Trans-Pacific Partnership

The Aussie-UK Free Trade Agreement

Tridivesh Singh Maini Current Events , , , , , , , ,

Introduction

Australia and the UK signed a Free Trade Agreement (FTA) on December 17, 2021 (an in principle agreement had been announced in June 2021). This FTA will drastically reduce tariffs on a number of Australian exports to the UK and reduce duties on a number of British commodities to Australia. Significantly, it will also make it easier for both Australian and British workers to work in each other’s countries under the working holiday scheme (WHS).

According to estimates of the British government, the FTA could increase trade between the United Kingdom and Australia by approximately $19 billion “in the long run” while the UK’s GDP may increase by about $4.2 billion by 2035.

There are some important provisions which could benefit workers from both countries. Firstly, in an important step, both countries have increased the working holiday visa’s eligible age to 35. What is especially significant is that there is no pre-requisite for applicants under this category to be employed in any “specific work.” Second, Australia will permit up to 1,000 workers to come from the UK in the first year of a new “skills exchange” trial.

Symbolic importance of the FTA

In a post-pandemic world, society is becoming even more insular and borders are becoming more stringent, so encouraging professionals and workers is important. In June 2021, UK Prime Minister Boris Johnson had said:

We’re opening up to each other and this is the prelude to a general campaign of opening up around the world.

The UK’s Secretary of State for International Trade, Anne Marie Trevelyan, described the deal as “a landmark moment in the historic and vital relationship between our two Commonwealth nations.”

The geopolitical significance of the FTA

From the UK’s point of view the FTA is important because the UK has been seeking to become more pro-active in the Indo-Pacific. Australia has been one of the most vocal proponents of the Free and Open Indo Pacific, and is also one of the members of the Quad (the other three members are the US, Japan, and India). From an economic standpoint the FTA is agreeable because the UK is seeking to get on board the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (members of this group have a combined GDP of $13.5 trillion), and this deal will only bolster its chances. The UK has already signed trade agreements with two members of the CPTPP — Japan and Vietnam – in 2020. Interestingly the TPP (Trans Pacific Partnership), the precursor to the CPTPP, was conceived by former US President Barack Obama, but the US withdrew from the agreement during the Trump Administration (pulling the US out of the TPP was one of the first decisions taken by Donald Trump after he took over as President). The trade agreement had also been opposed by a number of Democrat leaders including Hillary Clinton and Bernie Sanders.

For Australia, this agreement is especially significant because ever since the souring of relations with China, the bilateral economic relationship has been adversely impacted. China has imposed tariffs on a number of commodities, such as wine and barley, and also restricted imports of Australian beef, coal, and grapes. Under the Australia-UK FTA, tariffs on Australian wines will be terminated immediately, and the FTA will give a boost to the sales of not just wine but a number of other commodities boycotted by China. The FTA with the UK may not be able to compensate for the economic ramifications of strained ties with China, but it could pave the way for Australia exploring similar arrangements with a number of other countries.

In conclusion, the agreement between Australia and the UK is an important development and a clear reiteration of the point that the UK has an important role to play as a stakeholder in the vision of the “Free and Open Indo Pacific.” Second, the Indo Pacific needs to have a strong economic component and FTAs between countries are important in this context. Third, countries like Australia willing to bear the economic ramifications of a deterioration in ties with China need to look at alternative markets for their commodities. Finally, while there are certain areas where only the US can provide global leadership, US allies need to chart their own course, as is evident not only from FTAs signed between many of them, but also by the success of the CPTPP without the US being on board.

What will a post-pandemic British foreign policy look like?

Tridivesh Singh Maini Current Events , , , , , , , , , , ,

Introduction

The United Kingdom’s post-corona foreign policy is likely to be driven by some crucial economic factors. On the one hand, it will continue to work closely with countries like the United States, Japan, Australia, and India to reduce its dependence upon China. On the other hand, the UK cannot totally bank on the US for achieving its economic goals, given the unpredictability of US President Donald Trump.

