Tag Archives: free-trade agreements

Trade For Two, And Two For Trade

The South Korea-U.S. free trade agreement comes into force today–as this Bystander feels sure you have noted in your diaries. It is tangental to our brief but worth noting in passing for several reasons. Beijing, Seoul and Tokyo hope to start the sharp end of talks on their own free trade agreement later this year. China is both being dragged and dragging its trade partners before the World Trade Organisation with some regularity. And while the next round of the WTO’s global free trade talks, the Doha round, is proceeding even more glacially than reform in China, free trade agreements are popping up everywhere.

Nearly three score have come into force since January 2008. The total in effect is fast approaching 300 and many more are being talked about. (Trade trivia question: now Mongolia has struck a free trade agreement with Japan, which is the one WTO member left that is not party to any free trade agreement?)

The days when free trade agreements were seen as undermining the multilateral global trading system seem distant memory. Bi- or limited plurilateral regional free trade agreements will shape trade policies for the foreseeable future. They are also more suitable for developing existing cross-border trade flows being created by the needs of global logistics chains. Whether they undermine the big benefit  of multilateral agreements, that they increase trade overall by lowering restrictions across the board, is moot. But then the Doha round isn’t doing anything to boost trade overall for as long as it remains stalled.

The most significant of the free trade agreements under discussion for  the Asia-Pacific region is the Trans-Pacific Partnership (TTP) that the U.S. is taking over. China is on the outside of that at this point. Japan is the swing state. If it joins the TTP, China’s exclusion will be of more consequence than if it does not. Another free trade agreement in the pipeline that has implications for China is one between the EU and India. Meanwhile, Washington and Seoul are putting in place another piece of the new world trade order.

Footnote: The answer is Mauritania.

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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.

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