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Wednesday, Nov. 24, 2010

TPP zone will test commitment to free trade


SINGAPORE — China is outpacing the United States and Japan as Asia's top trading partner. Can Washington and Tokyo make up lost ground in the competition for economic influence that is shaping future geopolitical alignments and institutional architecture in the region?

While China continues to boom, both Japan and the U.S. have weak economies. Japan's malaise took hold in the early '90s and some Chinese analysts believe that America is locked into long-term decline.

Yet the U.S. remains by far the world's biggest economy and most attractive market. Japan too, despite its problems, is not far behind China in economic heft. When combined, the U.S. and Japanese economies greatly outweigh China and will do so for many more years.

This is the backdrop to recent U.S. moves to encourage Japan to join negotiations on the Trans-Pacific Partnership (TPP), a zero-tariff trade and investment liberalization zone originally formed by Brunei, Chile, New Zealand and Singapore. It is now being expanded to include Australia, Malaysia, Peru, the U.S. and Vietnam — provided a new set of common standards can be approved.

To underscore the strategic significance of enlargement, leaders of the nine TPP negotiating states held their first summit on Nov. 13 on the sidelines of the annual Asia Pacific Economic Cooperation (APEC) forum meeting in Yokohama.

Three rounds of negotiations on the TPP have been held since the Obama administration announced it would join in Singapore late last year. More talks will take place Dec. 6 in Auckland. Five more rounds of negotiations have been scheduled for 2011.

Prime Minister Naoto Kan attended the TPP summit as an observer after announcing that his government would "consult" the TPP group before deciding whether to participate in negotiations. The Philippines, Canada, Taiwan and Thailand have also expressed interest in the TPP. If all these countries joined the TPP talks, it would mean that 14 of the 21 APEC economies were involved.

The U.S. takes over from Japan in hosting APEC and overseeing its activities during the next 12 months. The Obama administration wants to conclude a credible deal on the TPP by November 2011, when APEC meets in Hawaii.

The TPP could then form a stepping stone to a wider pan-Pacific free-trade agreement. However, there are some formidable hurdles to overcome.

China, also a leading APEC member, evidently prefers to focus on building an East Asian economic bloc because its influence would be greater without the U.S. Indonesia, Southeast Asia's biggest economy, has said it wants to give priority to finalizing global trade liberalization talks rather than the TPP.

Both the U.S. and Japan have trade policies that are less effective than those of China. Each faces strong protectionist lobbies at home that make it difficult to conclude new free-trade agreements (FTAs).

Shortly before the TPP summit, U.S. negotiators failed to wrap up a long-delayed FTA with South Korea. Some U.S. industry groups and lawmakers have expressed concern that the deal in its present form does not do enough to open South Korea to U.S. cars and beef.

U.S. President Barack Obama said he hoped the talks with South Korea can be completed soon. Further delay will make TPP participants doubt that he has the political clout in Congress to pass a wider Pacific deal. This would give more momentum to Beijing's plan to build wider FTA on an East Asian base.

FTAs and other types of preferential trade and investment have proliferated in recent years following repeated failures to conclude a global pact under the World Trade Organization. Many of the deals are bilateral but some are plurilateral, creating exclusive trading clubs.

China has been adept at negotiating FTAs and economic partnerships to expand trade and investment. It has signed them with 16 Asia-Pacific economies, including an eye-catching pact with the 10 member-states of ASEAN that took effect early this year. Beijing is also negotiating a FTA with Australia and studying the feasibility of similar arrangements with South Korea and India.

The U.S. has FTAs with six countries around the Pacific rim. But only two of them — with Australia and Singapore — are in the Asia-Pacific area. Japan has been more active on the FTA front in Asia. Tokyo has done bilateral deals with eight Asian countries and ASEAN. It is negotiating a FTA with Australia and studying a possible pact with Mongolia.

However, there are doubts that Kan's weak and unpopular government will be able to overcome resistance from Japan's strong farm lobby and join the TPP negotiations. That would mean committing Japan to phase out high tariffs on local rice, wheat, sugar, dairy and beef production within 10 years of signing any TPP agreement, cutting the nation's food self-sufficiency from 40 percent to 14 percent, according to the Ministry of Agriculture, Forestry and Fisheries.

If Japan joins the TPP negotiations, more efficient farming nations in the group fear its participation will slow talks and lead to compromises on agricultural trade just when the U.S. is insisting on inclusion of labor, environmental and other standards designed to boost American exports and create many more jobs at home than are lost abroad.

Sustaining consensus in such fractious talks will be difficult. The political commitment of TPP governments to free trade will be rigorously tested over the next 12 months.

Michael Richardson is a visiting senior research fellow at the Institute of Southeast Asian Studies in Singapore.


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