The trade wars and any consequent breakdown in the rules-based order present a real threat to continued growth, writes trade law consultant Tracey Epps.
From our distant vantage point at the southern edge of the planet, we see a very different world than we did even five years ago. We have, as Asia New Zealand Foundation CEO Simon Draper puts it, “exited a period of stability” in international relations.
The overwhelming sense of uncertainty that accompanies this is particularly acute in the field of global trade. Since 2016, we have seen the US pull out of the Trans-Pacific Partnership (TPP) Agreement, heavier use of sanctions by the US that affect commerce far beyond that country’s borders, an increasingly assertive China, rising tensions between Japan and South Korea, and an ongoing ‘trade war’ between the United States and China.
The World Trade Organisation (WTO) is in full-blown crisis with the Appellate Body facing imminent collapse due to US refusal to agree to appointment of new members, and a continued failure by member nations to modernise the framework.
All of this represents a real threat to what is known as the international ‘rules-based order’. The term ‘rules-based order’ is used in a broad sense to refer to international arrangements to allow for “cooperative efforts in addressing geopolitical, economic and other global challenges, and to arbitrate disputes”.
These include a set of enforceable rules to govern cross-border trading relationships – most notably the WTO, but also regional treaties such as the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) and the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).
The New Zealand Government and New Zealand exporters are deeply concerned that the platform that has sustained a huge increase in global trade over the last four decades may no longer be holding. For business, the implications of this new volatility in geopolitics looms large as it can have serious impacts on their activities and, ultimately, financial bottom lines.
My takeout from participating in two dialogues in Asia in September - the 12th ASEAN-Australia-New Zealand Dialogue in Kuala Lumpur and a dialogue with the ASAN Institute in Seoul - is that this unease is shared by similarly exposed countries – but, perhaps, not always with the same sense of imperative as here.
Both were “Track II dialogues” – a form of non-government diplomacy which allows more open and frank discussion than is usually associated with government to government exchanges on topics such as security, arms control and regional economic integration. Whereas government officials are often restricted to talking points, Track II participants (from think-tanks, academia, and the private sector) can dig a bit deeper and add colour to official dialogue. The process plays an important role in informing government policy-making.
In both Kuala Lumpur and Seoul, we heard concerns that echoed those held by New Zealand. For them, as for us, the threat to the WTO in particular is of utmost importance as it is critical to our and their economic prosperity.
One thing that ASEAN states and Korea have in common is that development of their economies in recent years has only been made possible through a conducive trading environment underpinned by rules that provide certainty and stability. The trade wars and any consequent breakdown in the rules-based order present a real threat to continued growth.
Small or medium states such as New Zealand have little or no political bargaining power, and in a system where ‘might makes right’, we would invariably come out the loser. The New Zealand Government is seized with a need to take action to safeguard and strengthen the system. But to be successful, we need like-minded partners to act with us and we couldn’t help but feel that the sense of urgency elsewhere in the region might not yet be quite heightened enough.
This could be seen in discussions about CPTPP. In Kuala Lumpur, we talked about the ‘miraculous resurrection’ of the TPP in the form of CPTPP. This Agreement is a critical development in holding the line on multilateralism and a rules-based order at a time when everything seems to be falling apart.
Yet not all ASEAN signatories have ratified the Agreement. We still hope to see Malaysia and Brunei come on board in the near future although, in Malaysia, other issues have taken precedence since their momentous 2018 election. Korea would be an obvious candidate for accession to CPTPP, but we heard that the current tensions with Japan are effectively taking this option off the table.
This is unfortunate in a world where the benefits of a regional agreement such as CPTPP are so much more than the sum of the market access gains.
In both Dialogues we also discussed the challenges facing negotiating partners in their efforts to conclude the Regional Comprehensive Economic Partnership (RCEP) this year. There is a clear tension between a desire to achieve a high quality agreement and the importance of concluding sooner rather than later so as to add another brick to the foundations of the international rules-based order.
Overall, the sense of impeding crisis was stronger in both Kuala Lumpur and Seoul than we have seen in previous dialogues, reflecting the increasing gravity of the situation. We consistently heard about the challenges of navigating a world dominated by two great powers instead of one. Yet ASEAN countries face a plethora of challenges and domestic issues often dominate agendas.
South Korea continues to face the ever-present threat of a belligerent, highly militarised neighbour less than 60 kilometres from Seoul. Meanwhile, regional irritants such as the tension between Korea and Japan can be exposed to political manipulation and impede action for the greater good.
New Zealand’s message was that, in the economic space, we need to pull together to ensure that the system which has worked so well for all of us survives its greatest test yet. We have plenty of common interests; we must find ways to work together to pursue them
- Asia Media Centre
Tracey Epps was a member of an Asia New Zealand Foundation-led delegation to the 12th ASEAN-Australia-New Zealand Dialogue held in Kuala Lumpur from 23-24 September and to a dialogue with the ASAN Institute in Seoul on 26 September 2019.