Australia’s engagement with Indo-Pacific economic initiatives
Introduction
The Comprehensive and Progressive Agreement for
Trans-Pacific Partnership (CPTPP), the Regional Comprehensive Economic
Partnership (RCEP) and the Indo-Pacific Economic Framework for Prosperity (IPEF)
are 3 significant trade and economic initiatives with a considerable impact on
the Indo-Pacific region. While each of them has distinct memberships, goals and
areas of focus, there are some areas of overlap. These initiatives underscore
the complex dynamics of contemporary international trade relations and economic
policy, particularly in a region as economically vibrant and diverse as the
Indo-Pacific.
The global economy is increasingly shaped by paradoxical
dynamics. On the one hand, there is deepening economic integration and
interdependence, especially among geopolitically
aligned countries. On the other hand, rising protectionism,
trade restrictions and economic fragmentation driven by geopolitical
tensions are simultaneously reshaping trade patterns. Geopolitical
rivalries have influenced trade strategies, as seen in the competition for
influence in regions like the Indo-Pacific. This dichotomy is further
complicated by the rise of emerging
economies, notably China and India, which
are altering traditional economic power structures. Additionally, the
transformative impact of digitalisation
and e-commerce is revolutionising trade practices and interconnectedness.
Furthermore, sustainability
and climate change considerations are becoming central to trade policies,
reflecting a broader move to align economic activities with environmental
goals. Against this backdrop, there has been a tension between multilateralism
and a preference for bilateral or regional agreements, with disagreements among
member states challenging
the effectiveness of global trade governance structures like the World
Trade Organization.
Australia’s participation in the CPTPP, RCEP and IPEF aligns
with its broader economic, strategic and geopolitical objectives. These
objectives include achieving economic growth and diversification by securing
improved market access, strengthening the security of its supply chains in
response to recent global disruptions and addressing its strategic interests in
a context of heightened geopolitical tensions. These agreements provide
Australia with additional options for economic expansion, lessening its reliance
on its substantial trade relationship with China. Additionally, Australia aims
to promote high-quality global trade standards and encourage regional economic
integration, ultimately contributing to a stable, open and rule-based order in
the Indo-Pacific region.
The Comprehensive and Progressive Agreement for
Trans-Pacific Partnership (CPTPP)
The CPTPP, also called TPP11
or TPP-11, is a multilateral free trade agreement whose formation was driven by
the recognition of the participating countries that a large, high-standard
trade agreement could serve as a
counterbalance to the rising tide of protectionism and unilateralism in global
trade practices. The CPTPP aims to promote economic integration across the
Pacific Rim, enhance trade and investment, set high-standard rules for commerce
and address contemporary trade issues such as digital trade, environmental
protection and labour rights. This initiative reflects the collective ambition
of its members to lead in the shaping of global trade norms and to ensure that
trade facilitation benefits are broadly shared. benefits are broadly shared.
The formation of the CPTPP was deeply influenced by the
withdrawal of the US from the Trans-Pacific Partnership (TPP), a precursor
agreement that included the US among its signatories. Previously, the TPP was
conceived as a high-standard trade agreement aimed at facilitating trade in the
Asia-Pacific region. For context, the term ‘Asia-Pacific’ emerged post-Cold War
to emphasise economic ties in East and Southeast Asia, while the more recent
‘Indo-Pacific’, especially since 2017, acknowledges India’s strategic
importance and expands the region’s scope to include the Indian Ocean.
The TPP started as a modest
trade agreement between Brunei, Chile, New Zealand and Singapore in 2005,
known as the P4 agreement. The US, under President George W. Bush, began
negotiations with this group in 2008, attracting additional countries to join
the discussions, including Australia, Vietnam, Peru, Canada, Japan, Malaysia
and Mexico, bringing the total to 12 countries. The agreement was positioned as
the centrepiece of the US
strategic pivot to the Asia-Pacific under President Barack Obama’s
administration. After years of negotiations, overcoming substantial political
hurdles, such as Japan’s agricultural
sector’s resistance and the US demands for strict patent protections for
pharmaceuticals, the pact was signed in early 2016. However, it was never
ratified by the US Congress and became a point of contention during
the 2016 presidential campaign.
