Elephant in the Room

posted by
on August 4, 2014

OPINION

Elephant In the Room

By

GREG RUSHFORD The Wall Street Journal Asia
Updated Dec. 14, 2007 12:01 a.m. ET
At the World Trade Organization’s headquarters in Geneva, there’s a growing sense that a global trade deal is finally possible. The negotiations are now mostly characterized as serious. Big players, notably including the United States and the European Union, want to move forward. But that still doesn’t mean a deal is necessarily probable. This six-year, on-again-off-again process is now being threatened by a country that can least afford the collapse of the Doha Round: India.

Last week, the Indians were back to the rhetoric that has marked their negotiating style throughout the Doha process. The latest spat was over a newly circulated draft negotiating text on “rules,” including possible reforms of protectionist antidumping laws. The measure is controversial, and even the Americans have voiced concerns on some issues. But whereas U.S. officials expressed willingness to negotiate, their Indian counterparts threatened to close the door. Ambassador Ujal Singh Bhatia, India’s top trade diplomat in Geneva, called the draft text effectively an insult. India has been committed to the Doha negotiations, the ambassador said, “but if, God forbid, a time comes when that price of engagement is unpayable by us, then we will have to stand up and say that.”

That’s a rich statement, given India’s negotiating tactics. Rather than express willingness to negotiate gradual, phased-in liberalizations — which is how the Doha process is supposed to work — Trade Minister Kamal Nath has a long list of sectors he has insisted are “non-negotiable” from the get-go, including a “negative list” of politically “sensitive” imports that are discouraged, if not actually prohibited, from fruits and vegetables to grains, edible oils, rubber, cotton and silk.

* * *

While the rich Europeans and Americans actually could afford to walk away from the Doha Round, India would pay a dear price for its failure. Consider the gains India has already reaped from earlier rounds of partial trade liberalization.

Over the past 16 years, India has already unilaterally cut many tariffs to the 10%-12% range from an average of more than 40%. The effects are palpable. In 1991, trade was only 17% of GDP; by 2005 it was 45% and rising. India has become a major player in information technology, which has shot up to nearly $24 billion in exports from $13 billion four years ago, and now accounts for about 30% of its exports. The earlier tariff cuts, by lessening the costs of imports for Indian manufacturers, have contributed to average annual GDP growth of 8.5% in recent years, and have pulled millions of Indians out of poverty.

Yet India’s industrial tariffs are still high enough to put Indian manufacturers at a competitive disadvantage by taxing essential imported raw materials, which is why Doha is such a critical next step. For instance, India’s two biggest exports are petrochemicals and jewelry. But 14% tariffs on machinery, 15% on chemicals and 20% on transport equipment drive up the costs for domestic firms that need the foreign inputs. Thanks in large part to the barriers that are built into its tariff schedule (combined with the domestic red tape and bottlenecks), India produces fewer than 1% of the world’s manufactured goods.

India’s history of liberalization also shows how tariff reductions and the ensuing exposure to international market forces can create useful pressure to implement domestic reforms. Following the earlier trade liberalization, India found itself with little choice but to ease some licensing requirements on imports of capital goods. The country has been looking to attract more foreign investment by beginning to dismantle barriers that have long held its heavily regulated banking, pharmaceutical and insurance sectors back.

This is no small consideration in India, where domestic regulatory and infrastructure bottlenecks are notorious. The World Bank’s latest Doing Business survey estimates that the cost, including tariffs, poor roads, others customs duties and bureaucratic red tape, for India to export a carton of goods to the U.S. is $820; for China, it’s $390. It costs India $910 to import a carton from America, compared to $430 for China. Overall, the survey ranks India 120 out of 178 for ease of doing business. China ranks 83.

Absent pro-trade legal structures — like Doha — there’s little concrete pressure to change. Even with Doha, bottlenecks at ports would throw up short- to medium-term roadblocks to economic development. In one sense it’s a catch-22. Under Doha, India would chafe under its infrastructure constraints. But without Doha, there’s no pressure to fix those problems.

Take the rag trade. Given its large, hard-working population, India should also be able to compete with China in textiles and apparel. It’s not. Last year, China sold clothing worth about $27 billion to the U.S., a 25% increase over 2004. India’s clothing exports to the U.S. were about $5 billion last year, an increase of less than 2%, and only about $2 billion more than Bangladesh’s clothing exports to the U.S.

India is clobbered by an economic double whammy. First, its domestic labor laws make it near-to-impossible to fire workers, even if there is no work for them to do. This discourages large companies from moving into the market, ensuring that the industry remains at the mom-and-pop stage. And in the Doha Round, India’s negotiators are fighting hard to keep its protectionist tariffs averaging 42% on imports of clothing, which would result in little incentive to change the labor laws. Chinese clothing manufacturers must be laughing.

