Politics of Trade in the USA and in the Obama Administration
Implications for Asian Regionalism

1. Introduction

This paper has two purposes: (i) to present a theoretical basis for analyzing the formulation and execution of US trade policy, including illustrations from the evolving trade policy of the Obama administration; and (ii) to present options for a US response to, and participation in, the Asian regional economic architecture.

Trade is traditionally been thought of as an extension of foreign policy, but trade policy today has become intimately intertwined with domestic policy. Thus, among the various schools of international relations (IR) theory, one approach that has been quite fruitful in explaining the process by which trade policy is formulated and executed at both the domestic and international level is liberal intergovernmentalism (Barfield, 2001). Unlike the two other important schools of IR theory (realism and institutionalism), liberal approaches to IR do not take the unitary state as the fundamental unit of analysis: they "go behind the curtain" and look for domestic (and sometimes foreign) interests and beliefs that determine government policy at any given time. As one IR theorist has explained: "National positions are first formed 'liberally' through domestic political processes, often involving conflicts among competing interest groups. These national positions are then defended by national representatives in bilateral and multilateral 'intergovernmental' negotiations. For liberal intergovernmentalists, national positions are not abstract or static, but contingent, shaped by internal pressures from competing stakeholder interests" (Shaffer, 2001; see also Putnam, 1988; Pollack & Shaffer, 2001).

2. The Formation and Execution of US Trade Policy

As a mature democracy with strong governmental departments surrounded by many contending interest groups, the USA presents a complex picture of liberal intergovernmentalism and the two-level game. First, however, special note must be taken of the unique position of the legislative branch in the US trade policymaking process. Unlike other democracies, where the executive almost always has sole or dominant authority over trade policy, the US Congress is granted this fundamental power by Article I of the constitution which assigns to it sole power "to regulate commerce with foreign nations." And indeed, from 1789 until the mid-1930s, Congress exercised that authority (largely through the system of tariffs) exclusively.

In 1934, as a result of the negative reaction to the notorious Smoot-Hawley trade act and exasperation with the endless imprecations of thousands of tariff interest groups, Congress passed the Reciprocal Trade Act that began a process of delegating authority on trade to the executive branch. In the 1960s, Congress created the position of Special Trade Representative in the office of the president and then later a statutory Office of the US Trade Representative (USTR) also within the White House but subject to special congressional oversight (Schott, 1998).[1]

In truth, the USTR operates as a broker among competing government agencies, private sector interests, and the Congress. Within the executive branch, while statutorily after 1979, the USTR was given authority over "international trade policy development, coordination and negotiation functions," other departments - Commerce, Treasury, State, Agriculture - have competing authority and at times stronger relations with the president. Within Congress, two powerful committees - the House Ways and Means Committee and the Senate Finance Committee - have asserted outsized control over trade policy and the USTR. Outside of government, key industrial groups and individual companies continually press their agendas, both through malleable members of Congress and through direct contact with USTR and other cabinet officials (Commerce and Agriculture are important conduits for industrial and farm interests) (Barfield, 2000; Destler, 2005; Dent, 2006).

Given the space constraints for this assignment, the following section will focus on one central element of the two-level game: the evolution of trade policy and politics within the Democratic Party.

3. The Democratic Party and US Trade Policy

Though scholars often focus on partisan politics when analyzing policy divisions in the USA, often it is divisions within the current dominant party that are more significant and telling. Thus, during President Reagan's terms of office, there was a continuing debate between so-called "supplysiders," who took as a single goal the reducing of overall tax rates, whatever the cost to fiscal discipline - over against more traditional Republicans for whom fiscal integrity remained a top priority. In the George W. Bush administration, differences over approaches to foreign policy (neoconservatives vs. Republican "realists") are clearly delineated in the differences between the first and second Bush terms (oversimplifying: Cheney vs. Rice). In both instances, opposition Democrats were largely bystanders

In contrast, for trade policy in recent times, the most fascinating and important events and trends are encapsulated in the evolution of political and policy divisions within the Democratic Party. And in 2009, with the Democrats in control of both the presidency and the Congress, it is the Republicans who are bystanders.

3.1 The Clinton administration

President Clinton inherited an already raging debate over the North American Free Trade Agreement (NAFTA) (Lawrence, 2002; Feinberg, 2003; Destler, 2005). Indeed, the battle over the agreement with Mexico opened a new era for US trade policymaking and politics. Industrial labor unions and the AFL-CIO, throughout the 1980s, had begun to move strongly against further trade liberalization, and they were joined by many environmental organizations, which saw increased trade (particularly with poor countries with allegedly deficient environmental regulations) as a major cause of environmental damage. What is significant for our narrative is that labor and environmental interest groups constituted two of the most powerful and influential elements of the Democratic coalition.

Though Clinton had criticized NAFTA during the 1992 campaign, as president he attempted to finesse the issues by putting forward "side agreements" on labor and the environment while not demanding a wholesale renegotiation with Mexico. Labor and environmental organizations opposed the compromise and, significantly, a majority of House Democrats voted against the compromise (156-102: NAFTA passed because of overwhelming House Republican support).

Labor and environmental leaders emerged from the NAFTA experience feeling betrayed and determined to push their social trade agenda even more vigorously in the future. After NAFTA (and passage of legislation ratifying the Uruguay Round Agreement) in 1994, a stalemate on trade ensued. The Republicans took control of Congress, and the Clinton administration never again mounted a strong challenge to the antitrade elements of the Democratic coalition.

3.2 The Bush years

There are two aspects of the Bush administration trade policy that are essential for this paper: first, the decision early on to proceed without bipartisan support, particularly from Democrats in the US House of Representatives; and second, giving bilateral and regional negotiations much higher priority, as a means, according to the administration, of achieving global free trade.