However, President Donald Trump formally withdrew the US
from the TPP on his first full day in office in January 2017, citing a pivot
in trade policy towards bilateral agreements and expressing concerns over
multinational trade deals.
Despite the US exit, the remaining 11 countries decided
to sustain the momentum towards greater trade facilitation and regional
integration. The CPTPP was signed on 8
March 2018 in Santiago, Chile by 11 Indo-Pacific countries: Australia,
Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore
and Vietnam.
According to the Centre for Strategic and
International Studies (CSIS), key features of the CPTPP include the
retention of most of the TPP’s original text, with two-thirds of its chapters
remaining unaltered. However, the agreement also suspends or modifies 22
provisions from the TPP, reflecting the priorities and compromises of the
remaining members. Significant modifications were made particularly in the
investment and intellectual property chapters. For instance, the investment
chapter of the CPTPP introduces limitations on investors’ ability to initiate
litigation, particularly for disputes concerning mining and oil investments.
Additionally, the intellectual property chapter was revised, including
adjustments to patent protection periods for innovative medicines and
protections for certain technologies and information. These changes show how
international trade agreements can be adjusted over time to reflect new
political and economic situations.
As of 2018, the CPTPP was one of the world’s biggest free trade agreements,
covering almost 13.5% of global GDP. It sets strict rules for trade and
investment, aiming to create an open and inclusive economy across the
Indo-Pacific region. The CPTPP is praised for its high
standards because it includes detailed rules in important areas like
intellectual property rights, worker protections, environmental regulations and
digital trade. These rules aim to create a fair, transparent and competitive
trading environment that encourages sustainable development and spreads
benefits widely among member countries. This thorough approach not only
promotes better regulations, but also makes the CPTPP a model for future
international trade agreements.
To maintain such high standards, the CPTPP requires a
complex process for new membership based on unanimous
voting. Which is why since the CPTPP’s inception in 2018, only the UK has
been accepted as a
new member of the pact (in 2023), pending
full accession expected to happen by
the end of 2024. Other applicants include mainland China, Taiwan, Ecuador,
Costa Rica, Uruguay and Ukraine. South
Korea, Thailand,
the Philippines
and Indonesia
have also expressed an interest in joining the CPTPP.
It should be noted that China’s bid to join the CPTPP is
hindered by both technical
and political challenges. Technical issues include the need for China to
align its domestic policies with the agreement’s strict standards on labour
rights, environmental protection and the operation of state-owned enterprises.
Politically, China’s tensions with existing CPTPP members and concerns
over its broader trade practices and geopolitical ambitions pose
significant obstacles to its accession.
Australia’s engagement with the CPTPP
Australia is a founding member of the CPTPP, which aligns
with its broader trade strategy of promoting high-standard trade facilitation
that encompasses not only tariff reductions but also addresses non-tariff
barriers, enhances intellectual property protections and encourages sustainable
environmental and labour practices.
The CPTPP allows Australian exporters and service providers
increased access to markets across the Americas and Asia, facilitating
diversification of trade and reducing dependence on any single economy. This
expanded access has led to increased exports to member countries, contributing
to economic growth and job creation.
The agreement has enhanced Australia’s attractiveness as a
destination for foreign investment by providing a more predictable and
transparent investment environment. This bolsters economic growth and provides opportunities
for domestic businesses.
However, economists
Paul Dales and Katie Hickie estimated in 2018 that the trade agreement
would yield a ‘very small’ benefit for Australia, projecting an increase in
Australia’s real national income by only 0.5%. At the time of writing, there
appears to be no comprehensive review of the benefits of the CPTPP for the
Australian economy.
For more information, refer to the Department
of Foreign Affairs and Trade (DFAT).
Criticisms of the CPTPP
The CPTPP contains Investor-State
Dispute Settlement (ISDS) provisions. Critics of the CPTPP argue that the
ISDS provisions could potentially undermine Australia’s sovereignty by ‘giving
powerful rights to multinational corporations which allow them to bypass
domestic courts’. In other words, the trade deal allows certain
foreign corporations to sue the Australian Government over decisions that
might negatively affect their investments in Australia. Note that Australian-based
companies have also used ISDS in proceedings against other countries to
protect their investments overseas.
