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APEC: The Keystone to U.S. Asian Policy

Friday, November 13, 2009

As the Obama administration formulates policies for Asia, it should make a trans-Pacific vision for regional integration a clear and central U.S. priority.

Almost two decades ago, then-Secretary of State James Baker stated that the United States wanted to avoid any policy that “would draw a line down the middle of the Pacific and threaten to divide East Asia and North America.” As President Obama continues on a nine-day tour of Asian countries, including the Asia-Pacific Economic Cooperation (APEC) summit, he should make a trans-Pacific vision for regional integration a clear and central U.S. priority.

Over the past 15 years, at times it has seemed that U.S. policy makers no longer heeded Baker’s advice. To many observers, APEC’s fortunes peaked in 1994, when the so-called Bogor Declaration committed its member nations to achieving free trade in the Asia-Pacific by 2010 for developed countries and 2020 for developing countries. APEC has always been an odd beast among trade agreements—it has never proceeded from a traditional reciprocity-based framework. Rather, it has worked on the basis of “concerted unilateralism,” whereby each member nation was expected to move toward free trade at its own pace and by its own path.

Born out of the resentment against the alleged hardhearted and stringent demands from the West, a competing vision of intra-Asian regionalism has emerged and now may well become the dominant movement.

In 1997, the Clinton administration tried to change all of this by proposing and pushing hard for reciprocity-based trade liberalization in several sectors. After a bitter fight, with opposition quietly led by Japan, it failed. It should be noted that this big push came in the midst of the 1997 Asian financial crisis, the biggest setback for Asian economies since they took off in the 1960s. At that point, the Clinton administration walked away from APEC, arguing that it wasn’t serious about trade liberalization (the equivalent of the old GATT, it was said: “the General Agreement to Talk and Talk”).

Under the Bush administration, APEC trade liberalization initiatives were sidelined by the 9/11 terrorist attacks. Until 2006, the Bush White House largely ignored the economic aspects of APEC and pressed to turn the organization into a vehicle for anti-terrorist activities, while pushing security as a regional priority. Only in 2006 did Bush trade officials belatedly attempt a new initiative for regional free trade: the Free Trade Agreement for the Asia-Pacific (FTAAP). By this time, however, the woes of the Bush administration on many fronts gave U.S. trade officials little power to negotiate. The proposal was given a polite reception and shunted off to study groups (not least among its weaknesses was the utopian magnitude of its scope, which allowed skeptics to argue that it was a good idea—for 2030 or thereabouts).

The Obama Administration and the Asian Economic Institutional Landscape

At the outset of the Obama administration, much has changed in East Asia since the Bogor free trade goals of 1994. Two major phenomena challenge trans-Pacific regionalism embodied in APEC.

In 2000, no East Asian nation was a part of a free trade agreement; today virtually every country in the region has completed or is in process of negotiating bilateral free trade agreements.

First, since 2000 there has been an explosion of bilateral free trade agreements (FTAs) among Asian nations and between Asian and other nations. At last count, there were some 60 FTAs at some stage of negotiations, on top of more than 130 already negotiated. In 2000, no East Asian nation was a part of an FTA; today virtually every country in the region has completed or is in process of negotiating bilateral FTAs.

Second, and ultimately of greater significance, since the late 1990s, a competing vision of intra-Asian regionalism has emerged and now may well become the dominant movement, absent push back by the United States and some of its key allies in the region.

Impelled by resentment against the alleged hardhearted and stringent demands from the West (embodied in the International Monetary Fund) during the 1997 Asian financial crisis, a number of East Asian countries began informal meetings. From this originally ad hoc arrangement came the ASEAN Plus Three (APT): ASEAN nations, plus Japan, China, and Korea. Since adopting a charter in 2001, the APT in its annual summits has steadily moved to duplicate many of the activities undertaken by APEC. Further complicating the regional economic landscape, in 2004 Japan also put forward a plan for an ASEAN Plus Six, which added Australia, New Zealand, and India. Japan’s goal was to dilute the power and influence of Beijing. To top it all off, in 2005, a number of countries (including India, New Zealand, and Australia) began meeting at an East Asian Summit.

APEC has always been an odd beast among trade agreements—it has never proceeded from a traditional reciprocity-based framework.

Though the administration is clearly not prepared to advance major proposals during the current trip regarding the U.S. role in Asian economic integration, in coming months President Obama should lay the groundwork for a reassertion of U.S. leadership. Among the options the United States should consider are the following:

1. Flesh out the U.S. FTAAP proposal. This would mean setting out paths to get from here to there: that is, presenting options for interim steps toward regional free trade; consolidating existing FTAs; or leading a “coalition of the willing” of APEC members that are ready to undertake further trade liberalization.

2. APEC Summits in 2010 and 2011. Japan hosts the APEC summit in 2010 and the United States hosts APEC in 2011. This fortuitous progression affords the opportunity for the United States and Japan to plan for achievable “deliverables” over the next two years to advance the goal of regional free trade.

3. U.S.-Korea FTA (KORUS). The most important short-term step the president could—and should—take is to advance imaginative proposals to overcome the opposition among U.S. interest groups and congressmen to the KORUS, signed two years ago. This would send a powerful signal to East Asian nations that the Obama administration—despite strong dissent within the Democratic Party—is prepared to tackle the difficult substantive issues that will arise in negotiating regional free trade for the Asia-Pacific.

In the end, the buck stops with President Obama—as in other areas, only he can turn soaring rhetoric on the virtues of free and open markets into concrete reality.

Claude Barfield is a resident scholar at the American Enterprise Institute.

FURTHER READING: Barfield wrote “What President Obama Can Learn From President Clinton” and “Beware of Investment Protectionism,” on how President Obama should announce to the world that the United States welcomes and encourages foreign investment.

Image by Darren Wamboldt/Bergman Group.

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