The UK needs to look at new Free Trade Agreements (FTA’s) and also be part of multilateral arrangements, such as the Trans Pacific Partnership, which will enable it to diversify its supply chains.

Important upcoming economic decisions

Given the changing environment of the post-corona world, London now has an eye on enhancing self-sufficiency and reducing reliance on China.

The Boris Johnson government has set up a committee — ‘Project Defend’ — which seeks to study the UK’s economic dependence with hostile countries (with a specific thrust on China), especially for sensitive imports. Based on the findings of Project Defend’s report, for example, the UK will work towards the relocation of pharmaceutical companies. While changing supply chains overnight may not be an easy task, the Boris Johnson Administration has made an important decision.

The UK’s recent decision on Huawei

The Boris Johnson Administration has also recently decided to reduce Huawei’s participation in the 5G network to zero by 2023. In January 2020, Boris Johnson had given a go ahead to Huawei’s participation in the ‘non-core’ element of the 5G network, with important restrictions, as well as a 35% market share cap. This decision drew flak from a section of Conservative Party politicians, who for long have been arguing that the UK needs to be cautious with regard to close economic ties with China, since this has serious security implications. The Trump administration had also expressed its displeasure with the Boris Johnson administration. The US President and senior officials in his administration have publicly expressed their unhappiness, saying that this decision could have an impact on security cooperation between both countries.

In the aftermath of the coronavirus pandemic, ties between the UK and China have gone downhill (senior officials of the Johnson administration have criticized China for suppressing information with regard to the outbreak of the pandemic), and Johnson’s decision was driven by two factors: 1) increasing pressure from Conservative MP’s who had threatened to vote against the government’s decision, and 2) the fact, that the UK is keen to go ahead with an FTA with the US (there have been differences between the US and UK, however, on the issue of the FTA, with the US urging the UK to make a choice between China and the US).

Apart from this, the recent US sanctions imposed on Huawei have also played a role in Johnson’s decision of reducing Huawei’s participation by 2023 (the Trump administration has made it compulsory for foreign manufacturers using U.S. chipmaking equipment to obtain a license before being able to sell chips to Huawei).

D10 network

Interestingly, the UK has also proposed that a group of 10 countries, dubbed as D10, joins hands to provide an alternative to Huawei’s 5G network and other technologies with the aim of reducing dependence upon China. The proposed grouping would consist of the US, Italy, Japan, the UK, South Korea, India, Germany, France, Canada, and Australia.

The UK has thus taken the lead in providing an alternative to the now bipolar status quo. Significantly, Trump has also stated that he is keen to expand the G7 and include not only India and South Korea but Russia as well.

UK also keen to play an important role in the TPP

While on the one hand the UK is trying to reduce its dependence upon China by joining hands with the US and like-minded countries, on the other the UK is also seeking membership within the Comprehensive and Progressive Agreement for Trans Pacific Partnership (TPP), which consists of 11 members (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam).

While the idea of the TPP was proposed by former US President Barack Obama, the first decision taken by Trump after his electoral triumph in 2016 was to withdraw from the agreement. Japan has been playing an important role in the TPP, and efforts are being made to expand its membership so that democratic dependence on China is still further reduced.

The UK faces numerous challenges and while it does need to reshape its economic relationship with China, London recognizes that this cannot be done overnight, so enhancing FTAs and joining the TPP are important steps in geopolitical context.

From a purely strategic perspective, the UK-US relationship has been important and with Johnson and Trump at the helm, and increasing convergence on attitudes vis-à-vis China, this is likely to get further strengthened (though of course there will be differences on both economic and geopolitical issues). The idea of the D10 grouping mooted by the UK has also sent a clear message that in spite of numerous economic challenges, the UK is keen to emerge as an important player, in its own right, in the post-corona world order.

Multilateralism is alive and well in the Indo-Pacific

Tridivesh Singh Maini Current Events , , , , , , , , ,

Introduction

The Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP) trade agreement, also known as CPTPP 11, consists of 11 member states (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam).