There is considerable debate regarding the
future of the CPTPP. As mentioned above, the precursor to the CPTPP – the TPP –
was originally envisioned by the US to
support its strategic pivot to Asia and counter China’s growing economic
influence in the region. President Barack Obama highlighted the
importance of the US in establishing the international trade rules for the
region, rather than China setting the standards.
However, President Trump’s decision to withdraw from the TPP
raised questions about the agreement’s strategic implications, especially in
light of China’s bid to join the CPTPP. It
appears unlikely that the US will join the CPTPP in the foreseeable future,
particularly if Trump gets re-elected in 2024. As such, some
researchers have argued that Australia should use its status as a founding
CPTPP member to advocate for the European Union’s accession with the goal of
‘securing a liberal rules-based trade order in the Indo-Pacific region’. At the
time of writing, the EU has not expressed an intention to join the CPTPP.
The Regional Comprehensive Economic Partnership (RCEP)
Conceived at the 2011
ASEAN Summit in Bali, Indonesia and formally launched in Cambodia in 2012,
the RCEP represents a major step towards economic integration in the Indo-Pacific.
Despite India’s initial involvement and later withdrawal, the agreement was
finalised in November 2020 and encompasses a diverse mix of high-, middle- and
low-income nations.
The RCEP emerged from the desire to streamline trade between
ASEAN
nations and their external partners by consolidating existing Free Trade
Agreements (FTA) into a single framework. This aims to simplify regulations,
reduce operational costs and ultimately boost the region’s attractiveness for
investment and trade.
The RCEP is a landmark East Asian initiative designed to
promote regional stability, deeper economic integration and economic growth.
The world’s largest free trade agreement by population and GDP, the RCEP
encompasses 15 countries, including the 10 ASEAN members and their key
partners: China, Japan, South Korea, Australia and New Zealand. Notable for
being the first multilateral trade deal to include the 3 largest economies in
East Asia (China, Japan and South Korea), it also has significant overlap with
the CPTPP, as 7 RCEP members are also part of that pact (see Figure
1).
Figure 1: Overlapping memberships
![A diagram illustrating countries in the CPTPP, ASEAN FTA, RCEP and IPEF, highlighting overlapping memberships among various nations.](/-/media/05_About_Parliament/54_Parliamentary_Depts/544_Parliamentary_Library/Research_Papers/2024-25/image002.png?la=en&hash=4AF8484A19FF74F7C6FB7CCACA897234A5F846D0)
Source: Parliamentary Library
In effect for the first 10
ratifying countries since January 2022, the RCEP focuses on reducing tariffs
and trade barriers within the Indo-Pacific while establishing common rules for
e-commerce, intellectual property and competition policy. The pact seeks to
eliminate approximately 90% of tariffs on imports between members over 20
years, aiming to streamline trade, strengthen economic links within the region
and bolster economic growth, especially in the post-pandemic
recovery phase.
The US Congressional
Research Service believes China is one of the top beneficiaries of the RCEP
as the agreement reinforces its economic interdependence with the region and
solidifies its role as a central economic force in the Asia-Pacific. The International
Institute for Strategic Studies also argues the RCEP is a ‘geopolitical
win’ for China because Beijing will use its economic heft as the region’s
largest economy to exert influence on trade regulations and standards setting
within the bloc.
China’s strengthened economic integration with RCEP members,
including Japan and South Korea, is expected to deepen
supply chains and lower business costs through harmonised rules and
significantly reduced tariffs on most goods. This is already evident in the
initial months of implementation, with China experiencing a
notable rise in trade with RCEP countries. Exports and imports have grown
steadily, with a focus on mechanical and electrical products alongside
labour-intensive goods.
Australia’s engagement with the RCEP
Australia’s participation in the RCEP strengthens its
economic ties within the Indo-Pacific region, a key area for its trade. The
agreement achieves this by reducing tariffs and trade barriers, making it
cheaper and easier for Australian businesses to export goods and services, creating
opportunities in various sectors like financial, banking, healthcare and
education. Destination markets and RCEP members include Southeast Asian nations
and China, some of Australia’s major trading partners. Additionally, the RCEP
streamlines customs procedures, reducing administrative burdens and delays for
Australian businesses. Furthermore, the agreement establishes common rules and
regulations, creating a more stable and predictable trade environment for
Australian businesses operating in the region.
