The catch up category includes expanding scholarship and educational opportunities in the United States for young Indonesians, and resuming exchanges with Indonesia’s military, especially senior-officer training in the US. The second category will emphasise the trade and investment opportunities Indonesia now represents for Americans.
As Indonesia’s Trade Minister, Mari Pangestu, recently remarked, Indonesia is acutely aware it is little understood in the United States. It will seek to spread the word of what today’s Indonesia represents: high annual growth rates of more than 6 per cent, a population of almost 250 million with a strongly favorable demography, and a stable democratic environment. From the American side, as US Commerce Secretary, Gary Locke, has pointed out regarding Indonesia, US industry has special capabilities in infrastructure-building, in the development of ‘green’ and related hi-tech energy sectors, and of course in agriculture.
But this is also the ‘worst of times’ for a Presidential visit to Australia and Southeast Asia because it is Northeast Asia that now consumes most of Washington’s Pacific region attention. Two critical issues are likely still to be at the top of America’s agenda during the President’s visit. One is the tension with Japan centering on US military bases in Okinawa. Prime Minister Hatoyama set the end of May for a resolution, and while the 2006 US-Japan agreement will now go forward, the devil really is in the details. It affects the reliability of the Japan-US alliance, the anchor of America’s security role in the Western Pacific.
The second issue is the March sinking of the South Korean naval vessel Cheonan and its 46 deaths. A multi-nation group of naval specialists, including Australians, has found it was caused by a torpedo fired by a North Korean submarine. Because of North Korea’s nuclear weapons capacity, and the vulnerability of Seoul’s population to northern artillery and missiles just 30 miles removed, this crisis vitally affects the most dangerous issues of war and peace in East Asia.
Compared to those Northeast Asian issues, any foreign policy questions posed by Indonesia and Australia may be seen as small beer, though ironically it reflects their success. Yet the need for an overall American Asia policy remains, and prominent voices stress that goal requires in turn a clear US trade policy. President Obama’s decision to engage and endorse the ‘Trans Pacific Partnership‘ is the result.
Other US trade venues, the WTO Doha Round, the Korea FTA, and possible FTAs with ASEAN members, are not being forgotten and will be pursued if opportunities arise. But the TPP effort –representing Australia, Brunei, Chile, New Zealand, Peru, Singapore, the US and Vietnam – now tops Washington’s trade agenda. Singapore and Australia have long been important American trade partners, but as a group the TPP is no heavyweight. Its merchandise trade with the United States last year was US$110 billion, while total American exports and imports combined represented US$2.6 trillion. The TPP, in other words, accounted for just 4.2 per cent of America’s trade, and no partner is even in the top 10 of US export markets. Why then is Washington so energetically promoting the concept?
The answer is that, from a US government perspective, the Trans Pacific Partnership is the only game in town. Three main reasons explain why: the state of the WTO’s Doha Round; China’s role in Asia; and America’s self-image of its place in the Pacific. A possible fourth reason is that Washington regards the TPP is the only doable multilateral trade initiative.
On the Doha trade talks, after more than a year in office, it is clear that President Obama is not inclined to make the major efforts, especially agricultural, that might achieve a Doha closure. A year ago Washington’s new energies seemed committed to a world trade deal but the momentum ended when the new US Trade Representative, Ron Kirk, simply mirrored President Obama’s main trade goal – tightening up on ‘Free Trade Areas.’ The clearest sign Doha was on the back burner came when the President announced that his new trade plan is a five year goal of doubling US exports.
The second factor driving the Trans Pacific Partnership is America’s intense awareness of China’s East Asian trade dominance. China is now top trade partner for Japan, Singapore, Australia and Korea. Seoul’s China trade is actually now greater than with the US and Japan combined. Adding to all this is China’s intensifying web of ‘free trade’ agreements throughout the region.
The third factor behind US support for the TPP is America’s belated recognition of these new realities. A current Washington theme is that ‘America is back’ in East Asia and senior officials now insist they will participate in every important Asian meeting. They regularly recall the warning against ‘drawing a line down the Pacific’ first spoken two decades ago by former Secretary of State Baker. That’s when Malaysian Prime Minister Mahathir proposed an ‘East Asian Community’ that would exclude the United States.