With Republicans in control of the House and Senate in 2002, the Bush administration pushed through new trade negotiating authority for the president. After intense but, in the end, futile negotiations with the minority over the wording on labor and environment and the role of Congress in trade negotiations, the House version passed with by a one vote margin (215-214) that saw only 21 Democrats recorded in favor (International Trade Reporter (ITR), October 18 and 25, 2001; November 8 and 15, 2001; December 13, 2001) (For an account of the negotiations sympathetic to the House Democrats, see Destler [2005]).[2]

The second priority of Bush trade policy, which affects current trade policy, was the development by then-USTR Robert Zoellick of the doctrine of "competitive liberalization." While retaining multilateral negotiations in the World Trade Organization (WTO) as the top priority for Bush trade policy, Zoellick argued that, given the difficulties of achieving multilateral liberalization, it was important for the USA to supplement multilateralism with bilateral and regional negotiations.

The Bush administration, between 2001 and 2009, went on to complete seven standalone bilateral agreements, plus a subregional agreement with five Central American countries. It also completed negotiations with three other countries (Colombia, Panama, and South Korea), but Congress has yet to act on these agreements. Though Zoellickmade a plausible case for alternate paths to trade liberalism, this course of action had a decided political downside: it meant that the highly divisive issues of labor and environment were highlighted and exacerbated during these years, as members of Congress were forced repeatedly to vote on individual free trade areas (FTAs).

Democrats in the House of Representatives opposed all of the FTAs with varying degrees of vigor. The highpoint of Democratic opposition came with the Central American Free Trade Agreement (CAFTA) in 2005. House Democrats hoped to embarrass the Bush administration by combining with a small group of Republicans from textile and sugar districts. In the end, only 15 of the 190 Democrats who voted on the bill supported it (ITR, August 4, 2005) (For more detailed econometric analysis of recent congressional voting patterns on trade agreements, see: Baldwin &Magee [2000]; Chae et al. [2007]; and Im & Sung [2008]).[3]

4. The Obama Administration and Trade

In the arena of trade policy, the new Democratic era began not with the election of President Obama in 2008 but with the election of Democratic majorities in both houses of Congress in 2006. Of the 42 newly elected Democratic members of the House of Representatives, a sizeable majority had run on explicitly antiglobal platforms. They would also exercise disproportionate influence, as they generally represented previously Republican districts that House Democratic desperately wanted to retain (Barfield, 2007; Inside US Trade [May 25, 2007]; ITR [May 17, 2007]; Weisman, 2007).

During this two-year interim before the presidential election, Democratic majorities - particularly in the House - took steps to place a Democratic stamp on US trade policy.

4.1 The May 10th agreement and early promises

When the Democrats took control of Congress in 2007, four FTAs were pending (Peru, Panama, Colombia, and Korea), either with negotiations complete or in some final stage. After some months of sparring with congressional Democratic leaders, the Bush administration capitulated to the major demands of the House Democratic leadership and agreed to new obligations for FTA trading partners. First, each FTA partner was required to adopt and enforce five so-called "core labor" standards as listed in the 1998 ILO Declaration of Fundamental Principles and Rights of Work - collective bargaining, child labor, discrimination, etc. Beyond this, there was the new environmental requirement that each partner must ratify seven multilateral UN environmental agreements, including among others, endangered species, marine pollution, whaling, and tropical tuna. The result, in brief, was to raise the bar for nations signing FTAs with the USA.

The victory by congressional Democratic leaders presaged a heightened sense of empowerment in the area of trade policy. And the assertion of congressional authority, mandated under the constitution, would not abate later, even with a president from their own party. Speaker Nancy Pelosi has stated bluntly: "It's all a question of who has the leverage. We have taken the leverage from the executive office . . ." (Barfield, 2008).

4.2 Candidate Obama, President Obama on trade

President Obama has only been in office for six months, so any judgment either on his leadership in trade policy or the path his party will take must be tentative. What follows are preliminary observations on key issues and on the events and decisions that have unfolded in this short period.

Candidate Obama's first statements and stands on trade issues certainly were not promising. Vowing to use a "hammer" if necessary to reopen NAFTA and criticizing US multinational corporations for investment abroad, Obama seemed all too ready to bow to the strong protectionist, or economic nationalist, elements of the Democratic party. During the presidential campaign, however, he began to tack back toward the middle, attempting assuage Mexican leaders and expressing support for open markets and for a successful conclusion of the WTO Doha Round.

As president, thus far, this mixed record continues to unfold. Craig VanGrasstek, a perceptive observer at Harvard's Kennedy School of Government, has characterized Obama up to this point as a "passive free trade(r)." He argues that the administration "has shown that it will take action to avoid being labeled protectionist, but has yet to demonstrate any eagerness to make trade liberalization an important part of its economic recovery program" (Easton, 2009; VanGrasstek, 2009; p. 3). VanGrasstek's point is illustrated in two well-publicized incidents in the opening weeks of the Obama administration: the Buy American provisions of the stimulus package, and the cancellation by Congress of a cross-border pilot trucking program with Mexico (an action that was in clear violation of NAFTA and which, in turn, provoked the Mexican government to impose $2.4 billion in tariffs on US products). In both cases, the White House intervened belatedly, attempting only to soften the worst protectionist results of congressional action (Hufbauer & Schott, 2009; VanGrasstek, 2009; ITR [February 26, March 26]; Wall Street Journal [February 18, 2009]).

On the other hand, throughout the spring, in meetings with other national leaders such as Britain's Prime Minister Gordon and Brazilian president Luis Ignacio Lula da Silva, the president has asserted the need in the present crisis to avoid creeping protectionism, both on trade and investment. On a much larger scale, on April 2, he joined with other leaders of the G-20 nations in a strong warning against global protections, along with a call for the successful conclusion of the WTO Doha Round. (Inside US Trade, March 20, 2009).

