Nov. 7 (Bloomberg) -- President Barack Obama, working to put his own stamp on the rules of international trade, is pursuing an agreement with eight Pacific nations and looking beyond them to the prospects for adding Japan and China.
Obama and leaders of nations from Chile to Vietnam will report on their efforts to forge a Trans-Pacific Partnership on the sidelines of the 21-nation Asia-Pacific Economic Cooperation conference in Honolulu this weekend.
An accord among the Pacific rim nations would be the first trade deal that Obama signed rather than inherited, and the biggest for the U.S. since the North American Free Trade Agreement with Canada and Mexico that took effect in 1994. The administration has ambitions to make it still bigger, according to U.S. Trade Representative Ron Kirk.
“We obviously got into this not just for those eight economies because we have trade agreements with half,” Kirk said at the U.S. Chamber of Commerce in Washington on Oct. 26. “We really believe that this has the potential to become the free-trade agreement of the Asia-Pacific, at least those 21 member economies.”
A Trans-Pacific agreement would help meet Obama’s pledge to double U.S. exports by 2015 from 2009 levels. It is the centerpiece of the administration’s trade policy after Obama won congressional agreement in October for his revised versions of deals with South Korea, Colombia and Panama that were negotiated under President George W. Bush.
“It is going to be uniquely this administration’s,” William Reinsch, president of the National Foreign Trade Council in Washington and a Commerce Department official in the Clinton administration, said in an interview. “Its shape has taken form under this administration.”
The current talks are with Australia, Chile, Peru and Singapore, all of which already have separate free-trade agreements with the U.S., as well as with Malaysia, New Zealand, Vietnam and Brunei.
Two-way trade between the U.S. and those eight nations totaled $171 billion last year, compared with $457 billion with China, $181 billion with Japan and $88 billion with South Korea, according to the U.S. Commerce Department.
Japan’s Prime Minister Yoshihiko Noda said Oct. 28 that his government plans to make a decision “as soon as possible” on joining the partnership. Chief Cabinet Secretary Osamu Fujimura today said ruling-party lawmakers will submit their opinions on whether to join the talks by Nov. 9 and Noda will then give a press conference.
Noda will announce Japan’s participation in the talks on Nov. 10 before he heads to APEC, the Yomiuri newspaper today said without citing anyone. China’s commerce ministry said today that such regional agreements should not replace wider trade regimes, while South Korea’s ambassador has said his nation is interested in expanding trade opportunities once its assembly approves a pending free-trade agreement with the U.S.
The U.S. imports more than it exports to the biggest Asian nations, resulting in trade deficits last year of $273 billion with China, $60 billion with Japan and $10 billion with South Korea compared with a $7.6 billion surplus with the eight nations already in talks.
In addition to tackling traditional trade issues such as tariffs and market access, negotiators at the U.S-led talks are seeking restrictions on government-owned companies and stricter protections for patents and copyrights.
China Trade Practices
China’s trade practices, including currency manipulation and advantages given to state-owned businesses, violate standards the U.S. is advocating in the Pacific partnership, according to Michael Moore, a professor at George Washington University in Washington.
Negotiating an accord without China would let the U.S. set new ground-rules for Pacific trade, Moore said in an interview.
“The United States needs to be aggressive,” Moore, who served as an economist in the Bush administration, said. “You want to get the rules of the game solidified as a counterbalance to China and also so if China wants to join, they come in under our rules.”
China has not received an invitation to accede to the Trans-Pacific Partnership, Assistant Commerce Minister Yu Jianhua told a briefing today in Beijing. Yu said any such mechanism should be “open and inclusive” rather than exclusive, and should not replace multilateral regimes such the one proposed under the ongoing Doha round of trade negotiations.
“In general TPP has set very high benchmarks, whether or not all these members will reach that high benchmark we’ll have to wait and see,” Yu said.
At the same briefing, China Assistant Foreign Minister Wu Hailong said U.S. goals for the APEC summit were “too ambitious.” When asked to elaborate, he mentioned U.S. goals to reduce tariffs on environmental goods, lower energy intensity of APEC member nations and push for new agreements on innovation and regulatory cooperation.
Negotiating now with Vietnam, a closed-market economy, gives the U.S. a chance to work through some of the issues it would face later with China, Michael Green, a senior adviser with the Center for Strategic and International Studies in Washington, said in an interview.
“It’s useful because it shows we can expand this beyond just open-market economies and democracies,” said Green, who was senior director for Asian affairs at the National Security Council under Bush.
Japan is a better bet to join the negotiations in progress, said Kevin Gallagher, a professor of international relations at Boston University.
Split in Japan
“Japan changes the equation,” Gallagher said in an interview. “If they’re not in it, there’s not much in it for the United States.”
Noda’s Democratic Party of Japan is split over whether to promote trade to boost economic growth as the population declines, or protect the nation’s farmers who may be harmed by lower tariffs and increased competition. Japan has some of the world’s highest agricultural duties, including a 778 percent tariff on rice.
Japan needs to show it’s committed to opening its markets as much as the other Pacific partnership members, J.P. Fielder, a spokesman for the U.S. Chamber of Commerce, the nation’s biggest business lobbying group, said in an interview. Kirk said Japan would have to sign on to the trade agenda already in development by the nine nations.
“We are anxious and will welcome Japan’s announcement of whatever their intent is going to be,” Kirk said in an interview today. “If they’re going to come to the table, there is an expectation on our part that they understand that this is not going to be an agreement that we start out by taking things off the table.”
The U.S. auto industry “is deeply concerned that a free-trade agreement with Japan will only lock in a one-sided trading relationship that has produced a $50 billion trade deficit,” said Stephen Biegun, vice president for international governmental affairs at Dearborn, Michigan-based Ford Motor Co.
South Korea may also look to join the Pacific talks to strengthen its trade ties with the other nations after passage of the free-trade accord with the U.S., Green said. The accord won U.S. approval more than four years after it was signed.
“We should spend some time cementing the implementation, then we will consider what we will do,” Han Duk-soo, South Korea’s ambassador to the U.S., said in an interview. “It’s clear for Korea that we will continue to open our markets.”
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