13 January 2010

Free Trade Focus Shifts to Asia and the Pacific

 

At a port in Yokohama, Japanese automobiles wait to be loaded onto freighters that sail to different countries.

At a port in Yokohama, Japanese automobiles wait to be loaded onto freighters that sail to different countries.

By Christopher Connell
Special Correspondent

Washington — At first glance, an Asia-Pacific trading zone that excludes Japan, South Korea and China might not seem that important. The Trans-Pacific Partnership (TPP) started small with Singapore, New Zealand, Brunei and Chile in 2006, and now the United States, Australia, Peru and Vietnam all want to join it.

Those seven countries are far from being the United States’ biggest trading partners. Indeed, they account for only 5 percent of U.S. exports.

But it is the TPP’s potential for growth that explains why some U.S. lawmakers and economists are enthusiastic about President Obama’s decision to take the first step toward joining the trade compact.

The official announcement of U.S. intentions in December stirred excitement in business circles of the seven countries, which will be represented when trade ministers gather in Australia in March to talk about expanding the TPP.

COULD TPP BE “LITTLE ENGINE THAT COULD”?

With the global economy still sputtering from the financial crisis, and after the letdown caused by the collapse of the Doha round of trade-liberalization talks, a TPP expansion could prove a successful tonic. It might even call to mind The Little Engine That Could, a classic, illustrated children’s story about an undersized locomotive that succeeds in pulling a trainload of toys over a steep mountain after larger engines failed.

Obama, in announcing that the United States was moving ahead on talks with the TPP countries, said the aim was to forge a regional agreement with “the high standards worthy of a 21st century trade agreement.”

U.S. Trade Representative Ron Kirk said these “like-minded” countries were intent on “expanding this group to include additional Asia-Pacific economies in what will become the largest, most dynamic trade collaboration of our time.” He also promised to work with Congress “to enhance the agreement’s focus” on protecting the environment and workers’ rights.

 

APEC trade officials gather for a group photo at their July meeting in Singapore.

APEC trade officials gather for a group photo at their July meeting in Singapore.

Other major Asia-Pacific countries soon may be knocking on the TPP door if they become convinced that the United States and its partners actually are going to lower trade barriers. Canada and South Korea may be among the first, C. Fred Bergsten, director of the Peterson Institute for International Economics, has predicted.

Former U.S. Trade Representative Susan Schwab laid the groundwork in the final year of the Bush administration for a move toward an expanded TPP. One reason for doing so, said Timothy Keeler, her former chief of staff, was the growing number of trade agreements across Asia. “The U.S. has got to be careful it’s not shut out,” said Keeler, now with the law firm of Mayer Brown LLP.

Kirk acknowledged as much, telling congressional leaders in a December 14 letter, “We have seen a proliferation of trade agreements in the Asia-Pacific region to which the United States is not a part.” Although U.S. exports have grown, their share in key markets has dropped over the past decade, he said.

MULTILATERAL SOUFFLÉ OR BILATERAL SPAGHETTI?

The United States already has bilateral free-trade agreements with 17 countries, including Australia, Chile, Peru and Singapore. But a spaghetti bowl of bilateral deals is not the same as the soufflé of a multilateral trade pact. Bilaterals often are narrower and more likely to carve out protections for certain industries. The 2005 U.S.-Australian treaty, for instance, kept limits on Australian sugar exports and retained some beef tariffs for 18 years. A principal hang-up on the U.S.-South Korea trade pact — one of the three deals negotiated by the Bush administration but not yet approved by Congress — is Seoul’s restrictions on auto imports.

It will be a hard slog to sweep away all trade barriers across the Pacific. John Ravenhill, a professor of international relations at the Australian National University, said Australia and New Zealand could pose “a considerable threat to U.S. agricultural interests if trade was liberalized across the board.”

Still, there is the hope that, as Australian Trade Minister Simon Crean expressed it, the TPP will become “a building block towards a Free Trade Area of the Asia-Pacific.” That has long been an aspirational goal of the 21-member Asia-Pacific Economic Cooperation (APEC) forum, which includes China, Russia and Indonesia as well as Canada and Mexico.

That, said Jeffrey Schott, a senior fellow at the Peterson Institute on International Economics, would “be a big deal, because in APEC you’re talking about 50 percent of world GDP [gross domestic product].”

After the APEC summit in Yokohama, Japan, in November 2010, the United States will host the leaders’ 2011 gathering in Honolulu. Obama, who was born in Honolulu and has called himself “the first Pacific president,” no doubt is looking for real progress by then on an expanded TPP and on dropping barriers among all of APEC’s developed members.

But Keeler, the former USTR official, cautioned, “It will be a long negotiation and a long road to get it done – if it gets done.”

More information about the TPP is available at the Web site of the Office of the U.S. Trade Representative, including Kirk’s remarks and a fact sheet.