Economists
Daniel Borer and Ronald Kumar have estimated that the trade agreement could
boost the region’s GDP by 3% and reduce poverty by 1.6%. They argue that while
Asian countries stand to benefit the most from the RCEP, Australia’s benefits
may only be ‘moderate’ due to its current trade patterns and heavy reliance on
natural resources exports.
Borer and Kumar also argue that the Australia Government
could implement certain policies (for example, foster Australia’s reputation as
a vocational training centre for the region) that could allow Australians to
reap more substantial benefits from the RCEP.
For more information, refer to the Department of
Foreign Affairs and Trade (DFAT).
Criticisms of the RCEP
One significant criticism of the RCEP is its moderate
trade gains for Australia, especially since Australia already has free
trade agreements with all other RCEP member countries. The departure of India
from the negotiations further diminished the potential for new export
opportunities, which are a principal benefit of such agreements.
Additionally, concerns have been raised about the agreement’s
lack
of attention to labour and human rights, as well as environmental
standards. In particular, some
stakeholders argue Australia should not enter into a trade agreement with
Myanmar while the military junta is in power because ‘doing so risks
legitimatising the regime’.
Furthermore, the RCEP’s negotiation process has been
described as secretive,
minimising democratic participation and community involvement. Critics also
point out that the RCEP contradicts efforts to increase Australia’s
manufacturing capacity, particularly in response to the COVID-19 pandemic, by discouraging
government assistance for local industries.
The Indo-Pacific Economic Framework (IPEF)
The IPEF, launched by the US in May 2022, is a broad
initiative intended to strengthen economic cooperation across the Indo-Pacific
region. Still in negotiation and evolving, the IPEF is the US response
to China’s growing influence in the region by setting high standards in
areas such as digital trade, supply chain resilience, clean energy and
anti-corruption. The IPEF has yet to establish new binding
commitments.
Unlike the CPTPP and the RCEP, the IPEF does not currently
include traditional market access commitments like tariff reductions. This
makes it distinct from conventional free trade agreements and potentially less
immediately attractive to some participants.
Due to its lack of market incentives, some argue that the
IPEF serves a primarily political function for the US. It allows the US to gain
strategic advantages by including non-CPTPP members like India and South
Korea and by fostering participation from all its regional security treaty
allies (Australia, Japan, the Philippines, South Korea and Thailand). The overlap
between the IPEF and the Quad further suggests US-led convergence of
security and economic cooperation.
Australia’s engagement with the IPEF
The IPEF is seen as an innovative way for Australia to boost
regional investment. It focuses on enhancing digital trade, securing supply
chains and promoting clean energy, aligning with Australia’s economic modernisation
goals. Australian officials are reported to view the IPEF as an
opportunity to shape standards, form solutions to supply-chain risks and
direct clean energy infrastructure, underlining the strategic importance of
diversifying critical supply chains and setting digital trade standards.
According to the United
States Studies Centre, Australia may benefit from the IPEF for its
potential to deepen US engagement in the Indo-Pacific, serving as a strategic
balance against China’s economic clout. Two primary benefits for Australia from
the IPEF include diversifying critical mineral supply chains away from Chinese
dominance and establishing a digital trade agreement to set common standards
and streamline trade processes. The focus on secure and diverse supply chains,
especially in critical minerals where Australia is a key player, aligns with
its interests in reducing dependence on China and enhancing industry standards.
Additionally, a digital trade agreement under the IPEF could foster open and
efficient digital commerce, critical to counteracting China’s influence on
digital standards. Through the IPEF, Australia aims to strengthen both its
economic resilience and its strategic position in the Indo-Pacific region.
On 14 November 2023, Australia’s Trade Minister, Don Farrell,
joined ministers from the 13 other IPEF countries in San Francisco to sign
the IPEF Supply Chain Agreement. The Australian
Government notes that the signing of the IPEF Supply Chain Agreement is
‘another step towards greater economic cooperation in the Indo-Pacific and will
support further outcomes on trade, the clean economy, tax and anti-corruption’.
According to analysis from the Australian Government:
By 2030, the productivity and other
gains associated with widespread supply chain modernisation could increase
Australia’s annual real GDP by 1.4% or $32.6 billion in 2020 dollars,
investment by 1.6% ($8.8 billion) and exports by 1.2% ($6.6 billion).
