By• Wendy Cutler, Charles Finny, Peter Grey, Kim Jong-Hoon & Shotaro Oshima January 2018 SHIFTING TRADE WINDS: U.S. BILATERALISM & ASIA-PACIFIC ECONOMIC INTEGRATION

ABOUT THE ASIA SOCIETY POLICY INSTITUTE BACKGROUND & SUMMARY With a problem-solving The withdrawal of the from the Trans-Pacific Partnership (TPP) in mandate, the Asia January 2017 shook the Asia-Pacific region. It prompted governments and stake- Society Policy Institute holders across the region to reassess their reliance on American economic leadership (ASPI) tackles major policy and the U.S. market. As the United States stepped back from its economic engage- challenges confronting the ment in the region, Asia-Pacific economies took matters into their own hands and Asia-Pacific in security, prosperity, sustainability, are now pressing ahead with negotiating their own trade and investment agreements and the development within the Asia-Pacific region, and with other major economies around the world. of common norms and This Asia Society Policy Institute (ASPI) issue paper, written by an ASPI “Trade values for the region. Forum” composed of senior trade experts and chaired by Wendy Cutler, updates the findings and recommendations made almost one year ago (March 2017) in another ASPI report, Charting a Course for Trade and Economic Integration in the Asia- Pacific.1 This issue paper reflects the unfolding economic developments in the most dynamic area of the world, and over the course of an unusually eventful year for trade. This paper makes a number of recommendations to policymakers across the region on how to navigate an increasingly complex Asia-Pacific trade landscape. Key among them are the following: • The 11 remaining Trans-Pacific Partnership members (TPP-11) are urged to con- clude and put into place the Comprehensive and Progressive Agreement for Trans- Pacific Partnership (CPTPP) without delay, and they should be prepared, if neces- sary, to proceed without all partners. Moreover, existing TPP members should seize The Asia Society Policy on their momentum and start accession discussions with interested candidates— Institute and the Asia Society take no institutional position including Asia-Pacific Economic Cooperation (APEC) members, as well as the on matters of public policy United Kingdom and Colombia. and other issues addressed in • The renegotiation of existing trade agreements ought to focus on updating rules and the reports and publications they sponsor. All statements improving market access, rather than weakening previous commitments. Asia- of fact and expressions of Pacific economies are closely following the North American Free Trade Agreement opinion contained in this (NAFTA) renegotiations and the U.S.-Korea Free Trade Agreement (KORUS) paper are the sole responsibil- amendment process as they consider whether to pursue bilateral negotiations with ity of its author and may not the United States. reflect the views of the organ- ization and its board, staff, • Regional actors, including the United States, are encouraged to consider pursuing the and supporters. negotiation of a stand-alone issue-specific regional agreement, for example, on digital trade. As the world’s fastest-growing region for digital trade, the Asia-Pacific has a unique opportunity to play a leading role in setting standards and norms in this area. This project was made possible through the generous support • In an effort to rebuild support for trade, policymakers may wish to reconsider the of the Citi Foundation merits of certain long-standing trade agreement provisions that have been particu- larly polarizing, such as investor-state dispute settlement (ISDS).

