by Dr Bryce Edwards

John Key was once very candid in explaining the realpolitik reason New Zealand had to send troops to assist the US war on terror: it was simply “the price of the club”. He was speaking of the intelligence alliance known as Five Eyes involving the United States, Australia, Britain, Canada and New Zealand.

The Labour-led Government is unlikely to be equally upfront that this week’s decision to ban the Chinese company Huawei from supplying the infrastructure for the new telecommunications 5G network is also due to New Zealand’s membership of the Western allies’ club.

That reality is clear to political journalist Richard Harman, who says the Huawei ban “was the only one it could have come to. To have let Huawei in would have placed New Zealand at odds with its traditional friends – Australia, the United States and Britain – and offside with the Five Eyes alliance” – see: How the Huawei decision saw the old friends prevail.

This article points out that the Huawei decision “came coincidentally with the presence in the capital of a top-level delegation from the British Foreign office and also a senior FBI official from the US. The FBI official was here to open a new FBI liaison office in Police Headquarters.” And although it’s not clear that there was any recent pressure on the GCSB to ban Huawei, Harman points out that the signals from Five Eyes partners were very clear on the matter – especially with a British Government report in July, and then in “August Australia barred Huawei from participating in its 5G network.”

There is certainly going to be a cost for the ban. First, it seems that there will be consequences in terms of inferior and more expensive communications for consumers. Second, this country’s economic and diplomatic ties with the superpower of China will now be strained as a result.

Such costs could end up being significant, and will affect every New Zealander. In terms of Spark’s planned new telecommunications network, Barry Soper explains today: “they’ll probably have to settle for a more expensive and less efficient option. Huawei points out that in a trial for 5G in March they achieved a world record of more than 18 gigabytes a second while their competitors could only manage one gig. With data transfer rates at that speed perhaps that’s what spooked the GCSB” – see: Spy agency’s Huawei ban conveniences Government.

Soper says that essentially New Zealand has “finally picked sides” in the geopolitical rivalry between China and the US. He also stresses the economic and diplomatic prices that New Zealand will have to pay, saying “This decision has wide-reaching implications for this country with our biggest trading partner” and the “renegotiation of our Free Trade Agreement will now be on the back burner”.

In terms of diplomatic reaction, Soper says: “Now this is all out in the open it can come as no surprise the Chinese couldn’t find the time to see Jacinda Ardern in Beijing before Christmas, she was ready to go at the drop of a hat.”

Leftwing commentator Gordon Campbell seems to agree, saying “the Huawei ban is a hostile act”, and the “indefinite postponing of PM Jacinda Ardern’s trip to China is probably the first symptom of the cooling in our relationship” – see: On how banning Huawei fits into our new hostility towards China.

Campbell also suggests that the Huawei ban on involvement in the 5G project will be costly. He points to the fact that “In Australia, the Huawei bid was reportedly 30% lower than competing tenders”, and concludes that it “is reasonable to assume there will be extra costs for consumers as a consequence”.

As to why the Government is suddenly so sensitive about this new telecommunications network, when they haven’t been so worried in the past, Gordon provides a good explanation: “5G will be the key piece of architecture in the so-called ‘Internet of things’ that’s envisaged to connect our electricity and water systems, medical and driverless technologies, systems in homes and hospitals, factories and farms. The security concerns about China being central to the provision, installation and maintenance of such a massively interlinked system is not hard to imagine”.

Campbell argues that the Huawei ban is part of “a trifecta of measures via which the 5 Eyes allies have been beefing up their stance towards China” – the other two components being “(a) the increased defence spending in Australia and New Zealand for which countering China expansionism is the only conceivable rationale and (b) the massive increase in Australasia’s aid and diplomatic profile in the Pacific, in order to counter China’s ‘cheque book’ diplomacy”.

New Zealand really had no choice but to ban Huawei according to intelligence expert Paul Buchanan: “Diplomatically, it would be very difficult for the GCSB to green light Huawei’s involvement in the 5G upgrade in the face of the US request to withhold approval” – see: Huawei vs Five Eyes: NZ diplomatic ties at centre of dilemma.

