Ron Kirk’s Singapore Fling

posted by
on July 28, 2009

[Note to readers: This is the second of a four-part series on where President Barack Obama’s still-stalled international agenda is headed. Today’s report focuses on at the marching orders that the White House has given US trade negotiator Ron Kirk, who attended an important trade meeting in Singapore last week — where he had basically nothing to negotiate. Beyond that, the Singapore meetings highlighted some of the diplomatic atmospherics that will be playing out later this year when the World Trade Organization’s trade ministers convene in Geneva, hoping to breathe life into the Doha negotiations. On that front, there was a hint of encouraging news from Singapore last week — along with a report issued by WTO Director General Pascal Lamy that highlighted the weakness of protectionist anti-dumping tariffs, the reform of which continues to be a major roadblock to making Doha work. And of course, in Singapore, Ron Kirk got an earful about US protectionism — from some of the same trade ministers whose own countries aren’t exactly free-trade purists.]

U.S. Trade Representative Ron Kirk flew to Singapore last week, where he attended meetings on July 21 and 22 with trade ministers from the 21-country members of the Asia Pacific Economic Cooperation Forum. This year, Singapore is hosting the annual rotating APEC trade-ministers’ meetings, which will move to Yokohama, Japan next year, and to the US in 2011.

The diplomatic meetings — including a lunch that Kirk held with the private-sector APEC Business Advisory Council, perhaps the strongest pan-Asia business lobby, if not always the most transparent — were not open to the public. No official transcripts of what the trade ministers and the executives had to say to each other privately are on the public record. However, Lim Hng Kiang, Singapore’s trade minister and host of the meetings, released a detailed 11-page press release that said the trade ministers had decried the current rise of protectionism and promised to resist it’s further spread — as had the G-20 leaders in London in April, and also the G-8 leaders in July. While such declarations of sincere good intentions at international confabs often fall short in their implementation, the APEC release went a bit further: calling for the World Trade Organization’s Doha Round to be successfully concluded by the end of next year. Indeed, interviews with some of the usual well-informed-but-anonymous journalistic sources from the diplomatic- and business communities who were in Singapore suggest that the long-troubled Doha negotiations may again be showing some signs of life. At least that’s the view of WTO Director General Pascal Lamy, who was a very visible presence in Singapore.

Lamy also released the WTO’s 2009 World Trade Report in Singapore. The headlines caught just one sobering statistic: that world trade flows could shrink by 10 percent this year. Presumably, few if any of the trade ministers who participated in the Singapore meetings then had the time to give the report’s 196 pages a careful read. But for those who might have, they would have seen some very thoughtful, hard-nosed analysis that explains why anti-dumping laws don’t work as their supporters (particularly in the US) imagine. As demands for reform of the often-draconian anti-dumping laws is a major stumbling block in the Doha negotiations, the new WTO report deserves close attention — particularly for US officials, whose ardent defense of these laws, for purely domestic political reasons, is the main reason the stumbling block exists.

But while the atmospherics in Singapore regarding how to remove some of those stumbling blocks were positive — indeed, it’s difficult not to be positive about the benefits of trade in a cosmopolitan city like Singapore — the political limitations of some of the major players who came to Singapore were readily apparent. Some of the Asian diplomats, for example, were happy to criticize US Trade Representative Kirk for America’s protectionist shortcomings, while ignoring the fact that their homegrown Asian protectionist rackets are often far more blatant. As always in international trade negotiations, it’s always easier to talk about making real progress, than really accomplishing such. We’ll get to that, but first, consider the awkward political situation of the representatives from the two largest economies in the world. In assessing the Singapore APEC meetings, the observations about political weakness begin with the representatives from Japan and the USA.

***

A dubious award for the weakest political hand of all the trade ministers in Singapore could have gone to Japan’s trade minister — if only Toshihiro Nikai had shown up.

