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Author: Aurelia George Mulgan, UNSW Canberra

Australia’s farmers, particularly beef producers, may have celebrated too early when the Japan–Australia Economic Partnership Agreement (JAEPA) took effect on 15 January 2015. The deal may be gazumped by another that is taking shape between Japan and the United States in the Trans-Pacific Partnership (TPP) negotiations. Some elements of the proposed US–Japan agreement are reminiscent of the kind of bilateralism — or US-specific agricultural market concessions — that characterised Japan’s trade policy in earlier decades. Those deals significantly disadvantaged Australian agricultural exporters.

Japan has a long history of offering inducements to the US government in order to settle difficult multilateral trade negotiations. In December 1993, at the 11th hour of the General Agreement on Tariffs and Trade negotiations, the Japanese government agreed to place tariffs on all remaining agricultural import restrictions and commit to a minimum access arrangement on rice imports. The deal was worked out principally in bilateral negotiations between the United States and Japan. It included ‘special treatment’ on rice that, since 2000, has virtually guaranteed market access for 360,000 tons of US rice annually. This accounts for roughly 47 per cent of Japan’s 770,000-ton minimum access tariff-free quota for rice imports.

Australia also gained country-specific concessions from JAEPA. This included preferential access for a large volume of pork and exemption from Japan’s ‘gate price safeguard’, as well as a country-specific quota for chicken meat. Australia also won duty-free quotas for natural cheese and other cheese products, as well as for ice cream and yoghurt.

But there is supposed to be a big difference between a bilateral economic partnership agreement and the TPP. Despite the TPP’s aspirations to be both a multilateral and a free trade agreement, in reality it looks like being neither. Negotiations have been proceeding on two fronts simultaneously: among all 12 participating countries and bilaterally between particular countries, principally Japan and the United States.

This dual-track trade diplomacy will inevitably result in bilateral agreements between particular countries with carve outs and country-specific concessions. The TPP will not observe one of the fundamental principles of the multilateral trading system: most-favoured-nation (MFN) treatment. The TPP participants will not only discriminate against countries that are not parties to the agreement but also countries that are. This means that any US-specific concessions on agriculture will not apply to Australia. And yet extending MFN status is how you make originally bilateral agreements into multilateral ones.

The deal that is shaping up between the United States and Japan on agricultural market access is likely to contain several provisions that will affect Australia.

Rice, wheat and sugar will be exempt from tariff reduction. But in return for maintaining these tariffs, Japan is examining a 50,000-ton special import quota for American rice in addition to the current 770,000-ton tariff-free minimum access quota.

Tariffs on American beef will be reduced from 38.5 per cent to 9 per cent over 10 or more years. There will be a 20–30 per cent reduction in tariffs on cheaper pork, from the current tariffs of 482 yen (US$4.03) per kilogram to around 100 yen (US$0.83) per kilogram. The 4.3 per cent tariff on high-end pork will also be removed and tariff quotas will be set for some dairy products with low level tariffs. Finally, the terms of the deal will not be applied to other countries.

Offers along these lines were made by TPP Minister Akira Amari to the United States in the TPP meeting last November. They were turned down. But now more stars appear to be aligning in the domestic politics of both the United States and Japan.

Since last November, both countries have significantly adjusted their positions. The US side has changed its stance to allow a certain level of tariffs to remain on key ‘sensitive’ agricultural items. At the same time, Japan has been prepared to accept a greater reduction in tariffs on the condition that a relatively low trigger level can be established for safeguard measures that will kick in if there are surges in imports. It is currently predicted that a TPP ministerial meeting will be held before the end of February when the Japan–US talks will be settled.

Australia has a limited defence against these measures. Its beef exporters, for example, will be paying a 30.5 per cent tariff on frozen beef and 32.5 per cent on fresh beef. These are expected to fall to 23.5 per cent in 15 years and 19.5 per cent in 18 years respectively.

JAEPA does include a provision for a review that can be triggered immediately if Japan provides one of Australia’s competitors with a better deal on beef. This provision aims to provide Australia with equivalent treatment, but it is not necessarily guaranteed and would be subject to bilateral negotiations at the time. Naturally, it would also have important implications for Japan’s relations with the United States, Australia’s main beef competitor in the Japanese market.

On rice, Australia can request that Japan allocate more minimum access rice for them as well. But, given Japanese farmers’ sensitivities on rice market issues, the outcome is by no means certain either. Japanese farmers are against the increases in minimum access rice even from the United States.

