Australia’s mad dash to balance China

Via The Conversation comes Giovanni Di Lieto, Lecturer, Bachelor of International Business, Monash Business School, Monash University:

The revived trade agreement, now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), has finally made it across the line. It’s a considerable win for Australian farmers and service providers, in a trading area worth about A$90 billion.

The deal reduces the scope for controversial investor-state dispute settlements, where foreign investors can bypass national courts and sue governments for compensation for harming their investments. It introduces stronger safeguards to protect the governments’ right to regulate in the public interest and prevent unwarranted claims.

Despite earlier union fears of the impact for Australian workers, the CPTPP does not regulate the movement of workers. It only has minor changes to domestic labour rights and practices.

The new agreement is more of an umbrella framework for separate yet coordinated bilateral deals…It means a speedier process for reducing import barriers on key Australian products, such as beef, lamb, seafood, cheese, wine and cotton wool.

It also promises less competition for Australian services exports, encouraging other governments to look to use Australian services and reducing the regulations of state-owned enterprises.

Australia now also has new bilateral trade deals with Canada and Mexico as part and parcel of the new agreement. This could be worth a lot to the Australian economy if it were to fill commercial gaps created by potential trade battles within North America and between the US and China.

The new CPTPP rose from the ashes of the old agreement because of the inclusion of a list of 20 suspended provisions on matters that were of interest for the US. These would be revived in the event of a US comeback.

These suspended provisions involved substantial changes in areas like investment, public procurement, intellectual property rights and transparency. With the freezing of further copyright restrictions and the provisions on investor-state dispute settlements, these suspensions appear to re-balance the agreement in favour of Australian governments and consumers.

In fact, the scope of investor-state dispute settlements are narrower in the CPTPP, because foreign private companies who enter into an investment contract with the Australian government will not be able to use it if there is a dispute about that contract. The broader safeguards in the agreement make sure that the Australian government cannot be sued for measures related to public education, health and other social services.

The one part of the agreement relating to the temporary entry for business people is rather limited in scope and does not have the potential to impact on low-skilled or struggling categories of Australian workers. In fact, it only commits Australia to providing temporary entry (from three months, up to two years) of only five generic categories of CPTPP workers. These include occupations like installers and servicers, intra-corporate transferees, independent executives, and contractual service suppliers.

The above categories squarely match the shortages in the Australian labour market, according to the Lists of Eligible Skilled Occupation of the Home Affairs Department.

Bits of the original agreement are still included in the CPTPP such as tariffs schedules that slash custom duties on 95% of trade in goods. But this was the easy part of the deal.

The new agreement will be formally signed in Chile on March 8 2018, and will enter into force as soon as at least six members ratify it. This will probably happen later in the year or in early 2019.

The geopolitical symbolism of this timing is poignant. The CPTPP is coming out just as Donald Trump raises the temperature in the China trade battle by introducing new tariffs. It also runs alongside China’s attempts to finalise a much bigger regional trade agreement, the 16-nation Regional Comprehensive Economic Partnership.

Even though substantially the CPTPP is only a TPP-lite at best, it still puts considerable pressure on the US to come out of Trump’s protectionist corner.

It spells out the geopolitical consequences of the US trade policy switch, namely that the Asia Pacific countries are willing to either form a more independent bloc or align more closely with Chinese interests.

Will this be enough to convince the Trump administration to reverse its course on global trade? At present, this seems highly unlikely. To bet on the second marriage of the US with transpacific multilateral trade would be a triumph of hope over experience.

Fat chance until the Democrats return which is concern given the US will now be in a position to sweep back in along with the old and onerous provisions.

Labor is right to as for modelling:

 

The trade deal has been renamed the final Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP), to account for the United States’ exclusion. The agreement will be signed in March in Chile.

“This is a multi-billion-dollar win for Australian jobs. Australian workers, businesses, farmers and consumers will benefit,” Turnbull said in a joint statement with the trade minister, Steve Ciobo. “Labor and Bill Shorten declared this trade agreement dead – they urged the government to walk away. If Labor got their way, Bill Shorten would have shut Australia out of this historic agreement and denied our farmers, manufacturers, services providers and consumers the big wins the TPP delivers.

“The government will never give up on measures that create jobs for Australians,” they said.