* * *

Since the economic logic is so powerful, one would think that India’s trade negotiators would be eager to bargain away tariff walls that hurt the country’s competitiveness. Wrong. In the Doha talks, India wants to retain “policy space” — a code word for protectionism — to raise tariffs any time it might find it convenient to prop up this or that uncompetitive domestic industry, like Brazil has been doing. Somehow it doesn’t occur to the Indians that their models on tariffs, instead of Brazil, should be the likes of Singapore and Hong Kong, where tariffs are negligible and economic growth is rampant.

India, of course, is hardly the only major WTO player that is playing brinksmanship games as the Doha negotiations lurch toward an end. Mr. Nath is right to complain that the EU’s infamous farm subsidies, which inflict hardships on poor countries, shouldn’t have existed in the first place. He isn’t the only trade minister to lament rising protectionist sentiments in the U.S. And other developing countries in the Doha process — Brazil, to name the most notable — have been busy raising their own tariffs while ostensibly negotiating in Geneva to lower them.

Despite India’s overall intransigence, Mr. Nath declared in late October that “We are in the last mile” in reaching some sort of Doha consensus. Key to further progress will India’s recognition that it stands only to benefit from freer trade.

Walk that last mile, Mr. Nath.

Mr. Rushford is editor of The Rushford Report, an online journal that tracks trade politics and diplomacy.

Power Plays in the WTO

posted by
on June 3, 2014

Power Plays in the WTO

 The African Union — which lacks official standing to participate in the World Trade Organization’s multilateral trade-liberalization negotiations — has nonetheless sparked a high-stakes diplomatic dogfight inside the WTO’s headquarters along the Rue de Lausanne in Geneva. The bitter wrangling threatens to derail the most significant negotiating success — the only such success — that the WTO has enjoyed in nearly two decades. (The WTO was launched in 1995, succeeding its venerable predecessor multilateral trade rules-making institution, the General Agreement on Tariffs and Trade.)

Should the African Union’s power play succeed, the WTO’s credibility would be seriously damaged. “All the air will go out of our balloon,” as one European trade negotiator who asks to remain anonymous puts it. The reputation for effective leadership that has been forged by the WTO’s energetic new director general, Brazil’s Roberto Azevedo, (who succeeded outgoing Pascal Lamy last September) would be tarnished. Most importantly, aspirations that millions of impoverished people from the poorer corners of the world have for better lives once again would be put on indefinite hold.

The story’s backdrop — and the agendas driving some of the secretive operatives whose fingerprints are all over the AU’s power play — dates to the anti-globalist passions of December 1999, when some of the same people famously helped wreck the WTO’s 3rd Ministerial Conference in Seattle. But the current news is pegged to important events that transpired only six months ago, on Indonesia’s famous resort island of Bali.

On Dec. 7, 2013 there were plenty of well-deserved smiles inside the convention center in Nusa Dua, Bali. After four days of intensive negotiations at the WTO’s 9th ministerial conference, the multilateral trade organization’s 159 member countries had finally overcome years of failure to negotiate a truly big international trade deal. “In recent weeks the WTO has come alive,” declared an exuberant Azevedo. “I am delighted to say that, for the first time in our history: the WTO has truly delivered.”

Win-win, for the global economy

Delivered, big time. The deal promised to boost global trade flows substantially, upwards of one trillion dollars in the coming years, according to economic guesstimates. The core of the Bali Package was a so-called “trade facilitation” agreement. Trade facilitation involves a win-win trade-off: more money and technical assistance given by rich Europeans and North Americans to poorer countries in the developing world. Trade facilitation dollars and euros help smooth international trade flows in places that badly need helping hands.

In the poorer parts of Africa, Asia and Latin America, borders are notorious for being clogged. Blame the usual suspects: bureaucratic red tape that raises the costs of transactions by slowing them down, corrupt customs officials, bad roads, inefficient ports, and such. The WTO’s richer countries are already giving about $400 million annually in trade-facilitation aid to help streamline border crossings, according to OECD figures. (Unsurprisingly, Sweden and Norway have been among the most dedicated players, and also the WTO’s International Trade Centre and the World Bank.) According to the OECD, the poorest WTO member countries stand to cut their transaction costs by more than 14 percent, if the Bali Package is fully implemented. And as soon as it is, more trade-facilitation dollars are promised.

Bali was also a big win for multinational corporations — Apple, Vodafone, GE and Caterpillar, FedEx and UPS, Ericsson, E-bay, it’s a very long list — that are poised to profit from seamless movements of goods and services across presently difficult borders. But anyone with a heart would say the biggest winners — the point bears repeating — were the millions of presently poor people throughout Africa, Latin America and Asia who will have new chances to earn decent livings, thanks to the expanded commercial opportunities. Many of these deserving people have probably never heard of the WTO or its Bali Package. So there was good reason for the smiles last December in Bali.

But not everybody left Bali smiling.  A handful of the WTO’s more economically troubled members who are always suspicious of rich-country motives — including Ecuador, Bolivia, and some members of the African Union who had resisted the Bali Package — griped that the Bali deal was designed to be legally binding.

