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Trans-Pacific Partnership at the frontlines of new geo-economic contests

The decision by Japanese prime minister Shinzo Abe to enter into the Trans-Pacific Partnership negotiations enlivens the process and places Australia in the passenger seat.

Two recent events promise to breath life into the lumbering Trans-Pacific Partnership (TPP) negotiations, with significant consequences for Australia.

Earlier this month, Japanese Prime Minster Shinzo Abe’s decision to join TPP negotiations enlivened a process which at one stage looked like a slow train to nowhere.

And reports this week that Australia and Japan have made significant progress on a free trade agreement will give also momentum to the TPP.

The TPP is intended to give regulatory coherence to the “noodle bowl” of bilateral trade agreements in the region. Japan’s entrance into the TPP is a significant development: Japan is the world’s third largest economy and pivotal to the regional supply chains that have been key to the dramatic industrialisation of East Asia.

What this means for Australia is that one of its key economic and political allies in the region is now inside the TPP carriage.

Australia is now more firmly ensconced in the passenger seat as the TPP sets about developing a new regulatory framework to discipline − but not contain − China’s growing economic influence.

The TPP neatly meshes with the earlier regional regulatory projects such as the North American Free Trade Agreement (NAFTA) as well as the recently announced proposal for a trans-Atlantic partnership. US trade policy is now geared towards extending the reach of regulatory regimes via a complex mosaic of bilateral trade agreements such as those it has with Australia and Singapore. The TPP builds into these bilateral agreements.

In a simple sense, the TPP appears to be a trade strategy to contain a growing Chinese economic influence that threatens regional political order dominated and governed by the United States.

There is something to be said for this argument in the context of the so-called US Asian Pivot and the return to cold war thinking within sections of the US political and policy making elite.

Of course, China has signalled its own regional project through the auspices of the Regional Comprehensive Economic Partnership (RCEP). And Australia’s currency agreement signed during Prime Minister Julia Gillard’s recent visit to China reflects the bubbling geo-economic conflicts within the Indo-Pacific. China seeks to draw the Australian financial sector into the gradual internationalisaton of the Yuan as it attempts to challenge the regional dominance of the US dollar.

But to read geo-economics as geopolitics writ large is to misread the political strategy behind the TPP. For one, the supply chain industrialisation of the Chinese economy is so enmeshed with some of the economies involved in the TPP negotiations − including of course the US − that containment is somewhat beside the point.

It’s not a matter of excluding China, but more a question of setting up conditions under which China is willing to join the TPP.

The most revealing recent TPP development is the inclusion of competition policy and treatment of state-owned companies. These additions clearly support the argument the TPP seeks to impose a regulatory discipline over the behaviour of Chinese state-owned companies.

For example, any change in the rules over the treatment of state-owned companies will have an impact not only the Australian debate over Chinese investment in the resource industry but the broader relationship.

These conflicts have already surfaced with the attempted intervention by Chinalco in 2008 — a state-owned mining company — that sought to prevent the takeover of Rio Tinto by BHP Billiton. This was followed by the introduction of legislative amendments updating the foreign investment guidelines. While the purported intent of these guidelines are far from clear the Foreign investment Review board (FIRB) finds itself in the middle of this geoeconomic contest.

There was much contention about the impact of changes to the regulation of patents on Australia’s Pharmaceutical Benefits Scheme (PBS) under the provisions of the Australia-US Free Trade agreement. These regulatory changes under the auspices of trade policy will shape policies on public health. One should add to the list the addition of investor protection clauses in the TPP that follows the template of Chapter 11 of NAFTA on investor protection.

More broadly the impact of the regulatory disciplining of agreements such as the TPP now extends to areas that could be considered to be social policy.

For example, food security is not simply about agricultural trade liberalisation (though that is important) but covers a gamut of issues from food safety, protection and sustainability. These social policy issues are increasingly the driven by the geo-economic considerations.

Trade policy aficionados like to talk about the TPP as ‘high quality and twenty first century agreement’.

This means extending the reach of trade policy into a range of regulatory domains that shape the way markets in goods and services are managed.

Behind the bland and innocuous statements of trade policy officials lies an effort to impose a conception of regulatory order and coherence that strike at the interests of, for example, Chinese state-owned companies or sovereign wealth funds.

Another reason for the significance of these strategies is that as the Doha round stalls - ironically as the new emerging powers throw their weight around the WTO - new so-called plurilateral mechanisms - that is agreement between a set of like minded group of countries - becomes much more attractive as way of achieving trade policy objectives.

The broader point is this: trade policy now sits at the junction of regulatory regimes ranging from investor protection to environmental and food standards.

And in turn these geo-economic strategies mould new fault lines of regulatory conflict around the region between and within nations that will be as sharply contested as old-fashioned geo-politics.

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