Stoking the engine of growth: Tim Groser discusses the Trans-Pacific Partnership and trade integration in the Asia-Pacific region.

• Author: Groser, Tim

The link between involvement in comprehensive free trade agreements, or trade and investment integration agreements by whatever name, and internal reform is certainly nothing new. It has been evident in economies as diverse as New Zealand's and China's. Japan, too, has recognised the importance of such an approach. Prime Minister Shinzo Abe has indicated that his government sees structural adjustment as crucial to the success of his internal economic programme. And central to that adjustment is the success of the Trans-Pacific Partnership. The entry of Japan into the TPP negotiation was transformational. The addition of the world's third largest economy immediately raised the stakes.

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The Trans-Pacific Partnership (TPP), or the more general issue of economic integration, not only is central to the theme of rising Asia but also an issue of high political and commercial importance to Japan and to Abenomics, which we consider is reshaping Japan's economic trajectory in an extremely positive way. And one aspect in particular encouraged us: the prime minister made it very clear that the Japanese government saw structural adjustment --the main pillar of the 'Third Arrow'--as crucial to success of his internal economic programme. Equally, the success of the TPP is recognised as crucial to achieving structural reform in Japan. Minister Akira Amari's responsibilities are instructive--he is minister of state for economic revitalisation and TPP.

It is not always this way. Far too often, governments around the world take a narrow, one could say 'mercantilist', perspective on international trade negotiations, rather than see them as helpful policy instruments to broader national programmes of reform. But there are exceptions. I will provide two examples--one involving a very small economy and the other involving not Japan, but another giant economy.

The small economy example is my own--New Zealand. One economic analyst, considering the plight of developed economies, has recently called New Zealand 'the rock star economy'. We certainly have enviable economic numbers and prospects--growth trending up to 4 per cent, net debt to GDP below 30 per cent, unemployment at 6 per cent trending down to a bit over 4 per cent and the highest ever recorded labour force participation rate. And all of this has been achieved while we struggle with the effects of the global financial crisis and the massive destruction in Christchurch, our second biggest city, by a devastating earthquake in which tragically a number of young Japanese died.

However, we have mixed feelings about being called 'the rock star economy'. We know that such a description could breed complacency and encourage a loss of discipline in policy. Nevertheless, the comment has been made and we are certainly in a confident mood.

Protected economy

But it was not always so. Until we made a decision to open up the highly protected sectors of our economy, New Zealand adopted a highly defensive position in international trade negotiations, making no contribution whatsoever. We protected almost all our industries and several of our then highly uncompetitive agriculture sectors behind the developed world's last remaining import licensing system, augmented by the highest average tariffs in the developed world.

We needed reform, we needed structural adjustment, and we needed to do something to improve our productivity and export performance in our highly protected sectors. Finally, we came to the conclusion that this would never be done unilaterally. We needed the impetus of external competition. We then began a long, slow process of opening up the protected sectors of our economy first with our then largest trading partner, Australia, later the world.

At the opposite end of the spectrum is the giant economy of China. The extraordinary process of economic change there essentially began when their visionary leader Deng Xiaoping famously proclaimed in the late 1970s 'It is glorious to be rich' and who started a process of opening the then closed economy of China with a special economic zone in a small fishing village of some 30,000 people called Shenzhen.

Today, Shenzhen is a giant trading city of some 12 million and its economic success has spread to dozens of cities and many provinces. The huge progress China has made in dragging hundreds of millions of its people out of poverty would have been impossible without opening up the economy to competition. Chinese economists and intellectuals today openly credit the tough conditions China had to fulfil to...