Should APEC Focus on Trade Liberalization?

Initial Statement at the Seventh Annual US Asia Pacific Council panel disscusion, East-West Center, Washington

May 6, 2010

I strongly agree with former Secretary of State Jim Baker on a couple of the things he said, particularly on the case for moving ahead with the outstanding free trade agreements. The arguments against all three are bogus. I can go into that in detail if you want. I will simply assert it. But they should proceed.

The other thing Jim said that is really profoundly important and is not widely enough recognized is how badly his former colleagues in the House gutted U.S. trade policy when they rejected the fast-track procedure in the vote on the Colombia FTA two years ago.

That dealt a body blow to U.S. trade policy, in my view, and I know his view, too. And it's going to take some stitching together to get that back on track.

Having said that, I don't share his view that the administration should seek stand-alone new authority for trade promotion purposes. I just don't think that will fly. President Clinton tried that in 1997.

Different View: Fast-Trade Renewal

The obvious question then was, "What do you want the authority for?" If you can't say something compelling about why you want a renewal of fast-track authority, you're not going to get it. So I would suggest that the president should seek renewal of this authority within the context of pursuing a specific trade agreement.

Amb. Kirk talked about the good news that he had in Seattle earlier this week when he got support for free trade there. I will bring you my West Coast experience of the week as well. I keynoted the 84th Annual World Trade Week in Los Angeles on Monday. The other key speaker was Gov. Arnold Schwarzenegger, who is a really rabid free-trader.

He gives wonderful stories about why. I thought his punch line was the best free-trade line of the week. He said, "If anything smelling of protectionism comes anywhere near my desk in Sacramento, I have one response, hasta la vista, baby." I thought that was great and could encourage us all.

Jim said we ought to go ahead with Doha. I'm with him in principle but the problem is there's no "there" there. We just did a study at the Institute, which shows that the deal currently on the table would provide the U.S. with a munificent expansion of $7 billion in exports-so small you can't even see it. And that explains and justifies, I'm afraid to say, why there is no political support in the United Stats for the Doha Round. There is no "there" there.

Augmenting the Doha Round

We then show how it could be augmented, if you brought a services agreement in, if you added some sectorals, if you did some trade facilitation. But the truth is, without that that augmentation, it is not going to get any kind of political support here.

The business community supports the U.S.-Panama FTA, alone, more than it supports the Doha Round. And that's because there is more to that accord in substance. That's the sad truth. After nine years, the Doha agreement still isn't substantial enough.

That being the case, the only real game in town is the Trans-Pacific Partnership. That is the one positive initiative that the administration has taken on trade. I think it's very important not just for the Asia-Pacific region but also for trade policy more broadly. We should do everything we can to support a positive outcome of that initiative.

Importance of Pursuing the TPP

There are two obvious reasons why the administration overcame its reluctance to address trade through the TPP initiative. First, the obvious fact is that the Asian countries are doing deals among themselves. They're also doing deals with the European Union. All those deals discriminate against the United States. That's going to cost us at least $25 billion of exports, right off the bat.

As it expands and dynamic effects kick in, American-based companies are going to source their Asian sales and even a lot of their European sales out of their plants in Asia and Europe, not out of their U.S. plants. It's therefore going to cost us lots of American jobs.

The AFL-CIO and the U.S. unions ought to be leading the battle to get a TPP signed, because otherwise there will be huge additional job losses in the United States as we are discriminated against. It is not rocket science to understand that. I think the TPP, in fact, will succeed politically if it gets negotiated successfully.

Geopolitics and TPP

The other reason is, of course, geopolitical. Lee Kuan Yew came to town just before President Obama went to Asia in November and put it very bluntly in the Oval Office. "If you Americans continue to stand aside from trade and economic relations with Asia, the Chinese will have all the running room and you'll be shut out." Again, not rocket science.

So for both basic geopolitical reasons and for very gut economic reasons, we have to move ahead. TPP is the initial vehicle, as Amb. Kirk said, heading eventually toward a Free Trade Area of the Asia-Pacific [FTAAP]. That must be the main objective of U.S. trade policy.

Somebody asked about the Chinese currency and its relationship to the export-doubling objective. My answer to that question would have been, "Yes, we're not going to expand exports as long as the Chinese continue to undervalue their currency by 25 to 40 percent."

