Why we need to keep an eye on our neighbours

We don't live in a bubble. In fact, New Zealand lives in a world in which governments are constantly strategising to maintain their country's development and prosperity.

Bilateral and multilateral relationships are built on the basis of good intentions and probable good outcomes.

Yet, these good faith relationships are threatened by the inevitable collateral damage that can be caused when a good relationship between two countries results in the decline of a third.

So, despite not being directly involved in many global issues, it is essential for New Zealand to recognise that other countries' strategies and actions can sometimes affect us without us knowing about it.

For example, we could be hit by trade substitution or by omission from pacts and agreements.

What's happening in Asia?

Closer to home, Australia and Indonesia resumed their talks earlier this year with the aim to conclude the Indonesia-Australia Comprehensive Economic Partnership Agreement as soon as possible. This is ongoing, but we can expect the two nations to push forward with new developments beyond their current set of agreements.

This agreement will clearly add value to the Asean-Australia-New Zealand Free Trade Agreement (AANZFTA), which was the first comprehensive free trade agreement signed by Asean.

Former Australian prime minister, Paul Keating, has even argued that Australia should join Asean, given its geographical proximity.

Although this is an interesting idea, it is difficult to see how it would actually work.

Australia is not truly adjacent to Asean, so mobility would be limited. Additionally a developed country joining a group of 10 developing countries would bring about its own complications.

Nonetheless, we should expect more strategies coming out of Australia addressing its engagement with Asean.

This comes as no surprise given that China is cutting its coal consumption by 400 million tons a year – a hefty blow for Australia. Asean now represents a significant opportunity instead.

In the meantime, following the South China Sea disputes, the Asean nations of Myanmar and Thailand are involved in security and economic cooperation discussions with China.

With numerous projects linking China's under-developed Western region to the Indian Ocean and the Gulf of Thailand, China is keen to build on current prevailing conditions to deepen its ties with both Thailand and Myanmar.

The key to success will be the One Belt One Road Initiative and the new Lancang-Mekong Cooperation framework, which will also boost the role of the Asian Infrastructure Investment Bank.

A top Chinese think-tank, the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, recently suggested that the Regional Comprehensive Economic Partnership should be moved forward quickly to allow the 16 Asian economies to work more closely, especially given the uncertainty surrounding the Trans-Pacific Partnership Agreement.

The matter of fact is that trade between Asean and China contracted in 2015, even though Chinese investment into Asean rose.

A holistic strategy is essential for New Zealand

While we tend to think of trade as bilateral, managing trade relationships in bilateral ways does not factor in the reality that New Zealand has limited capacity at its disposal.

Trade in goods and services should not come on a first-come-first-served basis as countries need to manage their portfolio of trade partners.

With the developments in and about Asean and Australia, New Zealand's closest neighbours, it is easy to see that we should also be strategising accordingly.

Can we increase trade with Australia, China and Asean? In an ideal state with unlimited supply, the answer is yes.

Should we trade more with Asean now that Australia is moving closer to our Asian neighbours? Of course we should also be doing more there.

Now that Australia is facing some tough times with China, should we exploit this opportunity to establish our rapport with China, and maybe to sign up as a connector for China's engagement with the Pacific? Again, a definite yes.

But all these engagements are dependent on two key elements: What portfolio is New Zealand aiming for in trading with Asia? And, importantly, what do other countries need and want?

This latter point is likely to determine some of the parameters that will help us address the portfolio issue.

Published on stuff.co.nz