As with most incoming administrations, in order to give itself policy space, the Obama administration announced that it would first undertake a full-scale review US trade policy before undertaking new initiatives, or continuing or abandoning existing initiatives. In early pronouncements, the new administration did stress three initial priority areas: enforcement of existing trade rules, the Doha Round, and pending FTAs. In the latter two areas, after some months of vague but optimistic statements, in early June the Obama administration suddenly pulled back and put off major movement and decisions, stating that until the president's domestic agenda (health-care reform, climate change) had been successfully completed, trade was off the agenda (Inside U.S. Trade, June 5, 12, 2009)

In his confirmation hearing, the newly appointed USTR Ron Kirk stated that enforcement of existing trade rules - including US antidumping, safeguards and subsidies rules, as well as WTO and FTA obligations - would be the top priority for the administration in its first year (Inside US Trade, March 13, 2009). He announced that USTR would launch a detailed review of existing US trade agreements with the aim of making certain trading partners live up to their commitments. In answering questions from members of Congress, Kirk also made it clear that China would be a major focus of enforcement actions - particularly with regard to subsidies, intellectual property, and alleged dumping violations (Bridges Weekly, March 4, 2009; Inside US Trade, March 13, 2009; Office of the US Trade Representative, 2009).[4]

In a February 24, 2009 letter to President Obama, leading US trade associations in the manufacturing, services, and agriculture sectors stated that the current proposals on the table were inadequate and the USA must reassess its negotiating demands: "The negotiations cannot simply be picked up where they left off (last year)" (ITR, March 26, 2009).

The Obama administration quickly signaled that it supported the position of major US private interest groups (Inside US Trade, April 3, 2009). In his oral and written statements to Congress, USTR Ron Kirk criticized the "imbalance" in the current Doha Round negotiations and stated: "(It) will be necessary to correct the imbalance in the current negotiations in which the value of what the United States would be expected to give is well-known and easily calculable, whereas the broad flexibilities available to others leaves unclear the value of new opportunities for our farmers, ranchers, and businesses" (Inside US Trade, March 13, 2009).[5]

Still, as recounted above, for several months administration officials gave optimistic views on near-term breakthroughs on Doha. But at the end of the full-scale review of US trade policies in June 2009, the administration reversed course; and Kirk confirmed at a meeting of the WTO Cairns Group that the USA had come to believe the round would not conclude until the end of 2010. (For interim statements, as well as the final pronouncement, see: Inside US Trade, February 27, 2009; March 30, 2009; April 3, 2009; June 12, 2009.)[6]

At his confirmation hearings, USTR Kirk stated that he hoped to move on the Panama Free Trade Agreement relatively quickly and in late April, he stated that President Obama wanted both the Panama and Colombia FTAs to move "sooner rather than later." However, throughout spring, the administration faced adamant opposition to moving forward with the FTAs from a vocal, but potent, minority of House Democrats. In late February, a group of 54 House Democrats, including six committee chairs and 17 subcommittee chairs, wrote to President Obama demanding drastic changes in US trade policy, including rejection of all pending FTAs, tightening the May 10th agreement on labor and environment, renegotiation of NAFTA and CAFTA, and punitive action against China. On top of this, President Obama found that obstacles were growing to the passage of key domestic legislative measures, such as health care and climate change reform - two areas where united Democratic congressional support was indispensable (Levin, 2009).

The upshot was a White House decision to scrap any near-term trade policy moves, signaled by the announcement in early June that all activity on pending FTAs would be suspended until the administration's health-care legislation had passed Congress - in effect putting off FTAs until late 2009 at the earliest. (For details of the various turnabouts on pending FTAs, see: Inside US Trade, March 6, 2009 and March 13, 2009; and ITR, March 12, 2009; March 19, 2009; June 5, 2009; June 12, 2009).

The decision to postpone any initiatives in the trade area until the end of 2009 at the earliest - if the Obama administration maintains this position - will have important consequences for its economic diplomacy in Asia, where momentous changes are potentially in the offing.

5. Recent Trends in East Asian Regionalism

As it took office, the Obama administration faced a complex situation with regard to the future US role in the region. One the one hand, whatever the judgments on Bush administration on foreign and international economic policy in other areas of the world, in general it can be said that US relations with key actors - China, Japan, Korea, Singapore - are quite good. On the other hand, until its last year in office, the Bush administration had failed to attempt to construct a coherent vision for the US role in this vital area. Most specifically, for a long time Bush and his economic and trade advisers took no stand on central questions surrounding the rapid development of an intra-Asian regional framework that competed with, if it did not directly challenge, the US vision - dating back to the Bush I administration - of a trans-Pacific architecture.

Since the late 1990s, East Asian regionalism has witnessed the emergence of three different phenomena in tandem: the decline of the importance and influence of Asia Pacific Economic Cooperation (APEC) and trans-Pacific regionalism; the rise of alternative intra-East Asian regional organizations and processes - ASEAN Plus Three (APT) and East Asian Summit (EAS) - that are duplicating, and may well replace, the activities associated with APEC; and an explosion of bilateral FTAs (both among East Asian nations and with nations outside the region).

Over the next several years, the USA will have to come to grips with a new "architecturalmomentum" regarding regional institutions, according to Hadi Soesastro, director of a leading think tank in Indonesia (Soesastro, 2009). Though it received a mixed reaction, Australian Prime Minister Kevin Rudd's major proposal in June 2008 to create an Asia Pacific Community by 2020 has become the focus of a wide-ranging debate among government officials, academics, and the multinational corporate community over the future of East Asian regional structures - and on the membership of these structures (Rudd, 2008, 2009) (see also Seng, 2009; Soesastro, 2009; Thayer, 2009).

5.1 APEC adrift

With little exaggeration, it can be said that since 1998, APEC has drifted, increasingly bereft of momentum and, as time passed, influence (see: Hu [2008]).[7] After the failure of the Early Voluntary Sectoral Liberalization (EVSL) effort in 1998, the Clinton administration lost interest in APEC as a vehicle for trade liberalization.