Also, in recent months, some countries like Uganda and Tanzania, which had supported trade facilitation in Bali, have apparently had second thoughts about implementing the agreement. “[R]atification of the trade facilitation agreement within the next 12 months implies that Tanzania shall be compelled to import even more goods from developing countries, thus further threaten its ailing local industries and ignite job losses,” reporter Bernard Ampulla noted in April in Tanzania’s leading Daily News. “Moreover, Tanzanian producers find it difficult to meet international competitiveness standards and other technical standards, this being an area which still needs a lot of capacity building.”

In Bali, WTO members had agreed they would draw up a formal protocol to implement the deal by July 31. The legally binding accord would then go into effect by the end of July 2015, or as soon as two thirds of the WTO’s member countries (soon to be 160, with the accession of Yemen) ratify it. Negotiators left the Nusa Dua convention center exhausted, but with high expectations that only the technical language leading to ratification remained to be ironed out.

Most importantly, the atmosphere of distrust and mutual suspicions that had dogged previous WTO ministerial meetings had started to fade away. The success in Bali spurred hopes for quick progress to (finally) conclude the broader Doha Round of trade liberalization negotiations that has made little progress since they were launched in 2001.

But it took only a little over three months for the old resentments to burst back into the open. Now, it is uncertain whether the Bali Package will be implemented on its intended schedule — or derailed.

Surprise attack from Addis Ababa

On April 27, the African Union’s trade commissioner, Fatima Acyl, issued a startling statement from the African Union’s headquarters in Addis, Ababa, Ethiopia. In it, the commissioner revealed that, at an “extraordinary session,” the AU’s trade ministers had decided that the Bali Package should not be implemented until the broader Doha Round would be concluded. (Acyl refuses to identify which African trade officials had attended the meeting.)

Acyl, a former deputy general of the Agricultural Bank of Chad, is a polished young woman, fluent in English, French, and Arabic. She was born in Washington, D.C. on May 5 (her biography does not list the year, nor note that the African diplomat is eligible to hold an American passport). She earned an MBA with honors at Ohio’s Xavier University, in Cincinnati. In the 1990s, she was an associate in PricewaterhouseCoopers’ offices in Chicago, Il. The personable Acyl was subsequently promoted several times, ending up as a manager. Her resume marks her as a rising African star.

But perhaps a lesser star in leading WTO circles in Geneva, where it has been noted that Acyl’s otherwise impressive resume does not identify any previous experience in international trade negotiations. The available public record indicates that since she was named to her present position in October 2012, Acyl has been inside the WTO’s Geneva headquarters perhaps only a handful of times, involving ceremonial occasions. The African Union has only an “ad hoc” outside observer status in the WTO, and has no role in official WTO negotiations. Acyl did not respond to repeated attempts for comment.

But there is no doubt that Acyl’s April 27 statement boldly asserted a leading role for the African Union, in instructing African ambassadors to the WTO on how they should handle implementation of the Bali Package.

“A number of our countries feel that the decisions reached in Bali, while noteworthy and commendable, were not the most optimal decisions in terms of Africa’s interests,” Acyl noted. “We have to reflect and learn from the lessons of Bali on how we can ensure that our interests and priorities are adequately addressed in the Post Bali Negotiations.”

Then she added the sentence that has resulted in the present WTO impasse in Geneva: “It is important that at this Ministerial, we instruct the negotiators of the Africa Group in Geneva to formally submit language on the Protocol of Amendment — the legal instrument that will enter the TF Agreement into force at the WTO — to the effect that the Trade Facilitation agreement will be provisionally implemented and in completion of the entire Doha Round of Negotiation.”

The Doha process has been halted several times in the past thirteen years, most recently in 2008. WTO members have failed to agree on a variety of thorny issues involving agriculture subsidies, intellectual property rights, enhanced access to protected markets for both goods and services, preventing environmentally destructive fishing practices, to cite some of the most politically sensitive.

The Bali Package’s driving idea with separating the Bali Package for early ratification was to demonstrate that the WTO could start delivering important economic benefits to all members — aiming to spark revival of the broader Doha process.

But now the African Union wants to hold the Bali deal hostage, as Africa’s bargaining chip in the overall Doha issues. Acyl admitted as much in her April 27 statement, asserting that withholding formal implementation of the Bali Package “creates strong negotiating leverage to achieve satisfactory outcomes” in the broader Doha negotiations. Whatever one’s views on trade liberalization, the “extraordinary” AU session constituted an extraordinary power play.

Talks in Geneva

Taking its cue from the AU, the WTO’s Africa Group of countries has followed the April 27 instructions. (The Africa Group’s members are essentially the same as the AU’s; with the exception that Morocco isn’t a member of the African Union. In Geneva, Lesotho’s WTO ambassador is the spokesman for the group.)

On May 26 the WTO’s trade-facilitation panel met in Geneva to draw up the official protocol for implementing the Bali Package. At that meeting, Lesotho’s Ambassador Nkopane Monyane, introduced a document that he said reflected the African Union’s April 27 statement — essentially recommending only “provisional” implementation of the Bali Package, based on the outcome of subsequent Doha negotiations. The ambassador suggested informal consultations to resolve the differences.