Furthermore, “The fallout from such a decision could open a rift within the Five Eyes partnership because New Zealand is already seen as the Achilles Heel of the network given its past record of poor cyber security awareness (say, in the overlap between professional and personal communications). It is therefore prudent for the GCSB to side with the US on the matter.”

Siding with Western allies over China is evidence of New Zealand’s shifting orientation towards its biggest trading partner, according to Victoria University of Wellington’s strategic studies professor, Robert Ayson – see his Newstalk ZB interview: NZ’s relationship with China could suffer after GCSB decision – academic.

On the Huawei decision, Ayson says: “I think it’s an important sign that New Zealand’s approach to China is becoming more cautious. I think the special friendship between New Zealand and China is now a little less special in some ways”.

Ayson believes the reasons behind the ban would have been both genuine concerns for national security and about New Zealand’s alignment with the Five Eyes countries. He concludes: “I guess one of the question is, does New Zealand want to be seen as a weaker link?”

The cost of the Huawei ban is also well canvassed by Jamie Ensor in his article, NZ could see major fallout from Huawei 5G decision – expert. In this, Richard Harman is quoted on its impact on diplomatic relations with China: “The frequency of contact between New Zealand and China, and the intimacy of that contact, might slow down for a while”.

In terms of economic ties, Harman points to tourism and education as being the most likely hit. In terms of “worst case scenarios”, he says the Chinese Government “might try and restrain Chinese students who come here for education” and they might “take New Zealand off the preferred list of tourist destinations”.

Condemnation of the Huawei ban has been coming from both left and right. The former general secretary of the Labour Party, Mike Smith, has been highly critical of his own government: “The GCSB ban on Spark’s use of Huawei technology means this government has gone from ‘honest broker’ to poodle in a very short time” – see: Spooked!

He also suggests that it might be time for New Zealand to withdraw from Five Eyes, and says we shouldn’t believe much of what is being said about Huawei: “Maybe it’s time we got out of that too – it was designed for war. GCSB Minister Andrew Little argues that the GCSB decision is about the technology not the country. Nobody else believes that, certainly not the lobbyists and commentators including security analyst Adam Boileau, who said that argument didn’t make a lot of sense. He says Huawei’s engineering is pretty good.”

Rightwing blogger David Farrar appears to be in agreement on much of that, saying “the reality is that no one anywhere has ever been able to point to an actual security problem with Huawei. It is basically scaremongering” – see: We join the nonsense ban on Huawei.

Farrar elaborates: “Basically New Zealand has succumbed to peer pressure from our five eyes partners, primarily the US. Their motivations are protecting US companies from competition. They have never ever been able to say what exactly is it that Huawei has done wrong or could do wrong. They’ve been banned purely because of the country they are based in. This will increase the costs of telecommunications in New Zealand, by removing a preferred supplier. It will also be seen as a deeply offensive move by the Chinese Government and our exporters will probably end up paying the cost.”

Finally, for a fictional conversation about how the politics of the Huawei decision might be explained, see Chris Trotter’s From a table by the window.

Jiaozhou Bay/Qingdao-Haiwan Bridge, China. Photo: Feel the Planet (feel-planet.com).

The Labour-led government in New Zealand has settled on a new mantra when it comes to addressing the US-China rivalry. It claims that New Zealand is ideally situated to become a bridge between the two great powers and an honest broker when it comes to their interaction with the Southwest Pacific. This follows the long-held multi-party consensus that New Zealand’s foreign policy is independent and autonomous, and based on respect for international norms and multinational institutions.

The problem is that the new foreign policy line is a misleading illusion. It ignores historical precedent, the transitional nature of the current international context, the character and strategic objectives of the US and the PRC and the fact that New Zealand is neither independent or autonomous in its foreign affairs.

The historical precedent is that in times of conflict between great powers, small states find it hard to remain neutral and certainly do not serve as bridges between them. The dilemma is exemplified by the island of Melos during the Peloponnesian Wars, when Melos expressed neutrality between warring Athens and Sparta. Although Sparta accepted its position Athens did not and Melos was subjugated by the Athenians.