After 9/11, pushed strongly by the USA, global security issues and the war on terrorism took center stage at APEC leaders' meetings. In 2003, the official APEC leaders' declaration raised security issues to equal priority with trade and other economic issues, a change that administration officials candidly admitted caused some friction among other APEC members.

Meanwhile, from 2001 to 2005, the US position toward further APEC regional liberalization was either negative or noncommittal. In 2003, USTR Robert Zoellick rebuffed a proposal by Thailand to move up the Bogor Goals from 2020 to 2015, arguing that the "best way to move forward" was to use bilateral FTAs "to create models" for future liberalization (ITR, October 23, 2003).

Still, there were those who wanted to revive the trans-Pacific vision of regional integration. In 2004, the influential international trade economist and policy entrepreneur C. Fred Bergsten persuaded the APEC Business Advisory Council to put forward a proposal for a Free Trade Area of the Asia-Pacific (FTAAP). At the Santiago leaders' meeting, although Australia, Singapore, and New Zealand supported the idea, the USA was noncommittal. Zoellick labeled the proposal a "valuable discussion topic," but he also stated that most ministers were mainly interested in more "practical steps" (ITR, November 25, 2004; Bergsten, 2005). It was not until 2006, two years later, that President Bush endorsed a study group to assess the possibilities of FTAAP, and even at that point, he only stated that the idea deserved "serious consideration" (ITR, November 23, 2006). And it was not until the 2007 APEC leaders summit in Sydney, Australia, that Bush administration officials really attempted to exert leadership in advancing the FTAAP proposal - to muted and even lukewarm response from other APEC leaders (US Department of State, 2007).

5.2 APT/EAS

After 2000, the APT increasingly moved to center stage as the chief vehicle for East Asian integration. In 2002, leaders of the APT established an East Asian Study Group (EASG), composed entirely of government officials, which recommended a "step-by-step" approach to trade and financial liberalization in East Asia and suggested that formal negotiations for an intra-East Asian FTA be put off well into the future (Kwon, 2002; Capie, 2004). Despite this cautious approach, the APT has steadily moved to duplicate and overtake many of the functions of APEC. There are now annual meetings of trade ministers, and in recent years, the APT has taken on additional activities, with accompanying ministerial meetings, such as the environment, energy, tourism, health and safety, financial services - and recently, regional security.

Originally behind the scenes, but in recent years more openly, the People's Republic of China (PRC) has pushed to increase the stature and activities of the APT. For China, there are three virtues associated with the organization and the process: neither the USA nor Taiwan is a member, and the overriding vision foresees intra-Asian regionalism as the wave of the future. Chinese scholars, if not Chinese officials, have become quite candid in their view of the future of Asian regionalism and the role of the USA. Chu Shulong, a scholar close to the Beijing government (and a 2006-2007 visiting scholar at the Brookings Institution) wrote bluntly in 2006: "Americans . . . have to realize, soon(er) or later, that a regional economic and security arrangement in Asia without direct U.S. involvement is inevitable in the long run . . . simply because . . . Asia needs its own economic and security mechanism to (take) care (of) itself" (Chu, 2006).

The proposal for an East Asian Summit had originated with the EASG as a longer term initiative. However, pressure to move up the timetable emerged from Malaysia, backed quietly by the PRC, which welcomed an intra-Asian institution through which it could exercise strong leadership and control. What ensued was a protracted struggle regarding membership in the EAS, with Japan, Indonesia, and Singapore leading a successful movement to include India, New Zealand, and Australia as members in order to dilute and thwart PRC dominance. The major stipulation was that all three countries sign the Association of South-East Asian Nations (ASEAN) Treaty of Amity and Commerce (Natalegawa, 2005; Kassim, 2005).

5.3 Bilateral FTAs

The greatest activity in East Asia on the trade front over the last eight years has been the burst of bilateral FTAs that have been negotiated among East Asian countries and between East Asian countries and nations outside of the region. In 1999, except for the loose ASEAN grouping, no nation in East Asia was negotiating or had concluded a bilateral FTA. At the end of 2008, by some counts (it is hard to keep up as more FTAs are being announced every month), East Asian nations are planning, negotiating, or have concluded over 150 FTAs (Asian Development Bank, 2009). Singapore is the champion in this area, with the PRC, Australia, Korea, and Thailand (until the coup) following in its footsteps, and Japan and South Korea catching up (according to the latest figures from the Asian Development Bank, Singapore has 32 FTAs proposed, under negotiation or concluded; the PRC, 23; Korea, 23: Japan, 19; and Australia, 18).

At this point, the USA has concluded FTAs with Australia, Singapore, and South Korea (unratified); and it has fitfully pursued negotiations with Thailand and Malaysia. In addition, it has Trade and Investment Framework Agreements (TIFAs) with ASEAN, plus Brunei, Indonesia, Malaysia, the Philippines, Cambodia, New Zealand, Vietnam, Thailand, and Taiwan. New Zealand and Taiwan have both requested negotiations of an FTA, thus far without success.

6. US Trade Policy Options in East Asia

What follows is a series of trade policy options that the USA might conceivably pursue in East Asia over the next few years and, in some instances, over the next decade. The order builds from the current bilateral course up to several possible regional frameworks.

6.1 Bilateral FTAs: continue along the current path

The USA could over the next several years continue on the bilateral path it started down after the disappointment with APEC as a vehicle for East Asian trade liberalization. In 2007, the USA and South Korea successfully concluded negotiations for a comprehensive, WTO-plus FTA. If and when the US Congress ratifies the Korea-US FTA (KORUS), international trade economist Richard Baldwin has predicted that his long-discussed "domino effect" will finally take hold (Baldwin, 1995). In that instance, the prediction would be that Japan would have to take action to counter the trade diversion effects of a US-Korea FTA. Japan potentially would have three options: it could approach either the USA or Korea separately (it could also approach both nations separately, but this is less likely); it could also suggest a three-nation FTA (a la NAFTA). In turn, should a US-Korea-Japan FTA be concluded (or even if negotiations began), other East Asian nations would likely line up quickly to join. A major question then would concern whether the ASEAN nations would negotiate as a group, or whether individual nations would ask to join the new agreement (see below).

