January 26th 2002

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Articles from this issue:

Cover Story: The magic of Middle Earth

Editorial: Argentina - from role model to basket case

Al Qaeda network must be destroyed

Policy not structure the problem for National Party

Industry policy behind Celtic Tiger's success

Straws in the Wind: Great Helmsmen: past and present / A tale of two branches

Anti-war protests leave Melbourne cold

Media: When the Left calls for time-out

Letter: Exports and imports

Letter: Alcohol abuse

Trade: APECÂ’s demise paves the way for ChinaÂ’s free trade pact

United States: Year of the Right?

Japan: a nation in search of a role

History: RooseveltÂ’s timeless wisdom

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Trade: APECÂ’s demise paves the way for ChinaÂ’s free trade pact

by Colin Teese

News Weekly, January 26, 2002

Remember APEC? This arrangement, Asia Pacific Economic Cooperation, to give its full title, was promoted as a major regional initiative by the Hawke-Keating Government in the late eighties. Ideological commitment to the notion of free trade as an end in itself tainted the project from the beginning, but it did limp on, mortally wounded, until the end of the nineties.

Australia had put itself at the forefront of the experiment, in the misguided belief that some kind of regional free trade arrangement could be fashioned, which did not deny the same benefit to those outside the region. So handicapped, it is hardly surprising that the project failed to capture the imagination of potential participants - apart from Australia, the United States and possibly Japan. Most of the Asean countries, with the notable exception of Malaysia, were, however, too polite to condemn the idea outright, but they were never going to support it.

APEC collapsed for a number of reasons, first and foremost because it was a creature of ideology devoid of common sense. The absurd belief that the arrangement could flourish while the membership not merely practised free trade as between each other, but also with a world not necessarily committed to the same end, doomed it from the start. Second, it was always assumed (by Australia at any rate) that the United States and Japan would be welcome as partners. Even Europe expressed interest in participating.

These considerations certainly found few receptive ears among the Asean countries.

As a consequence it is now safe to pronounce APEC clinically dead.

However, the same cannot, most certainly, be said for economic and trade co-operation within the region. Indeed, that seems well on the way to rebirth, in a more realistic and durable form - though one not necessarily convenient or comfortable for Australia.

Most significantly, China is in the process of negotiation of a free trade agreement with the Asean countries of South East Asia with the aim that it should become fully effective within ten years.

The detail of this agreement is not yet known to the outside world - and, possibly, for the moment, not even to the parties themselves.

Furthermore, the time scale may prove to be over-ambitious. But about one thing we can be confidently certain, it will happen, and it will not be offering any of the benefits arising from the agreement to non-participating countries.

And, note especially, that the United States and Japan, along with Australia, are notable exclusions from this potential free trade agreement, which, in all probability, will develop into the Asian trading bloc.

The fact that Australia is excluded from consideration from membership from this negotiation is, or should be, worrying to Australians. It arises from the uncomfortable fact that we are not considered part of the region, except by accident of geography. We are, along with Japan, considered to be more comfortably aligned with the United States.

No surprise

It is, of course, hardly surprising, given our sporadic commitment to the region as expressed by political leaders from time to time. And it is usually the case that on certain important issues we prefer to stand behind the United States than Asian countries. This was well demonstrated after the Asian financial crisis in the late nineties, when we opposed the Asean suggestion that an Asian Monetary Fund be created.

Even more importantly, from the Asian point of view, is the contradiction between the pattern of our trade and the direction of our political friendships.

To Asians, we appear to reserve our warmest political friendships for Japan and the United States, in particular, and to a lesser extent Europe. And, it is the more so puzzling since those are the very countries that most firmly resist, even to the extent of denying their obligations under the World Trade Organisation, our efforts to export agricultural products.

Asians just cannot understand why they, with whom we mostly enjoy trade surpluses, don’t stand in higher regard.

Apart from the looming prospect of a free trade agreement that could be the beginnings of an Asian trading bloc of which we are not part, there has been a further interesting development. This also concerns Australia, though, admittedly, to a far less extent.

It is the signing of a so-called free trade agreement between Japan and Singapore. Oddly enough this was reported in The Australian newspaper under the headline, "Trade deal excludes farmers". Why The Australian believes that Japan and Singapore would have the slightest interest in promoting the trade between them in agricultural products is beyond this writer’s comprehension.

As it turns out the agreement is not significantly concerned with the trade in manufactured goods either.

Singapore hopes for better access to the Japanese services market, currently worth trillions of dollars. For its part, Japan wants access for its companies to own real estate in Singapore and further deregulation of financial services.

On the face of it, these exchanges do not seem to be of earth-shattering importance to either country, but they illustrate, in the view of some, recognition by Japan of the overshadowing of its influence in the region by China. In that context, an agreement with any Asean country, however inconsequential as to substance, could well be seen as a step forward.

All of these developments seem to be leaving us far behind. While new relationships are being formed with strictly long term benefits in mind, Australia remains concerned, more than ever, with the pursuit of economic ideologies whose prime purpose appears to be the provision of better opportunities for other countries to trade in Australia.

In an important sense, Australia is at the crossroads. It seems now highly likely that the world will divide into three trading blocs; the Americas, Asia and Europe. Where do we - can we - fit in?

Surely not in Europe or North America, from whom we buy most and sell least. And who, furthermore, are most resistant to our efforts to sell them agricultural products.

Thus far, in as much as we have a trade policy at all, it is to pin all of our hopes in the global trade liberalisation possibilities of the World Trade Organisation. The fact that in our region, and elsewhere, others are less committed to such an all-or-bust strategy, should surely give us pause to reconsider.

China is a case in point. At the very moment of its acceptance into the World Trade Organisation, which commits it to the philosophy of freer trade, it is in negotiation with a number of countries for a more limited arrangement.

Not that any blame should attach to China for adopting such an approach. It is, after all, only following the example of the United States and Europe. If China is ever to match them in both economic and political influence, it could hardly do otherwise.

The arrangement with ASEAN is the first step in a long-range plan, and China is fortunate that it starts with an advantage not enjoyed by Australia. Because there are so many Chinese in so many of the Asean countries, China is more easily acceptable as an economic and perhaps political partner: the more so because, unlike Australia, it is seen in more distant relationship with the United States.

The challenge for Australia is to decide where our best future interests lie. In a world of trading blocs, is it possible for us to contemplate life outside the region? It seems that the region may not allow us the luxury of strengthening economic ties within Asia, while our political links appear to lie elsewhere.

The question is: are we up to the challenge? Can we set aside our ideological economic commitments in order to pursue longer-term goals?

  • Colin Teese was Deputy Secretary of the Department of Trade

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