The US-China trade war has triggered the start of a decoupling process between the two rival superpowers that is spreading to countries aligned with them. Reputable middle powers such as Australia must resist, and instead work on new approaches to liberalising regional and global trade.
In its Annual World Trade Report released last week, the World Trade Organization (WTO)
found that trade flows within rival blocs are growing faster than those between them.
Just over a week ago, I was in Beijing co-chairing the resumed Australia-China High Level Dialogue, as well as meeting with China’s foreign minister, Wang Yi, for more than an hour.
My overall impression was that the Chinese authorities were reaching out to Australia, welcoming the warming in relations, and looking to improve them further.
China has removed trade restrictions on Australian timber, coal and barley. We made the case for removing the tariffs on wine as well, following trade minister Don Farrell’s representations to his counterpart on his recent visit to China.
Chinese tourism to Australia has now resumed strongly and our universities are hosting many thousands of Chinese students again.
But the global rules-based trading system is in its worst shape since its inception in 1948. For the most part, the Trump tariffs, which were illegal under the rules of the WTO, remain in place under the Biden Administration.
Many provisions in the US Inflation Reduction Act also violate the WTO rules.
And the US continues to veto appointments to the WTO’s Appellate Body, effectively preventing these rules from being enforced by neutering the dispute-settlement system.
Neither side of politics in the US – Democrat or Republican – is showing any interest in trade liberalisation.
The Democrats, having taken a leadership role in negotiating the Trans-Pacific Partnership (TPP) as their pivot into Asia, dropped it like a stone when Donald Trump announced he would withdraw the US from it if elected president.
Now China is seeking entry into the modified TPP, which has come into force – the TPP minus the US.
At the same time, the US, is championing its new idea, the Indo-Pacific Economic Framework (IPEF), which excludes China.
Get the picture? The US and China don’t want to be in the same regional trade grouping, each favouring the one that excludes the other.
Which takes us to the hope of the free-trade side – the Asia-Pacific Economic Cooperation forum, or APEC.
APEC includes the US and China.
In 1994, APEC set a goal of free and open trade between all member economies by 2020. This goal had been substantially achieved before the US-China trade war erupted.
And APEC’s 2012 agreement to reduce tariffs on 54 environmental goods to no more than 5 per cent has been implemented by all but one of its members.
On several occasions, leaders have gone further by declaring their support for a Free Trade Area of the Asia Pacific (FTAAP), but without specifying what that might involve.
I am chairing the taskforce for a project of APEC’s Pacific Economic Cooperation Council (PECC) that is seeking to provide more substance to the notion of an FTAAP.
The taskforce comprises representatives from Australia, Canada, Chile, New Zealand, and Thailand.
Our view is that the FTAAP should be voluntary, non-binding and non-discriminatory.
A voluntary FTAAP would be one in which APEC economies choose whether to participate.
Under a non-binding FTAAP, an APEC member that signed up to the FTAAP but was unable to meet its ambition would not be penalised.
And under the non-discriminatory provision, liberalising measures would be available to all countries, not just to APEC members.
The 2012 Environmental Goods Agreement possesses each of these three features.
But it does not include goods that have since become important in the decarbonisation process – such as hydrogen and ammonia, lithium batteries and hydrogen-fuel-cell vehicles.
The existing list could be updated to include such goods.
Not all APEC members are interested in expanding the list, including the US, its early champion.
More generally, my proposal, in these difficult circumstances, is for APEC economies to agree to pursue specific measures to liberalise trade and investment within our region.
As with the existing Environmental Goods Agreement, these initiatives would be voluntary, non-binding and non-discriminatory.
This proposal is consistent with the agreement APEC leaders reached in 2001 to create so-called Pathfinder Initiatives.
A sub-grouping of APEC members would start an initiative and, once a pathway forward was found, would leave it open for others to join.
In effect, these would be open plurilateral agreements, which are provided for within WTO rules.
Moving towards a free-trade area of the Asia-Pacific through a series of Pathfinder Initiatives is an inclusive approach that pushes back against the creation of rival trading blocs.
Craig Emerson is director of the APEC Study Centre at RMIT University. He was Australia’s trade minister from 2010 to 2013 and was the architect of the Gillard government’s white paper on Australia in the Asian Century.