6.2 APEC: coalition of the willing

Utilizing APEC as the negotiating forum, the USA could attempt to negotiate with those nations in APEC that were ready to move beyond bilateral FTAs and negotiate a subregional agreement. In order to avoid anger and resentment over future discrimination, the APEC-minus FTA would need to provide a clear docking arrangement so that, when ready, other APEC nations could more easily join the agreement. This option also would finesse the problem of Taiwan as it is already a member of APEC. There are also interim steps that the USA might take to build toward consolidation. First, it could begin consultations with all of the APEC members with which it has bilateral FTAs to begin the process of integrating the disparate FTA provisions, moving toward a unified text at some point in the future. As all US FTAs derive from the same basic template, this should not present insuperable obstacles. Further (even though this would likely perpetuate protectionist rules), US negotiators could also begin to discuss melding rules-of-origin provisions.

In February 2008, USTR Susan Schwab signaled a new initiative for US policy toward trans-Pacific regionalism with the announcement that the USA would begin a "detailed exploratory process" for negotiations with the so-called P-4 in the areas of investment and financial services rules. The P-4 group, comprising Singapore, Chile, Brunei, and New Zealand, had consummated a comprehensive free trade agreement in 2005, labeled the Trans-Pacific Strategic Economic Partnership (ITR, February 7, 2008).

In September 2008, Schwab formally announced at a press conference with New Zealand Trade Minister Phil Goff that the USA would launch a negotiation with the P-4 for a full-fledged FTA that would include all industrial and service sectors. Then, at the November 2008 APEC Ministerial meeting in Lima, Peru, Australia and Peru indicated that they would like to join the negotiations; and Schwab stated that a "P-7" was likely to emerge and that negotiations would probably take around two years. After that, other APEC nations would be asked to join in a "docking arrangement."(ITR, September 28, 2008 and November 27, 2008).

In late February 2009, the Obama administration announced that it was postponing formal P-4 negotiations, scheduled to begin in March. It argued that the president's new trade team was not in place and that the P-4 talks would be reviewed as a part of the wholesale revamping of US trade policy that the president had promised during the 2008 campaign (Inside U.S. Trade, February 17, 2009).

Since then, USTR Kirk has on several occasions expressed strong views that US trade policy toward Asia must be upgraded, and on May 18 he stated that "at a minimum" the Obama administration would pick up the P-4 negotiations, which constituted a "baseline for what we would like to do in the region." (It should be noted, however, that the White House immediately undercut the USTR by announcing, pointedly, that no decision had been made on continuing the P-4 talks: Inside US Trade, May 22, 2009.)[8]

6.3 FTAAP

A bolder approach would entail the USA getting behind the Bergsten/FTAAP effort and pushing for an APEC-wide FTA within some determined time - possibly 10 years as a goal. This would build upon an already established process in APEC - the formation of a study group. As with proposal #2, there are a variety of ways the execution of the plan could be structured.

One possibility, already a tradition in APEC, would be to set different timetables for the more developed versus the developing country members of APEC. Given the still raw memories of the EVSL disaster in 1997-1998, where the USA overplayed its hand and caused a backlash against reciprocal sectoral liberalization in APEC, at this point US trade negotiators will have to tread carefully if they hope to revive APEC as a regional vehicle for trade liberalization.

There are, however, certain signs that, if the USA does act with greater finesse, the prospects for APEC revival may be brightening. Regarding reciprocity-based trade liberalization, two important new factors have been introduced since 1998: first, the wave of bilateral reciprocity-based FTAs among East Asian nations and between East Asian nations and nations outside the region; and second, a gradual change in ASEAN's strict "noninterference" and "concerted unilateralism" stances. In both cases, a learning process has occurred that may already be exerting an impact on views regarding regional priorities and realities.

With regard to bilaterals, there are well over 150 in place or under negotiation. All of these FTAs are based upon reciprocal concessions that include some provisions for enforcement. Thus, each nation (all members of APEC) has on one level moved beyond the mantras of the "Asean way" that dominated the debate in the 1990s.

6.4 ASEAN's evolving role

An important sign of the impact of this change came in January 2007 at the ASEAN summit in Cebu, the Philippines. For the first time since its founding, ASEAN leaders agreed to consider stricter rules to implement policies and monitor compliance - including penalties for breaching agreements such as temporary suspension or even expulsion in extreme cases. These deliberations were based upon recommendations from an Eminent Persons Group, headed by former Philippines president, Fidel Ramos (Burton, 2007).

In the end, however, ASEAN members failed to live up to the promise of the initial commitments. The charter that was ratified in November 2007 did give ASEAN a legal identity; however, though it created a human rights commission, it provided for no enforcement powers. Of greater import for this analysis, the charter in effect perpetuated the "consensus" decision-making procedures that had stymied ASEAN integration in the past. As Ralph Cossa, president of the Pacific Forum, stated: "By merely codifying existing norms, it is the same old wine in the same old bottle, unless and until ASEAN members, individually and collectively, demonstrate a willingness to stand behind the lofty principles they proclaim" (Cossa, 2007).