The TPP agreement was a brain child of former US President Barack Obama. The main objective of the agreement was to bolster Obama’s ‘Pivot to Asia’ vision, and it was signed in February 2016.

Significantly, one of the first decisions taken by US President Donald Trump upon his election was to withdraw from the agreement. The main reason cited by Trump for this decision was that the TPP agreement was not favourable towards US workers. During the Presidential campaign of 2016, Trump had repeatedly said that apart from leading to job losses of US workers, the agreement would undermine US independence.

In April 2018, Trump had stated that the US was willing to join the TPP if it was offered a better deal, but by then other countries which were part of the original TPP had moved on, and the CPTPP 11 came into force in the end of 2018 (after a majority of signatories, Australia, Canada, Japan, Mexico, New Zealand, and Singapore ratified the agreement).

How the agreement has enhanced trade linkages between member states

CPTPP 11 has helped in bolstering economic cooperation between a number of member states such as Japan, Canada, and Vietnam. During Shinzo Abe’s visit to Canada in 2019, Canadian PM Justin Trudeau made a mention of how the deal had enabled Canada to increase its exports threefold to Japan. Trudeau also stated that the deal had been beneficial for strengthening economic ties between Canada and Japan.

According to estimates, the agreement has also helped in bolstering trade not just between Vietnam and Japan, but also between Vietnam and Canada.

Efforts to keep supply chains intact

In the midst of the corona virus pandemic, CPTPP 11 member states like Japan, Singapore, and New Zealand have been working assiduously towards keeping supply chains intact.

Singapore has been exporting meat and medical products from New Zealand and has also been seeking to strengthen its economic ties with Japan in the midst of the pandemic. In April, several CPTPP 11 members — Singapore, Australia, New Zealand, and Brunei — issued a joint statement along with Myanmar (a non-CPTPP 11 member) on the issue of opening trade lines, including air and sea freight.

Singapore, Australia, New Zealand, and Canada, along with non-CPTPP 11 member South Korea, have also been exploring the possibility of resuming essential travel.

What is also interesting is the success of some of the CPTPP 11 member states in dealing with the coronavirus pandemic, especially Vietnam and New Zealand. As of May 16, 2020, Vietnam recorded 318 coronavirus cases and did not register a single death. The ASEAN nation began to ease the lockdown in the end of April. As of May 16, 2020, the number of coronavirus cases in New Zealand was 1149, and number of deaths was 21 (New Zealand ended a 7 week lockdown on May 14, 2020).

Efforts to rope in new members into the partnership

After the coronavirus pandemic, more countries are likely to get on board with the CPTPP 11, including the United Kingdom. In Asia, Japan is also trying to get Malaysia and Thailand on board with the CPTPP 11. The main aim of Japan, which will chair the CPTPP 11 in 2021, in getting these countries on board is reducing its dependence upon China (Tokyo imports over 20% of its intermediate goods from China). Thailand could be an important addition to the CPTPP 11 because it has been relatively successful in dealing with the pandemic as of now, and apart from its economic relevance, Thailand has been working closely with several CPTPP 11 members in their endeavor to resume essential travel.

Conclusion

The CPTPP is thus important for a number of reasons. First, it is providing an alternative narrative to China’s Belt and Road Initiative — especially in the context of the Indo-Pacific (Japan’s desire to get new countries on board is a strong reiteration of the same).

Second, the CPTPP is a clear reiteration that globalization in a post-corona world is not likely to be driven by Washington and Beijing (many members of the partnership, such as Japan, New Zealand, and Vietnam, have an important role to play).

Third, it is an interesting instance of an arrangement where not all member states have similar political systems, but are bound by common economic interests.

In the post-corona world, the relevance of the CPTPP is likely to rise, and it remains to be seen how Beijing and Washington react to this.