AsiaSociety.org/Policy-Institute | [email protected] | @AsiaPolicy Some in the Asia- Introduction an increasingly connected world and are Pacific region are Nearly one year after the United States making their voices heard at the domestic and international levels. Moreover, some starting to seriously withdrew from the Trans-Pacific Partner- ship (TPP) and stepped back from an in the Asia-Pacific region are starting to question the economic leadership role in the Asia- seriously question the consensus around consensus around Pacific, the rest of the region is proceeding the rules-based multilateral system that has the rules-based undeterred. In an eventful 2017, Asia- governed trade for the past 70 years—and multilateral system Pacific economies were hard at work de- trade liberalization more broadly. This is that has governed veloping contingency plans for achieving most prevalent in the United States, but by no means limited to the world’s largest trade for the past regional economic integration and advanc- ing trade and investment liberalization economy. 70 years—and without the United States. trade liberalization A Comeback for Trade Of particular note, the remaining TPP more broadly. One year ago, there was little good news countries2 agreed on the core elements of on the global economic and trade fronts. the original deal in November 2017 and are Global economic growth was slow and close to finalizing the new agreement, uneven—both within and between coun- retitled as the Comprehensive and Progres- tries—with International Monetary Fund sive Agreement for Trans-Pacific (IMF) global growth projections idling at Partnership (CPTPP). Meanwhile, the 3.4 percent for 2017 on the heels of a Regional Comprehensive Economic Part- stagnant global economic recovery. nership (RCEP) countries3 continue to Meanwhile, the World Trade Organiza- work toward their own regional deal in tion (WTO) announced that global trade 2018. , , New Zealand, growth slumped from 2.7 percent in 2015 and Singapore are poised to start negotia- to a lackluster 1.7 percent in 2016. In- tions early next year with the Pacific deed, 2016 marked the “slowest pace of Alliance.4 At the same time, ’s Presi- trade and output growth [2.2 percent] dent Xi Jinping, emerging from the recent since the financial crisis of 2009,” accord- 19th Chinese Communist Party Congress ing to the WTO.8 greatly empowered, has taken steps to fill the economic leadership vacuum created by Data suggest that this trend has reversed in the United States in the Asia-Pacific region the second half of 2017. Due in part to through the Belt and Road Initiative (BRI) stronger-than-expected growth in China, and pledges made on the world stage under Japan, North America, and Europe, as well China’s new foreign policy framework— as bolstered consumer and business confi- the “Community of Common Destiny.”5 dence and a stable financial environment, the IMF in October 2017 boosted its However, the rising backlash against trade global growth projection to 3.6 percent in and globalization continues across the 2017 and 3.7 percent in 2018.9 Likewise, globe as growing income inequality, stag- the WTO forecast for global trade growth nant wages, and job losses continue to surged two full percentage points to 3.7 squeeze the working and middle classes. A percent in 2017.10 growing number of people feel left out of

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As it became clear The Asia-Pacific region continues to be a “renewed multilateral effort is also needed over time that the bright spot on the global economic sce- to tackle the common challenges of an 17 U.S. withdrawal ne—in 2017, 9 of the 15 fastest-growing integrated global economy.” Amid such economies were in Asia.11 While the Asia- uncertainty, there is no guarantee of con- from the TPP was Pacific region accounted for less than 30 tinued growth and rising prosperity the start of a more percent of global GDP in 2000, today it without forward-looking, inclusive frame- inward-looking U.S. accounts for more than 40 percent.12 works and policies. trade policy, [Asia- Economists agree that the region will Trade Activity in Asia Pacific economies] continue to drive global growth for years to come. The Asian Development Bank picked up the pieces Economies in the Asia-Pacific region con- (ADB) raised its growth projection in tinue to recognize the importance of trade and are now actively September 2017 for “Developing Asia”13 and trade agreements in promoting eco- pursuing plurilateral from 5.7 percent to 5.9 percent, noting its nomic growth, fostering job creation, and bilateral trade “cautious optimism” for an Asia-Pacific spurring innovation, and attracting foreign deals. region stimulated by strong export de- direct investment. As a result, they have mand.14 And, in the medium term, by continued their quest for new markets 2025, new middle-class consumers from despite some initial hesitation, particularly the Asia-Pacific will inject about USD $25 among TPP members, to charge ahead on trillion into the global economy, account- trade agreements without the United ing for half of the world’s total middle- States. However, as it became clear over class spending, according to the Brookings time that the U.S. withdrawal from the Institution.15 TPP was the start of a more inward- looking U.S. trade policy, they picked up Nevertheless, risks underlie global and the pieces and are now actively pursuing regional economic growth and global trade plurilateral and bilateral trade deals within projections. The WTO warns that factors the region, and with major economies, such as monetary tightening, geopolitical such as that of the European Union (EU). tensions, the potential for restrictive trade policy measures, and costly natural disas- While some negotiations are still in the ters could undercut growth in global trade exploratory stages, and others were flows.16 With respect to global growth, the launched before the U.S. withdrawal from IMF warns of short-term risks, such as the TPP, the message is clear: Asia-Pacific uneven growth across countries, below- economies will continue to lock in new target inflation in most advanced econo- markets through trade agreements, while mies, and rocky adjustments from the the United States sits on the sidelines. drop in commodity prices. Additionally, the IMF asserts that this period of modest In addition to the CPTPP and RCEP, the growth provides “an ideal window of following is an illustrative, but by no opportunity” to help “boost potential means exhaustive, list of free trade agree- output while ensuring [the] benefits [of ment (FTA) negotiations currently growth] are broadly shared, and to build underway in the region: resilience against downside risks.” Im- • In December 2017, Japan and the EU portantly, the IMF goes on to note that a announced the conclusion of the bilat-