The next day, Uganda, which speaks for the least-developed WTO members, submitted language that would clearly peg implementation of the Bali Package to conclusion of the Doha Round. In the meetings, Tanzania and South Africa also played important supporting roles, according to diplomats who were present on both days.

Strip away the legalese and the bottom line was clear: The Africans had essentially sought to re-open the Bali negotiations. (Talk about punching above their weight in the WTO: South Africa, Tanzania, Uganda and Lesotho together comprise one-ninth of one percent of global trade flows.)

“No Bali, No Doha”

The African negotiating ploy has not been well received. When he heard about Fatima Acyl’s April 27 statement at a meeting in Paris last month, Karel De Gucht, the European Union’s trade commissioner, hit the ceiling. The gruff Belgian’s outburst was not meant for public attribution; EU officials decline to comment. But privately, several diplomats interviewed for this article say De Gucht issued a very blunt warning to the African Union: No Bali, No Doha. Kill the Bali Package, and you kill the Doha Round.

In last month’s Geneva meetings of the WTO’s trade facilitation group, representatives from a range of countries — including Norway, the EU, the United States, Mexico, Hong Kong, Costa Rica, Australia, New Zealand, and Singapore — have echoed De Gucht’s warnings, although in more diplomatically nuanced language. The Bali deal has very generous terms for the African countries, they have argued. The pro-Bali WTO leaders have noted how the trade-facilitation deal was designed to take the political poison out of the air, and build confidence for the successful conclusion of the broader Doha process. Don’t destroy the crucial good will, the Africans are being urged.

The African side of the story

The only African ambassador who responded to a request for comment was Lesotho’s Nkopane Monyane.

The African Union “is a member driven organ based in Addis Ababa, that takes continental decisions not attributable to any single member,” the ambassador explains. “Lesotho as a member, with a resident Ambassador in Addis, has not made any effort counter the Bali process.”

Concerns that his country is out to delay or kill the Bali deal are based on mere “speculative misinformation,” he insists. “I will guarantee that you will not find any evidence, written oral or in any form of presentation, of Lesotho as a sovereign state advocating a delay in the implementation of the Bali Decision.” The ambassador adds: “Lesotho remains fully committed to the successful implementation of Bali, conclusion of the DDA and stability of the Multilateral Trading System.” (DDA refers to the Doha “Development” Round.)

Other experienced WTO watchers point out that Africans are legitimately concerned that the Europeans and Americans have been slow to detail precisely how they intend to implement their Bali (financial) promises. When the Africans say, “Show us the money” on trade facilitation, they aren’t necessarily being cynical, one senior European diplomat observes.

Moreover, there is plenty of room for skepticism that the rich countries still lack the political will to make the necessary bargains that would resolve the difficult Doha Round issues. The Africans are clearly right to complain that the Obama White House in Washington, D.C. has never assigned a high priority either to the WTO or its Doha process. It is important to understand that there are “good-faith” reasons for African doubts about the rich countries’ intentions, as another well-placed European trade official puts it.

Heading South

But not all players have reputations for supporting WTO negotiations in good faith. Enter the South Centre. Based in Geneva, the South Centre’s 51 member governments range from Algeria to Zimbabwe. North Korea (not a WTO member) apparently finds the intergovernmental organization as a listening post, as does Iran (not a member, but which has official observer status in the WTO).

On trade, the Centre serves as a useful platform to advance the views of WTO member countries that tend to resist trade liberalization: Malaysia, Bolivia, Cuba, South Africa, Venezuela, and Tanzania. The South Centre does not cultivate a reputation for transparency; it refuses to disclose the sources of its financing, other than to assert on its website that the majority comes from member countries.

Transparent or not, the South Centre’s fingerprints are evident in the ongoing African moves to delay or undo implementation of the Bali Package’s trade-facilitation deal. The legal arguments advanced by the African Union’s Fatima Acyl, for example, dovetail with language used by the South Centre. On Nov. 15, 2013, the Centre published a “South Experts’ Report” that argued that the WTO should reject any Bali Package that would be legally binding upon poor countries. The “least developed countries should be exempted from undertaking binding commitments,” the document asserted. The paper also argued that any deal that might be reached on trade facilitation in Bali only be implemented upon the subsequent conclusion of the Doha Round.

To veteran WTO observers, the fact that the African Union used the same legal arguments first advanced by the South Centre is no coincidence. The South Centre’s executive director, Martin Khor, declines to comment. (A Centre spokesman was not authorized to share any information that wasn’t already on the organization’s website.)

Khor is a well-known figure in Geneva, where his basic approach to the WTO is that it lacks transparency and is a forum where rich countries foist their will upon poor countries.

Khor played a leading role in the vociferous anti-globalist demonstrations that wrecked the WTO’s 1999 Seattle meetings. He opposed the launch of the Doha Round two years later, and in 2003 helped cause the acrimonious collapse of the WTO’s meetings in Cancun. Another South Centre activist who has long been in the same anti-globalist network is Aileen Kwa. Kwa has written a book based on the premise that the WTO’s Doha negotiations are “a byword for the perversion of democracy.”