For Japan, the special minimum access deal put in place to settle agricultural market negotiations with the United States more than 20 years ago still generates large deficits in the special account budget of the Ministry of Agriculture, Forestry and Fisheries. Between 2002 and fiscal 2013, it accumulated a deficit of 277.8 billion yen (US$2.3 billion). This fiscal burden would only increase if the United States were granted another 50,000-ton special rice quota.

It seems that ‘getting in first’ — as Australia did with the JAEPA — may have only conferred a temporary advantage in Australia’s export trade in beef and other agricultural products with Japan.

Aurelia George Mulgan is Professor at the University of New South Wales, Canberra. She is co-editor with Masayoshi Honma of The Political Economy of Japanese Trade Policy (PalgraveMacmillan forthcoming 2015) and is grateful for Professor Honma’s assistance in writing this article.

See original here:
What the TPP portends for Japan–Australia agricultural trade

Author: Fu-Kuo Liu, National Chengchi University

The results of Taiwan’s local elections, held in November, came as a big surprise to many not only in Taiwan. The ruling Kuomingtang (KMT) was defeated by an unprecedented margin. The results were a sharp reversal from those of the 2012 presidential election, won by the KMT. In the municipal mayoral elections, the KMT came away with only one out of six municipalities and five out of sixteen municipal cities and counties. The results have significantly changed Taiwan’s political landscape. But they should not be considered a referendum on cross-strait relations.

Taiwanese President Ma Ying-jeou speaking at a campaign rally before Taiwan's local elections. President Ma resigned from his position as chairman of the Kuomingtang soon after the election results were confirmed, leaving the party in chaos. (Photo: AAP).

While most surveys conducted prior to the election predicted a likely loss for the KMT, none envisioned a defeat on such a scale. Many are wondering why the ruling government was so badly crushed. Importantly, the outcome breaks the pattern of traditional party strongholds at the local level in Taiwan. It may directly impact the 2016 presidential election and result in a possible change of course in cross-strait relations, which have been flourishing.

President Ma Ying-jeou resigned from his position as chairman of the KMT soon after the election results were confirmed, leaving the party in chaos. Ma’s unpopularity plagued the party during the campaign. His administration has been seen as indecisive, capricious, ineffective, weak, lacking momentum, and short-sighted. Two important groups of swinging voters determined the election: frustrated KMT supporters who chose not to vote and uncertain young voters who turned out in unprecedented numbers.

The Sunflower Movement, which began as a student demonstration in March 2014, clearly reflected the public’s concerns about the future of the nation and the future course of cross-strait relations. The government mishandled the occupation of the Legislative Yuan by students for over a month last year. Worse still, the government has not actively responded to students’ requests for a transparent and constitutional procedure for legislative scrutiny of cross-strait deals. The legislature’s decision not to ratify the Cross-Strait Service Trade Agreement (CSSTA) between China and Taiwan has been interpreted as a clear sign of rising anti-China sentiment in Taiwan society.

The crux of the political impasse, however, is the rivalry between President Ma and the speaker of the Legislative Yuan, Wang Jin-pyng, who is also a vice chairman of the KMT. Although the KMT has held a majority of seats for six years, most of Ma’s policy efforts have been crippled in the legislature. Ma’s tendency to circumvent legislative scrutiny on cross-strait deals has meant that legislators, dissatisfied with Ma’s methods, have boycotted proposed legislation. KMT supporters are frustrated with the ineffective and weak governance of Ma and his party. This election was definitely a vote of no confidence in the Ma administration.

Taiwan’s political landscape is always sensitive to cross-strait relations and regional security. While the decision of swinging voters to opt for the DPP won’t necessarily be permanent, it does add to the unpredictability of the future of cross-strait relations.

Following the KMT’s defeat, Beijing has tried hard to figure out what exactly is happening in Taiwan and is questioning whether it should adjust its present course, characterised by a relatively benign cross-strait policy. Similarly, the US government was surprised to learn that Ma has become such an unpopular figure among voters but has declined to make any clear comments on the future of cross-strait relations. It also stresses that the US continues to encourage both sides to improve relations.

All this has led some commentators to suggest that the vote was essentially a referendum on cross-strait relations. But this is mistaken. The elections were held at the local level and cross-strait issues were not touched upon at all throughout the campaign. Even the DPP quickly made clear that it would be wrong to interpret the election as a referendum on the KMT’s mainland policy. The election results should not be interpreted either as a failure of China’s or the KMT’s cross-strait policy.

