Wednesday, June 2, 2010

If the US Is Looking for Better Trade With Asia, a Trans-Pacific Partnership Isn't the Place to Start

President Barack Obama’s twice-deferred trip to Indonesia is now scheduled for the week after next, and will be combined with a visit to Australia. In the familiar phrase, these visits come at the best of times and the worst of times. It is the best of times because US relations with both Jakarta and Canberra have never been better. In 2008, President Susilo Bambang Yudhoyono announced his Comprehensive Partnership with the United States — a sea-change for Indonesia — and it will be further formalized and intensified during Obama’s three-day visit.

The goal will be both to “catch up” in sectors that have been relatively neglected in recent years, and to open up new fields for Indonesia-US cooperation. The catch-up category includes expanding scholarship and educational opportunities in the United States for young Indonesians, and resuming exchanges with Indonesia’s military, especially senior-officer training in the United States. The second category will emphasize the trade and investment opportunities Indonesia now represents for Americans.

As Trade Minister Mari Elka Pangestu recently remarked, Indonesia is acutely aware that it is little understood in the United States. It will seek to spread the word of what today’s Indonesia represents: high annual growth rates of more than 6 percent, a population of almost 250 million with a strongly favorable demography and a stable democratic environment.

From the US side, as Commerce Secretary Gary Locke has pointed out regarding Indonesia, US industry has special capabilities in infrastructure building, in the development of green and related high-tech energy sectors, and of course in agriculture.

But this is also the worst of times for a presidential visit to Australia and Southeast Asia because it is Northeast Asia that now consumes most of Washington’s attention in the Pacific region. Two critical issues are likely still to be at the top of America’s agenda during Obama’s visit. One is the tension with Japan centering on US military bases in Okinawa. The second issue is the March sinking of the South Korean naval vessel Cheonan and its 46 deaths.

Compared with those Northeast Asian issues, any foreign-policy questions posed by Indonesia and Australia may be seen as small beer, though ironically it reflects their success. Yet the need for an overall American Asia policy remains, and prominent voices stress that goal requires in turn a clear US trade policy. Obama’s decision to engage and endorse the Trans-Pacific Partnership is the result.

Other US trade venues, the World Trade Organization Doha Round, the South Korea free-trade agreement and possible FTAs with members of the Association of Southeast Asian Nations, are not being forgotten and will be pursued if opportunities arise. But the TPP effort — representing Australia, Brunei, Chile, New Zealand, Peru, Singapore, the United States and Vietnam — now tops Washington’s trade agenda.

Singapore and Australia have long been important US trade partners, but as a group the TPP is no heavyweight. Its merchandise trade with the United States last year was $110 billion, while total US exports and imports combined represented $2.6 trillion. The TPP, in other words, accounted for just 4.2 percent of America’s trade, and no partner is even in the top 10 of US export markets. Why then is Washington so energetically promoting the concept?

The answer is that from a US government perspective, the Trans-Pacific Partnership is the only game in town. Three main reasons explain why: the state of the WTO’s Doha Round, China’s role in Asia and America’s self-image of its place in the Pacific. A possible fourth reason is that Washington regards the TPP is the only doable multilateral trade initiative.

On the Doha trade talks, after more than a year in office, it is clear that Obama is not inclined to make the major efforts, especially agricultural, that might achieve a closure. A year ago Washington’s new energies seemed committed to a world trade deal, but the momentum ended when the new US trade representative, Ron Kirk, simply mirrored Obama’s main trade goal — tightening up on free-trade areas. The clearest sign Doha was on the back burner came when Obama announced that his new trade plan was a five-year goal of doubling US exports.

The second factor driving the Trans-Pacific Partnership is America’s intense awareness of China’s East Asian trade dominance. China is now the top trade partner for Japan, Singapore, Australia and South Korea.

The third factor behind US support for the TPP is America’s belated recognition of these new realities. A current Washington theme is that “America is back” in East Asia, and senior officials now insist they will participate in every important Asian meeting. They regularly recall the warning against “drawing a line down the Pacific” first spoken two decades ago by former secretary of state James Baker.

The Obama administration has internalized Baker’s warning, and its most concrete evidence is the Trans-Pacific Partnership. But it raises the question of whether the TPP is the best vehicle to affirm the fundamental point that the geo-strategic and economic interests of 300 million Americans will remain firmly rooted on both sides of the Pacific. The answer is that as currently constituted the TPP is too thin a reed for that task.

One reason is that neither Japan nor South Korea, Asia’s weightiest actors closely tied to the United States, is involved in the TPP, nor is Indonesia, Asean’s key member. Another is the absence of a US consensus on what the TPP might entail. Fifty members of Congress recently insisted to the USTR that New Zealand dairy products be excluded from TPP negotiations, while the US Chamber of Commerce envisages it as a “comprehensive FTA” using the “US-Singapore FTA as a standard.” Simultaneously more than 100 in Congress have affirmed their opposition to any new free-trade areas.

For a United States that almost single-handedly launched both the global General Agreement on Tariffs and Trade and then the WTO, a Trans-Pacific Partnership is quite a comedown. And yet only the unlikely goal of a TPP will be pressed by the United States because that’s all that Obama is prepared to undertake at this point.

There is of course an alternative. If Obama’s Democratic Party retains its majority after the November congressional elections, he might then heed the current advice of former US trade representative and now World Bank president Robert Zoellick. He points out that the 6 percent growth rate of the world’s developing countries — double the developed countries’ rate — means they will need “precisely the kind of high-value goods that generate well-paying jobs.”

The message for the United States is clear. If Obama genuinely hopes to achieve his goal of doubling US exports, he will reassert America’s world trade leadership, and take the necessary steps to complete the Doha global trade round.

East Asia Forum

Bernard K Gordon, author of “America’s Trade Follies,” is professor emeritus at the University of New Hampshire

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