Last December, Khor worked against adoption of the trade-facilitation deal in Bali as an official member of the delegation from Ecuador.

A Malaysian, he has long been considered close to former Malaysian Prime Minister Mahathir Mohammad. (Long known for his tart tongue when it comes to anything American, Mahathir has recently blamed the CIA for a conspiracy to hide information on missing Malaysian Airlines flight MH370. Khor, a columnist for the Malaysian newspaper, The Star, has also been railing against spying by U.S. intelligence agencies.)

Ironically, while Khor is a strong critic of any economic proposal tainted with American backing, he personally has long benefitted from American financial support. For example, the Rockefeller Brothers Fund, which formerly supported Khor when the activist was with the Third World Network, has given the South Centre $1.6 million since 2009. Last year, the Ford Foundation chipped in another $250,000 — saying that the money was needed because “financial markets need the oversight of democratic institutions to ensure transparency and accountability.” (Another irony: of well-heeled American philanthropy citing transparency as justification for supporting an organization that has North Korea as a member.)

The $1.8 million American cash from Ford and Rockefeller far outweighs what some South Centre members contribute in dues to the WTO. Last year, Kenya, Ghana, Tanzania, and Uganda, for instance, contributed a collective $362,481 in WTO dues. Given the South Centre’s secrecy, it is not possible to compare the sums such member countries give to the WTO.

WTO watchers will have their next opportunity to learn if the Africans have released their Bali hostage when the trade-facilitation group meets again on June 24 in Geneva to consider adopting the protocol for implementing the Bali Package. Stay tuned.

Disconnect

posted by
on November 13, 2012

Now that President Barack Obama has defeated the hapless Mitt Romney to win a second term in the Oval Office, its time to look at where the president’s international trade agenda currently stands — especially viewed in light of how Obama’s trade policies fit into broader U.S. national security policies towards the fastest-growing region in the world: Asia. That brings us to the first problem. There’s a disconnect. Obama’s foreign policy — the so-called Asian “pivot, or “rebalancing” — promotes closer security ties across the region, with a particular emphasis on traditional Asia-Pacific treaty allies like Japan and the Philippines (which are embroiled in threatening maritime disputes with China). But the president’s trade agenda excludes the Japanese, the Filipinos, and other important Asian trading partners from participation anytime soon in the ongoing Trans-Pacific Partnership trade talks.

Later this week, as the president heads for a triumphal post-election tour of Southeast Asia, he will likely be embarrassed, as other Asian nations will signal clearly their intent to expand regional trade, whether the United States participates or not. But I’m getting ahead of the story, which is best understood in the context of the White House ambitions for the TPP negotiations.

To date, Obama has placed all of his trade chips on the TPP talks. They are the only international trade negotiations the administration is involved in (although the Office of the U.S. Trade Representative has been talking about opening new preferential trade negotiations with the European Union). For four years, Obama has paid scant attention the World Trade Organization, showing little interest in working with that vital multilateral trade institution to set the rules for global trade expansion. Lack of support from the United States — once the indisputable genuine leader in promoting multilateral trade liberalization — has weakened the WTO as an institution. Obama has, in fact, not launched any new U.S. trade initiatives whatsoever, not even the TPP. Predecessor George W. Bush and his top trade negotiator, Susan Schwab, signaled their intent to join the TPP process in 2008. But when Obama became president the next year, he put the TPP on ice until late 2009. But since the White House joined the talks, the TPP has made little progress. The first deadline for completion, November, 2011, was missed. So was the next deadline, this past June. Now, there is no end in sight for the TPP. Obama has never even sought so-called congressional fast-track negotiating authority to conduct any international trade negotiations, so if he would somehow manage to strike a TPP deal, it’s chances of being well-received on Capitol Hill are uncertain.

The White House gets most of the blame for the TPP’s present uncertainty. First, Obama has conveyed the clear impression that he sees the TPP as a regional trade model where the United States would play a dominant role at the hub of an economic coalition of the willing. The U.S.-led trade bloc would gradually bring in other members who would agree to rules basically established in Washington — except for China. Beijing would be encircled, and would only eventually be welcomed into the club as one of the spokes to the American hub. The notion that the TPP is at the center of a U.S. strategy to build an Asian trade bloc aimed at containing China is not sitting well with the other TPP negotiating countries, especially Singapore, Australia and New Zealand. While the diplomats from such countries remain discrete, their concerns are reflected in The Trans-Pacific Partnership: A Quest for a Twenty-first Century Agreement. This is an important new book, with chapters contributed by some of the best-informed trade authorities on both sides of the Asia-Pacific. Specifically, the White House would do well to contemplate the observations drawn in Chapter 18 by Australian scholars Ann Capling (of Murdoch University, in Perth) and John Ravenhill (Australia National University, in Canberra).

The TPP, the well-connected Capling and Ravenhill report with authority, is increasingly being perceived as “part of a U.S. foreign policy strategy to contain China.” Already the White House has heard from officials in Australia, New Zealand that “it is not in their interests to participate in trade arrangements that are seen to be hostile to China.” The Aussies and Kiwis have laid down a red line that they could bolt the talks, if the Americans don’t step up their economic game.