Some worry about the increasing tendency towards anti-China sentiments rising up from Taiwan’s grassroots. It is true that the political changes in motion may add more unpredictability to cross-strait relations. In order to convince voters that it deserves their support, the DPP has to commit to finding common ground with China in the next few months. This is by far the greatest challenge to the independence-oriented party and its leadership.

The KMT’s defeat signaled an end to Ma’s exclusionist way of conducting cross-strait relations. But while the loss was a serious blow to the KMT and to the morale of its government, it does not mean that victory is out of reach in the 2016 general and presidential elections. The KMT will soon elect a new chairman to lead the party out of the woods. The big question is not how Beijing and Taipei should move forward quickly but how Taiwan’s leaders can convince its people to support further cross-strait economic development.

Fu-Kuo Liu is a professor at the Institute of International Relations, National Chengchi University, Taiwan.

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Taiwan’s shifting political landscape

Author: Peter McCawley, ANU

An embarrassing fact about ASEAN governments that is generally avoided in public policy discussions is that the capacity of most ASEAN states is quite limited — much more limited than they, and the international community, generally wish to admit. Until it is recognised that state capacity is limited, it will be hard to understand the implications for public policy.

A construction worker builds iron reinforcement column at a high rise office building construction site in Indonesia's capital Jakarta on April 22, 2013. Asia-Pacific growth will edge up this year on the back of a recovery in the US and emerging nations, a United Nations study said April 18, 2013, but it urged governments to take bolder steps to lift millions out of poverty. (Photo: AFP)

It is not easy to measure the capacity of a state. Essentially, the concept is closely related to the power it can exercise. Power, in turn, can be measured and exercised in various ways — including politically, coercively through the military and police, legally, and administratively.

Levels of taxation and expenditure are two important measures of the capacity of a state. The level of taxation is a good measure because it reflects the power of a state to collect revenues from citizens to provide public goods. From another point of view, expenditures are a better measure because the size of expenditures indicates the ability of a state to respond to the expectations of citizens and to provide the goods and services that citizens expect from their governments.

Surprisingly, statistics on levels of taxation and expenditure in ASEAN are somewhat opaque. The key data are not readily accessible. Having comparable figures on the fiscal capacity of ASEAN states more widely available would be a useful first.

Figures for government spending across ASEAN throw up some startling facts. As a benchmark, the average level of government spending in Australia and New Zealand in 2012 was around US$16,800 per person. By comparison, the average level of government spending across ASEAN in the same year was around US$730.

The figures for government spending across ASEAN naturally vary from country to country. In oil-rich Brunei the government spent over US$15,000 per person in 2012. Government spending in Indonesia, the largest country in ASEAN, was slightly below the average, at about US$600 per person. And in Myanmar, the fiscal capacity of government was very limited indeed, with annual spending at around US$40 per person.

These extraordinary differences in per capita government spending may be interpreted in different ways. One view is that the different levels are not surprising because they reflect, naturally, the different levels of income per capita in the different countries. While this is doubtless true, it is also true that the expectations of ordinary citizens across ASEAN in a globalising world are increasingly influenced by international comparisons. While state capacity is limited, expectations of the state are not.

Another view is that international comparisons of this kind need to be adjusted for purchasing power parity (PPP) differences between countries. But while it is true that notable price differences exist between countries, these differences often reflect large disparities in the quality of goods and services. And PPP measurements often fail to allow for the fact that the prices of many goods on which governments spend their money are set in international markets. The world price of building infrastructure (quality-adjusted) is often quite similar in different countries.

This picture of the limited economic capacity of governments in most ASEAN countries is worrying. It suggests that it would be useful to undertake the painful and controversial task of reassessing strategies of state management and of public service delivery. What are the implications for policy and for the delivery of public programs? More broadly, what should the state’s role be when resources are so sharply constrained?

Three main steps seem to be needed. First, there needs to be discussion of the generally-accepted paradigm of a strong economic state which, among other things, promises to protect the populace from the ravages of uncaring market forces. In fact, market forces are often dominant in poorly-regulated informal economies across ASEAN. Governments frequently try to impose regulation on these markets but generally fail.

A second step, therefore, would be to recognise the problems that arise when there are excessive expectations about the role that the state can play. Clearly ASEAN states cannot provide the range of services that are available in the OECD welfare states. It would be best if the challenges of designing governments to live with very limited budgets were more widely discussed.