Nikai is a veteran Japanese politician who has been a member of the powerful lower house since 1983. He’s been around the block more than once. Nikai jumped from the ruling Liberal Democratic Party in 1993, explaining that his principles required him to join the Liberal Party. Later, Nikai’s principles compelled him to become affiliated with the Conservative Party, and still later, the New Conservative Party. In 2005, back home with the LDP, the principled Nikai served as Prime Minister Junichiro Koizumi’s trade minister. Koizumi’s successor, Prime Minister Yasuo Fukuda, brought him back to that position in August, 2008. The next month Fukuda’s replacement, Taro Aso, also kept Nikai on. But on July 21, Aso dissolved the Japanese parliament’s lower house, and called for elections in August (that could well throw the LDP out of power). So Nikai explained that, for once, he would put his own political survival ahead of his principles. “I would like to give priority to national politics,” the minister said shortly before he was to leave for Singapore — and so he stayed home.

Although he couldn’t be in Singapore in person, at least the Japanese government dispatched two other experienced officials who were prepared to defend, if necessary, the two most important international trade positions that are at the core of Japan’ stance in all international trade negotiations: defending high tariffs on rice, and also Tokyo’s lavish subsidies for its fishing industry. Last week in Singapore, two lesser officials were tasked with keeping their eyes peeled to defend these Japanese principles on international trade, whenever necessary: The Ministry of Foreign Affairs’ vice minister for foreign affairs, Hashimoto Seiko; and the Ministry of Economy, Trade and Industry’s director general for trade policy, Okada Hidechi. In Singapore, once again the world’s second-largest economy brought no substantive negotiating positions to an important international meeting.

***

The representative of the world’s largest economy also brought a weak negotiating hand to Singapore. Ron Kirk’s marching orders from the Obama White House were basically to smile and nod pleasantly. That, and play for the time when, if it comes, the administration is ready to expend some serious political energy to pass the currently-stalled US trade deals with countries like South Korea, and also hopefully help move the WTO’s Doha negotiations forward.

Kirk had met with Korea’s Minister for Trade Kim Jong-Hoon on May 14 in Washington, D.C. and then had this to say on the US-Korea Free Trade Agreement: “I brought Minister Kim up to date on our review of the FTA and how we plan to consult with Congress and stakeholders regarding their concerns. I look forward to working closely with the Minister to address such concerns, while also taking into account Korea’s interests, so that we can best determine how to move this important Agreement forward.” Since May, however, the White House put the US-Korea trade deal on hold. So there apparently wasn’t much new for Kirk to add last week when he met Minister Kim again in Singapore. Perhaps a more flattering assessment would suggest that when Kirk met privately with his counterparts from countries like Korea, he used the opportunities to get a stronger feel for what is politically realistic, and what is not, when the US decides it’s politically strong enough to liberalize trade.

***

To get a feel for how stalled the American trade agenda really is, consider the position that Kirk found himself in when something called the Trans-Pacific Strategic Economic Partnership came up. The TPP is a preferential trade accord that was first entered into between New Zealand, Chile, and Singapore (who were then called the P3 group; these days it’s the P4, as Brunei has since joined in). Australia and Peru have joined in, and Vietnam is an observer, looking forward to full membership. The Americans wanted to participate, too, at least until Barack Obama was elected president. Then-US Trade Representative Susan Schwab announced in Sept., 2008 that the US would be entering into negotiations to join as well. But the Obama administration isn’t now pressing any new trade negotiations.

The reason the TPP is important stems from the reputations of its creators. Even for critics of preferential trade arrangements, if ever there were an economically defensible “Free Trade Agreement,” this would be it. Singapore, Chile, and New Zealand are shining examples of the many economic benefits that follow, when countries summon the political will to slash tariffs and subsidies. Australia is another. And think of the powerful incentive that up-and-coming Vietnam’s accession to the TPP would give to other laggard countries in Asia that would not want to fall further behind. And of course, if the mighty US joined in, that would send even more powerful signals to the laggard countries across Asia.

But the Obama White House apparently figures that it has enough problems with persuading Congress to pass trade deals that have already been finalized (Korea, Panama, Colombia), much less rile the ever-vigilant protectionist lobbies in Washington, D.C. by taking on another one.

