COMMENT
TPP could change the story of a rising China and a declining America
Date July 31, 2015 - 12:00AM
John Garnaut
The Trans-Pacific Partnership has been roundly criticised, but in the face of China’s rise, it might just signal the reassertion of American power.
So, Tony Abbott is about to lock Australia into a new 12-nation club, the US-led Trans-Pacific Partnership. Rather than celebrating him as a hero, however, there are economists who believe the "unlimited potential" that the Prime Minister has been talking about will all flow to a handful of US corporations at the expense of overall trade. Worse, there are well-founded fears that Abbott's TPP will be toxic for public health.
Abbott shouldn't be surprised by this cynical reception. John Howard touted $5.6 billion in annual benefits from a bilateral deal with George W. Bush in the aftermath of the second Iraq War, but it turned out to be a dud. Not only did the US FTA siphon money from Australian taxpayers and patients to American pharmaceutical companies, it might have destroyed about $53 billion more trade than it created.
The TPP is a vastly more ambitious agreement than the US FTA. It contains about 30 chapters of complex rules, most of which have never been seen in any deal before. These rules are designed to be invasive and there is no question that the implications will be profound.
llustration: Andrew Dyson
And yet, despite all that cause for scepticism, some of the best-informed critics of the earlier deal have become bold supporters of the new one. It's worth finding out why.
"I have shifted ground on this," says Jane Drake-Brockman, a leading trade strategist and former senior diplomat. "It is extremely important and should be supported. I actually think the TPP is at the cutting edge of where protectionism is these days. So, I agree with the Americans."
The conversion of trade economists like Drake-Brockman, along with a swath of Australian business leaders, is a reflection of how much the world has changed since the US FTA came into force a decade ago. It reflects how the tariff-reduction policies that revamped the Australian economy and helped deliver 25 years of unbroken growth were so successful that tangible "goods" are no longer as important as they once were.
These days, value is about the ability to process, store and move information wherever and however is cheapest and most secure.
The digital age has transformed almost every kind of service you can think of. It's created whole new realms of value, exemplified by Facebook and AirBnB. Even old mining companies, like Rio Tinto, are using data in "the cloud" to dig pits in Mongolia, watch competitors in Brazil and co-ordinate logistics all the way to China by remote control.
The trade barriers of this new digital world are less visible and more insidious than before. It's about the way that political and industrial interests can interfere with the ways in which markets work and information is transferred.
Countries with closed political systems provide the clearest examples. Think of how Google has retreated from Chinese cyberspace, telcos have been forced to hand over sourced code and countless others have been squashed by state-backed firms or beaten by corrupt competitors.
But even mature and open democracies like South Korea have been busily locking up data at the expense of efficient investment and trade.
The 12 Pacific Rim countries that are likely to join the TPP are mostly those that already have open markets and flows of information. For them, the TPP is about setting a new template that others can hopefully sign up to.
But there is another huge dimension to the TPP which explains why the Obama administration has fought so hard to push it through a hostile Congress. Obama needs the TPP so that his "rebalancing" to Asia does not look so unbalanced.
"If we don't write the rules, China will write the rules out in that region," Barack Obama said in an interview with The Wall Street Journal. "We will be shut out."
In the words of Ely Ratner, at a Washington think tank: "The TPP is the most prominent and in some ways the most important manifestation of the US vision of an open and inclusive regional order in Asia." After that conversation, on July 13, Ratner took up a post as Vice-President Joe Biden's deputy national security adviser.
Ten years ago, after the invasion of Iraq, the American "vision" was unattractive. In Asia, at least, the US is now seen in relative terms, against the backdrop of rising China. And while the US has regained some of its powers of attraction, China has been busily rattling its sabres in the South China Sea, purging its own lawyers and waging a quixotic war to stop people from selling shares on the Chinese sharemarket. It's a long time since the Chinese political model has looked so unattractive and its economy so unstable.
None of this means that we or anybody else should swallow the whole American prescription. Australia has fought a long and apparently successful fight to exempt the Privacy Act from "data flow" requirements. And the US proposals for medicines are all about industry protectionism, dressed up as free trade, and they should never be accepted.
But taken as a whole, the TPP provides a useful start to updating the rules that are needed to underpin an open, peaceful, rules-based order that can no longer be taken for granted.
These economic imperatives explain why sceptics like Drake-Brockman have become supporters. And the geopolitical imperatives help explain why the Vietnamese Communist Party is prepared to restrain its state-owned firms; Japan's Shinzo Abe is taking on the world's most pampered rice farmers; Malaysia's prime minister could expose himself to enforceable corruption provisions; and Tony Abbott will stare down his legion of critics even though his political standing is shaky.
If Trade Minister Andrew Robb and 11 counterparts in Hawaii find they have something to announce to the media in the early hours of Saturday, Australian time, then it's not going to fit with the usual story of inexorably rising China and America's terminal decline. We could be witnessing a new inflection point: the reassertion of American power.
John Garnaut is Fairfax Media's Asia-Pacific editor.
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