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Asia-Pacific eral Economic Partnership Agreement • In 2017, China and New Zealand economies will (EPA), after four year of negotiations. held three rounds of negotiations to The two economies aim for the agree- upgrade their bilateral FTA. continue to lock ment to enter into force in 2019. in new markets • In 2017, Australia, Canada, New Zea- • In December 2017, Indonesia and land, and Singapore each launched through trade Chile concluded a Comprehensive bilateral negotiations with the Pacific agreements, while Economic Partnership Agreement af- Alliance, after becoming “Associate the United States ter six rounds of negotiations, Members” of the group. beginning in 2014. sits on the • Having each completed the prelimi- sidelines. • In November 2017, the Association of nary domestic and bilateral steps, New Southeast Asian Nations (ASEAN) Zealand and Australia are each ex- and Hong Kong signed an FTA and pected to launch FTA negotiations investment agreement. with the EU in early 2018. • In November 2017, Australia and Peru announced the conclusion of the The Comprehensive and Peru-Australia Free Trade Agreement Progressive Agreement for negotiations, which began just six Trans-Pacific Partnership months earlier. One of the key recommendations of ASPI’s • In October 2017, Australia and Indo- March 2017 trade policy report was to keep nesia concluded their ninth round of the TPP rules alive through unilateral negotiations for a potential Compre- actions and other trade agreements, which hensive Economic Partnership has largely occurred since then. For exam- Agreement, with the aim of conclud- ple, Vietnam has unilaterally pursued labor ing the talks in 2018. reforms and is implementing other reforms to state-owned enterprises (SOEs) to attract • Over the course of 2017, Canada and China have made steady progress on foreign direct investment. Meanwhile, TPP exploring the potential for an FTA; in rules have factored into the renegotiation of

November 2017, Canada released the NAFTA, with new provisions on SOEs, findings from its domestic public con- digital trade, and labor standards. Japan has sultations, reflecting Canadians’ views also incorporated many TPP rules for on significant opportunities and pos- inclusion into its deal with the EU, in areas sible challenges associated with the such as investment, services, and intellectual potential FTA. property rights (IPR). Likewise, the scope of the China–New Zealand FTA, which • In April 2017, China, Japan, and concluded the 12th round of ne- the two countries are currently updating, is gotiations of a trilateral FTA. The three to include TPP-like provisions on competi- countries began negotiations in No- tion policy and e-commerce. The recently

vember 2012 and hope to conclude the completed FTA between Peru and Austral- agreement as soon as possible. ia, too, incorporates TPP-like provisions on investment and financial services, as well as • In May 2017, Australia and Hong Kong commenced negotiations on a on digital trade. bilateral FTA. Most importantly, however, the remain-

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The remaining TPP ing TPP countries have taken the initia- members aiming to sign the deal in the countries have tive to advance the agreement without the first quarter of 2018. United States. This process started in taken the initiative It is important to note that although the March 2017 in Chile, when it invited the CPTPP will yield fewer benefits than the to advance the other TPP countries, as well as South original TPP agreement (which included agreement without Korea and China, to a meeting to explore the United States), it is nevertheless eco- the possibility of moving ahead on the the United States. nomically meaningful. A study from the TPP. Following this meeting, a series of Peterson Institute for International Eco- additional sessions were held among the nomics points out that the 11 countries TPP countries in Vietnam, Canada, would see income gains of USD $157 Australia, and Japan to further these The agreement’s billion annually by 2030.18 Moreover, the discussions. The process was bolstered in prospects are study concludes that the inclusion of five the spring of 2017 when Japan, which encouraging, with additional economies in a potential“TPP- had initially been reluctant to move ahead 16” would generate even larger economic CPTPP members on this initiative, assumed a leadership gains for its member economies than the aiming to sign the role, along with Australia and New Zea- original TPP would have, by approximate- deal in the first land. Subsequently, the TPP officials met ly USD $40 billion.19 quarter of 2018. on an almost monthly schedule in prepa- ration for senior-level meetings on the With this in mind and with the objective

