Crunch time for the trans-Pacific pact — and for US leadership in Asia

Admittedly, one can overreact to the negative consequences of President Obama’s decision to cancel his trip to Asia and forego participation in the Asian Pacific Economic Cooperation (APEC) leaders’ meeting and the East Asian Summit. But it would also be a mistake to underestimate the blow — at least in the short term — to the ability of the United States to project a confident leadership role in the region. Headlines such as “Obama cancels Asia trip. Is the U.S. ‘pivot’ in jeopardy?” and “As Obama’s Asian ‘pivot’ falters, China steps into the gap” are all too representative of the reaction both within Asia and around the world.

My AEI colleague Michael Auslin has suggested that the real danger to U.S. leadership does not stem from the past week’s debacles but rather from the fact that the Obama administration is presiding over a decimated defense budget that in future years cannot sustain U.S. security promises and obligations in Asia — let alone around the world. The point is well taken, but my analysis will concentrate on the short and medium term effects relating to soft diplomacy and prestige and, in more detail, to the implications for the major U.S. regional economic initiative, the Trans-Pacific Partnership Agreement (TPP).

Short-Term Losses

In the immediate future, the image embodied in Hillary Clinton’s robust announcement of an American “pivot” to Asia and her comment that “We are back to stay” will take a credibility beating. The White House had planned both practical deliverables in the TPP negotiations and also highly symbolic visits by the president to Malaysia and the Philippines. The picture of President Obama twiddling his thumbs in the White House and haggling over a looming U.S. default while Asian leaders meet in Bali and in Brunei will be hard to erase in the short term.

Worse, partly by coincidence, Chinese leaders stood ready to fill in the gap. Though long-planned, visits by President Xi Jinping to Malaysia and Indonesia captured headlines around the region, not least from the largesse dispensed along the way — a $15 billion currency swap agreement with Indonesia and a promise to triple trade with Malaysia to $160 billion by 2017. In a tag team display, Chinese Premier Li Keqiang is now off on follow-up official visits to Vietnam, Thailand, and Brunei. Though President Xi was circumspect at the two summit meetings, the Chinese press was euphoric and scornful. Typical was the comment of the Hong Kong-based Communist party newspaper, Ta Kung Pao: “Chinese President Xi Jinping has become the brightest star on the Asian diplomatic platform. . . . The influence of the U.S. is questioned more and more.”

Looking back over the week, even a former administration official and loyal Obama supporter, Kenneth Lieberthal of the Brookings Institution, was led to conclude: “This is a serious blow to U.S. diplomacy” that will raise doubts about the president’s “ability to deliver on commitments.”

Moving on, the potential impact of the president’s no-show at TPP negotiations is a likewise negative development but not necessarily a fatal one to the successful conclusion of the agreement. With or without Obama’s presence, the situation with regards to the negotiations stands as follows. Since 2010, when serious bargaining began, there have been 19 negotiating sessions. At this point, most if not all of the technical underbrush has been cleared away by the trade bureaucrats from the 12 member states. What is left is a group of at least a dozen highly sensitive political questions and judgments that must be settled by political leaders. Among the issues outstanding are rules and commitments related to state-owned enterprises (SOEs), the environment, labor, market access and rules of origin, intellectual property (IP), government procurement, services and investment, regulatory coherence and coordination, and data flows and protection, among others. (The list will vary from observer to observer and cannot be conclusive since no actual potential text has been made public).

Throughout 2013, TPP members have steadfastly maintained the goal of completing the negotiations by the end of the year, even though all knew that this was more a tactic to keep up momentum than a realistic endpoint. Neither President Obama nor other national TPP leaders could be expected to iron out the specific details of all of the aforementioned politically sensitive issues in the single day allotted to the TPP in Brunei. Rather, what Obama missed was the opportunity to push personally for a successful conclusion of the talks soon after the new year — and to weigh in with individual leaders on a limited number of issues where only the highest national leaders can seal the deal.

The Endgame

Without crying now over spilt milk, it will be crucial for the president and the administration to turn full attention to the TPP endgame. Trade policy and negotiations have been described by political scientists as a “two-level game.” On the first level, political leaders have to fix their own goals and bargain with their counterparts from other nations. In this case, the White House must decide quickly in coming weeks what its top offensive and defensive priorities will be. Will we demand, for example, quite detailed competition rules for SOEs? Will we push for greater IP protection for biotechnology products? Will the United States want enforceable rules in the environmental chapter and for health and safety provisions? And will the United States at this late date suddenly demand trade rules to curb currency manipulation? Defensively, the White House must make judgments on what we will give in return (and the offensive/defensive moves are linked): for instance, Vietnam has made it clear that it will not move on SOEs without U.S. concession on shoes and textiles. Further, what can the United States give on sugar or cotton? How much continued protection will it defend for the U.S. automobile industry? And what can we concede from our highly protected dairy sector?

Political timing is now crucial. U.S. companies with both offensive and defensive issues at stake are aware that it is crunch time for key decisions on the products and services they hold dear, and they have begun high-powered lobbying campaigns to achieve their disparate goals. While the administration has worked diligently with domestic stakeholders (including NGOs), its own domestic political actions in this two-level game must be redoubled. This means moving forward quickly with Congress to pass new trade promotion authority that sets out congressional trade priorities and guarantees a timely up or down vote for a future TPP agreement. Down the line, it will also mean that the president himself must be willing to spend the political capital to craft a coalition that can assure congressional approval of the TPP (most particularly with congressional Republicans, who will almost certainly provide the majority of the votes).

At a news conference in the wake of the Pacific summits, President Obama ruefully admitted that missing the Asian leaders’ meeting was “almost like not showing up” for his own party, and that this inevitably “created a sense of concern” on the part of U.S. allies and trading partners. But on the larger canvass of U.S. leadership in Asia, the damage is not irreparable. Despite the burst of Chinese triumphalism, Asian nations certainly are aware that Beijing has in reality not backed off it belligerent stands and demands regarding the East and South Chinas seas — nor its bullying of smaller nations such as Vietnam and the Philippines. The ongoing, huge buildup of Chinese military prowess only underscores the perceived necessity for an enduring U.S. defense presence as a counterbalance.

In addition to committing full diplomatic and political resources to completing and passing the TPP, the president should also move with dispatch to assuage the “sense of concern” in Asia by quickly rescheduling the cancelled trips to Southeast Asia and add on Japan and Korea. For the TPP, there might be a quick payoff for the negotiations, as Korea was widely expected to announce at the Brunei summit that it would join the talks, but apparently backed off when Obama cancelled. A visit to Seoul might just seal that deal and further tip the balance toward the TPP as the lead institution in a new regional economic architecture.


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