Australia wants it to be called Indo-Pacific, but protectionism is the real barrier to success
Broadening the scope of what constitutes the intra-Asia trade has been the subject of discussion - though conceptions of what it might include differ even among allies. Understandably, Australia and New Zealand would like to be included and pin their hopes on having it extended and strengthened, though they would like to see it known as the Indo-Pacific trade.
That's because to some, intra-Asia trade lanes should extend from India to Japan, taking in Korea. China and Southeast Asia, Indonesia and Philippines as well as Australia and New Zealand.
Still others, the Indians for example, would like to include the Middle East and East Africa while the Japanese and Australians would like to include North, South and Central America.
Here's the problem. While all from India to Japan share in the desirability of having a trading bloc whose member states share democratic values and respect a rules-based system, there are conflicting protectionist tendencies that get in the way.
The fact that China has become more of a rival than a partner and does not share conventional democratic principles, and now finds itself enmeshed in territorial disputes, is another problem. What's more China ignores rulings against its interests despite pledges to comply with judgments of international adjudication tribunals.
And from a cost point of view, as China moves up the value chain, the fully industrialised nations, such as Australia, Korea and Japan, will be subject to Chinese competition in areas in which they once held clear comparative advantage. This may be mitigated by a shift in the focus of the Chinese economy away from exports to domestic consumption, though there has been far more talk than action in this area in recent years.
Whatever is said of the diversification away from China, the plain fact is that China's influence in the intra-Asia trade, is overwhelming. Ninety per cent of Australia's merchandise imports are from China and, of those, 90 per cent are elaborately-transformed manufactures. The initial imports of textiles, clothing and footwear were replaced by household appliances in the 1990s; today 50 per cent per cent of Australian merchandise imports from China are engineering products, including office and telecommunications equipment.
True, Australia has niches where it can compete with the best in the world. But it will be important to retain what leads it has in education and in the sophistication of the workforce and not slip away.
Back in 2012, when the Indo-Pacific concept was starting to make a regular appearance as an official talking point, China was the destination of 27.3 per cent of Australia's total goods exports. Among Australia's more substantial regional trading partners, the shares of East Asia excluding China (Japan, South Korea, Hong Kong and Taiwan), Southeast Asia (Indonesia, Malaysia, Philippines, Thailand and Singapore), India and the United States were 33.3, 9.5, 4.9 and 3.8 per cent, respectively.
So despite fervent championing of the Indo-Pacific concept in the 12 months leading up to October 2019, China's share of goods exports leapt more than 10 percentage points to 37.7 per cent. But the shares of East Asia (excluding China), Southeast Asia, India and the United States all fell to 26.4, 8.8, 3.8 and 3.7 per cent, respectively.
The story is mirrored on the import side. In 2012, China supplied 17.3 per cent of Australia's goods imports while East Asia (excluding China), Southeast Asia, India and the United States accounted for 13.2, 16, 1 and 11.8 per cent, respectively. In the 12 months to October 2019, China's share surged to 25.5 per cent. The shares of East Asia (excluding China), Southeast Asia and the United States all fell to 12.9, 14.2 and 11.1 per cent, respectively. Only the importance of India had risen, but to a still marginal 1.6 per cent.
Countries like Japan and Singapore, being fellow members of initiatives like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP or TPP-11) and the Regional Comprehensive Economic Partnership (RCEP), share Australia's liking for the Indo-Pacific concept.
But the US not so much. On his first day in office, US President Donald Trump withdrew the United States from the CPTPP's predecessor, the Trans-Pacific Partnership (TPP). Now, US blocking actions have rendered the WTO's Dispute Settlement Body unable to provide independent adjudication on new cases.
And despite launching negotiations for an Australia-India Comprehensive Economic Cooperation Agreement in 2011, progress towards such a bilateral deal has been slow. India opted out when RCEP's 15 members concluded negotiations. Peter Varghese, the author of the Australian government's India Economic Strategy to 2035, admitted that "the big end of town still doesn't buy the India story". Mr Varghese's report nominated an aspirational target of tripling Australian exports to India by 2035, reaching US$31 billion. It's not trivial but pales in comparison to the current exports to China of over $112 billion.
Strong Australia-China economic ties extend beyond goods trade. In July, a report by the Australia-China Relations Institute showed that China was set to become Australia's leading international research partner in terms of the number of joint scientific publications produced.
Despite India's bulk, wealth and intellectual resources, it is more burdened by its democracy in that it cannot resist protectionist pressures from it agricultural sector, opting out of any trade deal that demands compliance with free trade and free market principles. Unlike China. with its superior command in control, that enables it to bulldoze special interests, and lay in new roads and railways without delay, the subcontinent as to take care that it does not upset herds of figurative and literal sacred cows.
More encouraging is that reformist Prime Minister Narendra Modi won an increased parliamentary majority in last year's national election, which assures greater improvement and trade integration in the near term and greater public acceptance of what needs to be done. But however willing and anxious the Modi government is to have India to become all it can be, there are forces, socially conservative forces, who are hostile to change if it changes the character of the country. Much has changed in India for the better, but the pace of change has been and continues to be glacial.
The question of broadening the scope of the intra-Asia trade and making it more inclusive is perhaps not as serious a question as it appears to be - as this is already happening. What is more important is that its present member states - ASEAN members for starters - tear down the barriers of their own creation - to facilitate the flow of goods and services among themselves. But that - as always - will take political will, which always seems to be in short supply by those who truly need it.