In stable world times small states may exercise disproportionate influence in global affairs because the geopolitical status quo is set and systemic changes are incremental and occur within the normative framework and around the margins of the system as given. When international systems are unstable and in transition, small states are relegated to the sidelines while great powers hash out the contours of the emerging world order—often via conflict. Such is the case now, which has seen the unipolar system dominated by the US that followed the bi-polar Cold War now being replaced by an emerging multi-polar system aggregating new and resurgent powers, some of which are hostile to the West.

In this transitional moment the US is in relative decline and has turned inward under a Trump administration that is polarizing at home and abroad. It is still a formidable economic and military power but it is showing signs of internal weakness and external exhaustion that have made it more reactive and defensive in its approach to global affairs. China is a rising great power with global ambition and long-term strategic plans, particularly when it comes to power projection in the Western Pacific Rim. It sees itself as the new regional power in Asia, replacing the US, and has extended its influence world-wide.That includes involvement in the domestic politics and economic matters of Pacific Island states, including Australia and New Zealand.

China’s rise and the US decline are most likely to first meet in the Western Pacific. When they do, the consequences will be far reaching. Already the US has started a trade war with the Chinese while reinforcing its armed presence in the region at a time when China cannot (as of yet) militarily challenge it. China has responded by deepening its dollar and debt diplomacy in Polynesia and Melanesia as part of the Belt and Road initiative, now paralleled by an increased naval and air presence extending from the South and East China Seas into the blue water shipping lanes of the Pacific.

There lies the rub. New Zealand is neither independent or autonomous when it confronts this emerging strategic landscape. Instead, it has dichotomized its foreign policy. On the security front, it is militarily tied to the US via the Wellington and Washington Declarations of 2010 and 2012. It is a founding member and integral component of the Anglophone 5 Eyes signal intelligence gathering network led by the US. It is deeply embedded in broader Western security networks, whose primary focus of concern, beyond terrorism, is the hostile activities of China and Russia against liberal democracies and their interests.

On trade, New Zealand has an addict-like dependency on agricultural commodity and primary good exports, particularly milk solids. Its largest trading partner and importer of those goods is China. Unlike Australia, which can leverage its export of strategic minerals that China needs for its continued economic growth and industrial ambitions under the China 2025 program, New Zealand’s exports are elastic, substitutable by those of competitors and inconsequential to China’s broader strategic planning. This makes New Zealand extremely vulnerable to Chinese economic retaliation for any perceived slight, something that the Chinese have been clear to point out when it comes to subjects such as the South China island-building dispute or Western concerns about the true nature of Chinese developmental aid to Pacific Island Forum countries.

As a general rule issue linkage is the best approach to trade and security: trading partners make for good security partners because their interests are complementary (security protects trade and trade brings with it the material prosperity upon which security is built). Absent that, separating and running trade and security relations in parallel is practicable because the former do not interfere with the latter and vice versa. But when trade and security relations are counterpoised, that is, when a country trades preferentially with one antagonist while maintaining security ties with another, then the makings of a foreign policy conundrum are made. This is exactly the situation New Zealand finds itself in, or what can be called a self-made “Melian dilemma.”

Under such circumstances it is delusional to think that New Zealand can serve as a bridge between the US and China, or as an honest broker when it comes to great power projection in the Southwest Pacific. Instead, it is diplomatically caught between a rock and a hard place even though in practice it leans more West than East.

The latter is an important point. Although a Pacific island nation, New Zealand is, by virtue of its colonial and post-colonial history, a citizen of the West. The blending of Maori and Pacifika culture gave special flavor to the Kiwi social mix but it never strayed from its Western orientation during its modern history. That, however, began to change with the separation of trade from security relations as of the 1980s (where New Zealand began to seek out non-Western trade partners after its loss of preferred trade status with UK markets), followed by increasingly large waves of non-European immigration during the next three decades. Kiwi culture has begun to change significantly in recent years and so with it its international orientation. Western perspectives now compete with Asian and Middle Eastern orientations in the cultural milieu, something that has crept into foreign policy debates and planning. The question is whether the new cultural mix will eventuate in a turn away from Western values and towards those of Eurasia.

The government’s spin may just be short term diplomatic nicety posing as a cover for its dichotomous foreign policy strategy. Given its soft-peddling of the extent of Chinese influence operations in the country, it appears reluctant to confront the PRC on any contentious issue because it wants to keep trade and diplomatic lines open. Likewise, its silence on Trump’s regressions on climate change, Trans-Pacific trade and support for international institutions may signal that the New Zealand government is waiting for his departure before publicly engaging the US on matters of difference. Both approaches may be prudent but are certainly not examples of bridging or brokering.