For more information, refer to the Department
of Foreign Affairs and Trade (DFAT).
Criticisms of the IPEF
Critics
have raised concerns that the above November 2023 meeting failed to secure
an agreement on the Trade Pillar of the IPEF.
The 4 pillars of the IPEF are trade, supply chains, clean energy,
decarbonisation and infrastructure, and tax and anti-corruption.
Some critics
argue that ‘Washington’s failure in approving the IPEF Trade Pillar sent a
clear message to [its] Asia-Pacific partners’, that the US domestic politics
could interfere with its international trade policy and leave its trading
partners ‘in
limbo’. Notably, Donald Trump has vowed to cancel
the IPEF and introduce
across-the-board 10% tariffs on trading partners if he is re-elected in
2024.
Furthermore, other criticisms of the IPEF revolve around
concerns over its structure, the specificity of its benefits and its strategic
implications. Although the IPEF aims to enhance economic cooperation and
standards across the Indo-Pacific region, there are notable concerns regarding
its approach and potential outcomes for Australia:
- Insufficient
market access offers: Some trade analysts have critiqued the IPEF for not providing
substantial market access offers in exchange for the participant countries’
compliance with high standards in areas such as green technology and digital
economy initiatives. This criticism stems from a comparison with traditional
trade agreements, where market access is a key component of negotiations. The
concern is that the IPEF, by focusing more on regulatory cooperation and
standards without directly addressing market access, might not offer tangible
economic benefits or incentives for businesses.
- Emphasis
on US-led standards: There is a viewpoint that the IPEF, being US-led, is
designed to advance American interests and standards across the 4 policy
pillars of the framework. This ‘Washington
effect’ implies that the framework might prioritise US preferences for
labour, environmental and digital standards, which could pose challenges for
countries like Australia in aligning their domestic policies with these
standards. The concern is that such alignment may necessitate significant
adjustments or reforms in national policies, potentially impacting Australia’s
autonomy in setting its economic and trade policies.
- Challenges
in implementation and collective action: The IPEF’s success hinges on
collective action from its members. However, the region’s diverse economies and
political systems may hinder consensus on implementing its initiatives. This
could make it difficult for Australia to reap
concrete benefits, particularly in crucial areas like supply chain
resilience and clean energy, where a unified approach is essential.
- Potential
overlap with existing agreements: Australia is already a participant in
several regional economic agreements, such as the CPTPP and the RCEP. There is
a concern that the IPEF
might duplicate efforts or create overlaps with these existing agreements,
without offering additional value or addressing gaps not covered by these
agreements. This could dilute the focus and resources dedicated to leveraging
existing agreements for Australia’s economic benefit.
- Strategic
tensions and economic security: The IPEF, despite being an economic
framework, is intertwined with the US-China rivalry in the Indo-Pacific. This
could impact the economic security and diplomatic relations of Australia and
other regional countries.
A comparison of the RCEP, CPTPP, IPEF
The RCEP and the CPTPP offer distinct avenues for economic
integration in the Indo-Pacific, with the IPEF adding a new strategic
dimension. The RCEP is primarily focused on facilitating trade through tariff
reduction and streamlining customs procedures to deepen economic ties among its
members, with China being a key player shaping the agreement, reflecting China’s
regional ambitions. It builds on existing ASEAN+1 FTAs to boost intra-regional
trade, highlighting ASEAN’s leadership and China’s central role in the regional
economy.
In contrast, the CPTPP, comprising 11 member countries,
adopts a more expansive approach by incorporating forward-looking provisions on
digital trade, intellectual property and environmental and labour standards. It
aims to set comprehensive, high-standard trade norms across the Pacific Rim.
The IPEF, led by the US, diverges from the traditional trade
agreement model seen in the RCEP and the CPTPP by focusing on a broad economic
engagement that emphasises the digital economy, supply chain resilience and
sustainability, rather than direct tariff negotiations. It marks the US’s
strategic re-entry into the Indo-Pacific economic arena, aiming to unite allies
around common economic challenges and principles, especially in light of China’s
growing influence. The IPEF’s modular, non-binding approach accommodates
diverse participation levels across its components, reflecting the varying
interests of its potential members.
