Author Archives: Greg Rushford

Disconnect

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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.

Imperial Preferences

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[Part One of a Two-Part Series]

Last month I flew to Bangkok, Saigon and Hong Kong to try to get a better understanding of why something called “yarn forward” has been blocking progress in the Trans-Pacific Partnership trade negotiations. The TPP talks presently involve the United States and eight other countries including Singapore, New Zealand and Australia — soon to be a group of eleven nations, with the addition of Canada and Mexico — in the fastest-grown region in the world.

For sure, the term “yarn forward” would not mean much to regular folks. But to a handful of diplomatic insiders and trade junkies who immerse themselves in the arcane jargon of international-trade politics, yarn forward is anything but an obscure phrase. It turns upon America’s reluctance to give Vietnam, and to a lesser extent, Malaysia, enhanced access to U.S. clothing markets — unless the Asians agree to disrupt their current global supply chains to make their clothing from U.S. materials.

The fight over yarn forward rules of origin for textiles and apparel is widely considered to be one of the key reasons that the TPP negotiations, despite a lot of hoopla, have essentially made very little progress since March, 2010. That’s marks the date when American trade negotiators put the concept front-and-center of Washington’s TPP agenda during the TPP’s first round of negotiations, which were held in Melbourne. This Friday, the TPP’s 14th round will conclude in Leesburg, Virginia, The Sept. 6 – 15, 2012 Leesburg meetings, like the others, have been shrouded in near-total secrecy. Once again, about all that outsiders see is the usual diplomatic happy talk about all the “important” meetings that have been held by a lot of important, busy officials, and about all the encouraging “progress” that is being made.

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Outsourcers in Chief?

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There’s something about hot summers in Washington, D.C. that raises political temperatures to their boiling points, especially when certain subjects are mentioned. Like outsourcing. And if you think the rhetoric on outsourcing the 2012 presidential campaign trail is already overheated, there are some previously unreported facts to report that, because they are awkward politically, won’t necessarily lower temperatures before the Nov. 6 election. Not at Romney campaign headquarters. Not in the Obama White House. Definitely not in the Washington Post newsroom and the Washington Post Co.’s corporate suites. Not even at the State Department or certain unnamed defense and intelligence agencies which all benefit, one way or the other, from outsourcing back-office business processing operations. While the diplomats and spooks have merely been spending tax dollars wisely, their efforts are not likely to be much appreciated by some of the more insular-minded denizens of Capitol Hill.

Sorting out the unnoticed facts in the current outsourcing controversy helps illuminate the fundamental economic facts of global competition that drive outsourcing —economic realities that have been almost totally obscured in the the current hot exchange of negative television commercials between President Obama and his Republican challenger. The current heated rhetoric has been sparked by a recent investigative report in the Washington Post.

“Mitt Romney’s financial company, Bain Capital, invested in a series of firms that specialized in relocating jobs done by American workers to new facilities in low-wage countries like China and India,” reported Tom Hamburger on June 21. Hamburger’s essential facts were pinned to public-record filings pertaining to several Bain investments, when Romney was at the helm, in companies that developed successful overseas call centers. Romney howled. But he is the one who set himself for such criticism. Given his background in international business, the Republican must be presumed to understand that outsourcing helps American firms’ competitiveness — and that at Bain, he did nothing to be ashamed of. But rather than offer thoughtful explanations that would appeal to the better nature of the American public, Romney has been talking down to them. He’s been running as something of a Buy American candidate, attempting to out-flank Obama’s economic nationalist appeals by railing against Chinese and other foreigners who “kill” American jobs. One thing about ordinary Americans: they can always sense when they are being talked down to. The Post’s piece quickly resonated because it exposed Romney’s insincere-sounding double-talk.

Obama, who really does appear to believe in economic nationalism, is determined never to be out-flanked when it comes to the Buy American business. The president quickly launched a still-continuing flurry of negative television spots in key electoral battleground states like Virginia. The Obama commercials — touting the Washington Post’s report, while stretching Pinocchio-like beyond the facts that the newspaper had reported — essentially say that Romney wants to be president so he can ship as many American jobs to Asia as he can. Fearing that too many American voters are gullible enough to swallow such strained logic, Romney has shot back with his own negative commercials calling Obama’s charges “dishonest,” and typical of a president who “doesn’t tell the truth.” Lost in all the hot air: any hint from either candidate that outsourcing may be something other than scandalous — and that there are overall benefits from outsourcing to American jobs.

Just look at new fact number one, which begins with the newspaper that has sparked the current controversy. The Washington Post itself outsources its subscription services to a call center in the Philippines. So do other respected major news organizations — the Financial Times and Thomson-Reuters stand out — which understand how such outsourcing of lower-end tasks helps sustain their bottom lines (and the jobs of U.S.-based reporters, even those who go around investigating call centers in aspiring Southeast Asian tigers like the Philippines as if they were unsavory massage parlours).

A second set of facts begins with President Obama, the nation’s number one critic of outsourcing. Flying in the face of his campaign rhetoric, Obama presides over a federal bureaucracy that itself benefits from billions of dollars in outsourced contracts to process back-office services. Obama probably has never thought of it this way, but there are U.S. national security benefits, not to mention savings of tax dollars, that result from hundreds of millions of dollars in outsourced federal contracts just involving national-security agencies.These contracts are very important to U.S. agencies whose operations simply can’t be cut off from the rest of the world they deal with, whether the politicians they report to understand that or not. Here’s the story:

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