But the shadow trade minister, Jason Clare, said the government needed to submit the revised deal to economic modelling. He said the deal was radically different without the United States’ involvement and voters ought to be told how it will affect Australia’s farmers and manufacturers.

“The original TTP was made up of countries that represented 40% of the world economy,” Clare said. “This represents about 13% of the world economy. It’s also struck out or suspended about 20 different clauses, so it’s a different agreement.

“I have said in the past that an agreement like this has merit. It will provide modest economic benefits for the economy, that’s what the World Bank said about the original agreement.

Of course the thing should be modeled, preferably by the Productivity Commission not some paid “yes man” consultancy. And before it is signed.

But there is one front on which the TPP is a good idea and it is this:

A former economic adviser to Japanese Prime Minister Shinzo Abe has questioned a key plank of Australia’s new strategy to manage China’s rise, saying the communist nation is “unstoppable”.

The comments came amid ­serious tension between Japan and China in the East China Sea after Beijing sent a frigate and submarine into disputed waters and after Mr Abe and Malcolm Turnbull agreed to enhance defence co-operation in Tokyo last week.

Mr Abe this week pledged to pursue a more robust defence strategy and a former senior diplomat and close friend to Mr Abe, Kuni Miyake, told The Australian Japan was looking to Australia as it believed its alliance with the US was “not enough” to halt China’s increasing maritime aggression.

Kotaro Tamura, a former parliamentary secretary in charge of economic and fiscal policy in Japan’s cabinet office, said even if Japan strengthened its alliance with Australia, the US and India through the Quadrilateral Security Dialogue, it would not be enough to stop China taking control in Asia.

Bilateral trade agreements are usually more trappings of strategic allegiance than they are any real trade liberalisation and this one is no different, explicitly excluding China.

To wit, from Greg Sheridan today:

India believes the revived four-way security dialogue with Australia, Japan and the US is a necessary part of managing an increasingly belligerent China, the former secretary of the Ministry of External Affairs has declared.

Anil Wadhwa, secretary of the ministry until the middle of last year, revealed that New Delhi was initially sceptical of reconvening the quadrilateral security dialogue because of the Rudd government’s decision 10 years ago to abandon the grouping as a direct result of Chinese pressure.

“The Quad was always seen by the Chinese as other countries ganging up on them,” Mr Wadhwa told The Australian. “The Chinese know they’re going to be discussed in a Quad. They don’t like other countries getting together. They follow the same strategy in ASEAN. They prefer to deal with countries individually and no country can stand up to them alone.”

Mr Wadhwa expressed concern over China’s strategic behaviour, echoing sentiments expressed in Australia’s foreign policy white paper.

“We tried to manage China but you know a belligerent China is not easy to deal with,” he said. “Across the last few years we’ve certainly seen a rise in China’s belligerence.”

Mr Wadhwa made it clear the reborn quadrilateral grouping would spend a lot of its time focused on China.

He said that, in recent years, China had behaved much more aggressively along its unresolved land border with India, making incursions into its neighbour’s territory at will.

“Among the Quad nations, we are the only one with a long, disputed land border with China,” he said. “Our own Foreign Ministry has tried to manage this issue quietly. But India has started building its own much stronger border defences.”

Mr Wadhwa said that as long as the border remained in dispute, “we’ll have these issues”.

“We hope there’s not a major flare-up,” he said.

He said the Chinese were also behaving aggressively in the Indian Ocean and around India’s periphery.

Mr Wadhwa revealed the intense negotiation that was needed to persuade India to re-embrace the quadrilateral dialogue because of doubts about Australia’s reliability.

The Rudd government decision to abandon the Quad because of Beijing’s opposition still rankles deeply with the Indian strategic community.

The Quad is still at best a vague notion, just as is the watered down TPP. But along with Australia’s new foreign donations and influence legislation they are an encouraging sign that Canberra has at last gotten the message that Australia’s national interest challenge in the years ahead is balancing China. Much more needs to be done yet:

  • codes of conduct for universities and caps on foreign students;
  • banning and policing foreign buyers in realty;
  • a full blown Federal ICAC, and
  • big immigration cuts.

Labor appears hostile to pretty much all of it though at least Penny Wong made some sense yesterday:

China’s Belt and Road Initiative is a “game-changer”, she says, describing it as “an expression of strategic power, linking a new community of nations as both contributors to and beneficiaries of China’s remarkable growth”.

