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Where Is America in Asia’s Future?

Wednesday, February 3, 2010

Recent events and trends within Asia may well portend a stepped up pace for Asian regionalism—and heightened danger that the United States will find itself on the outside looking in.

In December, my American Enterprise Institute colleague Philip Levy and I published an International Economic Outlook, entitled “Tales of the South Pacific: President Obama and the Transpacific Partnership.” In this analysis, we made the case for the Obama administration to move with dispatch in asserting U.S. leadership in the construction of a new Asian economic architecture that would be broad and inclusive. And we argued that the Trans-Pacific Strategic Economic Partnership (TPP) agreement was an ideal vehicle through which to achieve this goal.

Since then, bolder moves by the People’s Republic of China (PRC) have increased the urgency for the Obama administration to advance a strategic vision of the U.S. role in a nascent Asian economic architecture. And on her recently completed fourth trip to Asia, Secretary of State Hillary Clinton took the first steps to attempt to fill the leadership vacuum in Asia.

The TPP, a trade and economic agreement among four nations (New Zealand, Chile, Singapore, and Brunei) was signed in 2005. As a vehicle for the United States to advance its interests in Asia, it has a number of attractions, including:

    1. The United States already had negotiated bilateral free trade agreements (FTAs) with two leading members, Chile and Singapore;
    2. The TPP itself is a comprehensive FTA, modeled on the so-called U.S. FTA “Gold Standard” that includes nearly complete free trade in goods within a short time-span, plus substantial advances in services, investment, health and safety regulations, competition and government procurement policy, and dispute settlement;
    3. It contains explicit provisions for expansion to include new members from the Asian region and could serve as the foundation for trans-Pacific regionalism built upon the existing Asia Pacific Economic Community (APEC) forum.

In its final year, the Bush administration agreed to open negotiations to join the agreement; and after a year’s delay, the Obama administration announced during the president’s trip to Asia in November that it would also “engage” in the negotiations with the “goal of shaping” a regional agreement.

However, President Obama confronts deep divisions within his own party over trade policy and a huge, problematic domestic agenda that has taxed the administration’s resources.

Competing visions of a trans-Pacific vs. an intra-Asian regional future have once again moved to the fore.

Yet recent events and trends within Asia may well portend a stepped up pace for Asian regionalism—and heightened danger that the United States will find itself on the outside looking in, with substantial economic discrimination against U.S. industries, farmers, and workers.

On a broad scale, competing visions of a trans-Pacific vs. an intra-Asian regional future have once again moved to the fore: within the past year, Australian Prime Minister Kevin Rudd has pushed hard for an inclusive Asia-Pacific Community that would include the United States and India; conversely, the new Japanese Prime Minister, Yukio Hatoyama (to the consternation of the United States and its allies in East Asia), has put forward a proposal for a more narrowly based Asian Community that implicitly excludes the United States.

Hatoyama’s off-the-wall proposal is just the latest in a series of hasty and ill-conceived reactions by Japanese prime ministers to a potent new fact relating to Asian regionalism: the relentless and unremitting pressure from Beijing to construct a narrow, exclusive Asian institutional architecture that it can dominate. This drive actually began almost a decade ago, when the PRC pivoted immediately upon achieving membership in the World Trade Organization and put forward a highly attractive proposal (China agreed to cut key agricultural tariffs immediately) for an FTA with the Association of Southeast Asian Nations (ASEAN). Japan and other Asian nations were caught completely off-guard and have been struggling to match or counter the PRC ever since.

This brings us back to the United States, Asia, and 2010. On January 1, with great fanfare in the Chinese media, the PRC and the ten members of ASEAN completed what the China Daily proclaimed as the “world’s largest free trade area.” (The metric here was clearly population, not economic activity, where the FTA ranks behind the European Union and the North American Free Trade Agreement in value.) From January 1, 90 percent of the tariffs between the PRC and the six original members of ASEAN will go to zero; for the other four, least-developed ASEAN nations the target for zero is 2015. The eight-year negotiations also include previous commitments in the areas of services and investment. It should be noted that—as critics claim—there remain large gaps, including hundreds of “sensitive” goods exceptions (viz., motor vehicles, chemicals, electronics) and shallow liberalization in important service sectors.

Bold moves by the People’s Republic of China have increased the urgency for the Obama administration to advance a strategic vision of the U.S. role in a nascent Asian economic architecture.