Singapore, as well as Australia and New Zealand, are looking for a clean, forward-looking so-called “21st Century Gold Standard” type of free trade deal that would help foster greater regional, even multilateral, trade expansion. While the White House has been happy to use such high-sounding rhetoric, much of what Washington has actually put on the negotiating table is a familiar litany of old-style protectionism aimed at pleasing Obama’s base in the anti-trade wing of his Democratic Party. It mainly comes down to special carve-outs to protect U.S. sugar quotas, subsidies for U.S. dairy farmers, legally binding rules on labor and the environment to satisfy U.S. labor unions, no liberalization of widely-resented U.S. anti-dumping rules, high tariffs on athletic footwear, and complex rules of origin aimed at preventing Vietnam from expanding its exports of garments to the United States. (Strident American demands for just the latter two alone could be deal killers.) Consequently, the once-promising TPP is beginning to look like just another ordinary trade-distorting scheme, and one that is not particularly economically important.

The disconnect worked for Obama in his first term, at least in terms of shoring up his domestic political position for a second term in office. For example, consider the decision to give Japan only tepid support last November, when Prime Minister Yoshihiko Noda expressed his interest in joining the TPP. “That was an extremely courageous act” on Noda’s part, observes R.K. Morris, who heads the respected Global Business Dialogue, in Washington, D. C. Noda immediately came under heavy fire from Japanese protectionists. To make matters worse, as Morris points out, “there was no real welcoming” from Washington. Noda was left hanging.

One would have thought the White House would have jumped at the chance to welcome Japan into the TPP. After all, Japan is America’s most important security ally in the Pacific. And the potential of making the TPP a truly big economic idea with the participation of the world’s third-largest economy should have duly impressed the White House.

It didn’t. Obama’s lukewarm treatment of Noda’s bold move was rooted in U.S. domestic politics and the president’s re-election campaign. The White House aimed at pleasing the United Autoworkers of America and the luminaries of the U.S. auto-parts lobby who are vehemently opposed to the notion of expanding trade with Japan. Beyond Japan, trade expansion wasn’t part of the president’s election calculations anyway. Obama also ran against China as the Buy American candidate who boasted of his credentials as an economic nationalist at every opportunity on the 2012 campaign trail. (Republican Mitt Romney also tried to connect with the fears of American blue-collar voters, trying rather unconvincingly to out-flank Obama as a China basher. Romney’s former colleagues in the sophisticated private-equity world probably wondered what got into poor, oh-so-ambitious Mitt.)

But now, as the president heads to Southeast Asia at the end of this week to meet his regional peers at an East Asian Summit, Obama will begin to face the consequences of his permanent campaign. Japan, Korea, China, the Philippines et. al. are already preparing to move on to deepen their regional trading relationships, even if that means leaving the United States on the sidelines.

The TPP as presently constituted, Philippine Finance Secretary Cesar Purisima told a high-powered audience in Washington, D.C. convened in September by the new-and-energetic U.S. – Philippines Society and the Center for Strategic and International Studies, is economically flawed. It would distort regional trade flows and thus “hinder” the laudable goal of trade expansion. Manila has been working closely with Leon Panetta’s Pentagon, the Pacific Command, and Hillary Clinton’s State Department to deepen security ties. But it seems that the Philippines has accepted the fact that over at the White House, the president isn’t prepared to engage seriously on ways to enhance economic ties to the Philippines. On Nov. 12, Adrian Cristobal Jr., the Philippine undersecretary of the department for trade and industry, laid out his country’s trade priorities in Manila’s Business Mirror. The Philippines, he said, “should be a more active player in regional economic integration.” Toward that end, he advocated expanding trade ties throughout Southeast Asia, and also Japan, Korea, Australia, New Zealand, India — and China. There was no mention of the United States.

Obama is scheduled to fly to Myanmar (formerly Burma), Thailand, and Cambodia from Nov. 17 – 20, on what the White House is portraying as a triumphant post-election tour to emphasize America’s enduring commitment to remain an Asian power. But although the exact schedule has not been announced, trade aficionados would be well-served to watch what happens on Nov. 18, when Obama participates in the East Asian Summit in Phnom Penh. There, negotiations for a new regional trade-liberalizing deal called the Regional Comprehensive Economic Partnership will be announced. The RCEP’s members will include the ten members of the Association of Southeast Asian Nations, plus six other countries that have signaled their intentions to join in (the so-called ASEAN + 6): Australia, New Zealand, Japan, South Korea, India, and China. So far, neither Russia nor the United States has shown any interest in participating in the RCEP.

As the sharp-eyed Ernie Bower noted in a recent analysis published by the Center for Strategic and International Studies, the White House and the Kremlin have set themselves up for a diplomatic embarrassment next week. “If the United States does not join the RCEP, the White House should prepare for an awkward moment at the EAS [East Asian Summit] when presidents Barack Obama and Vladimir Putin are asked to step out of the room while the rest of the Asia Pacific leaders move forward on economic integration and line up for the RCEP photo op,” Bower warned last month. “The RCEP need not be competitive with the TPP, and it fills the strategic gap that exists between U.S. strategy and U.S. trade policy in the Asia Pacific.”