margins of the November 2017 Asia- of advancing regional economic integra- Pacific Economic Cooperation (APEC) tion, the CPTPP countries have an meeting in Da Nang, Vietnam. important opportunity to seize on their momentum and start accession discussions On November 11, 2017, the TPP coun- with interested candidates, such as South tries announced an agreement on the core Korea, as soon as possible. Other APEC elements of the deal—under its new title, members that have expressed interest in the Comprehensive and Progressive the past include Indonesia, the Philip- Agreement for Trans-Pacific Partnership pines, and . Another strong (CPTPP)—constituting a major step candidate is Colombia. As a member of forward for trade in the Asia-Pacific re- the Pacific Alliance, Colombia is set to gion. Much of the original TPP agreement negotiate FTAs with the group’s new remains intact in the CPTPP, including associate members: Australia, Canada, market access commitments and its high- New Zealand, and Singapore—all of standard rules. However, the new agree- which are CPTPP members. Finally, an ment omitted 20 “suspended” provisions additional candidate worthy of considera- from the final text, including U.S.- tion is the United Kingdom, the world’s championed issues such as data protection ninth-largest economy and a key center for for biologics. The CPTPP countries also international finance. While not an Asia- identified four issues that will require Pacific country itself, the UK appears keen further work in the areas of services, state- to ink trade deals with trading partners owned enterprises, dispute settlement, and around the world, and particularly in the cultural provisions. The agreement’s pro- Asia-Pacific region, once Brexit negotia- spects are encouraging, with CPTPP tions are complete.

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RCEP holds Status of the Regional November 14, 2017, RCEP leaders an- great promise, Comprehensive Economic nounced their agreement to “intensify efforts in 2018 to bring the RCEP negotiations to particularly for Partnership conclusion.”20 developing Complementary to the TPP’s aim to ad- vance trade liberalization while bringing countries in the Reshaping Existing Agreements greater predictability, efficiency, and growth region that will play to the region’s economies is the ASEAN-led As the Asia-Pacific region and, indeed, the an increasingly Regional Comprehensive Economic Part- rest of the world proceed with negotiations important role in nership (RCEP). Covering almost half of aimed at opening new markets, U.S. efforts are largely focused on revisiting and revising the global economy. the world’s population and nearly 30 per- cent of global GDP, RCEP holds great existing agreements that the current admin- promise, particularly for developing coun- istration perceives to be “unbalanced” or tries in the region that will play an “unfair.” Moreover, the United States has increasingly important role in the global also not ruled out withdrawing from such economy. agreements, should negotiations fail. The March 2017 ASPI trade policy report A key fixture of President Donald Trump’s recommended that RCEP members, in 2016 election campaign rhetoric—the line with RCEP’s own principles and renegotiation of NAFTA—quickly became

objectives, negotiate a high-quality a centerpiece of his administration’s trade agreement and not be tempted to adopt policy. Renegotiations were formally the lowest common denominator ap- launched in August 2017 and successive proach. Negotiations since then seem to negotiating rounds have proceeded at a have generally taken this course. rapid pace. Progress has been made in areas such as competition policy, customs and RCEP members had hoped to ink an trade facilitation, digital trade, and regula- agreement, at least in principle, by the No- tory practices. But other areas, including vember 2017 ASEAN Summit in the rules of origin, government procurement, Philippines. Though RCEP leaders were dispute settlement, and the so-called sunset eager to meet this deadline—which marked clause (which would terminate the agree- the 50th anniversary of ASEAN’s found- ment after five years, unless each country ing—outstanding issues proved too difficult agrees otherwise) are presenting serious to overcome to meet the goal. Paramount challenges, as they are, in many respects, among these issues was market access, and unprecedented—or in some cases seem to

participants are still trying to agree on a backtrack from earlier commitments. De- framework for tariff reductions and elimina- spite the aim to conclude these talks by the tion. Other difficulties presented themselves end of 2017, the trade ministers of all three in areas such as rules on investment, IPR, countries have agreed to continue the nego- and e-commerce. Some participants pressed tiations through the first quarter of 2018. for high standards, while others, in order to expedite the process, remained comfortable The United States is also engaging with

with less rigorous disciplines that could be South Korea to fix what it perceives to be strengthened over time. As a result, on the unbalanced and unfair nature of the

