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Friday, Nov. 23, 2012

Choosing sides for growth


SINGAPORE — America's policy "pivot" to Asia involves intensified diplomacy and shifting U.S. military forces into places where, in cooperation with regional allies and friends, they can more effectively counterbalance the increasingly assertive rise of China.

But there is another leg to the pivot policy, one of economic engagement with Asia, a major trade and investment partner and key source of future growth as America tries to hasten its recovery. This leg has developed a limp and U.S. President Barack Obama, who has made Southeast Asia his first overseas destination following his recent re-election, is trying to restore strength to the limb by visiting Thailand, Myanmar and Cambodia.

The diplomatic and military pivot to Asia is only one dimension of the strategic jostling between the United States and China. The other is a competition for regional economic influence as the world's two top economies support different visions of trade, investment and business growth.

One plan is centered on Asia and backed by China to enhance its position. The other spans the Pacific Ocean to link the Americas and Asia, and is championed by the U.S. to increase its leverage.

Obama joined leaders from 17 other, mainly Asian, nations for summit talks in Phnom Penh this week. The centerpiece was a decision to launch negotiations to form the world's largest economic bloc, an arrangement to liberalize trade, investment and other barriers to business encompassing 16 nations on the Asian side of the Pacific rim.

Foreshadowed by heads of government of the Association of Southeast Asian Nations a year ago, this plan for closer economic integration is known as the Regional Comprehensive Economic Partnership (RCEP). The 10 ASEAN member states already have free trade agreements in place with the six regional economies — Australia, China, India, Japan, New Zealand and South Korea. The 16 partners aim to conclude negotiations to consolidate these separate deals into a compatible framework by the end of 2015.

The plan could transform the region, containing around 3.5 billion people, or about half the world's population, into an integrated market. It would account for over 27 percent of international trade by value and have a combined economic output of $23 trillion, one-third of current annual global GDP.

However, the U.S. is not part of the RCEP. Instead, it is promoting an alternative economic arrangement to integrate markets and business practices around the Pacific rim by linking the Americas to Asia. Known as the Trans-Pacific Partnership, it involves the U.S. and 10 other countries. Four of the 10 — Brunei, Malaysia, Singapore and Vietnam — are ASEAN members. Two — Australia and New Zealand — are Asia-Pacific nations. The remaining four — Canada, Chile, Mexico and Peru — are from the Western Hemisphere.

The current 11 TPP members will hold the 15th round of negotiations in New Zealand next month. They aim to conclude a deal by the end of 2013.

Meanwhile, Obama wants to build a more impressive coalition of countries to give the TPP greater heft. Thailand has just agreed to seek TPP membership.

Earlier this month, the government of Japan, the world's third-biggest economy, pledged to do the same if it wins impending general elections, although that is far from certain.

However, two Asian giants, China and India, are not part of the TPP talks and have opted to join the RCEP. Indonesia, Southeast Asia's largest economy, has done likewise as have four other ASEAN states — Cambodia, Laos, Myanmar and the Philippines, a U.S. ally. Another notable absentee from the TPP negotiations is South Korea, also a U.S. ally. It has a bilateral free trade agreement with the U.S.

U.S. Trade Representative Ron Kirk said in September that there was room for two regional economic integration initiatives. "We see them as a complementary, not necessarily (in) competition," he added.

Both the RCEP and the TPP, when concluded, will be open to new members that accept the rules. But they are in competition.

Entry requirements are more demanding for the TPP than they are likely to be for the RCEP. That appeals to developing economies and to industrial states like Japan and South Korea, which want to protect their politically sensitive agricultural producers from foreign competition.

Japan and Thailand are not the only countries hedging their bets by taking part in both sets of negotiations. So, too, are Brunei, Australia, Malaysia, New Zealand and Singapore.

None of them wants to appear to be aligning economically with either China or the U.S. in case they choose the wrong side and undermine its future growth prospects. The U.S. and China, which together account for a third of world output, are seen as twin sources of economic growth as Europe and Japan stagnate.

Although the TPP has been limping along, the RCEP has yet to take substantial shape. Progress may be slowed by infighting, particularly between China and Japan.

The stakes in the competition between the U.S.-led TPP, and the RCEP with China as its leading economy, are high. Whichever bloc emerges with the most weight and credibility will be in the best position to attract new members and enmesh them in its network.

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


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