The TPP & Australian trade policy

This is a brief follow up to yesterday's post, Trade diversion, trade creation & the Trans Pacific Partnership.

Background

In a comment, Winton Bates wrote: "Hmmm, TPP seems to be yet more political diversion rather than trade creation." Now there is a back story here that I should explain.

Winton is a former senior official with what is now Australia's Productivity Commission. We actually did our initial economics together at the University of New England.

Previous posts that I wrote on Australian trade policy and free trade agreements led to a dialogue between Winton and myself about the potential gains from such agreements. I think it fair to say that Winton is more negative than I, although both us would agree that the benefits (I would exempt Australia/New Zealand CER from this comment) have not been huge to this point.

Part of the reason for this, I think, is that I place greater weight on the longer term dynamic aspects in an imperfect world.

In an email, Trevor from the Newsy community asked:

If Japan joins the agreement, the TPP would be 40 percent larger than the EU. I was wondering if you had any thoughts on the possibility of something the TPP evolving into an EU-like organization. Right now the thought seems extremely unlikely, but many world governments are beginning to pool their resources together in light of the recession.

I hadn't heard of Newsy before, it's a multisource video analysis news site. Having heard the following report I am happy to give it a plug:

A Trans Pacific EU

I think that many Australians would shudder just at present at the idea of another EU equivalent. The EU and the problems of the euro are dominating  economic analysis in the country in terms of threats to  Australia's immediate prosperity! However, there is a broader issue as well.

Australia drove the creation of APEC. Australia then tried to use the APEC forum as a device for encouraging reduced trade barriers within APEC, but with limited success. In this sense, the TPP is a fallback from the broader Australian goal.

The Australian position generally focuses on trade, although political and foreign policy considerations do enter. There is no desire at this stage to create a political union, and that is what the EU is. Indeed, in terms of current EU troubles, it is easy to forget that the great success of the EU has been to unify a continent previously riven by large scale conflict.

The TPP and Australia's Free Trade Agreements

One of the difficulties of the single issue short termism that drives much Australian analysis at the moment is that it ignored broader patterns. To illustrate this, the following table sets out the trade agreement position with TPP countries.Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, the United States and Vietnam

TPP Country	Trade Position
Brunei	Brunei is a member of ASEAN and is covered by the ASEAN-Australia-New Zealand FTA
Chile	Australia and Chile have a free trade agreement
Malaysia	Malaysia is a member of ASEAN and is covered by the ASEAN-Australia-New Zealand FTA. Australia is trying to negotiate a direct agreement with Malaysia
New Zealand	CER covers Australia and New Zealand. New Zealand is also a member of the ASEAN-Australia-New Zealand FTA
Peru	Peru falls outside current Australian agreements
Singapore	Singapore is a member of ASEAN and is covered by the ASEAN-Australia-New Zealand FTA. Australia also has an existing FTA with Singapore
United States	Australia already has a direct FTA with the US
Vietnam	Vietnam is a member of ASEAN and is covered by the ASEAN-Australia-New Zealand FTA

If you look at the pattern here. you will see that with the exception of Peru, the TPP actually reinforces existing Australian moves.

Now look at Japan. Australia and Japan have been trying to negotiate an FTA for some time, but keep striking problems. The TPP is another way of getting to the same point.

Conclusion

As I have indicated before, Australia's relative ranking in population and economic size must decline. Australia's economic success also depends on free trade in a world where protectionist tendencies are rising, where WTO talks have stalled. The approach to FTAs is a response.

I find it interesting that across time and governments, Australia's trade policy has been remarkably consistent. Further, that policy is solidly based on the country's changing economic position.

The TPP may or may not work. If it doesn't, Australia will simply regroup, go another direction. The country really doesn't have a choice.