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The fates of both U.S.-Korea Free Trade Agreement debate, and the negotiations around draft- NAFTA and KORUS (KORUS). While this process did not get ing statements have become increasingly off to a smooth start, it appears that there will have major contentious affairs. In 2017, these tensions is now a path forward with both countries were manifest in the U.S. decision to twice implications for the agreeing to conclude an improved agree- issue separate statements to stress the region, and Asian ment quickly. importance of “free and fair” trade and economies are reciprocity—at the APEC Ministers Re- The fates of both NAFTA and KORUS sponsible for Trade Meeting in May in closely watching will have major implications for the region, Vietnam and the June OECD Ministerial how these and Asian economies are closely watching Council Meeting in Paris. talks evolve. how these talks evolve. Developments in these negotiations will inevitably weigh into Internal divisions notwithstanding, the other countries’ considerations about enter- drafting of these statements consumes time ing into future trade negotiations with the and resources often at the expense of pur-

United States. suing concrete initiatives. Moreover, it is unclear what they accomplish as their shelf Backlash against Trade life is typically limited. The growing num- The rising backlash against trade and ber of multilateral statements denouncing globalization—perceived as the causes of protectionism seems to raise questions of job losses, stagnant wages, and income their credibility and efficacy. inequality—is on the rise in the Asia- Pacific region. Indeed, even New Zealand, To help build support for trade agreements, one of the original four members of the policymakers should more effectively com- TPP’s precursor agreement, the P4, and a municate their benefits, while also

country with historically positive attitudes proactively pursuing domestic policies, toward free trade, is questioning the merits including robust adjustment assistance, of one of the TPP’s core provisions— retraining, and education programs. More- investor-state dispute settlement (ISDS). over, it may be time for policymakers to rethink certain traditional disciplines of Moreover, trade has become increasingly FTAs. In particular, they could focus on politicized, not only on the domestic front, aspects that have become the most polariz- but also at international gatherings. His- ing and, substantively, do not necessarily torically, group statements announcing the generate sufficient positive impact to justify outcomes of ministerial and leaders' meet- this degree of divisiveness. In this regard, no

ings of APEC, the G7, the Organization provision has been as controversial and for Economic Cooperation and Develop- polarizing in so many economies involved ment (OECD), and the G20 were largely in trade negotiations as ISDS. 21 routine, non-controversial affairs that espoused shared values of transparency and ISDS has recently been subject to major accountability, resisting protectionism, reconsideration around the world. The EU, and supporting the multilateral trading for example, has proposed that investment

system. In recent months, however, these protection be carried out at the internation- principles have been subjected to heated al level by a single arbitration body—the

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No provision Multilateral Investment Court,” the even- dent Trump affirmed that the United has been as tual establishment of which is referred to in States will “make bilateral trade agree- the EU’s FTAs with Vietnam (negotiations ments with any Indo-Pacific nation that controversial and concluded December 2015) and Canada wants to be our partner” but will “no polarizing in so (provisionally entered into force September longer…enter into large agreements that many economies 2017). In the meantime, the Canada-EU tie our hands.”22 In pursuing such agree- involved in FTA (CETA) establishes, on a bilateral ments, countries should ensure they are trade negotiations basis, a new “investment court system” that comprehensive, incorporate high stand- ards, are WTO consistent, are as as investor-state substantially departs from the ISDS model. At the same time, the Trump administra- compatible as possible with other high- dispute settlement tion is asking NAFTA partners to consider standard deals to avoid the “noodle bowl” (ISDS). a new “opt-in/opt-out” approach that of conflicting and overlapping agreements, would allow each of the three NAFTA and enumerate transparent and clear acces- countries to decide whether or not to adopt sion provisions and procedures to the provision. Other countries, including encourage greater regional integration. Australia and New Zealand, are also con- If the United States is not interested in sidering how to deal with the complexities entering into a comprehensive regional of this issue. agreement such as the TPP, it may be Although the ASPI Trade Forum mem- useful for trade officials in the region, in- bers, at this time, are not in a position to cluding those in the United States, to assess the merits of each approach, as well consider pursuing an issue-specific regional as other ideas that have been proposed to agreement. A clear and compelling choice address concerns in this area, they recog- would be on digital trade, which is current- nize the necessity for governments to ly experiencing extraordinary growth in balance these views with the need for Asia, a region which accounts for almost 40 durable investor protections. They note percent of global e-commerce transactions. that ISDS and potentially other long- The rapid expansion of digital trade has standing provisions of FTAs are worthy of been a major driving force of the region’s reconsideration, particularly if doing so economic dynamism and competitiveness would help rebuild support for trade. across all sectors, including manufacturing. Regional vs. Bilateral Agreements According to the Office of the U.S. Trade Representative, the U.S. manufacturing Regional trade agreements offer the best sector creates more data—which is gener- path forward to liberalize trade, raise ated at each link in the value chain—than standards, and promote broad reforms. any other sector of the economy.23 By Nevertheless, bilateral agreements have significantly reducing transaction costs, merit and will continue to remain an digital trade has opened the door for busi- important feature in the global trading nesses of all sizes, and particularly small system. Moreover, the Trump administra- and medium-sized enterprises (SMEs), to tion’s preference for bilateral agreements is participate in international trade and clear. Indeed, in a speech to the APEC explore opportunities in new markets. CEO summit in November 2017, Presi-