BRI is a “fundamental change in the way that strategic business is done”, Wong says, and she questions whether it could achieve its “long-term economic and political realignment” in a way that “ensures that it is beneficial and constructive, and that it enhances prosperity, stability and security”.

“This is a tricky question, given how little any of us really knows about the BRI, its
detailed purposes and its operating rules.”

Wong says China and the US will continue to “be both rule makers and rule takers” in the international order.

Citing the South China Sea dispute, Wong says it is not reasonable for nations “dissatisfied with the current order to change the rules unilaterally, to impose their will rather than reach a negotiated position that meets the needs of all parties”.

She suggests Asean should “put more energy and imagination into addressing the economic and security issues” and use a neutral forum to engage China, Japan, Russia and the US, including through the Asean regional forum and the East Asia Summit.

OBOR is over-egged but the spirit is right.

Comments

    • Thanks for posting that.
      A big question in my mind is whether China going to sink its own ship through its overaggressive belligerence towards the rest of the world? The seizure of the Gui Minhai and what it means for its relationship with Sweden is a perfect illustration of this. The over the top united front tactics we have seen here are another. They are shooting themselves in the foot.

    • The plethora of machines means more manufacturing in places other than China. The new world will not be as influenced by military strength either which means China will not need to be told when to jump by the US. Debt will dictate China and US actions going forward – both will suffer. OBOR will open up new trade opportunities through central Asia and Africa. If Australia is petulant enough to speak of ‘limiting the rise of China’ it should be given a quick kick up the arse.

      • “The new world will not be as influenced by military strength either”
        This is not really likely to be true. The US and china are far more likely to end up in a war that the US and USSR ever were. The iron curtain meant vey limited interaction however the US and china are intimately linked.

    • Isn’t this just another Anglo that’s saying China is over because it’s not Anglo? Well no sh-t, China isn’t another Anglo puppet like Japan or South Korea, get over it. You can see the Anglo arrogance in the guy’s first book: Rising China and Asian Democratization. Lol democratization, what he meant was Anglonisation. Sorry, the days of Anglo dominance is coming to an end. Cherry picking facts so you can pretend that everything will be back to the way it was in the 60s is not going to change reality.

      HnH agrees with it of course as it totally panders to his Anglo centric US good everything else bad zero-sum game world view.

      • @Joe – the demographics for China are not pretty. At some point that will start to hurt their economic prospects. Japan was about 4 tims richer than China is currently when their demographics were at the begining of their steeping down trend.

        China’s beligerance and poor treatment of smaller nations in the region has sparked an arms race. More and more of Asian GDP spent on unproductive weapons is not the way to a prosperous future.

  1. OBOR = BRI (?)

    Jim, thanks for posting that link. It seems to me that the chap is suggesting that China plateauing is a sustainable thing. If China did plateau now large regions of it would in effect be caught in a middle income trap. Mr Lynch talks of China facing multiethnic tensions, although I’m not sure what that means as China is about 90% Han, and the likes of the Tibetans and Uighurs have neither the numbers, influence or strength to be other than a nuisance. What I think would make a plateau unsustainable would be regional tensions, as whilst tens of millions in the big coastal cities would be living in first world conditions hundreds of millions in the interior would still be stuck in second or third world conditions.

    I read a paper back in the 90’s that tossed up whether the Deng-era communists would be judged on absolute or relative poverty levels. Still an unanswered question for me. Clearly the communists have lifted its populace out of absolute poverty but I tend to think that people from the inland provinces will not put up with having less affluent lives than those in the coastal provinces so eventually the Communists will be judged on relative poverty (to use the current term and metric: inequility.and the gini index).

    • Yes Triage, OBOR=BRI, which seems to be the preferred name at the moment.

      Regarding future development of the interior/rural areas, Scott Rozelle of Stanford has done some outstandingly detailed and deep research on where this all might be going. If you have interest, and time (obviously this is one of my pet interests) watch this. It details a hitherto unknown lack of investment in human capital in China, I would say to a shocking degree.

      https://www.youtube.com/watch?v=UdjHqxCyEa8

      It’s going to be a hot weekend, so 90 minutes inside in the air-conditioning and some subsequent pondering on the implications of what he’s found will be time well spent. There plenty of other examples of his work online.

