Trade and Security in the Indo Pacific – Lessons from the TPP-11 and the IACEPA

October 4, 2018
Transcripts

Thank you for very much for hosting us here at CSIS. It is great to be here and with so many friends, and our Ambassador Joe Hockey and his team.

I would like to acknowledge this is part of the Banyan Tree Series focused on Southeast Asia sponsored by Pertamina. I will say more about Southeast Asia in the course of the speech but I think it is important for us all to acknowledge and offer our prayers and condolences to the people of Indonesia following the shocking earthquake and tsunami in Sulawesi. Nature throws her worst at Indonesia regularly but Indonesia knows that she always has the support of her friends, Australia and other states and neighbours as it battles to recover from the impact of this shocking natural disaster.

Now, we are living at a time when the pace and scale of change is utterly without precedent in all of human history, and nowhere more so than in the Indo Pacific.

Forty years ago, China and India, one a communist autocracy the other a reminiscently rowdy democracy, were each largely out from the global economy. China was about 5% of global GDP, India markedly less.

And yet together they represented half the world’s population. For most of recorded history, we know thanks to the works of Angus Maddison, that these two demographic giants had also represented around half of the global economy.

Their rise, and particularly that of China, has transformed, amazed and in some respects frightened the world.

But they are not alone, we have seen extraordinary recent growth throughout the region – in Vietnam, Malaysia, Indonesia as well as in the traditional tiger economies of Korea, Taiwan, Singapore. And of course Japan remains the world’s third largest national economy.

Now this long run of prosperity has only been possible because it was built on a foundation of security, guaranteed by the military strength of the United States upholding the rule of law.

I think we all recognise there is more cynicism and chauvinism about in international affairs right now, protectionism is on the rise and everyman for himself seems to be a mantra attractive to many.

Graham Allison made a reputation by writing about the ‘Thucydides Trap” based on the contention in Book 1 that the real reason for the war between Athens and Sparta was not an elaborate series of coups and events in Corcyra or Epidamnos but rather that Sparta was anxious about the rise of Athenian power.

So he argues that we need to be careful that concern about the rise of China does not cause us all to fall into that trap.

Well I think the more relevant part of Thucydides history is in fact in Book 5 where he recounts the debate between the citizens of melos, a neutral island city that wanted to remain just that, and the Athenian ambassadors who arrived having their eloquent supported by an army and told the Melians they were either “with us or against us” - sounds familiar. When the Melians protested calling fairness in aid, the Athenians did not simply remind them with a chilly cynicism that hope is danger’s comforter, but added “You know in this world justice is found only as between equals in power, as to the rest the strong do as they will and the weak suffer as they must.”

The implications of this ancient dose of realpolitik is precisely what the rule of law is designed to prevent – might should not be right, the strong should not do as they will and the weak, or as Lee Kuan Yew said 50 years ago or more the little shrimp, should not be the prey of the strong.

Australia sees the continued strong presence of the United States in our region as of vital importance to us, our neighbours and the world. Steady, consistent and determined continuity is vital. This is not to say or suggest that China’s rise brings with it the inevitable consequence of coercion – but a strong and engaged America will ensure that the rule of law prevails.

Now I am sure we will cover other matters in our discussion, but today I wanted to talk about Australia’s strategy in the region during my time as Prime Minister, a strategy which I have no doubt will be continued by my successor, Mr Morrison, and in all likelihood will continue even if there is a change of Government at an election next year.

Even if President Trump had not spoken about his “America First” agenda or set up patriotism in contrast to globalism, it is obvious that in our region we need to engage more with each other, and especially through the structure of ASEAN whose centrality is vital to the continued prosperity and security of our neighbourhood.

In other words from a security point of view we need to look at our region more as a mesh of interlocking connections and associations rather than as a series of spokes connecting with each other only at the hubs of Washington and now Beijing.

So the Special ASEAN Australia Summit that I convened in Sydney in March was especially timely as it enabled us to reinforce that ASEAN centrality in our Australian approach to the region.

Just as it saw a renewed commitment to the maintenance of the rule of law and freedom of navigation and overflight so too it enabled the leaders of the ASEAN nations and ourselves to reject protectionism and reaffirm our commitment to free trade.

A counter terrorism conference was a key part of the Summit and that reflected the closer co-operation directly between Australia and our neighbours in countering and combating terrorism, especially in Indonesia and in the Philippines where their Chief of Defence described our ISR support in the battle to retake Marawi as “the game changer”

As Prime Minister I consistently rejected protectionism - saying that far from being a ladder to get us out of the low growth trap it was a shovel to dig it much deeper, but that seemed a fairly optimistic point of view following the election of President Trump, the Brexit vote in the UK and what seemed to be a global trend of populist nationalism, nativism and the protectionism that comes with it.

So the mood at the 2016 APEC in Lima Peru was pretty downbeat. It was President Obama’s last APEC, Donald Trump was President-elect and he had made an unequivocal pledge not to go ahead with the TPP. When the signatories to the TPP met, prospects seemed grim.

However John Key, then NZ PM, and I thought we should at least try to beat up some interest in continuing with the TPP. When people said we were flogging a dead horse, we reflected on that - we are after all both of us dedicated animal lovers - but we concluded that if the horse was dead it wouldn't mind the flogging.

In January of the following year, when Shinzo Abe visited Australia I was able to persuade him in the course of the visit that a TPP-11 was worth continuing with. Yes, the biggest economy was out, but a TPP-11 still represented nearly 14% of global GDP and over 15% of global trade volumes.