ASEAN nations, however, may be spurred to greater action by recent events: most specifically, a landmark tripartite summit that took place on December 13, 2008. On that date, the heads of government of Japan, South Korea, and China met in Japan, at Dazaifu, in the Fukuoka Prefecture. The summit's joint statement proclaimed that a new era of cooperation had been launched among the three nations, and it formalized the arrangement with a commitment to subsequent annual summits. In the end, this event could prove deeply disturbing to ASEAN nations, as it undermines the assumption that ASEAN would always play a pivotal role in East Asian agenda-setting and institutional organization though the APT or East Asian Summit processes.[9] (Weatherbee, 2009)

6.5 Stand back and come in later

Finally, the USA could stand back, allowing the current bilaterals to proceed, but not pressing at this point for any consolidation of subregional arrangements or for a regionwide FTA. The USA would thus signal that it did not oppose the new forms of intra-East Asian regionalism as embodied in the APT or the East Asian Summit. At the same time, it could quietly inform its closest allies in the region - Japan, Singapore, and Korea - that at any point that the nations of the APT or East Asian Summit decide to commit to formal FTA negotiations, the USA wants to be at the table.

7. Concluding Observations and Recommendations

At this juncture, the politics of US trade policy under President Obama remain uncertain, with contending forces within the administration itself, within Congress, and among the major constituencies of the Democratic party still jockeying for position and power. However, as previously noted, the "architectural momentum" in East Asia for real advances toward new or upgraded regional institutions now seems to be proceeding on a more sustained basis. While stipulating that the political situation with regard to trade policy in the USA remains dicey, a multilevel agenda is offered for moving forward in East Asia.

The P-4, symbolically, is the most important near-termaction relating to East Asia. An announcement by the Obama administration that it would be resuming US participation in the P-4 talks and negotiations is the pivotal first step. Without prejudging the final outcome, the administration would by this decision signal that it was prepared to follow through on the verbal assurances by USTR Kirk and others that US international economic policy toward Asia would be a top priority. By the same token, Obama trade officials could further underline US regional priorities by notifying Thailand and Malaysia that the administration stood ready to restart suspended bilateral FTA negotiations whenever the domestic politics of those two nations appeared propitious and supportive.

The US-Korea FTA stands at the vortex of future US East Asian economic and security policy. When it is ratified, it will by substantial margin be the most significant FTA negotiated by the USA (Korea is a $1 trillion economy and the USA's 7th largest trading partner). Of equal, if not greater, import, the US-Korean diplomatic and security alliance represents, with the US-Japan alliance, a central bulwark cementing mutual national interests in the region. Thus, it will be imperative - probably sometime in 2010 - for the Obama administration to tackle the challenges posed by US interest groups (automobile companies and the beef industry) and find acceptable compromises that persuade Congress to ratify the agreement. Of the outstanding issues, agreement on the beef issues lies largely in the hands of the Korean government. On automobiles, however, given the recent turmoil in the US auto industry, the Obama administration - as the de facto owner of both General Motors and Chrysler and a potential investor in Ford - now wields overwhelming power over the sector--power that should be utilized to advance the national interest over short-term (and likely infinitesimal) commercial interests of the (former) Big Three (for evaluations of the US-Korea FTA, as well as discussion of the political issues raised by the agreement, see: Connell [2007]; Schott [2007]; and Cooper et al. [2008]).

Regarding ASEAN, the Obama administration should move with dispatch to build upon the upgrading of relations started under the Bush administration with such measures as the creation, through congressional action, and appointment of an ambassador to ASEAN; and the signing of a TIFA with ASEAN in 2006. Though a full-sledged FTA with ASEAN remains a distant goal, the Obama administration should continue negotiations to deepen and broaden the reach of the TIFA articles in such areas as services and regulatory reform.

In February 2009, Secretary of State Hilary Clinton announced that the Obama administration would launch a formal interagency process to pursue the accession of the USA to the ASEAN Treaty of Amity and Commerce, allowing it to join 15 other nations who have signed the treaty. Signing the treaty would have both symbolic and practical consequences: symbolically, it would constitute another milestone in recognizing the importance the USA attaches to the 10-member institution representing 500 million people; practically, it would clear the way for the USA to join the East Asian Summit as some point in the future (Manyin et al., 2009).

The main body of this paper has described numerous pathways by which the USA could advance national interests by reviving the goal of a trans-Pacific regional architecture - building outward from the P-4 negotiations; pushing ahead with bilateral FTAs, with the prospect of a future "domino effect;" leading an effort within APEC to consolidate existing FTAs under one common template. It is impossible at this point to determine which of these options will prove out.

Fortuitously, however, the next three APEC leaders meetings are chaired in succession by Singapore (2009), Japan (2010), and the USA (2011). As two of the USA's closest allies in the region, both Singapore and Japan have signaled strong interest in advancing the regional architecture through carefully coordinated efforts over the next three years. Reflecting the urgency with which it views a US commitment to a trans-Pacific regional process, Singapore sent not just one, but two high-level delegations to Washington in the first four months of the Obama administration. In early June, Singapore Trade and Industry minister Lim Hng Kiang argued it was imperative for the USA to at least resume participation in the P-4 talk, and predicted that later this year ASEAN and the APT nations would take steps to move toward more formal trade integration. Whether this is possible or not (ASEAN has a long record of putting off difficult decisions), the Obama administration should take advantage of these upcoming APEC meetings to put forward a vision of an East Asian economic architecture in which the USA plays a vital leadership role again.[10]

Secretary of State Hilary Clinton broke precedent by choosing Asia as the destination for her first official trip outside the USA. In a speech to the Asia Society a few days before her departure, she spoke of "America's desire for more rigorous commitment and engagement" with the nations of Asia (Clinton, 2009). It remains to be seen whether the Obama administration will rise to the challenges inherent in that goal - not least the challenges from antiglobal trade skeptics in the Democratic party.

Notes

[1] In 1974, as a result of demands by US trading partners for greater certainty that US negotiators could deliver on their commitments, Congress and the executive agreed on new procedures, known as fast track authority, for betting trade agreements: in return for a commitment to close collaboration during negotiations, Congress agreed to an expedited process by which it would, without amendment, vote trade agreements up or down within 60 legislative days after submission.