Shifting Trade Winds: U.S. Bilateralism & Asia-Pacific Economic Integration Page 8 Asia-Pacific Without a regional framework of rules • CPTPP members should be prepared economies, eager governing digital trade, the full potential of to conclude the agreement without all to reap the gains of its surging growth may not be realized. 11 partners if necessary. Policymakers in the region face a difficult trade, are • Additional countries should be en- task of designing regulatory frameworks continuing to couraged to join the agreement as that encourage growth and innovation soon as is practicable, particularly actively pursue free while protecting privacy and security. At those that had expressed interest in trade deals among present, these frameworks are still in flux, the original TPP, such as South Ko- themselves. providing an opening for regional rules and rea. Non-APEC members, such as the principles to help shape the region’s ap- United Kingdom and Colombia, are proach to digital trade. also worthy of consideration. Member countries of the CPTPP The Path Forward: Findings and • should establish transparent and clear Recommendations accession provisions and procedures to ASPI Trade Forum members continue to better facilitate future expansion of believe that further economic integration the agreement. in the region is critical and note that Asia- • The United States, a member of the Pacific economies, eager to reap the gains original Trans-Pacific Partnership, will of trade, are continuing to actively pursue hopefully reconsider joining the free trade deals among themselves. Re- agreement at the appropriate time. gional actors are encouraged to conclude high-standard and inclusive deals to chart 2. RCEP is nearing completion, and the best path forward to liberalize trade, members should use the momentum raise standards, and promote broad re- from the conclusion of CPTPP to push forms. In that spirit, Trade Forum for the successful negotiation of a high- members welcome the November 2017 standard RCEP agreement. announcement that TPP member coun- • RCEP members should work to in- tries reached an agreement on the “core crease the level of ambition in market elements” of the CPTPP. At the same access commitments and agree to time, ASPI Trade Forum members suggest high-standard rules in line with the that the United States step up its economic principles and objectives they estab- engagement in the region and augment its lished at the outset of the focus on reshaping existing agreements negotiations. with initiatives to open new markets. With • Those RCEP members that already these objectives in mind, Trade Forum have high-quality market access offers members offer the following findings and on the table are encouraged to move recommendations: quickly to conclude the agreement with the understanding that others 1. To reap the well-documented benefits will eventually be able to match the of the CPTPP, member countries standard of the agreement. should reach final agreement on, bring into force, and implement the deal without delay.

Shifting Trade Winds: U.S. Bilateralism & Asia-Pacific Economic Integration Page 9 Should the region 3. Regional trade agreements offer the • The Asia-Pacific region has a unique continue to liberalize best path forward to liberalize trade, opportunity to play a leading role in raise standards, and promote broad re- setting standards and norms for global and prosper through forms. However, bilateral agreements digital trade. regional economic have merit as well. 5. Should countries wish to reshape exist- integration, the • Should Asia-Pacific economies pursue ing agreements, the resulting United States may bilateral agreements, they should aim renegotiations or amendments should for high standards and consistency. wish to step up its focus on updating rules and improving engagement and • Bilateral trade agreements should be market access, rather than weakening become a leader consistent to avoid the “noodle bowl” previous commitments. of conflicting and overlapping trade • Asia-Pacific economies, and indeed once again. ASPI agreements, promote FTA utilization, the rest of the world, are closely Trade Forum and leave the door open for integra- watching the NAFTA renegotiations tion among agreements in the future. members would and the KORUS amendment process strongly welcome • Before officially entering into bilateral to gain a better sense of U.S. negotiat- that outcome. trade negotiations, countries should ing priorities and approaches. hold consultations to ensure a clear Developments in these negotiations understanding of each economy’s ex- will inevitably weigh into countries’ pectations and constraints so there are considerations of entering into future reasonable prospects for a successful trade negotiations with the United negotiation. States.

