As Damien O’Connor sits down with his Indo-Pacific counterparts to share New Zealand’s views on a US-led economic framework for the region, a sense of American intentions is developing – for better and for worse
Analysis: Onto his sixth international trip of 2022, Trade and Export Growth Minister Damien O’Connor has wisely kept his social media posts from Los Angeles to photos of meetings with trade and business representatives rather than any envy-inducing shots of Venice Beach.
But while the sunny climes of California will be preferable to dreary Wellington, there is certainly serious work to be done in the United States.
O’Connor will on Friday (NZT) sit down for the first formal ministerial meeting of the Indo-Pacific Economic Framework (IPEF), a Washington-led economic initiative based around four ‘pillars’ of fair and resilient trade; supply chain resilience; infrastructure, clean energy, and decarbonisation; and tax and anti-corruption.
Prime Minister Jacinda Ardern attended a meeting of IPEF leaders on the eve of her May trip to the United States, having earlier offered praise for the framework’s focus on digital trade.
“It is important for New Zealand to be part of any conversation where future rules for digital trade are on the table. We have always been challenged by our distance from major markets and our small scale. Digital offers opportunities to shrink those disadvantages.”
The solidity of supply chains are an area where Aotearoa also has a strong interest given its geographical remoteness, and it is in that space where the first tangible outcomes look set to be announced.
Nikkei Asia has reported the countries are set to reach agreement on the creation of a new system to find alternative sources of materials when supply chains are disrupted, as well as improved information-sharing processes.
Covid-19 has exposed the fragility of the world’s freight networks, while some fear US-China tensions will spill over into the ‘decoupling’ of supply chains for sensitive goods.
For particularly critical items, such as semiconductors and the rare earths used to manufacture them, Nikkei reported stockpiles could be created for IPEF countries to access in the event of disruptions like pandemics - or military conflict.
“This sounds less like a fun party and a lot more like serious work with potentially limited rewards. It’s not clear what guests can do after the IPEF pillar activities are concluded that is not possible now." – Dr Deborah Elms, Asia Trade Centre
Notable by its absence is any commitment to tariff reductions or improved market access, a long-established weakness of the American approach to the Indo-Pacific region.
At an event hosted by the Carnegie Endowment for International Peace this week, US Trade Representative Katherine Tai framed the initiative going “beyond a traditional trade agreement” as a positive rather than a negative.
“We very much believe that the components of the trade pillar are rewarding in and of themselves as we accomplish rules and standards setting in this grouping with our partners,” Tai said.
Others are less confident: writing about the framework in May, Asia Trade Centre executive director Dr Deborah Elms suggested the US had “managed the diplomatic equivalent of holding a rather important party – announced months in advance – that almost no one wanted to attend”.
“The description of these events is so brief and so bland that almost any sort of outcome could be imagined. There is no way to tell how involved any guest will have to be at any given time,” Elms said.
“This sounds less like a fun party and a lot more like serious work with potentially limited rewards. It’s not clear what guests can do after the IPEF pillar activities are concluded that is not possible now.”
That sense of displeasure is evident in New Zealanders’ views on the framework, as seen in a summary of the public submissions to the Ministry of Foreign Affairs and Trade.
While submitters “all recognised the strategic importance” of the initiative, the ministry said a key theme was “disappointment in the absence of market access”, coupled with a desire for the US to come back to the table on the CPTT trade deal.
“A few submissions characterised the IPEF as a stepping stone towards the US joining CPTPP, not as a substitute.”
Geopolitics at play in Indo-Pacific deals
Such thinking appears fanciful, however, given ambivalence about free trade in Washington has not disappeared with the end of Donald Trump’s presidency.
While Republicans in particular have become far more sceptical about trade, Democratic senators Elizabeth Warren and Bob Casey wrote to Tai in April stating IPEF had to be worker-centred and could not “return the US to old, failed trade policies like the Trans-Pacific Partnership [as the CPTPP was formerly known]”.
By contrast, China is forging ahead with its own bid to join the CPTPP, a move that would have little direct benefit for New Zealand given the pre-existing bilateral trade deal but will help Beijing’s claims to being the ‘real’ regional leader.
The CCP-run Global Times has already taken a shot at IPEF ahead of the discussions, describing it as “a Washington-created geopolitical tool to contain China” and noting the lack of any market access incentives.
Exactly what final form the US-led framework takes, and how many more nations come onboard, remains to be seen with Tai likening this week’s meeting to the start of a race.
Even though New Zealand is unlikely to get everything it wants from the deal, the calculation appears to be that the benefits of being inside the tent outweigh what few negatives may come.
