Shifting Trade Winds: US Bilateralism & Asia-Pacific
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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 United States 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. Australia, Canada, 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, China’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 Shifting Trade Winds: U.S. Bilateralism & Asia-Pacific Economic Integration Page 2 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.