Xi Blows Hot And Cold Over Apec

The Asia-Pacific Economic Co-operation Summit (Apec) in Beijing brought together the leaders of the world’s three biggest national economies, President Xi Jinxing, Japan’s Prime Minister Shintaro Abe and U.S. President Barack Obama. It was not a particularly happy confluence.

While Xi and Abe shook hands  — the first meeting of the leaders of China and Japan for more than two years — the rest of the body language was scarcely cordial. Icy, in fact. The tension over the two nations’ maritime territorial dispute in the East China Sea won’t easily be shaken off.

Obama arrived bearing gifts, extensions to the terms of multiple entry visas, from one year to 10 for business people and tourists, and to five years for students. But while China and South Korea agreed to sign their proposed bilateral free-trade agreement (FTA), the U.S-led Trans-Pacific Partnership (TTP) continued to tread water. Nor did the U.S. make any apparent progress in its negotiations to update the 18-year old agreement it has with China on trade in high-tech goods and services.

If anything, in rounding out its FTAs with Japan and the U.S. by signing one with China, South Korea has less need to pursue membership of the TTP with any urgency. While that could be read as score one for Xi, similarly Seoul also has less need to pursue the Beijing-proposed rival to the TTP, the Free Trade Area of the Asia-Pacific (FTAAP). Washington has been, behind the scenes, resisting that determinedly, though it couldn’t prevent Apec leaders agreeing to a two-year study of the scope of an FTAAP. That wasn’t as much movement towards a drawing up a roadmap as Beijing wanted, but it was still more ground than Washington had wanted to yield.

The summit was Xi’s show, his first big international meeting since he assumed power, and an opportunity to show how China is increasingly dictating the region’s pecking order. In the group photograph at the end of the summit, Russia’s Vladimir Putin is standing next to Xi on his right. The two countries signed a big oil-and-gas deal ahead of the summit and promised further cooperation. Obama is down the line to Xi’s left, halfway to the end of the front row. Abe is relegated to the second row.

China And The U.S. Play Free Trade Chess

Free trade agreements (FTAs) are easier said than done. U.S. President Barack Obama acknowledged as much when announcing an outline agreement to expand the TransPacific Partnership from four to nine as a basis for a regional FTA. There is much detail to be negotiated. It will take years, not months. Many devils must be confronted.

For one, Obama’s domestic opponents are not going to hand him a political and economic victory with a general election barely a year away. Even in the highly unlikely event a final TTP agreement could be reached quickly, a Republican-dominated House of Representatives could block a vote for Congressional approval before the election. Nor are Republicans likely to allow an agreement containing what Obama called ‘high standards’, code for among others environmental and labor protections and local sustainability rights that are an anathema to many of Obama’s opponents.

All those are the quick and dirty domestic political battles. Japan’s decision to join promises a hundred years war. Japan’s new prime minister, Yoshihiko Noda, has risked splitting his party in doing so. He will now need to turn the country’s three most powerful and insular domestic political constituencies, farmers, doctors and the construction industry. Doing so would mean a deep structural change to Japan’s political system. That may be long overdue, but it will not be quick in coming. That alone should not imbue supporters of the expanded TTP FTA with great confidence. Nor should the rapid turnover of recent Japanese prime ministers. Noda is the sixth in five years.

It is already two years since the U.S. applied to join the four-member TTP and started to orchestrate its expansion to nine, including bringing in its two most important treaty partners in the region, South Korea and Japan, as well as regional allies such as Thailand. There have already been nine rounds of TTP expansion negotiations. These are painstaking processes.

The Obama administration’s move was part a a bigger game of FTA chess that it is playing with China for influence in the region. Washington is playing the APEC side of the board while Beijing is playing the ASEAN side. (The side story for those choices is that the Asia-Pacific Economic Community is a group of economies, so can include Taiwan, whereas the Association of South-East Asian Nations comprises countries, so does not. Taipei has expressed interest in joining the TTP FTA, and while Washington has been scrupulously silent on the point, the absence of any outright rejection is being taken in Beijing as unacceptable tacit support.)