And by keeping the deal alive, if we could, we would create an option for the United States and other countries to join the TPP in the future. Had we allowed it to fall by the wayside, as the vast majority of people expected it would, it would be dead forever and any new trade deal with those parties would have to be negotiated from scratch.

So we resolved to continue and as you know the TPP-11 or, as it was renamed at Canada’s request, the Comprehensive and Progressive Trans Pacific Partnership, was signed in March in Santiago and is now in the course of being ratified. It implements the original TPP with a relatively small number of suspended provisions.

From our point of view in Australia, the TPP-11 results in 18 new free trade agreements including with Canada and Mexico, considerably enhanced access to the Japanese market especially for beef and dairy, much to the chagrin of American ranchers, as well as providing greater access for Australian services.

The TPP-11 was the consequence of determined and principled Australian advocacy for the value of free trade and open markets. We were not distracted by the rising tide of protectionism, nor were we discouraged by the doom sayers - including I should note my opponent Mr Shorten who said that my persistence was evidence that I was suffering from delusions in engaging in a vanity project!

ASEAN’S largest member is of course Indonesia, the world’s fourth largest country by population and our close neighbour. During my time as prime minister, I became good friends with President Joko Widodo - as indeed Lucy and I became good friends with Jokowi and Ibu Iriana. We got on very well.  It was a very very important relationship. And it enabled our co-operation to reach new heights as we built greater confidence between our two nations.

This co-operation spanned every sector from security and counter terrorism to the digital economy and of course the disaster relief and rescue I referred to at the outset as we are seeing following the tragic events in Sulawesi.

But we needed to do more on trade. There was no question that our trade and investment relationship was very, very underdone. The protectionist traditions of course in Indonesia were of long standing, as we were discussing earlier, and there were many vested interests opposed to, or I suppose you you could say more benignly at least very sceptical of, opening markets and reducing regulation.

But in 2016, following meetings with Jokowi in Indonesia in 2015, I revived the long dormant negotiations for a free trade agreement with Indonesia. At several crucial moments, including at the ASEAN Special Summit in Sydney, Jokowi gave his personal imprimatur to an ambitious deal and his personal intervention always strongly supported by Vice President Kalla made the difference.

And so we now have the Indonesia Australia Comprehensive Economic Partnership Agreement, IA-CEPA, and of course it will complement another initiative that Jokowi and I set in train, a new Comprehensive Strategic Partnership.

The IA-CEPA ensures that over 99% of Australian goods exported by value will enter Indonesia duty free or under significantly improved preferential arrangements. As part of the deal Indonesia guarantees automatic issue of import permits for key products - live cattle, frozen beef, sheep meat, feed grains, rolled steel coil, citrus, carrots, potatoes; a very long list.

And of course it removes tariffs on Indonesian exports to Australia. It is a very good two-way deal. It is reciprocal, it is fair and reciprocal to use a popular phrase that I have encouraged.

Perhaps even more importantly, it directly addresses non tariff measures and it establishes a permanent ongoing mechanism to identify and eliminate them over time.

Like the TPP, it provides greater certainty of access for Australian investment in Indonesia - Indonesia I should note is not part of the TPP-11 but again Jokowi has expressed an ambition to join - and it offers the ability to establish majority, if not 100%, Australian owned businesses in all of the key services sectors.

It is widely welcomed and acknowledged by industry, as the President of the Australia Indonesia Business Council said at the time “the agreement promises to kick start a new era of trade and investment between our countries.” And I believe that optimism is justified.

I also proposed to President Jokowi that we elevate our Strategic Partnership to a Comprehensive Strategic Partnership and we presented a draft agreement to them in April this year and that has now been settled. Indonesia’s agreement to commit to a Comprehensive Strategic Partnership with Australia is very significant as they have Comprehensive Strategic Partnerships currently only with China and India. So you can see the significance of that. The signal that that sends about the importance and the value of the bilateral relationship.

The Comprehensive Strategic Partnership commits to strengthen our partnership in five priority areas - 1) economic and development partnership; 2) connecting people; 3) securing our region’s shared interests; 4) maritime cooperation; and 5) contributing to regional security and prosperity.

That fifth element is significant because we will cooperate in order to strengthen the security and prosperity of the Indo-Pacific. It sends a very clear signal to the region of our vision for the Indo-Pacific - an open, stable, prosperous, rules-based region.

Indonesia is vital to that vision - its large population, strategic weight, it’s the natural leader of ASEAN, it has an ambitious and popular leader, a powerful democracy - did you know 150 million people exercised their right to vote in 170 regional elections earlier this year - and of course Indonesia is now stepping up to exercise more global influence. I’ve been a very, very strong encourager of Indonesia and President Jokowi to do that. Indonesia is taking up UN Security Council membership in 2019-20.

If I may just conclude my remarks before we go into discussion to say something about President Jokowi.  He is one of the most remarkable leaders of our times. He is charismatic, he is democratically elected, he is the leader of the largest muslim majority nation in the world, which is destined to be the world’s fifth largest economy by 2030 - so everyone estimates and demography after all is destiny - and the Indonesia-Australia free trade agreement will assist Indonesia in that economic growth to fulfil its economic destiny.

But consider this, in a time of increasing global tension, in a time of rising intolerance, here is this man Joko Widodo. Democratically elected, charismatic, popular, and he stands as an advocate just as his nation stands as proof that Islam, moderation and democracy are compatible. So for every reason, I have always encouraged President Jokowi to make the strongest possible contribution to global affairs because he stands for and embodies so many of the values that are critical for our future prosperity and security.   

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