Mike Froman, the top White House international economic aide — who, if Washington street talk is to be believed, could replace the soon-to-depart Ron Kirk as the U.S. Trade Representative — declined to be interviewed for this article. Nor would Froman respond to written questions that addressed Bower’s analysis of the disconnect. (One of my questions was whether Froman still believes that the Office of the U.S. Trade Representative — whose elite corps of skilled trade negotiators has served this country well, at least when they have received enlightened policy support from the White House — should be tucked away somewhere in the sprawling Commerce Department.)

Meanwhile, as the reality of TPP negotiations continues to lag far behind the hype, one wonders exactly what economic benefits the Obama administration is looking to. Washington already has preferential trade pacts with six of the ten TPP countries: Australia. Singapore, Chile, Peru, Mexico, and Canada. These countries have been informed by Washington that they cannot expect any further access to U.S. markets in the TPP. Those deals, the White House insists, are to remain static. (By contrast, Hong Kong’s preferential trade deal with mainland China is regarded as a “living” document. Hong Kong officials are constantly working with their mainland Chinese counterparts on ways to further liberalize their cross-border trade, to their mutual advantage.)

Any new economic opportunities for enhanced U.S. trade with the remaining TPP countries would only involve four remaining smaller (if vibrant) economies that currently do not have their own preferential trade arrangements with Uncle Sam: New Zealand, Brunei, Malaysia, and Vietnam. This is all there is at the core of the Obama administration’s only ongoing international trade negotiations. One is reminded of the Wizard of Oz.

To be sure, the task of persuading some Asian trading partners to participate in meaningful trade liberalization is never easy. Thailand, trapped in bitter domestic political divisions that make Washington’s gridlock seem tame, don’t seem able to move for the foreseeable future. (However, there are rumors that the Thais will give everyone a big surprise, perhaps even within the week, that they have changed their attitude and will participate in the TPP after all. If so, that would be widely regarded as a very helpful move within the region.) Cambodia’s Hun Sen presides over a corrupt and incompetent regime that has basically been captured by Beijing. Myanmar/Burma, happily is in the beginning stages of opening up to trade and investment. But Japanese multinationals, not American corporations which remain caught in the sanctions trap, are the ones poised to exploit the new business opportunities. Indonesia, which sees Asean as a Greater Indonesia bloc, is in a protectionist, chest-thumping mood these days. As Robert Fitts, a former U.S. ambassador who now heads the American Studies program at Bangkok’s elite Chulalongkorn University, told me when we met in August, there are presently limits to what U.S. economic diplomacy can accomplish these days, beyond being patient. Meanwhile, the Thais and Cambodians are stepping up their trade with China. Little Laos and Tajikistan, each of which shares borders with China and which are set to become the WTO’s 157th and 158th members, don’t even seem to be on the U.S. economic radar screen. But they are on China’s.

But however unfortunate the timing is for some Asian countries to pursue real trade liberalization, it’s different with Japan and the Philippines — difficult, to be sure, but hardly intractable on trade expansion. True, the Japanese are famously protective of their inefficient-but-beloved domestic rice, to cite the most famous example explaining Tokyo’s traditional reticence in international trade negotiations. And key sectors of the Philippine economy, the WTO has reported, remain reserved to entrenched local elites who have little enthusiasm for competing in global markets. Sometimes — well, quite often, actually — it seems that the Philippine elites are determined to do whatever it takes to discourage much-needed foreign investment. Moreover, Philippine President Benigno Aquino III acknowledges that he has sympathies for Filipino First economic policies (the equivalent to Barack Obama’s Buy American sentiments). Filipino First policies, in fact, are at the root of that country’s long economic decline since they were instituted in the 1950s.

But it’s a mistake to write the Philippines off. Aquino — the rare uplifting example of an honest leader in the Philippine presidential palace — has launched a serious anti-corruption campaign that has put his country on the right track toward economic growth. “We are firing on all economic cylinders,” Foreign Secretary Albert del Rosario rightly notes. Former U.S. diplomat John Forbes, a man with decades of experience in Manila, agrees. Forbes says that what Aquino has been doing to get his country moving is truly “unprecedented.” And former U.S. Navy Captain Dennis Wright, who is developing a major industrial park at what used to be the U.S. Air Force base at Clark Field, agrees that “the U.S. has been remiss in not engaging more substantively” with the Philippines. “Anything to strengthen trade and commerce would only help,” Wright adds.

