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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