The domestic politics aren’t difficult to figure out. The National Milk Producers Federation isn’t worried about competing with, say, Vietnam — but the thought of competing with a world-class dairy exporter like New Zealand is, in the dairy guys’ minds, frightening. Of course, if the US would be willing to exclude dairy products from New Zealand, his association’s position in opposition to the TPP could change, Jaime Castaneda, the senior vice president for government relations and trade of the milk producers federation, has informed US trade officials. The US textile lobby, meanwhile, looks at the Trans-Pacific Partnership and isn’t afraid of New Zealand. It’s Vietnam that scares the venerable US textile guys, who are well-connected on Capitol Hill.

The Obama administration has gotten the message. This would explain the basic position that Ron Kirk took to Singapore last week: The United States, which did not lead in creating the TPP, is not yet prepared to become a good follower. US trade officials, however, say that they hope to be more helpful later this year. If so, that would be a piece of good news on the otherwise discouraging US trade scene. Of course, a cynic might suggest that for the Obama administration, participating in negotiations that could drag on for years might just might be an attractive proposition: appearing to be in favor of freer trade, while not actually having to bring it to a vote.

***

Regardless of his inability to advance serious negotiating positions at this time, Kirk, while a newcomer to the Singapore meetings, managed to impress just about everyone with his grasp of the details of the issues, and with his good intentions. “He had a folksy manner, which came across effectively,” says one Asian diplomat. Adds a representative of the private sector: “Kirk said all the right things.” Another old Asia hand who observed the US trade official who is not normally prone to overstatements, enthused that Kirk was “more than awesome” in his one-on-one meetings.

***

It appears that in Singapore, Kirk was the target of various complaints about US protectionism, especially the now-infamous Buy American laws (which he defended), from fellow trade ministers who were (as usual) eager to complain about the Americans, even though their own trade regimes are riddled with protectionism. Indonesia’s Marie Pangestu, for instance, is respected as an able diplomat who understands the importance of expanding global trade flows. She’s considered helpful in the Doha negotiations. But when Pangestu brought up the subject of the evils of protectionism, US-style, observers were reminded of the many ways that Indonesia can discourage foreign investment and trade: for instance, so-called “negative lists” and “Buy Indonesian” practices that bar foreigners. The affable Kirk deflected the several criticisms directed at Uncle Sam by saying that “it was good that everyone was being frank,” Thai trade minister Pornthiva Nakasai told the Reuters wire service. Translated from diplomatic politesse into ordinary English, “being frank” means that Kirk got his ears burned.

***

Every trade minister in Singapore earnestly decried the rise of protectionism around the world: nobody stepped forward to admit any culpability on that account. This brings us to Russia’s vice minister for economic development, Andrey Siepnev, one of the APEC trade ministers who duly signed the ringing exhortation that decried protectionism. That was on July 22.

On July 27, the Moscow Times reported the following: “Prime Minister Vladimir Putin went to Magitogorsk on Friday with an open ear, promising chiefs of the country’s top steelmakers that the government would defend them abroad and might pass a law requiring natural monopolies and state-corporations to buy their products.” Putin must figure if the American steel lobby can get away with its “Buy American” laws, why not try “Buy Russian?”

Putin also also agreed with the views of Russian tycoons like Alexei Mordashov, the CEO of Russia’s giant steelmaker, Severstal. According to the Moscow Times, Mordashov “asked the government to aid domestic steelmakers, as China and India protect their markets.” He added that “Russia should keep import duties on some pipes and steel and favor domestic producers.”

Mordashov didn’t mention the United States’ trade practices in the Moscow Times report. But Severstal, which has been hit with US anti-dumping tariffs for its Russian-made hot-rolled steel products in the whopping 70-plus percent range, clearly has an incentive to retaliate in kind.

