Asia’s free-trade bandwagons to nowhere

Posted on September 8, 2012

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The United States has declared that its Trans Pacific Partnership free trade zone is not a vehicle for the economic isolation and containment of China.


Per Reuters:

US-led talks on a free trade pact in the Asia Pacific region are not an attempt to economically contain China … “This is absolutely not a negotiation that’s directed at China,” Deputy US Trade Representative Demetrios Marantis said … [1]

And, straight from USTR chief Ron Kirk:

The United States “would love nothing more” than to have China join the pact, Kirk said. [2]

If this is truly the case, the TPP does not look like a very good deal for America’s partners and China is wasting its time promoting the ASEAN + (China and every other Asian power) free trade zone, the RCEP or Regional Comprehensive Economic Partnership.

Although the details of the TPP negotiations are secret, the basic outlines of the deal appear to be clear: participating states are supposed to level the economic playing field to America’s satisfaction and in return obtain privileged access to the markets of the United States and other TPP members.

In other words, tariffs on 11,000 line items will be eliminated if participating states do away with trade barriers and subsidies, fully open their markets to foreign providers of goods and financial and other services, and undertake to smite the pirates of intellectual property with merciless vigor.

Tearing down their protectionist barriers might make sense for many of the smaller states if they got a tariff advantage over China in return.

But if the People’s Republic of China eventually joins the TPP, the club is so big that membership is essentially meaningless. China would compete on the same terms as everybody else, just as it does today under the US Most-Favored-Nation and WTO regimes.
To be frank, despite Kirk’s stated enthusiasm, prospects for the People’s Republic of China joining the TPP negotiations are not good. According to the unique structure of the TPP, the nine original participants have veto rights over who gets to participate in talks to join the club.

That means that Vietnam, locked into a antagonistic zero-sum tangle with the PRC over economic, maritime, and security issues, can blackball China from the proceedings.

Therefore, in the event that the TPP becomes the governing document of the Pacific economies, perhaps a trade bump at China’s expense is possible.

However, that case is not being made, at least not publicly.

Given the unwillingness to declare openly that the TPP is, by design, a China-free zone, and the United States will structure its tariffs to enable its plucky Pacific allies to eat China’s lunch in the US market, there is no significant trade benefit to announce.

In any case, even with an implicit no-China orientation, the TPP seems to promise little trade upside for the United States or the Pacific partners, many of whom already enjoy preferential free trade relations with the US and each other.

Public pronouncements concerning the expected economic benefits of the TPP are remarkably vague, along the lines of “Asia is the fastest growing economic region in the world,” a rising tide lifts all boats, blah blah blah.

The smaller Pacific nations will, in this case, have sacrificed their sovereign defenses against intensely competitive multi-nationals (and their armies of lawyers, who will become ubiquitous figures in the courts of TPP nations if the pact goes into effect) in return for…

…in return for what is not abundantly clear.

To a significant degree, the TPP looks like a public relations exercise by the United States, designed to put some economic meat on the bones of its Asian pivot.

Negotiations are secret. Negotiations are a mare’s nest of national interests and conflicts between the TPP principles the US is now promoting and the preferential deals it previously cut in various free trade agreements. The US strategy seems to be to punt difficult questions down the road and encourage countries to sign on to the initiative, creating momentum for the pact and setting up a series of all-or-nothing votes at the politically most advantageous moment.

Logrolling and arm-twisting have their place as well, if the publicly-reported travails of Canada are any guide.

Canada’s Prime Minister Stephen Harper belatedly decided that he wanted to join the TPP negotiations in the summer of 2012. According to one version of events, he decided it would be easier to promote his deregulatory agenda against his own country’s agricultural industry if he could do it under the cover of TPP compliance.

It is clear that the process of securing a place at the TPP table was not the finest hour for Canadian diplomacy.

As Michael Geist reported in the Vancouver Sun:

Given Canada’s late entry into the TPP process, the US was able to extract two onerous conditions that Prime Minister Stephen Harper downplayed as the “accession process.” First, Canada will not be able to reopen any chapters where agreement has already been reached among the current nine TPP partners. This means Canada has already agreed to be bound by TPP terms without having had any input. Since the TPP remains secret, the government can’t even tell us what has been agreed upon.

Second, Canada has second-tier status in the negotiations as the US has stipulated that Canada will not have “veto authority” over any chapter. This means that should the other nine countries agree on terms, Canada would be required to accept them. [3]

The nine worthy states to whom Canada has surrendered its Pacific destiny: The United States, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and that democratic and free market powerhouse and beacon of human and labor rights, Vietnam.