Still, this was an important and highly symbolic milestone, with Chinese commentators lauding the benefits for 1.9 billion consumers who can tap into regional production of about $6 trillion per year. In 2009, two-way trade between the PRC and ASEAN topped $230 billion, more than triple the amount in 2003 at the outset of the serious negotiations.

Chinese analysts, almost certainly prompted by the government, were quick to use this occasion to put forth economic and political arguments for ASEAN and the other nations of East Asia to take the next steps leading to an “Asian-wide trade community.” Pan Guoping, writing in the China Daily, bluntly argued that: “The financial crisis … has shattered the U.S. dominance of the world economy” and Asian countries “should make good use of the great opportunity … to be unfettered from the economic neo-colonialism.” He concluded: “The unfair treatment towards Asian countries … can only be surmounted by cooperation among themselves … Asian countries need an institution to coordinate their economic and trade policies.”

Also in the China Daily, another commentator, Zheng Anguang, played upon Asian resentment against Western protectionism as a strong reason for new regional institutions: “It should be noted that both China and ASEAN members are victims in this worldwide trend of protectionism.”

Though concrete responses remain scant from the Obama administration, Secretary Clinton put forward the outlines of a strategic vision for Asia in an important speech in Hawaii on January 11 (just before she cut short the rest of her Asian trip to come back to deal with the Haitian catastrophe). She remarked, “we start from a simple premise that America’s future is linked to the future of the Asia-Pacific region, and the future of the region depends on America.” America is not only “back in Asia,” she stated, but “back to stay.”

Clinton then set forth elements of the Obama administration’s Asian security and economic strategy, including (on the security front) a commitment to strengthen existing bilateral alliances (Japan, Australia, Singapore) and deepen the human rights, disaster, and security responsibilities of the ASEAN Regional Forum, a security initiative that has languished in recent years.

Secretary of State Hillary Clinton asserted that America is not only ‘back in Asia,’ but ‘back to stay.’

As to economic integration, Secretary Clinton made clear that APEC would be the central focus of U.S. regional interests, but she suggested that the Obama administration was open to participating in, and even joining, the East Asian Summit and other intra-regional institutions such as the ASEAN Plus Three. Implicitly acknowledging the downside of the recent spate of new regional organizations and proposals, she warned: “It is important that we do a better job in trying to define just which organizations will best protect and promote our collective future.” Finally, she reinforced the U.S. APEC commitment by promising to work with Japan to take advantage of the fact that Japan would host the APEC Summit in 2010, followed by the United States in 2011—with the assumptions that both nations would push to "deliver" advances in regional integration at these meetings.

All of this is well and good—but Asia and the rest of the world have also seen the Obama administration falter and dither when it comes to advancing trade and investment liberalization during its first year in office. If the president and the secretary of state are to build upon the premises and promises of the Hawaii address, then they will have to back up their rhetoric with concrete steps, including the following:

    • Demonstrate a political commitment to expend presidential clout on trade by securing congressional consent to the U.S.-Korea FTA, by far the most significant economic FTA since NAFTA—and a key barometer for Asian trading partners;
    • Work with TPP partners to establish a credible timetable for U.S. accession to the existing agreement. This would also entail the involvement of Congress, as the president would need new congressionally sanctioned trade negotiating authority;
    • Upgrade the desultory trade negotiations with ASEAN (the Trade and Investment Framework Agreement) to full-fledged FTA negotiations—and signal the possibility of diluting, or stretching out, the so-called “Gold Standard” liberalization provisions usually demanded by the United States. The United States could also revisit the stalled bilateral FTA negotiations with Thailand and Malaysia;
    • Begin formal discussions with Japanese leaders to establish common goals and concrete steps to achieve meaningful trade and investment liberalization in APEC at the 2010 and 2011 summits—including at least preliminary discussion of how to integrate existing subregional arrangements (such as the TPP) into APEC. The United States and Japan should also involve key allies—such as Singapore, Korea, Australia, and (possibly) Indonesia—in the discussion and planning. Beijing merits separate treatment, either through joint or individual meetings with Japan and the United States.

Secretary Clinton admonished Asian leaders that while “dialogue is critical,” the time has come to “focus increasingly on action.” To which one must reply: “Right on, Madame Secretary—and back to you.”

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

FURTHER READING: Barfield previously explained “APEC: The Keystone to U.S.-Asian Policy,” “What President Obama Can Learn from President Clinton,” and “Politics of Trade in the USA and in the Obama Administration.” He also discusses “Protectionism and the Global Economic Crisis” in world trade.

Image by Darren Wamboldt/Bergman Group.

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