4. Regional actors should consider pursu- 6. Policymakers in the region and around ing the negotiation of a stand-alone the world must increase efforts to build regional agreement on an issue-specific support for trade. basis, such as digital trade. • Now is the time to explore other • The digital sector and related regula- methods to protect foreign invest- tory frameworks are still evolving, ments that are effective but less providing a unique opportunity to polarizing. Certain long-standing pro- policymakers to establish a flexible visions of trade agreements, specifically regulatory framework for regional dig- ISDS, are worthy of reconsideration, ital commerce that encourages trade, particularly if doing so would help growth, and innovation while protect- rebuild support for trade. ing privacy and security. • Countries should focus on the posi- • Digital technologies play an increas- tive elements and benefits of trade and ingly vital role in enabling broader encourage countries to reduce the trade in manufactured and agricultur- rhetoric surrounding trade by not al goods, as well as services. By labeling others as protectionist and significantly lowering barriers to entry, unfair traders, recognizing that no they make it easier for SMEs in par- country has a perfect record on trade. ticular to participate in, and benefit from, regional commerce.

Shifting Trade Winds: U.S. Bilateralism & Asia-Pacific Economic Integration Page 10 • At the same time, countries should nomic integration, and build support for forthrightly acknowledge that while trade agreements. Or, on the other, they trade’s positive impacts are extensive could capitulate to forces calling for greater and broadly shared, not everyone protectionism and isolationism, becoming benefits from a globalized economy. less open and integrated, upsetting the Countries should pursue both regional regional economic and security balance. solutions and domestic policies to address such concerns. Now, at the start of 2018, it is clear that the Asia-Pacific region has chosen the first path, Conclusion albeit without the United States. Should the As 2017 began, the course of trade and region continue to liberalize and prosper investment in the region was at a cross- through regional economic integration, the roads. By following one road, Asia-Pacific United States may wish to step up its en- economies could work to promote high gagement and become a leader once again. standards and inclusiveness in trade ASPI Trade Forum members would strong- agreements, drive forward regional eco- ly welcome that outcome.

About the Authors / Trade Forum Members

Wendy Cutler (Trade Forum Chair) is Vice President of the Asia Society Policy Institute. She served for nearly three decades as a diplomat and negotiator in the Office of the U.S. Trade Representative, most recently as Acting Deputy U.S. Trade Representative.

Charles Finny is a Partner at Saunders Unsworth Ltd. He was previously Chief Executive of the Wellington Regional Chamber of Commerce, and a senior member of the New Zealand Ministry of Foreign Affairs and Trade. He was the chief negotiator at the launch of the China-New Zealand FTA negotiation and for all of the FTA negotiations.

Peter Grey is Chair and Non-Executive Director of MLC Limited and Co-Chair of the Japan Business Group at Corrs Chambers Westgarth. He has served as Ambassador of Australia to Japan, the European Union, and the WTO.

Kim Jong-Hoon served as South Korea’s Minister for Trade and was the Chief Negotiator of the Korea-U.S. Free Trade Agreement. A career diplomat, Kim has over 38 years of experience in foreign service and trade issues.

Shotaro Oshima is Chair of the Institute for International Economic Studies in Tokyo. He was Japan’s Deputy Foreign Minister for Economic Affairs and Ambassador to Saudi Arabia, the WTO, and South Korea.

Shifting Trade Winds: U.S. Bilateralism & Asia-Pacific Economic Integration Page 11 ENDNOTES 1 This March 2017 report was authored by 9 “Seeking Sustainable Growth: Short-Term the ASPI Independent Commission on Recovery, Long-Term Challenges.” October Trade, composed of Wendy Cutler (chair), 10, 2017. World Economic Outlook. Interna- Choi Seokyoung, Gregory Domingo, Peter tional Monetary Fund. Grey, Shotaro Oshima, Mari Elka Pangestu, www.imf.org/en/Publications/WEO/Issues/2 and Wang Yong. The ASPI Trade Forum 017/09/19/world-economic-outlook-october- members are appreciative of their efforts to 2017. lay the foundation for this issue paper. 10 “WTO Upgrades Forecast for 2017 as 2 The remaining TPP countries are: Australia, Trade Rebounds Strongly.” Press Release 800 Brunei Darussalam, Canada, Chile, Japan, (2017). Trade Statistics and Outlook. World Malaysia, Mexico, New Zealand, Peru, Singa- Trade Organization. pore, and Vietnam. www.wto.org/english/news_e/pres17_e/ pr800_e.pdf. 3 The members of RCEP are: Australia, 11 Brunei Darussalam, Cambodia, China World Economic Outlook Database, (PRC), , Indonesia, Japan, Republic of International Monetary Fund, accessed Korea, Lao PDR, Malaysia, , New November 17, 2017, Zealand, Philippines, Singapore, Thailand, www.imf.org/external/pubs/ft/weo/2017/02/ and Vietnam. weodata/index.aspx.