It is hard to avoid the impression that, at least in the low-spending ASEAN states, many branches of government are badly over-stretched. Too often political leaders over-promise and under-deliver. Put simply, governments are trying to do far too much with far too little. The result is a vicious circle: citizens become disillusioned with governments and see little reason for paying taxes or even user charges for government services, thus exacerbating the problem of limited resources for the public sector.

A third step towards reconsidering the role of the state is to define the role of government carefully. To be effective, this would need to go well beyond the dozens of programs of public management reform which have been outlined for ASEAN governments in recent years. The measures that are needed to match the functions of governments more closely would be controversial. Governments should identify strict economies in the range of services they provide, improve revenue collection procedures at all main levels of government (including by state-owned enterprises through higher user charges), and systematically simplify administrative services. They should also review the scope of their activities to design an approach where governments ‘steer, not row’ and strengthen their ability to regulate the outsourced provision of services to communities.

Reconsidering the role of the state is needed not as a response to Western pro-market ideology but because, quite simply, states in the region are trying to do too much with too little. And both government failure and market failure are the result. Government failure often exacerbates market failure because overstretched governments cannot perform even basic regulatory functions properly. A pragmatic and determined approach to reform is needed to strengthen the operations of both governments and markets in the region.

Peter McCawley is a Visiting Fellow at the Crawford School of Public Policy at The Australian National University.

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘The state and economic enterprise’.

Continued here:
Strengthening the state and market in ASEAN

Author: Benedikt Buechel, Seoul National University

Since Prime Minister Shinzo Abe’s return to power in December 2012, Japan’s diplomatic relations with South Korea have continuously worsened. Abe’s persistent stance on the Yasukuni Shrine, the Dokdo/Takeshima territorial dispute and the ‘comfort women’ issue has elicited fierce opposition from the South Korean government. While no rapprochement on any of these conflicts has been achieved, the Japanese government should be aware that its hawkish and revisionist rhetoric is hurting Japan’s reputation and risks driving the country into international isolation.

Japanese lawmakers visit the Yasukuni Shrine to pay respect to the war dead on the day of the 69th anniversary of the end of the World War II, in Tokyo , Friday, 15 August 2014. (Photo: AAP)

Abe’s politics towards these issues appears to be influenced by Japan’s diplomacy during Democratic Party of Japan (DPJ) governance from 2009–12. A major policy of Abe’s predecessor Yukio Hatoyama, in power from 2009–10, was to embrace Japan’s neighbouring countries to build a stronger East Asian community. But the policy failed. It seemed that neither China nor South Korea was ready to be embraced by Japan. Instead, both countries used the opportunity to assert stronger claims on disputed territories. Abe’s current stance, in line with his overall political agenda of making Japan strong again, is a response to these events.

Abe often seems to have a dual personality: one pragmatic and the other nationalistic. On visiting the Yasukuni Shrine in December 2013, he emphasised that it was not his intention to hurt the feelings of Chinese and South Korean people. While reconfirming the Kono Statement in a speech in May 2013, he broke with tradition by not mentioning those killed by Japanese soldiers during World War II in another speech in August that year. In 2014, on the 69th anniversary of Japan’s defeat, Abe did not visit the Yasukuni Shrine, sending only a ritual offering. He also refrained from going to the shrine for the autumn festival.

This flip-flopping behaviour has been interpreted as an attempt to calm critics prior to the bilateral meeting with Chinese president Xi Jinping at APEC. Yet even Abe’s ostensibly pragmatic rhetoric and offerings to Yasukuni in lieu of personal visits still left a bitter taste and drew harsh responses from China and South Korea.

The South Korean government, for its part, seeks to capitalise on public anti-Japanese sentiment, especially toward politicians. Surveys have shown that Japan and Abe are perceived almost equally as bad as North Korea and Kim Jong-un.

The latest expression of this strategy could be seen when Kato Tatsuya, the Seoul bureau chief of the right-wing Sankei Shimbun, was charged for supposedly libelling South Korean president Park Geun-hye. Tatsuya had speculated about why it took Park seven hours to show up at the Central Disaster Management Headquarters on the day of the tragic Sewol ferry disaster. The president’s daily log, which was later released to public, only stated her absence but said nothing about what she had been doing. Moreover, the recent actions by the South Korean government have created a climate in which South Korean journalists can hardly write anything positive about Japan.