I have been following the Philippines closely for more than four decades, and — despite the fragility of the reforms that Aquino has launched — have never felt more optimistic about that country’s reaching its great potential. The big worry, and one that Aquino and his team readily acknowledge, is that there is no assurance that after Aquino’s term runs out in 2016 that his successor would bring comparable dedication and integrity to the office. Over at the Pentagon and at the Pacific Command, it is generally understood that along with closer security ties, working with the Philippines to promote lasting economic growth should be a top American priority priority. Asia-watchers in Hillary Clinton’s State Department — especially Assistant Secretary for East Asian and Pacific Affairs Kurt Campbell, who has missed no opportunity to promote closer economic as well as security ties across the region — get it. But the White House doesn’t seem to understand that right now is the time to work with important allies like the Philippines on genuine economic reforms. (Readers who are interested in more details on the Philippines’ impressive recent history are referred to Asia’s Next Tiger, which I authored last June for ForeignPolicy.com. The piece is also posted on www.rushfordreport.com.)

Moreover, if the goal is to connect strategic calculations with trade liberalization, the White House might reflect upon what the United States might do to help foster Philippine-Malaysian relations. The two Southeast Asian neighbors have long shared a mutual suspicion, based in part on lingering territorial disputes over the island of Sabah. But as Steve Rood, the Asia Foundation’s top man in Manila, relates, Malaysian officials have recently played a helpful and constructive role in facilitating a promising peace deal that Aquino has reached with Moro insurgents in Mindanao. Aquino, who was originally reluctant to involve the Malaysians, is now thought to be most appreciative of their quiet-but-effective assistance to the delicate peace talks. But while Kuala Lumpur is welcomed by the United States into the TPP, the Philippines is not. Isn’t this another good reason for now reaching out more seriously to Manila?

This past August I had the opportunity to speak in Bangkok with Curtis S. Chin, a savvy former U.S. ambassador to the Asian Development Bank who served under Presidents George W. Bush and Obama. Chin now lives in Bangkok, where he is a senior fellow with the Asian Institute of Technology. “I think we have to be more strategic in how we engage Asia, and it has to go beyond a military pivot,” Chin told me. It’s a mistake, he added, “to compartmentalize our policies, with foreign policy separate from trade policy.”

Those are words that the White House would be well-advised to reflect upon more deeply as the president begins his second term in the Oval Office. Patrick Cronin, a man with more than three decades of national security experience who is now affiliated with the Center for a New American Security, sums up the general consensus among Washington’s Asia hands. “The U.S. has had no real trade policy” in the last four years, Cronin told me earlier this year. Obama can be grateful that he now has a second chance to help foster global economic expansion — as without this new opportunity to start fresh, history surely would not be kind to his lack of accomplishments on international trade in the first four years. It’s time for the permanent campaign to end, Mr. President.

Made Where?

posted by
on March 13, 2012

When it comes to explaining to their citizens what international trade is all about, European leaders are way ahead of their American counterparts — so far, that they must marvel at the audacity of how it’s done in America. Last month, for example, I reported on President Barack Obama’s visit to Everett, Washington, where he praised Boeing’s new 787 Dreamliner. The president basically boasted on Feb. 17 that the Dreamliner showed how Americans build better “stuff” than foreigners. “Boeing has suppliers in all 50 states, providing goods and services like the airplane’s ground-breaking carbon fiber composite aircraft structure from Kansas, advanced jet engines from Ohio, wing components from Oklahoma, and revolutionary electrochromic windows from Alabama,” he declared. American manufacturers like Boeing, Obama added, “are realizing that even when we can’t make things cheaper than China, we can make things better. That’s how we’re going to compete globally.” When they saw that, some European readers told me they wondered what Obama had been smoking.

Here’s how that same Dreamliner has been described by the Swedish National Board of Trade, which has conducted ground-breaking research into the mutually beneficial relationship between imports and exports in modern international trade flows. “The production of this new midsize jet involves 43 suppliers spread over 135 sites around the world,” the sagacious Stockholm economists noted in one report. “The wings are produced in Japan, the engines in the United Kingdom and the United States, the flaps and ailerons in Canada and Australia, the fuselage in Japan, Italy and the United States, the horizontal stabilizers in Italy, the landing gear in France, and the doors in Sweden and France.” All in all, “a Boeing airplane is not particularly American,” as “70 percent of the components are produced abroad,” the sharp-eyed Swedes concluded.

Of course, Swedes don’t vote in U.S. presidential elections. And last week, Obama was at it again — vigorously explaining what international trade means to Americans in narrowly nationalistic terms. On March 9, the president visited Petersburg, Virginia, which is about 30 miles south of Richmond and the site of Rolls-Royce Crosspointe, one of Boeing’s suppliers of engine components for the Dreamliner. The president praised the British manufacturer for investing in America and “creating jobs here, manufacturing components for jet engines, for planes that we’re going to send all around the world.” He went on to say that what Rolls-Royce was doing in the United States represented “the kind of business cycle we want to see. Not buying stuff that’s made someplace else and racking up debt, but by inventing things and building things and selling them all around the world stamped with three proud words: ‘Made in America.'”

Made where? While that last line drew its intended applause from the southern Virginia workers, as an explanation of economic realities it was perhaps as chauvinistic — and flat-out wrong — as it gets in American politics.

Here’s why: Read the rest of this article »