While New Zealand audiences may like it, China and the US are not fooled by the bridge and broker rhetoric. They know that should push come to shove New Zealand will have to make a choice. One involves losing trade revenues, the other involves losing security guarantees. One involves backing a traditional ally, the other breaking with tradition in order to align with a rising power. Neither choice will be pleasant and it behooves foreign policy planners to be doing cost/benefits analysis on each because the moment of decision may be closer than expected.

Analysis syndicated by 36th Parallel Assessments –

The Trump administration’s decision to withdraw the Trans-Pacific Partnership Agreement, a multinational trade and investment accord involving eleven Pacific Rim countries other than the US, is seen as a blow to hopes for a freer flow of goods and services in the Asia-Pacific Region. In this analytic brief we look at the potential opportunities presented to the non-US TPPA signatories by the US abrogation.

When President Trump signed the executive order withdrawing the US signature from the Trans Pacific Partnership Agreement (TTPA), he signed the death warrant of that multinational trade deal in its present form. The US was the core member of the TPPA and held the dominant negotiating position within it, so the decade-in-the-making, laboriously undertaken and vexing complex compact that was agreed to by the other eleven signatories is now all but null and void.

There are options, however, for the TPPA that may allow it to survive and thrive in light of Trump’s unilateral abrogation.

First, the other eleven member states can put the agreement into hibernation, wait for the 2020 US presidential election and hope that a more trade-oriented president succeeds Trump.

Second, they can hope that the Republican congressional leadership will force Trump to reverse his decision sometime between now and 2020. That would only occur if Trump is weakened by some failure and the GOP sensed that it could re-assert its traditional pro-trade stance at his expense. The Democrats would welcome the move for opportunistic partisan reasons even if some of its leading figures such as Bernie Sanders also oppose the TPPA and applauded Trump’s decision to pull plug on it.

Third, the members could look to themselves and re-draw an agreement that is less US-centric. Many of the provisions insisted on by the US could be reconsidered and even dropped in exchange for increased preferences for the interests of previously junior TPPA partners.

Fourth, the remaining TPPA partners could look to fill the void left by the US with another large market economy. The one that springs immediately to mind is China. That is where things get interesting, and where opportunity may lie.

China is already party to the ASEAN-China Free Trade Agreement (ACFTA) that established a regional free trade area that is the largest in terms of population and third largest in term of trade volume and nominal GDP. Some of the ACFTA signatories are also parties to the TPPA (Brunei, Malaysia, Singapore, Vietnam). This agreement is considered to be a “true” free trade agreement in the Ricardian sense because it reduces tariffs across 7,881 product categories to zero percent, with the result being that tariffs on ASEAN goods sold to China fell to 0.1 percent and those of China sold in ASEAN to 0.1 percent in the year the agreement went into force (2010)

The non-US TPPA members could opt to negotiate an agreement with ACTFA as one course of action. That may be difficult given that the TPPA is not a “genuine” FTA as much as it is an investor guarantee agreement (IGA) in which market regulations are altered to attract foreign investors and these are protected from legal liability in the event of disputes with the host state. What is not included in the TPPA are across-the-board reductions to zero tariff, and in fact many domestic industries remain protected or subsidised throughout the TPPA membership as part of the horse trading undertaken during negotiations over its central tenets. But it may be possible to reconcile the two trade deals in an effort to create a new super trade bloc on neo-Ricardian grounds.

Another option might be to invite China to the table. It has the second largest market in the world and is continues to grow at a sustained and rapid pace in spite of the vicissitudes of the world economy over the last two decades. It is making the transition from export platform to a mixed domestic mass consumption/value-added export model, and it has previously expressed interest in joining the TPPA. The US blocked consideration of China’s membership because it saw the TPPA as the economic equivalent of the military “pivot to Asia” announced by the Obama administration, that is, as a hedge against Chinese economic, diplomatic and military influence in the Western Pacific Rim in what amounts to a new Containment Policy in the Asia-Pacific.