[2] Trade Promotion Authority (TPA) authority finally passed Congress months later, in August 2002. In the Senate, almost half of the Democrats supported TPA as written by the Republicans.

[3] ITR, August 4, 2005. It should be noted, however, that House Democrats' opposition to FTAs during the Bush years was erratic. Despite identical language on labor and environmental issues, around 60% of House Democrats supported the US-Australia and US-Morocco FTAs. Thus, besides principle, there seems to be some political opportunism also working on the FTAs - i.e., as noted previously, Democrats voted overwhelming against CAFTA hoping to embarrass the Bush administration and House Republican leaders.

[4] For current roster of US cases and potential for 2009, see Inside US Trade, January 9, 2009.

[5] Kirk also opposed proposals from some US business organizations for an "early harvest" of Doha issues such as trade facilitation and capacity building for developing countries, arguing that it would diminish pressure for an all-inclusive agreement (ITR, March 19, 2009).

[6] This puts the USA at odds with Director General Lamy, who continues to push for an agreement based on the broad outlines of existing compromises by the WTO's August recess (Bridges Weekly, April 1, 2009). However, in meetings with key US members of Congress in late March (Rep. Sander Levin [D-Mich] and Senator Charles Grassley [R-Ia]), Lamy was warned not to push for an early restart of the trade talks (ITR, March 26, 2009).

[7] This note does not attempt to analyze the substantive deficiencies in the APEC agenda. For a recent comment on the challenges to APEC's relevance.

[8] Despite the decidedly mixed signals, there will be some pressure on the Obama administration to demonstrate its "multilateral credentials" in Asia. In addition, both the majority and ranking minority senators on the Senate Finance Committee, Sen. Max Baucus (D-MONT.) and Sen. Charles Grassley (R.IA.), favor the P-4 negotiations; and there is also strong support from business groups such as the US Chamber of Commerce, the National Association of Manufacturers, and the Coalition of Service Industries. On the other hand, trade skeptics among House Democrats have maintained a consistent opposition to the P-4 negotiations (Inside U.S. Trade, February 27, 2009). It should also be noted that two interest groups (National Milk Producers Associations and the National Cattlemen's Beef Association) have expressed either outright opposition or some misgivings about the agreement, largely based on competition with New Zealand dairy and beef products (Inside US Trade, September 25, 2008).

[9] A keen observer of Southeast Asian trends, Donald Weatherbee stated: "ASEAN is attempting to muddle through. It had hoped that through a new charter to enhance its relevancy. It has ended up embarrassed. As for the (three-nation summit), ASEAN appears to be on the outside looking in at the beginning of a trilateral process that, if successful, would be much more regionally and globally significant than the APT."

[10] For details on the Singapore visits and on the planning for future APEC meetings, see: Inside US Trade, June 12, 2009. Before he was reined in by the White House, USTR Kirk had stated: "We have the objective of creating TPP . . . as one of the approaches to achieving FTAAP" (Inside US Trade, June 12, 2009).

References

Asian Development Bank (2009). ADB FTA Database, Asian Regional Development Center. Accessed 14 Feb 2009. Available from URL: http://www.aric.adb.org/10.php

Baldwin R.E. (1995). A domino theory of regionalism. In: Richard B., Haaparanta P. & Kiander J. (eds), Expanding Membership of the European Union. Cambridge: Cambridge University Press, 25-48.

Baldwin R.E. & Magee C.S. (2000). Congressional Trade Votes: From NAFTA Approval to Fast Track Defeat. Washington, D.C.: Institute for International Economics.

Barfield C. (2000). The role of interest groups in the design and implementation of U.S. trade policies. In: Deardorff A.V. & Stern R.M. (eds), Social Dimensions of U.S. Trade Policy. Ann Arbor, MI: The University of Michigan Press, 271-286.

Barfield C. (2001). Free Trade, Sovereignty, Democracy. Washington D.C.: American Enterprise Institute.

Barfield C. (2007). US trade policy: The emergence of regional and bilateral alternatives to multilateralism. Intereconomics, 42 (5).

Barfield C. (2008). The fast-track trade war. The American 07 May, p. 1.

Bergsten C.F. (2005). A New Strategy for APEC. Speech at the 16th General Meeting of the Pacific Economic Cooperation Council (PECC), 06 September. Seoul, South Korea.

Burton J. (2007). ASEAN discusses toughening its rules to enforce group discussion. Financial Times January 10.

Capie D. (2004). Rival regions? East Asian regionalism and its challenge to the Asia-Pacific. In: Rolfe J (ed.), Asia-Pacific: A Region in Transition. Honolulu: Asia-Pacific Center for Security Studies, 149-165.

Chae W., Lee J.G., Seong H.G. et al. (2007). Korea's Trade Policy Toward the United States and Related Tasks after the KORUS FTA. Seoul, Korea: KIEP.

Chu S. (2006). Regionalism and China's Peaceful Rise: Local Neighbors and Global Strategy. Washington, D.C.: Brookings Institution.

Clinton H.R. (2009).U.S.-Asia Relations: Indispensable to Our Future. Remarks at the Asia Society. 13 Feb. New York, NY: US Department of State.

Connell S. (2007). The U.S.-Korea Free Trade Agreement: Economic Opportunity, Strategic Imperative. Washington, DC: U.S.-Korea Business Council.

Cooper W.H., Manyin M.E., Jones V.C., Cooney S., Jurenas R. & Siskin A. (2008). The Proposed U.S.-South Korea Free Trade Agreement (KORUS FTA): Provisions and Implications. 29 May. Washington, DC: Congressional Research Service.

Cossa R. (2007). ASEAN charter: One (very) small step forward. PacNet, No. 48, Pacific Forum, 21 November. Honolulu, Hawaii: CSIS.

