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Interest builds in Pacific trade zone

Wall Street Journal | 7 October 2010

Interest Builds in Pacific trade zone


Momentum is building for a U.S.-supported free-trade pact in the Pacific that could serve as a counterweight to China’s economic influence.

Malaysia announced this week that it has joined early talks on expanding the Trans-Pacific Partnership, an effort to tie economies along the Pacific into a free-trade zone. Japan and the Philippines have also recently indicated interest in joining the talks.

An expanded TPP, as it is known, will require years of negotiations. Passage is hardly assured, given the difficult environment for free-trade agreements in the U.S. Congress.

But the advancement of negotiations provides symbolic support to the Obama administration’s effort to engage Asia and assert itself in a region increasingly influenced by China. Such a trade deal could be an easier sell in Washington if it is seen as a way to counter China’s rise.

Within Asia, U.S. engagement offers a similar attraction amid China’s growing assertiveness in economic and military matters. "Smaller Asian nations need the U.S. to remain engaged and help to balance China," says Manu Bhaskaran, chief executive for Centennial Asia Advisors, an economic consultancy in Singapore. "A China that is balanced and constrained is more likely to behave constructively."

China, which is now the largest trading partner with most Asian economies, has been active in recent years in striking trade pacts with its neighbors. Notable is its agreement with the Association of Southeast Asian Nations, which came into full effect this year. Asean includes 10 nations with nearly 600 million people and a gross domestic product that would make it the ninth-largest economy in the world.

The TPP had been seen as a low-key effort with little potential economic impact on the U.S. There are four core members with small economies: New Zealand, Singapore, Chile and Brunei. The U.S. already has free-trade pacts with Singapore and Chile, as well as with Australia and Peru, which are part of the TPP expansion talks.

Vietnam is also part of the effort. Negotiators met this week in Brunei, an oil-rich principality on the island of Borneo, to discuss a preliminary framework and ground rules for the negotiations.

The addition of Malaysia—the U.S.’s 16th-largest trade partner, whose GDP has more than doubled in the past decade—gives the effort momentum to attract others in the region. The Philippines’ undersecretary for international trade, Adrian S. Cristobal, recently said his country would like to join TPP talks.

Japan in recent weeks has also expressed interest in joining. However, Japan would need to sort out issues related to its highly protected agriculture sector before joining.

Soon after word of Malaysia’s entry into the negotiations, skeptics and supporters from both political parties in the U.S. weighed in.

Rep. David Wu (D., Ore.) a member of the president’s export council, sent a letter to Barack Obama calling for human rights to be put on an equal footing with labor and environmental protections in trade agreements. "Trade agreements, such as the Trans-Pacific Partnership, should not be viewed as a free pass to sacrifice fundamental values," Mr. Wu said in a statement.

Speaking for the Republican leadership, House Ways and Means Committee ranking member Rep. Dave Camp (R., Mich.) said Malaysia’s entry would help "address outstanding issues in government procurement, investment and financial services, and achieve an even wider regional TPP agreement."

A White House official said it was too early to speculate how negotiators would navigate political hurdles involving TPP, particularly before the November midterm elections, the results of which could change the contours of the debate.

In Asia, the impression is also that any trade pact will require the political atmosphere in Washington to change.

"How could the U.S.—with the current mood in the Congress—enter into a free-trade area that involves all kinds of countries when it could not get its deal with Korea through," said Ruodolfo Severino, a former Asean secretary-general, who heads the Asean Studies Center at the Insititute of Southeast Asian Studies in Singapore, referring to a trade pact that the U.S. and South Korea signed in 2007 but has yet to be taken up by the Senate.

Malaysia’s move puts it back into negotiations with the U.S. on trade. Talks for a bilateral agreement between the two countries broke down in 2006. The U.S. accounts for nearly 12% of Malaysia’s trade.

"Malaysians just want to get general support for the stance of being open to the rest of the world and showing its own people and the outside world that it’s open to investment," said Mr. Severino. Malaysia has lagged behind fast-growing neighbors Vietnam and Indonesia in attracting foreign direct investment in recent years.

The U.S. Chamber of Commerce, which has spurred the Obama administration to engage more with Asia in the past, welcomed Malaysia’s interest. "Malaysia’s inclusion in this high-level agreement will open up sectors to U.S. companies—such as financial services and government procurement—that have long been closed to American firms," said Tami Overby, the Chamber’s vice president for Asia.

 source: WSJ