We can assume that Mexico, which signed on about the same time as Canada, got the same deal, and will also be negotiating with the United States – instead of picking up the phone to lobby the Sultan of Brunei or the President of Peru – to advance its views in the TPP discussions, giving Washington the whip hand in shaping the TPP agenda.

It is also safe to assume that Canadian prime minister’s agreement to “be bound by TPP terms” negotiated by the group of nine is not absolute, and contingent upon ratification by the Canadian legislature.

From the point of view of TPP proponents, the ideal scenario would presumably involve painless ratification of the pact by a critical mass of sympathetic states, thereby creating an anxious “we can’t afford to be left out” stampede by less-enthusiastic foot draggers.

A secret document prepared for a Canadian deputy minister of international trade to help lobby the United States for an invitation to join the TPP highlighted the advantages of unified control of the executive and legislative branches by Harper’s party – and the prospect for a smooth ratification – as a key selling point for gaining Canada’s participation in the grouping:

“Canada is seeking entry into the TTP negotiations as soon as possible,” say the documents. “Canada is an ambitious partner that can keep pace with these negotiations. We have a majority government that is ready, willing and able to make decisions.” [4]

The TPP will need more than a little luck and cheerleading from pro-business governments to succeed.

The main political flaw of the TPP appears to be that, while it pays lip service to the trade advantages to exporters, it is laser-focused on securing the legal and economic rights of multi-national corporations, many of whom claim the United States as their base of operations.

From what we know of the TPP, it is a profoundly pro-business document, even more than it is a pro-trade document, prepared with little public input but with the full participation of the affected US industries. This invites the expectation that the corporate sector will be deploying its unmatched financial, political, and media assets into the debate on the side of the TPP.

Nevertheless, corporate interests are not omnipotent when it comes to partisan politics. Efforts to finesse the immense and immensely complicated TPP agreement through national legislatures will probably fall victim to numerous political obstacles.

Easy victories outside Canada and, possibly, compliant legislatures in Brunei and Singapore, may be hard to come by and it may be harder to sustain the momentum when the make-or-break votes comes up.

Even in the United States, where the major beneficiaries of the TPP presumably reside, the TPP may get caught in the legislative bog.

Assuming that President Obama achieves re-election and the TPP comes up for a vote, the agreement will probably be opposed reflexively by his Republican political enemies anxious to deny him a victory for any reason, seconded by agitated anti-world government Tea Partiers on the right and by liberals uncomfortable with the expansion of corporate rights and influence on the left.

Indeed, judging by the leak of only one of the 20 chapters of the draft TPP agreement – a wish list of the US Trade Representative concerning intellectual property rights – the TPP is a greasy corporate document largely composed at the behest, if not actually written by, pharmaceutical and media industry lobbyists. [5]

Judging from the IPR draft, a distracting rumpus over intellectual property and a replay of the politically calamitous SOPA (“Stop Online Piracy Act”) debate is virtually guaranteed as the Western world’s aggrieved and astute netizens fight efforts to impose censorship (in their view) or fight piracy (the perspective of corporations seeking to gain the maximum leverage from their intellectual property through aggressive enforcement of measures against copyright infringement) including demands that Internet Service Providers take responsibility for and police their content.

The United States is not the only country in which a divided government holds out the promise of a rancorous debate over TPP ratification.

Chile already gets most of what it wants in terms of access from its free trade agreements with the United States and the other TPP participants, and the opposition could make profitable political hay over the unpopular and perhaps unnecessary inconveniences that the TPP would impose upon Chilean law.

There is plenty of grist for the political mill.

A rebuttal to the only one element of the leaked section – on patent protection – uses 17 pages to highlight how Chilean law would have to be re-written in order to accommodate upgraded protections for foreign pharmaceutical patent holders under TPP. [6]

For Japan, TPP is a political conundrum.

TPP is a centerpiece of the United States pivot to Asia, and tighter integration of America’s allies (and China’s adversaries) is in principle a good idea both for Japan and the US.

Therefore, Japan has expressed an interest in joining “discussions about” – but not negotiations on – the TPP.

In practice, however, the key level playing field concession for Japan to make is a dismantling of agricultural, forestry, and fishery tariffs that, according to the Japanese government’s own estimates, will cost 3.4 trillion yen (US$43.1 billion) per year in reduced domestic production. [7]

Joining the TPP is, therefore, not just a football for the Japanese opposition parties. It provokes significant unease within factions of the ruling DPJ concerned about political fallout from aggrieved farming interests.