Beijing, meanwhile, has been doing what it can to slow up the TTP expansion, and pushing a series of bilateral trade agreement with ASEAN nations and the concepts of regional trade pacts between ASEAN plus three (itself, South Korea and Japan) and ASEAN plus six (adding Australia, New Zealand and India). The U.S. is notable by its absence. Hence Washington’s attempts to involve all the same countries, with the one obvious exception, to much the same purpose but under the aegis of APEC.

This is not necessarily disliked by most Asian countries as it allows them to keep both regional superpowers from being too dominant as they jockey for supremacy. The most extreme example of this is that both China and the U.S. are trying to create trilateral free trade agreements with South Korea and Japan. Two tracks. Double the trouble. And any end game still a long way off.

Unvisited China The Common Point Of Obama’s Asia Trip

U.S. President Barack Obama’s current Asia trip isn’t taking him to China but China will be its recurring theme. The country sits at the heart of Washington’s Asia policy. President Hu Jintao will anyway meet his American counterpart twice, at the APEC and G-20 summits in Yokohama and Seoul respectively. Significant security and economic issues will be on their agenda, with China’s neighbors now seeing the U.S. as a more necessary counterweight to Beijing’s increasing regional assertiveness in both realms.

Free-trade is one area in which this will most immediately play-out with the U.S. seeking to advance its four proposed bilateral free trade agreements in the region, particularly the one with South Korea, which has the most chance of happening. The U.S. is also fiddling around with expanding the amorphous Trans-Pacific Strategic Economic Partnership Agreement (TPP) under its leadership. The TPP has a long-term aim of bringing all countries with a Pacific coast  into a free-trade zone, and is emerging in the eyes of some in Washingtonas an alternative to the pan-regional free-trade proposal of the APEC forum. America has a strong voice in APEC, but the grouping is informal and lacks an institutional mechanism to bring about any free-trade agreement.

Meanwhile, Beijing is looking closer to home, where its own voice carries more weight. It has thrown its lot in with the 10-member Association of Southeast Asian Nations (ASEAN) and its free trade plans that would include its members plus China, Japan and South Korea (who are also working on their own free-trade agreement). The so-called 10+3 will be up and running before any grander pan-Pacific arrangements, and possession, as they say, is nine-tenths of the law.

The counties of the Asia-Pacific account for 44% of global trade and 53% of global GDP so any free-trade initiatives in the region have global ramifications. Beyond the geo-politics, Obama needs more free-trade agreements in the region if he is to have any hope of meeting his promise to double U.S. exports by 2015. However, as the North American Free Trade Agreement (NAFTA) showed, free-trade agreements run readily into the realities of domestic American politics, too.

However this will all play out, it will do so against the backdrop of continuing trade and currency tensions between Washington and Beijing. While they may not get much worse they are unlikely to get much better in the coming months. Beijing is proving adept at shaking off Washington’s attempts at arm twisting over the revaluation of the yuan. Witness U.S. Treasury Secretary Timothy Geithner’s failed effort to get the G-20 to set targets for current-account balances. A lame-duck Democratic Congress might try to pass the Currency Reform for Fair Trade Act, which is aimed squarely at China. However, if it succeed, the U.S. Senate is unlikely to pass it and even if it did President Obama would most likely veto it ahead of the planned state visit of President Hu Jintao in January. The incoming Republican-controlled U.S. House of Representatives would likely let the legislation die on the vine, but not necessarily without some noise from some of its newcomers. Neither outcome provides balm for Sin0-American tensions.

Nor is there much to suggest that tensions over security issues will lessen with China even as they improve with some of the countries Obama is visiting. Beijing’s recent forthrightness in word and deed in the East and South China Seas has made its neighbors more appreciative of having the U.S.’s military presence in the region and heightened Washington’s awareness of the potential importance of that role to countries not always immediately seen as allies. Backing India to join China as a permanent member of the U.N. Security Council is another example in which Washington is bolstering the counterweights to Beijing. (India is due to take is seventh one-year term as a non-permanent member next year.)

