By Distinguished Fellow, Peter Varghese AO
How far should geopolitical calculation drive trade agreements? It’s the question raised in whom to support and whom to stall for admission to the 12 nation, adjective laden Comprehensive and Progressive Trans-Pacific Partnership, or CPTPP. And it’s the type of dilemma that will be increasingly familiar in the years ahead.
The era of global multilateralism is sadly over. What has not disappeared is the reality that we still face challenges which require collective action such as nuclear non-proliferation, climate change, and pandemics. We cannot wish them away or shrug our shoulders and say nothing can be done. Australia has a proud history of multilateral activism, and the re-elected Albanese government needs to ask itself: how can we patch up multilateralism as we head into a world of sharper bipolar competition? A good start would be to understand the changed terrain.
Neither China nor any other state can easily assume the role the United States did over the last 80 years as the architect of global multilateralism. China may see an opportunity to rally the world against the Trump administration’s assault on the multilateral order, but it is unlikely to succeed. Not even the so-called Global South of developing countries are willing to accept China as its natural leader. The Global South will no doubt grow in significance but there are many contenders to lead it so a loose form of collective management is more likely.
China is getting better at playing the multilateral game, but its credentials are hardly stellar, and its preference is still to exert bilateral pressure to achieve its objectives. That is a feature of all great powers, including the United States at the peak of its multilateral leadership. Australia knows from the trade punishment China imposed on us that it is a selective champion of multilateral rules.
A shift to more regional, less global, outlook looks likely. But our region, the Indo-Pacific, is the most prone to US-China rivalry so progress will be slow. Institutions such as the East Asia Summit, APEC and the ASEAN plus dialogues are effectively stalled.
Regional trade arrangements may however offer one path to keeping the flickering flame of trade multilateralism alive. Both the CPTPP and the 15 country Regional Comprehensive Economic Partnership (RCEP) hold out the promise of expanded membership. CPTPP is a gold plated trade agreement in terms of the standards that it sets. Importantly, it is also open to countries outside the region. The United Kingdom, for example, is a member. So this is a mechanism for pushing out the boundaries of trade liberalisation, using a regional platform to slowly rebuild a broader constituency of support beyond the latticework of arrangements in the Indo-Pacific. A structure which falls short of global but is more than regional, extending into Europe.
The objective should be to build a network of countries which reaffirm and indeed expand their commitments to trade and investment liberalisation at a time when the advocacy of open economies has become politically toxic. It will not be easy to find a replacement for the Washington Consensus which shaped economic reforms until the global financial crisis of 2008, but replace it we must if we are not all to become poorer. Today we are trapped by the appeal of concepts such as self reliance and supply chain security which are politically compelling but economically stunted.
If we want to build on and expand the trade liberalisation momentum created by CPTPP and RCEP we must not weigh them down with a geopolitical veto. The origin story of the CPTPP was a geopolitical play by the Obama administration, which saw the original Trans-Pacific Partnership (TPP), the precursor to CPTPP, as the means of ensuring that trade rules were not written in Beijing. The US subsequently walked away from the TPP but not from its geopolitics.
To break this impasse, the sole criterion we should apply to CPTPP membership is whether an applicant is capable of complying with the standards and provisions of the agreement as it negotiates its consensus entry. Ideally, we would like to see the United States, China and India all part of one or the other of these agreements. If we allow geopolitical considerations to determine membership, we will end up with both weaker trade arrangements and few geopolitical returns. Australia should bear this in mind as it considers both China’s and Taiwan’s applications to join the CPTPP, even if neither’s entry would add significantly to what we currently have with each of them.
Trade liberalisation, for all its challenges and compromises, serves the collective good. It is not zero sum. It can lift all boats. It is not immune from geopolitics but nor should it be held hostage to geopolitics. We live in an interconnected world but that does not mean we should deliberately weigh down trade arrangements with geopolitical and security baggage. That is one reason why if Australia does go down the path of negotiating a security agreement with the European Union it would be quite separate to any trade agreement.
Today, advocates of trade liberalisation stand accused that the approach never delivered the political openness that was promised. But Australia never believed that trading with China would convert it into a Jeffersonian democracy. We did, however, believe that it could lift the living standards of both countries, and while it did nothing to expand political space in China it did expand personal space. Yes, a richer China is a more powerful China, and that is why constructing a balancing and constraining equilibrium is so important. The objective should not be to keep the Chinese people poor but rather to work with like minded partners to manage the consequences of a more prosperous and powerful China.
This article was originally published in The Interpreter for the Lowy Institute.