Dent C.M. (2006). New Free Trade Agreements in the Asia-Pacific. New York: Palgrave
Macmillan.

Destler I.M. (2005). American Trade Politics, 4th edn. Washington, D.C.: Institute for International Economics.

Easton N. (2009). Obama's Messy Free Trade Message. Accessed 17 Mar 2009. Available from URL: http://www.CNNMoney.com

Feinberg R.E. (2003). The political economy of United States' free trade arrangements. The World Economy, 26 (7), 1019-1040.

Hu R.W. (2008). APEC: The Challenge of Remaining Relevant. Washington, D.C.: The Brookings Institution.

Hufbauer G. & Schott J. (2009). Buy America: Bad for Jobs, Worse for Reputation. Policy Brief No. 2, Peterson Institute of International Economics, 2009.

Im H. & Sung H. (2008). Empirical Analysis of U.S. Congressional Voting on Recent FTA Bills. Seoul, Korea: KIEP.

Kwon Y. (2002). Regional Community-Building in East Asia. Seoul, Korea: Yonsei University Press.

Kassim Y.R. (2005). The rise of East Asia: A new regional forum finds form. IDSS Commentaries, Nanyang Technological University, Singapore. December 16.

Lawrence R.Z. (2002). International trade policy in the 1990s. In: Frankel J.A. & Orszag P.R. (eds), American Economic Policy in the 1990s. Cambridge, MA: The MIT Press, 277-327.

Levin S. (2009). A new trade policy that meets the challenges of the global economic crisis. 11 March, Speech to Washington International Trade Association, Washington, D.C.

Manyin M.E., Garcia M.J. &Morrison W. M. (2009).U.S. Accession to ASEAN's Treaty of Amity and Cooperation (TAC). Congressional Research Service report 7-5700. 05 May.

Natalegawa M.M. (2005). ASEAN +3 versus the East Asian Summit. Report for the Center for East Asian Cooperation Studies.

Office of the US Trade Representative (2009). 2009 Trade Policy Agenda and 2008 Annual Report. Washington, D.C: Government Printing Office.

Pollack M.A. & Shaffer G.C. (2001). Who governs? European Union Studies Association (EUSA), Biennial Conference (7th), 31 May-2 June, 2001. Madison, Wisconsin.

Putnam R. (1988). Diplomacy and domestic politics: The logic of the two-level game. International Organization, 42 (3), 427-460.

Rudd K. (2008). It's time to build an Asia Pacific Community. Address to the Asia Society Austral-Asia Centre, 04 June. Singapore.

Rudd K. (2009). Keynote address at the 8th IISS Asian Security Summit, 29 May. Singapore.

Schott J.J. (ed.) (1998). Restarting Fast Track. Washington, D.C.: Institute for International Economics.

Schott J.J. (2007). The Korea-US Free Trade Agreement: A Summary Assessment. Washington, DC: Peterson Institute for International Economics.

Seng T.S. (2009). The Asia Pacific Communnity idea. RSIS Commentaries, Nanyang Technological University, Singapore. May 25.

Shaffer G. (2001). The World Trade Organization under challenge: Democracy and the law and politics of the WTO treatment of trade and environment matters. Harvard Environmental Law Review, 25.

Soesastro H. (2009). Architectural moment in Asia and the Pacific. East Asia Forum. 14 June.

Thayer C.A. (2009). Kevin Rudd's multi-layered Asia Pacific community initiative. East Asia Forum. June 22.

U.S. Department of State (2007). Strengthening regional economic integration: A report on economic integration, including a possible free trade area of the Asia-Pacific as a long-term prospect. Washington, DC.

VanGrasstek C. (2009). February-March. Bridges. Geneva, Switzerland: ICTSD.

Weatherbee D. (2009). Three minus ASEAN: The Dazaifu Summit. PacNet No. 2, Pacific Forum, 08 January. Honolulu, Hawaii: CSIS.

Weisman S. (2007). G.O.P shift seen on trade. New York Times, 07 March.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Claude
Barfield
  • Claude Barfield, a former consultant to the office of the U.S. Trade Representative, researches international trade policy (including trade policy in China and East Asia), the World Trade Organization (WTO), intellectual property, and science and technology policy. His many books and publications include Swap: How Trade Works with Philip Levy, a concise introduction to the principles of world economics, and Telecoms and the Huawei conundrum: Chinese foreign direct investment in the United States, an AEI Economic Studies analysis that explores the case of Chinese telecom equipment maker Huawei and its commitment to long-term investment in the US.
  • Phone: 2028625879
    Email: cbarfield@aei.org
  • Assistant Info

    Name: Hao Fu
    Phone: 202-862-5214
    Email: hao.fu@aei.org

What's new on AEI

image The Census Bureau and Obamacare: Dumb decision? Yes. Conspiracy? No.
image A 'three-state solution' for Middle East peace
image Give the CBO long-range tools
image The coming collapse of India's communists
AEI on Facebook
Events Calendar
  • 14
    MON
  • 15
    TUE
  • 16
    WED
  • 17
    THU
  • 18
    FRI
Wednesday, April 16, 2014 | 10:00 a.m. – 11:00 a.m.
Calling treason by its name: A conversation with Liam Fox

Join us at AEI as the Right Honorable Liam Fox sits down with Marc Thiessen to discuss and debate whether America’s intelligence agencies have infringed on the personal privacy of US citizens.

Thursday, April 17, 2014 | 4:00 p.m. – 5:00 p.m.
The curmudgeon's guide to getting ahead

How can young people succeed in workplaces dominated by curmudgeons who are judging their every move? At this AEI book event, bestselling author and social scientist Charles Murray will offer indispensable advice for navigating the workplace, getting ahead, and living a fulfilling life.

Event Registration is Closed
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled today.
No events scheduled this day.
No events scheduled this day.