The aggressive rhetoric being pushed by Japan’s right-leaning media further compounds the Japan-ROK tensions. Japan’s biggest daily newspaper, the conservative Yomiuri Shimbun, has criticising the more liberal Asahi Shimbun for their coverage of the ‘comfort women’ issue. Their loud criticism targeted several Asahi reports that were based on the subsequently false testimony of Seiji Yoshida, a novelist and soldier in the Imperial Japanese Army.

While the Yomiuri Shimbun is right in discrediting these particular reports of women being forcibly taken, this does not fundamentally change the core of the issue. But the mistakes made by the Asahi Shimbun have been used as an opportunity to do exactly that.

After the UN rejected efforts by the Japanese government to revise a 1996 report which determined that so-called ‘comfort women’ had served as sex slaves, the Yomiuri Shimbun recently published three booklets on the issue. The arguments contained within them are quite disturbing. It is alleged that Korean men also sexually attacked Japanese women during the war, a line of thought also advanced by the extremely nationalistic Japan Institute for National Fundamentals. It is concerning that not only is this obscure think-tank prominently advertised by the Yomuri Shimbun but also that a number of professors and journalists support and contribute to it.

It is time that Japan’s liberal internationalists raise their voices to drown the loud noises of the growing revisionist camp. China and South Korea should actively support such efforts instead of continuously criticising, but this would mean the end of capitalising on anti-Japanese public sentiment. For Japan, there would be nothing worse in its quest to revitalise it economy than being isolated any time in the near future.

Benedikt Buechel is a graduate student at the Seoul National University.

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Liberal Japan needs to drown out revisionist voices

Taiwan’s ruling Nationalist Party is poised to lose ground in local elections Saturday. But if China feels antsy about the prospect, they have kept it well under wraps.

Reforms started in the late 1970s with the phasing out of collectivized agriculture, and expanded to include the gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, the foundation of a diversified banking system, the development of stock markets, the rapid growth of the non-state sector, and the opening to foreign trade and investment.

The government vowed to continue reforming the economy and emphasized the need to increase domestic consumption in order to make China less dependent on foreign exports for GDP growth in the future.

The country’s per capita income was at $6,567 (IMF, 98th) in 2009.

Some economists believe that Chinese economic growth has been in fact understated during much of the 1990s and early 2000s, failing to fully factor in the growth driven by the private sector and that the extent at which China is dependent on exports is exaggerated.

The two sectors have differed in many respects.

The technological level and quality standards of its industry as a whole are still fairly low, notwithstanding a marked change since 2000, spurred in part by foreign investment.

China’s increasing integration with the international economy and its growing efforts to use market forces to govern the domestic allocation of goods have exacerbated this problem.

Globally, foreign investment decreased by almost 40 percent last year amid the financial downturn and is expected to show only marginal growth this year.

In this period the average annual growth rate stood at more than 50 percent.

China is aiming to be the world’s largest new energy vehicle market by 2020 with 5 million cars.

China’s challenge in the early 21st century will be to balance its highly centralized political system with an increasingly decentralized economic system.

Since the late 1970s, China has decollectivized agriculture, yielding tremendous gains in production.

China is the world’s largest producer of rice and wheat and a major producer of sweet potatoes, sorghum, millet, barley, peanuts, corn, soybeans, and potatoes.

Sheep, cattle, and goats are the most common types of livestock.

China is one of the world’s major mineral-producing countries.

There are large deposits of uranium in the northwest, especially in Xinjiang; there are also mines in Jiangxi and Guangdong provs.

China also has extensive hydroelectric energy potential, notably in Yunnan, W Sichuan, and E Tibet, although hydroelectric power accounts for only 5% of the country’s total energy production.

Although a British crown colony until its return to Chinese control in 1997, Hong Kong has long been a major maritime outlet of S China.
Rivers and canals (notably the Grand Canal, which connects the Huang He and the Chang rivers) remain important transportation arteries.

More:
China Being Reticent Ahead of Taiwan Local Elections

Authors: Cassandra Shih, Victoria University of Wellington, and Benedict Xu-Holland, ANU.

So far 20 countries have taken up China’s open invitation to found the Asian Infrastructure Investment Bank (AIIB). Notably absent at the signing were Australia, Indonesia and South Korea, who did not definitively respond to the invitation. Until a week before the signing it seemed likely that Australia would join, but it eventually withdrew, citing ongoing transparency concerns similar to those voiced by US officials. The US likely sees the new bank as a threat to the US and Japan’s status as the regional norm-shapers of development finance.