The Obama Administration has internalised Baker’s warning, and its most concrete evidence is the Trans-Pacific Partnership. But it raises the question of whether the TPP is the best vehicle to affirm the fundamental point that the geo-strategic and economic interests of 300 million Americans will remain firmly rooted on both sides of the Pacific. The answer is that as presently constituted the TPP is too thin a reed for that task.
One reason is that neither Japan nor Korea, Asia’s weightiest actors closely tied to the US, are involved in the TPP, nor is Indonesia, ASEAN’s key member. Another is the absence of an American consensus on what the TPP might entail. Fifty members of Congress recently insisted to the USTR that New Zealand dairy products be excluded from TPP negotiations, while the US Chamber of Commerce envisages it as a ‘comprehensive FTA’ using the ‘US Singapore FTA as a standard.’ Simultaneously more than 100 in Congress have affirmed their opposition to any new ‘Free Trade Areas.’
For a United States that almost singlehandedly launched both the global GATT and then the WTO, a ‘Trans-Pacific Partnership’ is quite a comedown. All the more so when, if the WTO’s Doha Round were completed, its ‘most favoured nation’ clause would render moot most of the preferential trade agreements now cluttering world trade, and simultaneously kick-start global trade growth. And yet only the unlikely goal of a TPP, so 20th century, will be pressed by the US because that’s all the President is prepared to undertake at this point.
There is of course an alternative. If President Obama’s party retains its majority after the November Congressional elections, he might then heed the current advice of former USTR and now World Bank President Robert Zoellick. He points out that the six per cent growth rate of the world’s developing countries—double the developed countries’ rate—means they will need ‘precisely the kind of high-value goods that generate well-paying jobs.’
The message for the US is clear. If Mr. Obama genuinely hopes to achieve his goal of doubling of US exports, he will reassert America’s world trade leadership, and take the necessary steps to complete the Doha global trade round.
Bernard K. Gordon is Professor Emeritus at the University of New Hampshire and writes from Washington. His most recent book is America’s Trade Follies (Routledge, 2001).
Professor Gordon writes:
“All the more so when, if the WTO’s Doha Round were completed, its ‘most favoured nation’ clause would render moot most of the preferential trade agreements now cluttering world trade …”
Unless I have misunderstood, my view is that this statement is wrong.
The MFN provisions in the GATT and the GATS apply if the Doha round is never completed and they apply if the Doha Round is completed.
However, all of the preferential liberalization extended under GATT Article XXIVB, GATS Article V or the Enabling clause is not required to be extended to other WTO members under the MFN clauses.
The liberalization in the Doha Round will not reduce MFN barriers to a point at which the discriminatory margins of preference are trivial. Many of the products and services liberalized under PTAs will not even be the subject of liberalization on an MFN basis in the Doha Round – if the existing exclusions in the NAMA and agricultural draft texts apply, and if the current timid approach to scheduling GATS commitments continues to the end of the Round. Therefore, even if the Doha Round is completed, there will still be many many preferential trade agreements cluttering world trade.
I agree with Professor Gordon that the TPP is not going to be a solution to the problem of the clutter of discriminatory preferences – but even if the Doha Round is completed on a basis in line with the draft texts, then the world will still be in need of a solution to the problem of the clutter of discriminatory preferences.
Brett Williams
University of Sydney Faculty of Law
Interesting article. Two points, though:
1. Mahathir’s proposal was not the “East Asian Community” but rather the “East Asia Economic Caucus” or EAEC. He famously described it as a “caucus without Caucasians” [!]
2. Regarding ASEAN, you downplay the Philippines’ importance in relation to Indonesia. The Philippines was designated by Obama as the United States’ chief coordinator with ASEAN during outgoing President Gloria Macapagal-Arroyo’s visit to the White House in July 2009.
Prof. Brett Williams has pointed correctly to an error of emphasis at the very end of my essay on the ‘Obama visit to Indonesia and Australia and the TPP.’ I’m pleased he agrees with my main point that (as he wrote) the ‘TPP is not going to be a solution to the problem of the clutter of discriminatory preferences.’ But he is also correct that Doha completion would not ‘render moot’ most of them. It may ameliorate their effects but they will not be rendered moot. As another colleague, like Prof. Williams also a trade lawyer, has written to me, ‘the world will still suffer from many discriminatory preferential regional trading blocs, including this TPP, even after the Doha Round is completed.’ I was too expansive, and I thank Prof. Williams for his correction.