years - that of geopolitical competition driving the economic liberalization agenda. The politicization of economic relations and interconnections is of course nothing new. The opening of the American market after World War II to Germany and Japan was a critical part of early US Cold War strategy, as was encouraging Japan to limit its trading relationship with the People’s Republic of China and other Communist governments in Asia.

The Soviet Union attempted to forge its own economic bloc through Council of Mutual Economic Assistance (COMECON) at the same time. This was the logic of the Cold War: superpower competition and containment. Geopolitical competition, far from dividing the Pacific, is now having the opposite effect in the post-Cold War era however. While geopolitical considerations have never truly been out of the picture, and indeed the formation of APEC itself was propelled by (often differing) political as well as economic motivations, the last one to two years has seen geopolitical considerations playing a much more explicit role in the decisions that economies have taken regarding the joining of and commitment to various trade pacts and economic frameworks.

Nowhere is this truer than in Japan’s case. While Democratic Party of Japan prime ministers Kan Naoto and Noda Yoshihiko framed Japan’s needing to join the TPP in terms of the need to stimulate internal reform, the return of Abe Shinzo has seen a much more explicitly strategic orientation come to Japan’s trade policy. While Abe does also see the TPP as playing a role as part of the structural reform “arrow” of Abenomics, ultimately he sees the trade pact as a way to strengthen and deepen the US-Japan alliance, especially in the context of recent Sino-Japanese tensions. Abe has shown that he is willing to sacrifice some domestic interests in return for longer term geostrategic gains. In addition to the TPP decision, examples of this include the Japan-India trade deal in his first term, and the fishing agreement signed with Chinese Taipei earlier this year. The Australia-Japan EPA/FTA has gained more urgency over the last year, and the outlook for this coming to fruition is looking increasingly promising given the recent Japanese agreement in principle to lower tariffs on beef products. What is noticeable is that Japan’s bilateral EPAs have of late been primarily with economies of significant strategic and security importance for Japan’s maritime security. In terms of the intersections between economic and political leadership, Japanese elites see Japan’s role in the TPP, RCEP, and the China-Korea-Japan three-way trade deal as putting it in an advantageous, perhaps even leading position in the negotiation of a future FTAAP pact.

Chinese Taipei is also keen to diversify its economic relationships now that it has enjoyed success through the ECFA which has strengthened cross-strait economic relations. Chinese Taipei is most concerned about being left out of the broader regional economic architecture and will try to find any way it can to insert itself. They have not been shy in promoting their case for joining the TPP, noting that the economy is already a “high-quality” and “highly qualified TPP candidate.” Not only does joining the TPP appeal to those on the island who worry about over-dependence on the mainland, but if the politically difficult issue of negotiating Chinese Taipei’s entry into the TPP can be surmounted, the Chinese Taipei economy could act as a key conduit between TPP member economies and the Chinese market in the absence of progress on RCEP and a broader FTAAP.

Other economies have also expressed greater interest of late in the TPP. Thailand looks likely to join at some point, and economies as diverse as the Philippines, Colombia and Costa Rica have also taken notice of the TPP after Canada, Mexico, and now Japan, have joined the pact over the last year. Even formerly reluctant economies like Indonesia have started musing out loud about the merits of joining the TPP.

While the US disavows any geopolitical agenda sitting behind its promotion of the TPP, it is only reasonable and sensible that the US find a way to involve itself in region making and rule-setting  in the most important economic region in the world. It would be unusual if the US didn’t try to respond to East Asian region building by offering its own regional economic vision. The TPP, now Mexico, Canada, and in particular Japan are involved, offers an excellent way of doing so, and the broader geopolitical significance of this for the US will not be lost on US policymakers.

Nor has it been lost on Chinese policymakers. Beijing, which seems to see, rightly or wrongly, a primary geopolitical agenda sitting behind the US’ promotion of the TPP, has as a response come behind the broader RCEP concept (rather than just ASEAN plus three trade concept) much more enthusiastically, particularly as Japan has openly mulled joining the TPP over the last few years. Furthermore, despite some of the most difficult tensions between Japan, China, and the Republic of Korea in years, the three economies still entered into the first round of negotiations in late March in Korea on the Japan-PRC-ROK free trade deal, which would on its own unite the 2nd, 3rd and 15th largest economies in the world.

Of course the issue remains that if the motivations for joining such regional pacts are not “purely economic” then the results of any negotiations may be disappointing, and economies’ attention spans may vary given the choice on offer. There is also the potential problem of overlapping and conflicting negotiated outcomes between the different pacts, especially for economies that are part of both RCEP and the TPP such as Vietnam, Singapore, Malaysia, Brunei, New Zealand, Australia, and Japan.

However such fears may be overblown. The RCEP is after all not creating a completely new economic framework but building on top of the complex web of negotiated economic streams already in full flow. The RCEP is looking to ‘harmonize’ the current set of ASEAN-centered economic agreements, which are rather inconsistent in terms of goods and services coverage, investment rules and ROOs.  While of significant value, the economic goals and logic behind the RCEP are of quite a different nature from the TPP, which covers a different range of complex issues such as financial services, intellectual property rights, and labor and environment issues.  In this sense, the two agreements are not true competitors, and are likely in some ways to add to each other. For example, economies with difficult domestic issues to reconcile like Indonesia will have to be able to manage RCEP negotiations before it thinks too deeply about joining the TPP given the TPPs more ambitious “beyond the border” agenda. The TPP, as a more exclusive arrangement than the RCEP, may serve an aspirational role which will push RCEP negotiations along in addition to the impact of the galvanizing effect that the broader strategic and geopolitical motivations of economies like China and India, who will want to see an agreement suitable to their interests as large, but as yet not fully-industrialized economies, come to fruition. In this sense the TPP in the long-term may well build upon the RCEP, rather than detract from it, and vice-versa.

In any event, trade and economic integration has seldom progressed along the ideal lines purists would desire and has always been messy. While politics sometimes holds up economic integration, it can also propel it under the right conditions. The next few years could be an example of where geopolitical considerations and jostling for regional influence may push certain economies to make domestically difficult concessions that they may otherwise not be willing to make. Short-term security and political competition between the major powers in the region, if tensions can be managed, may even have some positive economic side-effects in the long-term. Economic deepening, engagement and commitments may in turn also play an important countervailing role in blunting security tensions.