12 4 The members of the Pacific Alliance are: “Asia and Pacific: Stabilizing and Outper- Chile, Colombia, Mexico, and Peru. forming Other Regions.” April 2015. Regional Economic Outlook. International 5 Jacob, Mardell. 2017. “The ‘Community of Monetary Fund. Common Destiny’ in Xi Jinping’s New Era.” www.imf.org/external/pubs/ft/reo/2015/apd/ The Diplomat, October 25, 2017. eng/pdf/areo0415c1.pdf. https://thediplomat.com/2017/10/the- 13 community-of-common-destiny-in-xi- “Developing Asia” refers to the 48 Asia- jinpings-new-era/. Pacific members of the Asian Development Bank. For more information, please refer to 6 “A Shifting Global Economic Landscape.” the ADB website, www.adb.org. January 16, 2017. World Economic Outlook. 14 “Asian Development Outlook 2017 International Monetary Fund. www.imf.org/external/pubs/ft/weo/2017/ Transcending the Middle-Income Challenge.” update/01/. April 2017. Asian Development Outlook. Asian Development Bank. www.adb.org/sites/default/files/publication/2 7 “Trade in 2016 to Grow at Slowest Pace 37761/ado-2017.pdf. Since the Financial Crisis.” Press Release 779 (2016). Trade Statistics and Outlook. World 15 Homi, Kharas. “The Unprecedented Trade Organization. Expansion of the Global Middle Class: An www.wto.org/english/news_e/pres16_e/ Update.” Working Paper 100. Global pr779_e.htm. Economy & Development. The Brookings Institution. February 2017. 8 Ibid. www.brookings.edu/wp- content/uploads/2017/02/global_20170228_ global-middle-class.pdf.

Shifting Trade Winds: U.S. Bilateralism & Asia-Pacific Economic Integration Page 12 16 “WTO Upgrades Forecast for 2017 as 22 Trump, Donald J. "Remarks at APEC Trade Rebounds Strongly.” Press Release 800 CEO Summit." Speech, Da Nang, Vietnam, (2017). Trade Statistics and Outlook. World November 10, 2017. Trade Organization. www.whitehouse.gov/briefings-statements/ www.wto.org/english/news_e/pres17_e/pr800 remarks-president-trump-apec-ceo-summit- _e.pdf. da-nang-vietnam/.

17 “Seeking Sustainable Growth: Short-Term 23 "Key Barriers to Digital Trade." March Recovery, Long-Term Challenges.” October 2017. https://ustr.gov/about-us/policy- 10, 2017. World Economic Outlook. offices/press-office/fact- International Monetary Fund. sheets/2017/march/key-barriers-digital-trade. www.imf.org/en/Publications/WEO/Issues/2 017/09/19/world-economic-outlook-october- 2017.

18 The five additional economies mentioned in this study as potential “TPP-16” members are: Indonesia, Korea, the Philippines, Taiwan, and Thailand. Petri, Peter A., Michael G. Plummer, Urata Shujiro, and Zhai Fan. “Going It Alone in the Asia-Pacific: Regional Trade Agreements Without the United States.” Working Paper. Peterson Institute for International Economics, October 2017. https://piie.com/publications/working- papers/going-it-alone-asia-pacific-regional-trade- agreements-without-united.

19 Petri, Peter A., and Plummer. Michael G. “The Economic Effects of the Trans-Pacific Partnership: New Estimates.” Working Paper. Peterson Institute for International Econom- ics, January 2016. https://piie.com/publications/wp/wp16-2.pdf.

20 “RCEP: A Vehicle for Economic Integra- tion and Inclusive Development.” Joint Leaders’ Statement on the Negotiations for the Regional Comprehensive Economic Partnership (RCEP), November 14, 2017. http://asean.org/joint-leaders-statement- negotiations-regional-comprehensive- economic-partnership-rcep/.

21 Using ISDS, foreign investors can sue host governments through an international arbitra- tion panel if they believe that their rights under the agreement have been violated. © 2018 The Asia Society. All rights reserved.

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