With the US gone, China has an opening and the remaining TPPA members have an opportunity. The TPPA will have to be renegotiated, but it is likely that the non-negotiable provisions insisted by the US will not be supported by the Chinese and can be dropped in the effort to entice their interest. In turn, China might have to accept something less than blanket reductions in uniform tariffs and agree to a tariff reduction regime that is more segmented and scaled in orientation and gradual and incremental in application (i.e. more product or industry specific and phased in over a longer period of time). That is clearly within the realm of possibility, as is Chinese agreement to other TPPA provisions stripped of their US-centric orientation.

China has already signalled its intentions in this regard. President Xi used this year’s Davos Forum to preach the virtues of free trade and global commerce, arguing against protectionism as an impediment to international understanding and exchange. China has proposed the creation of a Regional Comprehensive Economic Partnership (RCEP) along the lines mentioned above with regard to an ACTFA-TPPA merger but with the provision that the US be excluded. There are many details to be ironed out but the groundwork has been laid for that to happen.

What makes the turn to a China-included trade bloc a potentially win-win proposition for remaining TPPA signatories is that the key provisions demanded by the US–changes in market regulations and preferential market entry clauses for US business interests (including changes in patent and copyright protection) and imposition of limited liability clauses in the event US businesses are sued by local governments–were those that were most resisted by domestic audiences in several TPPA member countries. Removing them not only allows the agreement to be free of those constraints but also diffuses a source of domestic opposition in countries where such things matter.

One thing TPPA states should think carefully about, especially small states like New Zealand, is the invitation to negotiate bi-lateral trade deals with the US instead of the TPPA (something just announced by the Trump administration). The historical record shows that large asymmetries in market size favour the larger over the smaller partner in bilateral trade agreements. This is due to economies of scale, market dominance, and economic and geopolitical influence derived from market size advantages. The recent track record of bilateral deals between the US and smaller states reinforces this fact. Australia, South Korea, Chile, Colombia and the Central American nations plus Dominican Republic grouped in the CAFTA scheme all have bilateral FTAs with the US. In all instances the majority benefits accrued to US-based companies and industries and the benefits accrued in the partner states were limited to specific export markets (mostly in primary goods), with little flow-on, trickle down or developmental effects in the broader national economies.

So rather than “jump on a plane” to sign a bilateral deal with the US, as one wag put it, smaller states such as New Zealand need to think hard whether the bilateral alternative with the US is more long-term beneficial than a multilateral agreement, especially when it has shown that under a certain type of administration the US is willing to renege on its commitments even if they are multilateral rather than bilateral in nature. With the Trump administration also set to review and replace the tripartite North American Free Trade Agreement with Canada and Mexico (NAFTA), it is clear that honoring commitments and maintaining continuity in trade policy is not, even if just for the short term, on the US agenda.

When one widens the lens on what the Trump administration is doing in terms of its threats to withdraw from various bi-and multinational defense agreements unless the partner states “pay more” for US protection, it becomes clear that the US is not, at least for now, a reliable international partner.

The reason is that the new US attitude to trade is part of a larger phenomenon. The neo-isolationist protectionism embedded in the “America First” approach adopted by the Trump administration has ended, however temporarily, over 50 years of bipartisan consensus in the US political elite on the merits of international engagement. Be it in trade, foreign aid or collective defense, the US policy elite, both public and private, have embraced globalisation as a means of projecting US power, influence and values world-wide. That era has come to end for the time being, and so long as Trump is successful in pursing his “America First” strategy it will continue to be so.

That may or may not make America Great Again but it could well have a negative impact on those who seek mutual benefit by engaging with it. They will be asked to do more, pay more and offer more concessions in order to be granted US favour.

In the absence of an alternative, that is an unenviable position to be in.

If alternatives are available, then the current moment in US politics provides a window of opportunity to countries that have found themselves marginalised by Trump’s policy directives.

The re-orientation of TPPA is one such opportunity because, if for no other reason, a US return to the TPPA fold in the post-Trump era will see it with much less leverage than it had up until now. Add to that the possibility of increased benefits via a renegotiated deal with the remaining and possibly new partners, and the downside of the US withdrawal seems acceptable.

From a smaller nation perspective, that is a good thing.