The AIIB presents an opportunity for New Zealand to amplify its impact in the region. Though not a member of the AIIB, New Zealand is in a prime position to help manage future Pacific projects that attract AIIB backing. New Zealand’s small size and relative lack of geopolitical alignment allow it to pursue partnerships with both the US and China, while experience working in the Pacific makes its input on projects valuable.

China's President Xi Jinping walks with New Zealand's Prime Minister John Key after attending a meeting with the New Zealand-China Council in Auckland on November 21 2014. (Photo: AAP)

At its core, the establishment of the AIIB is a product of China’s dissatisfaction with existing US-dominated development finance institutions. China’s share of the vote in the Asian Development Bank (6.47 per cent) and the World Bank (5.17 per cent) does not reflect its economic power. Current levels of lending by the ADB and the World Bank fall far short of meeting the region’s acute demand for infrastructure investment. Loans from these institutions are also burdened by extensive transparency and good governance requirements.

China, on the other hand, has an interest in promoting a set of development norms based on political non-interference. China also stands to gain favour with its neighbours if its investment model can successfully spur regional development.

China has made large commitments to the New Development Bank (NDB) and the AIIB. So far China has taken responsibility for supplying around 40 per cent of the NDB’s US$100 billion contingency fund, more than twice the amount put forward by the other members, and half the AIIB’s initial US$100 billion capital fund.

The suspicion with which some view China’s expansion into multilateral development finance is unwarranted. While Beijing is attempting to increase China’s influence in the Asia Pacific, its actions amount to economic and political common sense. China has previously been criticised for being a passive power and demonstrating lacklustre leadership on international issues. Its significant capital reserves must be mobilised if the region’s infrastructure needs are to be met.

China wants to increase regional prosperity, boost its global leadership credentials, procure financial wins for Chinese state-owned enterprises and secure votes in organisations like the UN. China therefore has strong incentives to act as a responsible power.

Until recently, China has been averse to pooling its aid money with others for fear of losing autonomy. In 2012 it turned down an invitation from Australia to join the Cairns Compact to promote transparency in aid flows in the Pacific. A senior Chinese delegate Wang Yongqiu said, ‘We have different approaches and practices from Western developed countries. We feel it is unnecessary to accept this multilateral coordination mechanism, but we need time to study it’.

Now that China has established multilateral coordination mechanisms of its own, New Zealand should seek ways to contribute to the AIIB’s success, at least where the Pacific is concerned. The lack of involvement by other Western countries in the AIIB should not deter New Zealand. Indeed, New Zealand has a track record of firsts when it comes to China. New Zealand was the first developed country to sign a free trade agreement with China in 2008. It was also the first developed country to announce a trilateral development project with China in the Asia Pacific, with a NZ$50 million (US$38.5 million) project to improve water quality in the Cook Islands in 2012.

Of course, successful collaboration depends on clear-eyed risk assessment. Internationally, New Zealand has an iconic brand built around its reputation as a fair, independent, green and safe country. Threats to this brand are taken very seriously, with the memory of the 2008 Sanlu milk scandal still raw in the New Zealand political and business psyche. New Zealand must therefore be selective in the projects it chooses to become involved in.

Another risk for New Zealand is whether China–New Zealand development cooperation might inadvertently cool New Zealand’s recently strengthened security relationship with the US. In 2010, the Wellington Declaration was signed, symbolically patching the rift caused in 1984 by New Zealand’s anti-nuclear policy. Following the signing, the former US secretary of state, Hillary Clinton, described the US–New Zealand relationship as ‘stronger and more productive than it has been in 25 years’. Ironically, US appetite to re-engage with its traditional allies in the region is partly motivated by a desire to reinforce its sphere of influence in the face of a rising China.

Whether it is worth stepping back from this progress with the US to pursue opportunities created by the AIIB will depend on how willing New Zealand is to use the full policy space available and engage independently with its partners.

A successful New Zealand foreign policy depends on working with all significant powers in the Asia Pacific. A reliance on the economic goodwill of China and on informal security relations with its traditional partners means that New Zealand must walk a tightrope between the two. Remaining flexible and agile will be key to ensuring that New Zealand benefits from a rising China, while being able to advance Pacific development and the credibility of its independent brand.

Cassandra Shih is a recent graduate from the Victoria University of Wellington.

Benedict Xu-Holland is a student and Education Officer at the College of Arts and Social Sciences, the Australian National University.

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Why the AIIB presents an opportunity for New Zealand