Biden vs. Sanders: The view from New Delhi

Tridivesh Singh Maini Current Events , , , , , , , ,

After Joe Biden’s remarkable performance on Tuesday, March 3, 2020, where he won 10 states, Wall Street surged on Wednesday. Many argue that the former Vice President, with his centrist economic views as compared to Senator Bernie Sanders, would be more acceptable not just to centrist supporters of the Democrats, as well as US corporates, but interestingly even some Republicans who are not comfortable with Trump’s economic policies. Donors of the Democratic Party are also rallying behind Biden, and Sanders is trying to use this point in his favor, saying that the ‘political establishment’ is not happy with his rise. The Vermont Senator, with his radical economic policies, has based his campaign on challenging the current status quo (where a section of the elite have disproportionate influence).

If one were to look at Biden’s key stand on foreign policy issues, his remarks on Afghanistan were criticised not just by Afghan leaders but also strategic analysts. Biden stated that US should not be concerned with ‘nation building’ in Afghanistan, but rather with countering terrorism. Reacting to his remarks, spokesman for Afghan President Ashraf Ghani stated:

Afghanistan fought and stood as a whole nation to the face of tyrants such as the Soviet Invasion, Terrorism invasion and now, it is in the front lines so that the other nations are safer. ISIS [Daesh] & the Taliban, the major terror networks and the enemies of the world are defeated here.

Former Afghan President Hamid Karzai stated that Biden’s remarks were ‘unrealistic and immature’ and sent a message that US was not really concerned about nation building in Afghanistan. Other observers of Afghanistan were also surprised by Biden’s remarks (as number 2 in the Obama Administration, he played a key role in the formation of the Unity government in 2014).

On China, Biden’s approach seems to be more nuanced than Trump’s. In May 2019, he stated that while US needed to watch its own interests, excessive paranoia vis-à-vis China was uncalled for. A month later (in June 2019) he stated that “China poses a serious challenge to us, and in some areas are a real threat.”

At the same time, like the Republicans and Democrats, Biden has opposed the entry of Huawei into the United States’ 5G network, arguing that this would be a security threat (in a presidential primary debate, Biden alluded to this point along with other candidates). Interestingly, an article in China’s main English-language daily, Global Times, argues that Biden would be a better bet for China than Bernie Sanders given that he is more predictable and has experience in dealing with China.

One issue on which Biden has drawn flak from Bernie Sanders is the Trans Pacific Partnership (TPP), a brain child of former President Barack Obama (TPP was an important component of Obama’s ‘Pivot to Asia’ policy which sought to counter China’s economic and strategic influence in the Asia-Pacific region – now referred to as Indo-Pacific).

Sanders’ approach to TPP is identical to that of Trump (whose first decision was to pull out of the TPP). Sanders had praised Trump’s decision saying that this decision was in the interest of American workers.

The Vermont Senator has argued that Biden supported the TPP, which would be damaging to American workers. While seeing the popular mood, Biden has revised his stand and stated that he would go ahead with the deal but will renegotiate it (interestingly, Trump’s 2016 opponent Hillary Clinton also turned against the TPP even though as Secretary of State she had fervently backed the deal).

When in power, the approach to crucial policy issues changes and that could be the case as far as Joe Biden is concerned. On issues like China and TPP it is highly unlikely that Biden will take a fundamentally different position from the Republican Party given the current narrative prevalent in the US. Having been an insider, it is likely though that he will follow a more cautious approach and not upset the apple cart too much.

Is Trump turning the US into the Biggest Loser?

Tridivesh Singh Maini Current Events , , , , , , ,

US President Donald Trump has been quick to change his stance on complex issues like US relations with other countries, including China. Trump has also been unpredictable in his approach towards important multilateral organizations like the North Atlantic Treaty Organization (NATO) and US ties with important allies in the Indo-Pacific, especially Japan and South Korea.

The most recent instance of Trump yet again changing his views was his statement on the Trans Pacific Partnership (TPP) during the Davos Summit, saying that the US was open to a rethink, provided the provisions were fair. While the US pulled out of the TPP agreement much to the chagrin of other signatories, eleven countries (they are, in alphabetical order, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) have agreed on signing the deal in March in Chile.

While speaking at Davos, Trump said that the US was not averse to negotiating trade deals with its TPP partners. In an interview with CNBC, on the eve of his address, the US President had said:

….we would do TPP if we were able to make a substantially better deal. The deal was terrible, the way it was structured was terrible. If we did a substantially better deal, I would be open to TPP.

