The Trans Pacific Partnership (TPP) has been negotiated in secret and reported by the Australian press as the useless boogeyman in the closet threatening Australia. The media have recently focused on a report by the World Bank showing minimal net GDP gains from Australia signing the TPP but have not viewed the trade agreement in the greater context of Australian trade policy. The real strength in the agreement lies in its establishment of and reinforcing supply networks, as well has the inclusion of other negotiating parties namely Peru and Mexico. Australia's trade policy has a strong focus towards the Asia Pacific region. This region has become financially turbulent recently, Australia should be looking to diversify export markets in South America to hedge against Asian financial volatility.
Australia is focusing almost exclusively on bilateral and regional pacts within the Asia-Pacific - the EU and GCC are two exceptions, though talks with the GCC have stalled since 2013. Instability in financial markets in the Asian region are linked to weaknesses in the Chinese economy, China has recently posted GDP growth of 6.9%, the smallest in 25 years. Impacts will be felt on Australia's trade balances and growth as it attempts to move away from a resource reliant economy to a service based one.
Through the Cumulative Rules of Origin (CRO) clauses (Chapter 3 in the TPP Full Text) within the TPP make it harder for non-parties to the agreement to trade with signatories. The difficulty for non parties arises in the definition of an originating good and the level of production value added to goods using products from non-signatory states before being on-sold to a signatory state. In signing up to the agreement Australia has reduced the impact of the CRO on its export products to signatory states in which Australia does not enjoy a Free Trade Agreement (FTA). Independently Australia has been regionally prolific establishing FTAs with almost all East and South East Asian nations.
While FTAs with China and South Korea, both (non-parties to the agreement) ensure a continued beneficial relationship with our biggest export partners, Australia has also recently concluded the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) which adds; Brunei, Vietnam, Laos, Myanmar, Cambodia, Indonesia and the Philippines to the already extensive list of regional free trade partners. Australia should be looking to diversify its trade relationships outside the region, establishing new trade agreements in Central and South America and Africa.
Diversifying Australia's risk to financial regional instability is the prudent course left to take in trade policy. The strength of the TPP for Australia is in re-establishing and improving trade relations with Central and South America. New FTAs with Peru and Mexico as well as the already established relationship with Chile should be utilised to open up further markets for Australian exporters. Trade negotiations and strengthening of diplomatic ties with Guatemala, El Salvador and Panama should begin with a view to improving the market liberalisation work already undertaken by the Dominican Republic–Central America Free Trade Agreement (CAFTA-DR), improving foreign direct investment and increasing the market for Australian agriculture products. Total trade with central America totals ~A$325 million annually.
While two way trade with South America is ~A$4 billion annually. Argentina, Brazil and Columbia are Australia's biggest regional trading partners, yet only Chile enjoys a FTA with Australia. FTAs should be negotiated collectively, though individually will more likely occur with a view to removing the barriers for Agriculture goods already traded, but also broadening that base to include the services sector and foreign investment.
Further developing ties with Central and South America is the responsibility of the Council on Australia and Latin America Relations (COALAR). This public - private partnership of business peoples and government officials should be working with Tourism Australia with a view to developing the same successful high profile events promoting Australia as a business and tourism destination as 'G'day USA' in Los Angeles. Hedging our bets against regional instability to ensure our own financial stability is the next necessary step in Australia's foreign and trade policy.
Adrian Vandermey is currently an Intern at Laurie Fergusons Office and holds a Masters of International Relations from the University of New South Wales.
Image credit: Corey Templeton (Flickr: Creative Commons)