Together, these initiatives underscore the shifting dynamics
of economic policy and strategic partnerships in the Indo-Pacific, addressing
the spectrum of trade facilitation, regulatory standards and geopolitical
challenges. See Table 1 for a summary of these initiatives.
Further discussion
Note that there have been concerns about the potential rise
of industrial policy and protectionism as evident in the recently pronounced Future Made in
Australia (FMIA) package. The package, as of now, proposes
significant government intervention and subsidies aimed at boosting domestic
industries, such as renewable energy and advanced manufacturing.
Critics argue that this approach mirrors protectionist
policies seen in other countries, like the US’s Inflation Reduction Act and
CHIPS Act, which have been criticised for their protectionist tendencies. The FMIA
policy’s emphasis on ‘economic security’ and ‘national interest’ suggests that Australia
is also moving in the same direction.
The Australian Government continues to promote greater trade
(in goods) with the Asia-Pacific region. At the same time, the government also
notes that investment
and capital flows carry ‘risks related to the potential access and control
investors may obtain over organisations and assets, especially critical
infrastructure’. This approach potentially clashes with freer
investment movement promoted by the CPTPP and the IPEF, with some
commentators viewing it as a
regression to past protectionist practices that Australia had moved away
from over the past few decades.
It is arguable that the global economy has entered a fragmentation
stage, where countries trade more within friendly blocs and less with
others. In that context, this package reflects a broader global shift towards more
interventionist industrial strategies in response to geopolitical and
economic challenges. However, considering the complex
landscape of domestic needs, international obligations and global economic
trends, the FMIA’s success will hinge on careful implementation that
does not compromise Australia’s trade relations or economic competitiveness.
Appendix
Table 1: Summary of the RCEP, CPTPP, IPEF
Aspect
|
RCEP
|
CPTPP
|
IPEF
|
Nature
|
Traditional trade agreement focusing on tariff reductions
and market access.
|
Comprehensive trade agreement with high-standard rules and
commitments.
|
Broad economic engagement not focused on tariff
reductions. Covers supply chains, digital trade, clean energy and more.
|
Membership
|
15 (ASEAN + Australia, China, Japan, New Zealand and South
Korea).
|
11 (Australia, Brunei, Canada,
Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam); UK
(incoming).
|
14 (US, India, Japan, South Korea, Australia, New Zealand,
ASEAN nations); potentially more incoming.
|
Strategic intent
|
Enhances regional economic integration with a significant
role for China.
|
Promotes high-standard global trade norms; counterbalances
China’s influence in the region.
|
Potentially reasserts US economic leadership and
engagement in the Indo-Pacific and provides an alternative to China’s
influence.
|
Scope and standards
|
Focuses more on traditional trade issues; less
comprehensive on digital trade, environmental and labour standards.
|
Comprehensive provisions on digital trade, intellectual
property, environmental protection and labour rights.
|
Emphasises standards and cooperation on digital economy,
sustainability and supply chain resilience over direct trade barriers.
|
Tariff reduction
|
Emphasises tariff reductions among member countries;
gradual reduction schedules.
|
Comprehensive tariff reductions on goods and services;
faster and deeper reductions.
|
Does not focus on tariff reductions, but potentially
targeted tariff reductions in specific areas.
|
Services trade
|
Includes commitments to open up services markets; limited
coverage
|
Extensive facilitation of services trade.
|
May include provisions to enhance services trade;
specifics to be determined.
|
Investment
|
Contains provisions to protect and encourage investment.
|
Strong protections for investors with transparent investment
rules.
|
Expected to include measures to facilitate investment;
specifics to be determined.
|
Dispute settlement
|
Does not contain ISDS mechanism but features a dispute
settlement process under chapter 19 of the agreement.
|
Includes a robust ISDS mechanism (arbitration
panels)
|
Dispute settlement mechanisms likely to be different from
traditional trade agreements.
|
Digital trade
|
Limited provisions on digital trade.
|
Extensive provisions on digital trade and e-commerce.
|
Significant emphasis on digital economy and data flows.
|
Supply chains
|
Aims to improve supply chain stability within the region.
|
Emphasises cooperation on supply chain resilience.
|
Focuses on strengthening and diversifying supply chains.
|
Environmental and labour standards
|
Limited provisions.
|
High standards on environmental protection and labour
rights.
|
Likely to push for high standards on environmental and
labour issues.
|