The US President sensed the pitch at Davos, which was firmly in favor of globalization and a more open economic world order. During his address, while speaking of American interests, Trump made it a point to state that watching out for US interests did not imply that his administration would prefer America to become more insular. Said the US President:

America First does not mean America alone. When the United States grows, so does the world. American prosperity has created countless jobs all around the globe and the drive for excellence, creativity, and innovation in the US has led to important discoveries that help people everywhere live more prosperous and far healthier lives.

Mr Trump is not the only world leader to have won competitive elections by appealing to insularity, only to realize that economic interdependence between countries today is incredibly entrenched. For instance, Indian PM Narendra Modi, while arguing in favour of globalization, had said:

Instead of globalization, the power of protectionism is putting its head up.

Modi had gone to the extent of saying that inward looking tendencies were an important challenge, arguing that:

 …such tendencies can’t be considered lesser risk than terrorism or climate change.

Interestingly, Modi’s remarks on globalisation were welcomed by the Chinese, with the Chinese Foreign Ministry spokesman, Hua Chunying, arguing in favour of China and India working together to promote globalisation. Said Hua:

China would like to enhance coordination and cooperation with all countries including India to steer the economic globalisation towards benefiting world economic growth and well-being of all countries.

Last year in his address at the Davos Summit, Chinese President Xi Jinping had spoken in favour of globalization, saying:

Pursuing protectionism is like locking oneself in a dark room […] Wind and rain may be kept outside, but so is light and air.

While some flexibility is welcome, excessive unpredictability and Trump’s woolly approach on serious issues is confusing the outside world. A business-like approach is good to an extent, but to deal with complex geostrategic issues purely from the prism of US short-term financial interests as opposed to long term geopolitical interests is a disastrous idea.

Every country has to watch its own interests, and the US is no exception, and there is absolutely no doubt that domestic public opinion cannot be ignored. Yet if the US wants to be a leader, it cannot be as transactional as Trump. US dreams of a “Free and Open Indo-Pacific” – a key aim of the US Defense Strategy – will remain a mere dream if the US sends confusing signals to its allies in the region and is not willing to take a clear leadership role. While the Strategy identifies China as a threat, Trump’s continuous somersaults on relations with US allies are only emboldening Beijing.

While it is unfair to single out Trump for being insular he has been the mascot for inward looking protectionist economic policies and an anti-immigration sentiment. While the US President did tell the global audience at Davos that “America First does not mean America alone,” it will indeed end up alone if he does not start thinking like a US President.

Currently he is thinking purely like the head of a company, and running a business is different from running a country, which has long sought to be the flag bearer of democratic, liberal values and globalization. While Trump’s isolationism and short sightedness may cause some discomfort for other countries, and groupings like the TPP, the latter will find other alternatives as has been the case with the signatories of the TPP, and America will be the bigger loser.

Around the Web

Brandon Christensen Current Events, Links , , , , , , , , , , , , , ,

Lots of great stuff I’ve been meaning to link to lately.

A historian from Hillsdale College, Paul Moreno, has a piece in the WSJ about Congress’s power to tax.

Some sexy chick (also from the WSJ) writes about Obama’s Imperial Presidency. Again, this is in the Wall Street Journal.

A quick heads up on pieces in the Wall Street Journal. Usually, when you click on the link it says access is restricted, but if you copy and paste the title of the piece into a Google search bar then you will be able to access the entire article. Cool, huh?

Obama’s Scramble for Africa. From AntiWar.com.

An economist at Cal State Northridge has a great piece on damn lies and statistics. It’s also about the Obama administration. (h/t Steve Horwitz).

Bernard K. Gordon writes in Foreign Affairs about the necessity of the Trans-Pacific Partnership.

And in a prophetic piece (ie it was written in 1991-92) by former Secretary of State James Baker, this very good lawyer sizes up the situation in Asia. Also from Foreign Affairs.