Tuesday, November 8, 2016

As US votes, Europe and Asia ponder fate of trade deals

As US votes, Europe and Asia ponder fate of trade deals

Stalled efforts by the U.S. and European Union to forge a trans-Atlantic trade pact will remain on ice for the foreseeable future -- regardless of the outcome of the Nov. 8 U.S. presidential election, according to the EU's agriculture commissioner. Failure to finalize the proposed Transatlantic Trade and Investment Partnership pact reflects growing protectionist sentiment in both the U.S. and Europe, and mirrors problems besetting its U.S.-Asian counterpart, the Trans-Pacific Partnership agreement.

Negotiations on the TTIP will not resume until the new U.S. administration -- led by Democrat Hillary Clinton or her Republican rival Donald Trump -- settles into office, said Phil Hogan, the European Commissioner for Agriculture and Rural Development.

"These are on hold at the moment until we know what the new policy position of the U.S. will be," Hogan said on Tuesday in Jakarta, on the final leg of an EU trade mission to Asia. "We have had a lot of political rhetoric from both candidates, probably to a greater extent from Mr. Trump who has expressed himself as anti-trade, Mrs. Clinton has said less than positive things about trade as well."

Trump has expressed strong opposition to free trade agreements -- despite his background as a businessman -- while Clinton has been forced to reverse her support for deals such as the TPP due to an increasingly vocal protectionist faction in her own Democratic Party. Other more liberal Democrats fear  the failure of both the TPP and the TTIP trade deals will undermine American prestige in the world's most economically dynamic region.

Much has been made in Asia of opposition by both U.S. presidential contenders to the U.S.-led TPP, which was agreed in 2015. Among the 12 countries to sign the pact were Japan, Malaysia, Singapore and Vietnam, but the agreement has not been ratified in the U.S., where a majority of elected representatives appear hostile to the deal.

American backtracking on the TPP comes as U.S. allies such as the Philippines and Thailand are drifting toward China, the world's second biggest economy after the U.S.

The 28-member European Union, which collectively amounts to a bigger economy than either China or the U.S., accepts that the TTIP is in abeyance for now. U.S.-EU tensions over the stalled negotiations have simmered, with Germany's vice chancellor declaring the deal dead in late August after several rounds of fruitless negotiations. Earlier in 2016, Hogan and other top EU officials said they wanted to renegotiate some provisions of the TTIP, dealing a blow to Obama's hopes of finalizing an agreement before he leaves office in early 2017.

Hogan's farming portfolio takes up 38% of the EU budget, around $60 billion per year, and opposition to the TTIP is strong among some European farming lobbies, particularly in France, where in 2015 farmers staged protests against falling prices for agricultural products, and criticized Hogan's leadership of EU agricultural policy.

Further tensions

The U.S. election is not the only potential roadblock to future trade progress in Asia and Europe. The U.S. was also angered by EU tax demands on American multinationals, particularly a ruling earlier in 2016 that U.S. tech giant Apple owed $13 billion in unpaid taxes on the back of what the EU regarded as illegal state aid provided by member state Ireland. The U.S. in turn has raised the ire of Europeans by imposing huge fines on European banks operating stateside.

In late June, the U.K. voted in a referendum to leave the EU -- a move that has triggered bitter debate. "The United Kingdom are net contributors financially, to the tune of 10 [or] 11 billion [euros], to the European Union budget, so it is going to have an impact on all programs," Hogan told the Nikkei Asian Review, noting how Brexit will affect EU spending in areas such as agriculture.

Hogan added that it is impossible to assess the wider impact of the U.K.'s departure, unless the government reveals its exit plans. A high court in Britain ruled in early November that the U.K. parliament alone can notify Brussels of the country's decision to leave the EU, which would then trigger negotiations for departure. The British government, led by Prime Minister Theresa May, had hoped that it could trigger the departure mechanism without parliamentary approval.

"The truth is no-one knows what the British government has in mind," Hogan said. "In the event that we know what the principles are around those negotiations [on UK withdrawal from the EU] then we can better answer."

What Britain's departure from the EU does mean, Hogan added, is that "trade negotiations cannot start until such time as the exit negotiations are concluded."

EU looks eastward

In the meantime, the EU is hoping to drum up more commercial opportunities in Asia for European businesses, after a free trade deal between the EU and Canada almost collapsed recently when objections were raised by the French-speaking Belgian region of Wallonia.

Before visiting Indonesia to discuss a bilateral economic partnership agreement -- something the EU hopes will lead to full free trade deal -- Hogan and a group of 42 European business leaders visited Vietnam and Hong Kong.

The EU opened negotiations for a region-to-region free trade deal with the Association of Southeast Asian Nations in in 2007, but those talks were put on ice in 2009 as the EU sought bilateral deals with some of the 10 ASEAN member states instead.

The EU is the largest source of foreign investment into ASEAN -- 22% of the region's total in 2014 -- and is the group's second biggest trade partner after China.

After signing a free trade agreement with Vietnam in 2015, Brussels conducted much more business with the country than with Indonesia, which is substantially larger.

The EU also has a free trade deal with Singapore, by far the region's wealthiest country, and, while total EU investment fluctuates year by year, Singapore is the main destination for European investment in Southeast Asia.

"They see the business to business contacts are very valuable in Singapore," Hogan said, discussing why European companies focus their Southeast Asian operations on the tiny city-state.

But Indonesia, which accounts for about 40% of the total 620 million population of Southeast Asia, has huge potential, said Hogan, praising some of the pro-business reforms enacted by the Indonesian government.

"European companies already provide 1 million jobs here in Indonesia and we hope it can grow," he said. "There is an expectation that 30% to 35% of the population will be middle class here by 2030."

Even so, there are hurdles for Europeans wanting to export agricultural products to Indonesia's growing consumer market, he added.

"They have to give us a level playing pitch to do so," Hogan said, citing as an example the lack of port access in Jakarta for some EU agricultural products -- a barrier not applied to imports from Australia or the U.S.

SIMON ROUGHNEEN, Asia regional correspondent


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