A new test of the commitment of the major political parties to globalisation will be applied in the early weeks of the new parliamentary year: whether or not they will ratify the Trans-Pacific Partnership (TPP) that President Trump will block from entering into force. This is gesture politics at its worst. Prioritising parliamentary debate about a trade deal that the United States refuses to ratify can create the unwanted impression that the Turnbull government has nothing better to do. Yet the US Administration's abandonment of the TPP raises a genuine policy issue for the Australian parliament – where to next for trade liberalisation?
Before answering that profoundly important question, let's dispense first with the gesture politics. Late last year, the Joint Standing Committee on Treaties supported the TPP and recommended that the Australian government take binding treaty action. The Greens dissented but Labor, having expressed concerns – including about the right given to multinational corporations to sue Australian governments – agreed that the government should proceed with ratification. In doing so, Labor members also pointed out that Trump's unequivocal position meant the agreement was "dead". Labor would have preferred that a final decision on entering into a treaty be delayed until the early months of 2017 when a separate Senate inquiry is due to report.
It is the government of the day that ratifies trade agreements and other treaties – not the Australian parliament. If a trade agreement requires the amendment of some existing legislation, then that is a matter for the parliament. It turns out that the TPP requires amendments to tariff schedules and one other piece of legislation. Since Australia's tariff rates are already at or between zero and 5 per cent – mainly the result of Hawke-Keating tariff cuts – the required amendments to the tariff schedule are minor. Labor has not indicated it will block the enabling tariff legislation.
Now to the substantive issue of the future of trade liberalisation. In his inauguration speech, President Trump embraced economic isolationism. "Protection will lead to great prosperity and strength," he promised. Trump's decision to scrap the TPP and his threats to rebuild tariff walls could signal the official end of the American century and the incontestability of the Asian century. While Trump lauds protectionism, China's President Xi Jinping has told business leaders at the World Economic Forum in Davos, Switzerland, that China will take over the role of global leader in trade liberalisation. How ironic: free-enterprise America pursuing isolationism while communist China leads on globalisation.
Australia need not sit on the sidelines and watch America turn inwards. Instead, it could develop processes for negotiating a vast, new regional trade pact. We already have a regional trade agreement with the 10 Association of Southeast Asian Nations (ASEAN) and New Zealand. We also have additional, direct agreements with three of the ASEAN countries – Singapore, Thailand and Malaysia – and are negotiating a deal with Indonesia.
On the other side of the Pacific, four countries – Mexico, Colombia, Peru and Chile – have formed the Pacific Alliance, an agreement that eliminates all tariffs by 2020 and is designed to orient those economies towards Asia.
When I was Trade Minister, I raised with Pacific Alliance members my idea to integrate the Pacific Alliance Agreement with the ASEAN-Australia-New Zealand Free Trade Agreement. They were enthusiastic. Of the 16 members of such a combined grouping, 12 are members of the Asia Pacific Economic Cooperation (APEC) forum. My proposed Trans-Pacific Free Trade Area could form the springboard for APEC's aspiration for a Free Trade Area of the Asia-Pacific.
The ASEAN countries have good credentials in trade liberalisation. They conceived the idea of a Regional Comprehensive Economic Partnership (RCEP) involving them plus Australia, New Zealand, China, Korea, Japan and India. Launched in 2012, RCEP is about to enter into its 17th round of negotiations.
With the Trump Administration's decision to junk the TPP, China will have every incentive to fire up the negotiations for RCEP. While this is happening, Australia could take the lead in swinging South America's Pacific Alliance members into the ASEAN-Australia-New Zealand agreement, which could coalesce with the RCEP grouping and ultimately lead to a Free Trade Area of the Asia-Pacific. By then, the United States might have learned the folly of economic isolationism and re-joined the global economic community.