US revives Asia trade agenda

Asia Times | Jan 13, 2010

US revives Asia trade agenda

By Benny Teh Cheng Guan

PENANG — A speech by United States President Barack Obama in Tokyo has elevated the status and prospect of the little-known Trans-Pacific Strategic Economic Partnership Agreement, known by many observers as the P4, to the center stage of regional economic cooperation. Obama said during his December speech that the US was "engaging with the Trans-Pacific partnership countries with the goal of shaping a regional agreement".

The Trans-Pacific Partnership (TPP), as the Office of the US Trade Representative (USTR) would have it called, is a free-trade agreement (FTA) between Brunei, Chile, New Zealand and Singapore that was concluded in 2005 and which came into force in May 2006. Together with Australia, Peru and Vietnam, the US aims to expand the TPP from four to eight members (P8).

Singapore and New Zealand have been pushing hardest for the US to join the P4. Though Singapore already has a bilateral FTA with the US, a regional FTA that included the US’s huge domestic market would provide Singapore with bigger trade opportunities and induce more countries to join. For New Zealand, Prime Minister John Key has said he sees an FTA with the US as "brilliant" for "economic growth in the next 10-20 years".

A US commitment to the P4 through a wider trade pact would indirectly inject new life into the fading Asia-Pacific Economic Cooperation (APEC), which veered off course into security issues during the George W Bush administration and which is now struggling to achieve its market-liberalizing goals set out in Bogor, Indonesia, in 1994. Time is fast running out for the developed members of APEC to achieve a free and open trade and investment regime by 2010.

With a renewed US commitment, the creation of a Free Trade Area of the Asia-Pacific (FTAAP), which the APEC Business Advisory Council has been calling for since 2004, may well be revived. This would in turn support the Asia-Pacific community idea that Australian Prime Minister Kevin Rudd has been touting.

But how likely is the achievement of a long-term vision that requires the political will, time and effort from all 21 APEC members? Whether the P4 represents a more viable, smaller-scale vision of the FTAAP is yet to be seen. Indeed, the route to transform the "little seed", as Singapore Prime Minister Lee Hsien Loong has referred to the P4, "into a significant tree and pillar for free trade" faces similar obstacles.

Since the P4 is not an APEC initiative, there is no commitment or timeframe for APEC members to participate. It is thus important to consider why the US might be interested in joining the free-trade initiative. One reason, some suggest, is that it provides a good stepping stone towards achieving the wider FTAAP. By piggybacking on an existing high-standard agreement, results could be accomplished at a quicker pace.

The selective P4, however, arguably runs contrary to the main objectives of APEC: to achieve an open regionalism. As with any FTA, the P4, even if expanded to include all APEC members, would still discriminate against non-members through tariff and non-tariff barriers.

Another argument against the P4 is to prevent a "line being drawn down the middle of the Pacific". This was then-US secretary of state James Baker’s caution close to two decades ago against a proposed East Asian trade grouping. He then warned and actively lobbied for South Korea and Japan to refrain from supporting the idea. His opposition was also the raison d’etre for the development of APEC.

Competitive agendas
Yet over a decade since the ASEAN Plus Three (APT) process came into being, no such lines have been drawn. Time and again, Asian leaders have asserted that the APT and East Asia Summit (EAS) are in line with global free-trade aspirations and should not be seen as closed-door regionalism just because they exclude the US. In fact, many Asian leaders are eager to forge FTAs with the US, despite the tedious and time-consuming negotiations.

Some believe the new US support for the P4 framework aims to counter any moves towards East Asian regionalism. Instead of pursuing FTAs with the Association of Southeast Asian Nations (ASEAN) and Northeast Asian countries under existing arrangements, the US appears to be reprioritizing its FTA policy in a way that may eventually contribute to divisions in the region.

After years of neglect under the Bush administration, the US knows that it no longer has the leverage to play a leadership role in shaping regional agreements, particularly if it continues to pursue bilateral FTAs with individual Asian countries. China, South Korea and Japan have concluded FTAs with ASEAN, while the US only has one, with Singapore. Proposed US trade deals with South Korea, Malaysia and Thailand have been suspended indefinitely.

The P4 would not only allow the US to play a key role in setting the standards for subsequent expansion of the grouping, but it also would fit into the broader notion of creating an Asia-Pacific-wide community, which to date has yet to gather momentum. Moreover, the US will be able to leverage on its existing bilateral FTAs with all of P4 countries except Brunei, New Zealand and Vietnam. All told, the P4 could emerge as a "fast track" approach to trade liberalization that ensures a prominent US role.

In due course, the economic landscape could consist of three overlapping models being led by different regional powerhouses. The US will lead the P8, while China pursues the East Asia-wide Free Trade Area (EAFTA) and Japan the Comprehensive Economic Partnership in East Asia (CEPEA). Although these models may not necessarily be conflicted, any efforts to make them multilateral will face considerable political constraints and technical challenges, comparable to the stalled negotiations of the World Trade Organization’s Doha Round.

Recent US moves will likely stimulate a number of responses from Asian countries. For instance, Japan may have to reevaluate its FTA strategy. Taken aback by China’s proactive stance towards FTAs, Japan’s Ministry of Economy, Trade and Industry officials have been rigorously advocating the CEPEA for the region. This has been widely seen as a way to dilute growing Chinese influence primarily on ASEAN countries, where Japanese corporations are heavily invested.

With the US now recalibrating its position, Japan will need to reexamine its priorities on the questions of economic institutionalism and US engagement. The US will undoubtedly want Japan to participate in the development of the P4. But since negotiations and subsequent US congressional approval will likely be tedious, Japan may instead take a "wait and see" approach before abandoning CEPEA. However Japan will be compelled to take a clear stance on the issue when it hosts the next APEC meeting, scheduled for November 2010.

Meanwhile, China’s efforts to push for the EAFTA could be disrupted if South Korea and Japan turn their attention to the P4. These three countries will still need to work out an agreement among them even though each has an existing FTA with ASEAN. In addition, it’s unlikely that China would subject itself to any NAFTA-style FTA that includes binding agreement on minimal environment and labor standards.

There is also the issue of Taiwan. China has vigorously used its political and economic clout to pressure countries against signing FTAs with Taiwan, which Beijing still considers a renegade province. But Taiwan’s interest in participating in the P4 will raise an important question of whether the P4 is open to countries or "economies" as defined by APEC. If the P4 is eventually adopted as the platform for economic integration within APEC, Taiwan would benefit significantly.

China would not likely sit and watch passively from the sidelines. The best way to prevent China’s objection and draw China and the US into a direct conflict on the issue is for Taiwan to successfully establish a comprehensive trade agreement with China. This has to be done carefully since the agreement will likely become a reference point for Taiwan’s other potential FTA partners.

South Korea, meanwhile, despite having bilateral FTAs with two P4 members - Chile and Singapore - will likely take a cautious approach similar to Japan’s considering its FTA with the US is still pending legislative approval. Even if the FTA with the US comes into force, South Korea may withhold its commitment until the US successfully concludes of an agreement with the P8.

The US’s move towards the P4 has notably enhanced the framework’s attractiveness and could reestablish Washington’s leadership role in future discussions on regional economic integration. With Asia leading the way towards recovery from the global economic crisis and new talk of the dawning of an Asian century, it is only natural that countries outside the region’s geography to seek inclusion through creative proposals.

But it’s yet to be seen whether a US-backed expansion of the P4 reinvigorates stalled free trade and investment or instead sows new divisions.

Dr Benny Teh Cheng Guan is senior lecturer of the School of Social Sciences at the Universiti Sains Malaysia.

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source: Asia Times