Severstal has also figured out another way around being victimized by the US anti-dumping regime. The company has set up operations in Dearborn, Michigan, where it has acquired for formerly troubled Rouge Steel Co. Severstal also bought the old Sparrows Point, Md., out of bankruptcy. Now Severstal North America is a member of the American Iron & Steel Institute, which was the driving force behind the US anti-dumping actions that targeted Russian steel.

Severstal has also invested in new steel mini-mill in Columbus, Mississippi called Severstal Columbus — thanks to an estimated $100 million in US subsidies. My favorite in the long list of US taxpayer-funded goodies handed out to Severstal for its Mississippi operation is a $25 million loan from the US Department of Agriculture. Apparently, the Russians persuaded the USDA that they could grow Mississippi steel as well as cotton.

***

Anti-dumping protectionism was on display in the Singapore meetings, at least for those who might have read the 2009 World Trade Report that WTO Director General Pascal Lamy handed out. The report cast a gimlet eye on the workings of the economically dicey anti-dumping laws. As Lamy knew, in the WTO, this is not merely of academic interest, as the issue of anti-dumping reforms is one of the roadblocks to a Doha deal. For the US in particular, support for anti-dumping laws is a matter of great political importance — much to the distaste of US trading partners who find themselves on the wrong end of US anti-dumping tariffs.

The WTO document noted that between 1980 and 2005, the United States applied average tariffs against foreigners in anti-dumping litigation of 41.4 percent, a number far above the US normal most-favored nation tariff average of 5.2 percent. Only Mexico was higher than the United States (with average anti-dumping duties over the years of 89.5 percent, compared to Mexican average tariffs of 15.8 percent.) By contrast, the European Union’s average anti-dumping tariffs for the same period amounted to 17.6 percent, compared with average EU tariffs of 6.4 percent. Chinese anti-dumping tariffs averaged 21.5 percent, also far higher than the country’s average tariffs, which were at 13.8 percent for the period surveyed. Nobody looked very good on that chart.

The WTO report observed rightly that “there are costs” with the use of such measures, referring not just to anti-dumping tariffs, but other protectionist schemes to impose quotas and other so-called “safeguards” to protect domestic industries faced with tough foreign competition. Those costs cited included trade diversion, higher prices for consumers (including businesses whose operations require imported raw materials), disruption of orderly markets, and so on.

“There is no conclusive evidence that trade contingency measures are effective in reducing import competition or helping an industry in its restructuring or in catching up technologically,” the report said, referring not only to anti-dumping tariffs and related protectionist measures. “On the one hand, contingency measures will lead to imports from targeted countries being replaced by imports from other countries (trade diversion) and to foreign producers establishing a production facility within the domestic economy in order to avoid the anti-dumping duty (tariff jumping). On the other hand, other economic factors appear to be more important in promoting industrial recovery or accelerating technological catch-up.” The message: Protectionism might work politically, but it fails economically.

***

As for accelerating a global recovery from the current deep recession, leaders of the Asian business community offered their advice in the Singapore meetings last week.

There isn’t much hard news to report on precisely what advice was offered by business leaders who buttonholed trade diplomats in Singapore, as it was offered in private. But APEC’s influential Business Advisory Council has been sending discrete warnings of the dangers associated with rising protectionism all year. ABAC’s members include major economic players in the region such as Procter & Gamble’s Asia division, Toshiba, and Australia’s Macquarie Bank, HBSC, and the members of the Singapore Business Federation.

In May, ABAC issued a press release announcing that it was stepping up “efforts” to resist protectionism, rightly pointing out that “the recovery of world trade” is “vital in overcoming the global economic crisis.”But no details were put on the public . ABAC officials in Singapore did not release details of the concerns its members had raised with APEC trade ministers last week, and did not respond to a written request to identify the business leaders who met with Ron Kirk While those concerns would obviously have far more of an impact if the executives were willing to adopt a higher public profile, one ABAC member told me that business executives preferred to avoid getting into the public business of naming-and-shaming protectionist offenders. However, the business group will meet again in Danang, Vietnam from August 25-27, and may well release a more detailed analysis of the protectionist threat then.

Coming next: Will President Obama’s trade policies start costing American jobs?