Such a move won’t endear itself to Beijing, any more than did U.S. Secretary of State Hillary Clinton’s recent offer to broker a settlement of some of the regional maritime disputes. The brusque refusal by Beijing to take up Clinton’s offer and its extension of aid to Indonesia ahead of the U.S. president’s visit there indicates that it is fully aware of the shifting balance of influence in its backyard.

There is also a risk it will become more upset over Taiwan, always a potential flash point in Sino-American relations, after January if Ileana Ros-Lehtinen, a refugee from Fidel Castro’s Cuba and who supports increased arms sales to Taiwan, becomes, as seems likely, head of the Foreign Affairs Committee in the U.S. House of Representatives. She is partial to poking authoritarian regimes with a stick even symbolic ones.

While Obama plays his various parts as salesman and statesman on this trip, it is America’s relationship with China that shapes America’s relationships with his hosts.

China, Cuba, Russia and Latin America

Not that he is likely to foreclose but Hu Jintao has some debt restructuring to do with Raul Castro. After the collapse of the Soviet Union in 1991, China kept Cuba afloat with soft loans. Many of those are now falling due. Renegotiating them is on the agenda of the Cuba leg of Hu’s Latin American trip.

So are trade deals. Cuba is China’s second largest trading partner in the region after Venezuela. Latin America is of increasing economic importance to China, and to Russia. President Dmitry Medvedev is due to visit Havana next week, en route to the Asia-Pacific Economic Co-operation summit in Peru later this month, where Hu will also be in attendence.

Warming To Climate Change

The success of the U.N’s two-week long climate conference in Bali will turn a lot on what China signs on for. The meeting is intended to get all countries working on how the world will mitigate the effects of global warming once the decade-old Kyoto agreement expires in 2012.

Kyoto was a fractious affair, with rich countries, notably the U.S., and poor ones, including China and India, shunning it because it had hard targets for cutting greenhouse gas emissions from 1990’s levels that they saw as hurting economic growth. But since then the political skeptics on climate change have become a dwindling minority in the face of hard science to the contrary and business discovering the beauty of appearing green.

It is not so much that the world’s demand for energy shows is abating. The International Energy Agency forecasts that demand will have increased by half as much again by 2030 with two thirds of the increase coming from developing nations and China accounting for a third of it. But there is a new focus, in China as much as anywhere else, on the environmental impact of consuming as much energy as the world does in the way that it does.

A lot of the groundwork for what may be achieved in Bali was done at the Asia-Pacific Economic Cooperation forum (APEC) summit in Sydney in early September–a gathering that included all the main players save for the European Union. That coalesced regional support for what could be called the pro-growth camp backed by the Bush administration, which has itself done a U-turn on climate change.

This approach puts technology, voluntary targets and energy efficiency at the heart of any global agreement on climate change in a way that would contain the growth of greenhouse gas admissions but still not curtail economic growth. APEC leaders agreed to work towards a 25% reduction by 2030 in energy intensity, the amount of energy used to produce a dollar of gross domestic product. Developing countries prefer this measure to absolute cuts in carbon outputs because it puts the onus for action on the big polluters like the U.S. and China.

Yet China signed on for that deal, the first time it has agreed to quantifiable targets–albeit non-binding ones. The Sydney agreement, though, is at odds with the absolute–cut targets agreed by the leaders of the eight richest countries at the G8 summit early in the year, and those are, for the most part, the core supporters of Kyoto.

China doesn’t want Kyoto-2 to wither on the vine. There is likely to be aid money for clean technologies and to adapt to the social and economic impacts of mitigating climate change. And there is a domestic political imperative driving the need to make China’s water and air cleaner. Where Beijing decides to throw its lot will greatly shape what emerges in two weeks time from the Bali meeting.