U.S. trade policy in Asia: Going for the Trans-Pacific Partnership?

Author: Deborah Elms, Temasek Foundation Centre for Trade & Negotiations, Singapore

The ambiguity in U.S. President Barack Obama’s November 13th statement on the Trans-Pacific Partnership (TPP) talks mirrors the somewhat torturous path in American trade policy to date on this topic. In his speech in Tokyo, President Obama said, ‘The United States will also be engaging with the Trans-Pacific partnership countries with the goal of shaping a regional agreement that will have broad-based membership and the high standards worthy of a 21st century trade agreement.’

Listeners in the audience could be forgiven for confusion. Was the United States in or out? What did the President mean by ‘engage’?

It was left to U.S. Trade Representative (USTR) Ron Kirk to clarify the position the next morning at the Asia Pacific Economic Cooperation (APEC) meetings in Singapore. When he unambiguously announced that the United States was going to participate in formal negotiations, his statement was met with applause from the trade officials and business leaders in the room.

The United States first committed to the TPP talks under USTR Susan Schwab in the final months of the George W. Bush Administration. Her team at USTR had determined that joining negotiations with the P4 countries of Singapore, New Zealand, Chile and Brunei would signal American interest in Asia. In the wake of the U.S. announcement, Australia, Peru and Vietnam also decided to join the talks.

While the P4 agreement is not perfect, it remains a useful platform for creating an expanded trade network in the Asia Pacific.

The P4 agreement has been viewed as broadly comprehensive and high quality. It includes liberalization on all tariff lines for Chile, Singapore and New Zealand, and 99 percent for Brunei (phased in over time). The services chapter contains a negative list. Some of the 20 chapters include sanitary and phytosanitary standards (SPS), technical barriers to trade (TBT), competition policy, intellectual property rights, government procurement, and dispute settlement. It contains some labor and environmental provisions in a separate MOU. Two additional chapters on financial services and investment were to be completed within two years of the agreement. Critically, and unusually, the document also included an accession clause to allow other economies to join the agreement in the future.

Schwab deliberately left the outlines of the TPP negotiations vague. She did not want to tie down the next White House. The first round of negotiation was scheduled for March 2009,’on the assumption that the incoming administration could put their own ‘stamp’ on the talks. Instead, the talks were postponed, pending a thorough review of U.S. trade policy.

The outcome of that review was in considerable doubt all the way up to Obama’s departure for Asia in November 2009. Although officials at USTR argued vigorously for a strong U.S. commitment to Asia, it was not clear whether the TPP was the appropriate vehicle for engagement, nor was it clear whether the U.S. ought to be committing to any further trade liberalization talks at all. After all, three existing free trade agreements (including one with South Korea) were still waiting for the right time for ratification by Congress.

Enthusiasm for additional trade is at a near-record low in the wake of the economic downturn. Business had not been actively lobbying officials to pick up the TPP negotiations. The economic outcomes of a deal with the eight states will be modest. While the United States already has bilateral deals in place with most of the TPP member states, the two without agreements (Vietnam and New Zealand) come with a host of challenges. For example, opening the American market to further imports of New Zealand dairy products will be quite difficult, as will negotiations over textiles and footwear with Vietnam.

Nonetheless, by early November the momentum had shifted in favor of action on the TPP. Three factors appear to have been key. The first was the signing of the free trade agreement between the European Union and South Korea. This galvanized business to argue much more forcefully in favor of an active U.S. approach to trade in Asia.

Second, alternative economic configurations in Asia like the ASEAN + Three or ASEAN + Six were starting to pick up steam. If the 10 countries of Southeast Asia in ASEAN could combine in a meaningful way with the + Three countries of China, Japan and South Korea or add the + Six members of Australia, New Zealand and India, the United States risked being shut out of Asian markets. Japan’s proposal for an East Asian Community or Australia’s Asia Pacific Community ideas further marginalized the United States.

Finally, the TPP gave the United States a seat at the economic table in Asia in a way that these alternatives did not. It represented a better platform for meaningful engagement than the only remaining configuration—somehow coaxing APEC to do more.

As a result, the United States has decided to press ahead with negotiations in the TPP. They will not be easy. The U.S. has to convince a skeptical public and Congress to embrace further market access and harmonization of existing rules of trade. It will need to cajole the TPP partners into accepting bargains on some items, like stronger labor and environmental rules, than most would prefer. And finally, it will have to make the final package attractive enough to encourage other states to join in future tranches of negotiations. And if the TPP only includes the current 8 states, it will not lead to the major changes in the economic structure in the Asia Pacific that its backers hope to achieve.

This post is part of a series of articles on the Trans-Pacific Partnership.

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