  2. The one part of the agreement relating to the temporary entry for business people is rather limited in scope and does not have the potential to impact on low-skilled or struggling categories of Australian workers. In fact, it only commits Australia to providing temporary entry (from three months, up to two years) of only five generic categories of CPTPP workers. These include occupations like installers and servicers, intra-corporate transferees, independent executives, and contractual service suppliers.

    That is not limited in scope. It is an open door and will preclude labor market testing. “intra-corporate transferees/contractual service suppliers” = workforces being flown in while Australians can’t get a job.

    • adelaide_economist

      Yep. If Ciobo is gushing about something you can safely guess that he’s pushed something through of significant benefit to the Lib corporate sponsors otherwise they wouldn’t bother.

      It’s a TPP lite but that doesn’t mean it’s not loaded with toxic potential. It’s just temporarily (as I read it, pending possible future US entry) shorn of the most toxic parts.

    • The Investor-State Dispute Settlement (ISDS) is a major deal too. Means foreign corporations are free to sue the Commonwealth if they feel they have a grievance — that’s right, sue the Strayan tax-payer if they feel they’re not getting a fair go. FFS, I’ve never heard anything so ridiculous in my life. I’m only glad the Yanks aren’t in this as their companies would spend most of their time bullying everyone in partner countries until they got their way. Those fackers know how to use the legal system as a cudgel.

  3. Penny Wong should be careful with the Chinese Kool-Aid.
    So far OBOR/BRI appears to be for domestic political purpose, ie CPC addressing risks of social unrest among their poor.
    A most recent insight is from FT
    https://www.ft.com/content/76b1be0c-0113-11e8-9650-9c0ad2d7c5b5
    Chinese contractors grab lion’s share of Silk Road projects
    “Of the contractors working on China-funded transport infrastructure projects in 34 Asian and
    European countries, 89 per cent were Chinese, leaving 11 per cent from elsewhere, according to the
    study by the Center for Strategic and International Studies, a Washington-based think-tank.
    The discrepancy challenges the rhetoric that Beijing has used to promote its “Belt and Road
    Initiative” (BRI), a signature policy of Xi Jinping, China’s leader, which seeks to build
    infrastructure to win friends in some 70 countries.
    In his speech to the 19th party congress late last year, Mr Xi promised that China’s engagement
    with the world would be open and inclusive to create a “shared community”.”
    …..
    “But the CSIS study shows the gulf between rhetoric and reality, said Jonathan Hillman, director of
    the Reconnecting Asia Project at CSIS. “Despite official rhetoric about the Belt and Road being
    open, it is first and foremost a China-centric effort,” Mr Hillman said”

    • China is always about benefits for China. Barbarians exist to pay tribute to the emperor. OBOR will be a means to achieve this. OBOR will rebuild the tributary system.

      The win win shared community thing is just rubbish to fool the dumb foreigners

      It is also a useful means for exporting overcapacity.

  4. Again…

    “When Liu He takes to the lectern in Davos on Wednesday, the Harvard-educated technocrat will move further into the spotlight that’s been aimed at him since his elevation to China’s top political body last year.

    A key adviser to President Xi Jinping, Liu is China’s representative to the World Economic Forum’s annual meeting this week. The visit — which culminates in a speech to the gathering today — is likely to be the first of many high-profile appearances by the 65-year-old Cultural Revolution survivor, who’s on track to become Xi’s key lieutenant on China’s economy and financial system.”

    “Liu is “the brain” behind supply-side reforms to cut overcapacity and boost market forces, and will be a key figure in shaping economic policy for the next five years, Shen said.”

    “Liu, who was appointed to the 25-member Politburo in October, is his natural successor as China seeks to both open up its domestic markets and rein in years of rampant borrowing.”

    https://www.bloomberg.com/news/articles/2018-01-24/china-s-man-in-davos-is-the-brain-behind-economy-s-overhaul

    Bloody hell… you have a supply side neoclassical western trained economist for the biggest market of them all and some at MB are pissing their pants, cuz…. commies, totalitarianism, anti democratic something, and every other cold war trope.

    disheveled…. you should all be singing in the aisles….. Free Markets…

  5. Let me make a prediction:
    Australia’s debt (both Public and Private)will continue to find attract buyers that logically should be running in the other direction. This favor comes at a cost, which for the moment China is willing to pay, however their willingness to fund our party probably has its limits. It’ll be game on if we ignore the hints we’re given about these limits.