But also, unless markets are open to us at least on an equal basis with our competitors in the most rapidly growing, dynamic markets in the world, we're not going to expand exports very rapidly. So TPP must be at the heart of our trade policy.

TPP Standards

There are three issues that come up. What should be the nature of the TPP? What are the standards? Amb. Kirk expressed a desire to make it a "21st century agreement," but he didn't really explain what that means.

I think we have to be very careful not to shoot too high. Some countries that are already in the TPP talks, like Vietnam, are going to be very leery of anything that smacks of FTA-plus, WTO-plus, and so forth. Likewise, we cannot sink beneath the level of the existing FTAs, because a lot of partners of those existing FTAs also are in the TPP talks.

So the answer is simple: use the current FTA template, such as the Peru FTA, as a model. If you could augment it with general agreement from all participants, that's fine. But I don't think the lack of clarity concerning what constitutes a 21st century agreement should be a barrier to moving ahead with the TPP in view of the economic and geopolitical issues I mentioned earlier.

TPP Country Coverage

The second big issue concerns country coverage. I asked Amb. Kirk about whether the existing TPP participants are inclined to allow Malaysia to join the talks. The Malaysians are pounding at the door, and so are the Canadians. Concerning the latter, I believe unambiguously the answer should be yes.

If the goals of the TPP are (1) to minimize the discrimination against the United States from deals that big countries are striking with each other and (2) to restore the U.S. role in Asia for geopolitical reasons, you want the broadest possible group. With no disrespect to the current eight TPP participants, they constitute a group of small players, most of which we already have trade deals and are not the targets of the two aforementioned objectives.

There is a poor fit between the two basic drives that motivated the United States to go enter the TPP talks and the makeup, at least to this point, of the TPP participants. It just doesn't fit.

There are at least one or two major Southeast Asian nations. As I said, Malaysia is pounding to get in -- so let them enter the talks. But there are at least two Northeast Asian nations that should be involved in the TPP negotiations.

Japan is chairing APEC this year. If Tokyo can see fit to join the TPP effort after its upper house elections in July, then I also would welcome them in. Obviously, we want to involve South Korea in the TPP talks, too. Seoul is hung up on this question because neither parliament has ratified the U.S.-Korea Free Trade Agreement (KORUS) yet. But as soon as both legislatures approve KORUS, we should strongly encourage Korea to join the TPP. My basic point is country coverage needs to be expanded to achieve the objectives of the exercise.

Deliverable for APEC Summit

The third issue is timing. We should set a clear goal of announcing at least an initial TPP agreement at the APEC summit in Honolulu, which will be 18 months from now. That is going to be the focal point for the president and the administration. It also provides a focal point to secure congressional support for a deal that would be negotiated.

Once negotiated and highlighted by the president of the United States in his hometown, when the U.S. is hosting the APEC summit for the first time in 18 years, I don't think the Congress could turn it down.

Possible Trade-Offs

To conclude, there can be some conflicts among my three goals-standards, country coverage, and timing. If there are trade-offs, I would opt for getting the broadest possible country coverage in the quickest possible time. This is because we need some positive outcome on trade to avoid the risk of succumbing to protectionist pressures.

I would sacrifice some substance in order to achieve the country coverage and timing objectives. I don't think we would sacrifice much because, as I said, I think there's bound to be a convergence in the negotiations toward the current U.S. FTA template anyway. And if we secure agreement for that from the broader body of countries that I believe should be involved, it would be a huge success for Barbara Weisel, [Assistant U.S. Trade Representative for Southeast Asia and the Pacific] and her colleagues at USTR.

Instead of spending a lot of time talking vaguely about higher "21st century standards" without ever defining them-and therefore, frankly, scaring some of the potential partner countries as well as some of the current eight-the administration should focus less on achieving that and more on trying to broaden the TPP group.

Decision-Forcing Event

The administration also should use the APEC 2011 summit as the decision-forcing event that could propel a negotiation to conclusion over the next 18 months. The last thing we want is another Doha. At the outset of my remarks, I pointed deliberately to the problems with the Doha Round. It has been eight and a half years and the outcome is a mouse, with no political support in the United States and other countries. We do not want the TPP to go down that road.

That is why we should use APEC 2011 as a decision-forcing event, but we must make sure there is enough on the table. At this point, I would define that as increasing country coverage and using the current FTA template. That would be the best way to square the circle and achieve the objectives of the TPP exercise.