The Wall Street Journal editorial page tried to push Japan off the fence (and Prime Minister Noda, apparently no favorite of the WSJ, out of his job) with a clarion call for some Japanese politician to seize the once-in-a-century TPP opportunity.

Not for nothing has the prospect of TPP been characterized as Japan’s third great opening, after Commodore Perry’s arrival and the American occupation after World War II … There’s still time for enterprising leaders to sell TPP to voters as a tough but necessary step to shake off a two-decade malaise. Mr Noda couldn’t make the sale. Someone needs to. [8]

Ironic kudos to the Wall Street Journal for pointing out that Japanese society can only advance through forcible intrusions by foreign forces. However, the deployment of the Journal’s less than infallible political and economic judgment on behalf of the TPP in particular and tough choices in general is perhaps a harbinger of its eventual demise, even if Japan makes the politically unpalatable decision to participate in the negotiations.

The TPP is long on benefits for business but surprisingly short on exports and jobs – the twin suns around which national politics revolve these days.

The People’s Republic of China has decided to counter-program against the TPP with the RCEP – the Regional Comprehensive Economic Partnership, a proposed free trade zone encompassing ASEAN, China, Japan, India, Australia, and South Korea.

Ostensibly, other than the absence of the Americas in RCEP and China in TPP, the two trade pacts share similar goals, according to an AFP report on an interview with ASEAN Secretary General Surin Pitsuwan:

The pact will aim to eliminate trade barriers, create a liberal investment environment and protect intellectual property rights, according to the negotiation guidelines.

In principle, however, RCEP has several advantages over TPP.

One is the participation of China, a major growth engine for the region.

The second is the presumption that RCEP will not fetishize corporate rights and access (or human rights, labor rights, or environmental quality, for that matter), and will achieve a modus vivendi with the cozy intermingling of government and business that has characterized the Asian economic miracle thus far.

The third advantage, one that does not gain much recognition in the West for obvious reasons, is that it displaces the United States – now a destabilizing economic force looking to increase exports into the region – with China, which is now better prepared to assume the traditional US role of demand-generating importer and aid-bestowing sugar daddy to the nations of East Asia.

Staunch US ally New Zealand stood boldly ready to hedge its bets:

“This is a bold move to deepen integration in the most dynamic region in the world,” New Zealand Trade Minister Tim Groser said in a statement on his government’s website.

“It shows that despite the economic difficulties in other parts of the world, Asia is actively pursuing trade liberalisation.” [9]

Indeed, the whole ASEAN exercise was an exercise in political bet-hedging.

After the America-pleasing handwringing over the South China Sea at the foreign ministers’ ASEAN meeting in Phnom Penh, the ASEAN economic ministers got together in Siem Reap to offer an olive branch to China with an endorsement of the RCEP.

Signing on to the RCEP – and eschewing a policy of trade hostility with China – maybe the price that the PRC insists upon in return for not making an issue out of participation in the exclusionary TPP by its trading partners.

Therefore, the net effect of the battling trade agreements, if they ever go into effect, may be zero.

The true test of the RPEC initiative will occur next year.

Surin Pitsuwan will be gone, his legacy-burnishing activities on behalf of RCEP forgotten, and his position as Secretary General taken by a representative from China’s fervent antagonist, Vietnam, as part of ASEAN’s mandated leadership rotation.

It is a reasonable assumption that, even as the TPP struggles in the political bog of Western legislatures, ASEAN relations with China – and discussions concerning the RCEP – will tiptoe uncertainly along the fine line between contention and cooperation.

Grand plans in Washington and Beijing for free trade zones may both fall victim to the politics of division.

Notes:
1. Asia Pacific talks not aimed at containing China: US official, Chicago Tribune, Aug 9, 2012. 2. USTR Kirk sees better chance for farm trade reform, Reuters, May 8, 2012. 3. What’s behind Canada’s entry to the Trans-Pacific partnership talks?, The Star, Jun 24, 2012. 4. Secret documents show Canada’s aggressive campaign to be included in Trans-Pacific Partnership, National Post, Jun 20, 2012. 5. The complete Feb 10, 2011 text of the US proposal for the TPP IPR chapter, Knowledge Ecology International, Mar 10, 2011. 6. Dangers for Access to Medicines in the Trans-Pacific Partnership Agreement, Public Citizen, April, 2012. 7. Agriculture would take big TPP hit, Japan Times, Sep 1, 2012. 8. A TPP Stimulus for Japan, Wall Street Journal, Sep 6, 2012. 9. Asia edges towards giant free trade zone: ASEAN, France 24, Aug 31, 2012.

Peter Lee

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