International trade has been an engine of growth for many Asian countries, enabling them to create jobs and raise living standards faster than in countries elsewhere in the world that were unready to take advantage of surging trade opportunities.
In pragmatic Asia, a nation’s standing is judged not just in terms of military power and diplomatic skill but also as a source of trade, investment and technology.
By this yardstick, how does the United States measure up, particularly against Asia’s rising giant, China?
The question is timely as U.S. President Barack Obama prepares to take part in the inaugural U.S.-Association of Southeast Asian Nations (ASEAN) summit in Singapore this weekend, on the sidelines of the annual leaders’ meeting of the Asia-Pacific Economic Cooperation (APEC) forum.
Asian countries welcome the Obama administration’s efforts to re-engage with Southeast Asia. The re-opening of high-level U.S. dialogue with Myanmar last week, after a 14-year freeze, is just the latest sign of this reaching out to the region.
Since taking office in January, the administration’s top diplomats, led by U.S. Secretary of State Hillary Clinton, have shown their interest in working more closely with ASEAN and its member states. Clinton herself has visited Southeast Asia twice this year.
Some of this has been catch-up diplomacy, after neglect by her predecessor, Condoleezza Rice. But Scot Marciel, the U.S. envoy for ASEAN affairs, said recently that Washington had a forward-looking agenda and wanted to cooperate with ASEAN on a range of global as well as regional issues, such as climate change, disaster relief, and economic integration.
Unfortunately, the Obama administration has been hobbled in one key area where it should be showing leadership and building real influence: trade policy.
Beset by critics in Congress and the unions who claim trade agreements under previous administrations caused extensive job losses and weakened the economy, the U.S. is reviewing policy. The pace has been glacial and the rise in America’s unemployment rate last month to over 10 percent for the first time in more than a quarter of century will only strengthen protectionist sentiment.
Michael Green, a former Asia director on the National Security Council in the Bush administration, wrote recently that the “complete lack of a trade strategy leaves the U.S. without any tools to counter the growth of exclusive regional economic arrangements within Asia.”
These bilateral and plurilateral trade agreements and partnerships are often called “free trade” arrangements. In fact, nearly all are preferential trading arrangements that discriminate against nonmembers and distort global trade. As a result, U.S. exporters are being put at a disadvantage when they should be expanding foreign sales faster to help lift the struggling American economy.
Preferential trading arrangements have flourished as negotiations to liberalize world trade have languished. By the end of 2008, just over 400 bilateral and regional trade agreements had been notified to the World Trade Organization. Another 400 or so are scheduled to be notified and implemented by the end of 2010.
Of the total, 326 are in the Asia-Pacific area. By far the biggest, the China-ASEAN Free Trade Area (CAFTA), will take full effect in January. With a combined GDP of $6 trillion and a merchandise trade volume of $4.5 trillion, CAFTA will be the world’s third-largest trade bloc after the European Union and the North American Free Trade Agreement, which links the U.S., Canada and Mexico.
With 1.9 billion consumers and some of the world’s most dynamic economies, CAFTA’s growth potential is enormous.
According to ASEAN figures, China-Southeast Asia trade in 2008 amounted to nearly $193 billion, surpassing the value of ASEAN’s trade with the U.S. and approaching the level of the region’s two top trading partners, Japan and the EU.
China says that despite the global slowdown, CAFTA trade in the first nine months of 2009 approached $150 billion, while China-Southeast Asia investment reached $60 billion.
Meanwhile, U.S. trade with the region has fallen, its investments have slowed, and America has become a small-time player in determining the shape of future trading architecture in Asia and the Pacific.
The U.S. is party to just 20 of the 800-plus trade agreements registered with the WTO. Fifteen are in force and three, including a deal with South Korea, are stuck in Congress.
In March, a group of leading U.S.-based business organizations and companies wrote to Obama and the top U.S. trade negotiator, Ron Kirk, calling on them to re-energize America’s leadership role in trade negotiations. “We are losing by standing still,” the group warned.
It urged the administration to proceed with talks toward U.S. membership in the Trans-Pacific Strategic Economic Partnership Agreement (TPP). The original agreement was signed by Brunei, Chile, New Zealand and Singapore in 2005. In September 2008, the Bush administration, said it would negotiate to join the TPP. Australia, Peru and Vietnam indicated similar readiness while another five countries were reported to be seriously examining the initiative.
The first round of enlarged negotiations was scheduled to take place last March. But it was postponed to allow the Obama administration time to complete its review of U.S. trade policy.
Many Asian nations want America to take a stronger lead in galvanizing the sputtering global trade talks and help conclude the long-stalled Doha round to lower barriers to multilateral trade. South Korea is looking to the U.S. to pass their bilateral trade deal. However, another thing Obama could do in his APEC and ASEAN talks this weekend would be to announce U.S. readiness to move forward on TPP talks.
The original agreement was deliberately designed not as an exclusive preferential deal, but to be open to accession “on terms to be agreed among the parties, by any APEC economy or other state.”
It sought to incorporate best-practice trade, investment and financial services liberalization as well as binding undertakings on environmental and labor standards.
The TPP, by remaining open for further enlargement and negotiation, aims to become a platform for trade reform and harmonization in the Asia-Pacific region, with the potential to grow into a much bigger regional arrangement — one that would buttress multilateral trade.
Australia’s Trade Minister Simon Crean has described the TPP as “an exciting concept” that “could well establish itself as the basis for a future Asia-Pacific FTA.” But without the backing of the U.S. and Japan, the world’s two largest economies, it will be difficult for the TPP to gain momentum.
Michael Richardson, a former Asia editor of the International Herald Tribune, is a visiting senior research fellow at the Institute of Southeast Asian Studies in Singapore.