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Trade

China and the US both have a role in promoting free trade in the Asia-Pacific region

Dan Steinbock says even before Trump’s scepticism, the US used trade as a geopolitical weapon against China, and now truly ‘free’ trade in the Asia-Pacific needs to include both major powers

PUBLISHED : Sunday, 17 December, 2017, 11:15am
UPDATED : Monday, 18 December, 2017, 3:55pm

Canadian Prime Minister Justin Trudeau recently concluded a visit to China. The joint talks about a free-trade pact began over a year ago. As Trudeau left Beijing, Western media ran headlines saying: “Trudeau leaves China empty-handed”, while China’s foreign ministry said “both China and Canada showed willingness to negotiate and sign a free-trade agreement”.

In reality, the world of free trade is now in the kind of flux that has not been since the post-1945 era.

If the United States withdraws from the North American Free Trade Agreement (Nafta), it would start a six-month legal process before official termination. While President Donald Trump may see this as a tool to force Canada and Mexico to accept his demands, they may use the time for trade talks with Brazil and the European Union.

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After the fifth round of Nafta talks ended amid simmering tensions, Canada and Mexico have hedged their bets against a potential collapse by pushing for deals with new partners, particularly China and other Asian countries.

Nafta is America’s post-cold war blueprint for other free trade deals. It came into force in 1994, amid the globalisation boom. Despite the fanfare, accusations of misconduct surfaced barely a year after the deal.

President Bill Clinton’s alleged abuses of public power led to a special counsel in the 1990s. Mexico’s president, Carlos Salinas, was appointed World Trade Organisation director general, but fled Mexico as his brothers were prosecuted in a multimillion-dollar fraud case.

In public, Nafta was promoted as a receipt for regional success, yet its record has proven mixed. While the agreement benefited consumers in three countries, it also contributed to investment outflows, unemployment and offshoring.

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Recently, US officials sought to subdue Nafta tensions by extending the timetable for renegotiations but that has poured oil on the simmering fire. In Mexico, tight elections in mid-2018 will complicate Nafta talks; in Canada, conservatives are positioning for 2019 elections.

Yet, in the 1990s, Washington’s trade bureaucrats embraced Nafta as a blueprint that could be extended elsewhere. The proposed free trade agreement of the Americas (FTAA) was the first case in point.

Venezuela’s Hugo Chavez condemned it as a “tool of imperialism”, but Latin America’s leaders, including the then president of Brazil, Luiz Inácio Lula da Silva, and then president of Argentina, Néstor Kirchner, did not oppose the agreement but demanded the elimination of US agriculture subsidies, effective access to foreign (read: US) markets and consideration of their member states’ needs.

Meanwhile, Washington sought to extend Nafta with non-trade-related concessions through the FTAA. Instead of opening South America to free trade, the agreement split the region into two blocs, as Brazil’s president predicted.

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Historically, the Trans-Pacific Partnership was déjà vu all over again. Not only did it split the Asia-Pacific, it divided the US. As he had pledged, Trump killed the TPP on his first day in office.

Through the cold war, most Americans believed in international engagement, which had bipartisan support in Washington. Since the cold war ended, Americans have grown more sceptical of, even hostile to, international commitments.

The TPP originated from a 2005 free trade deal among Brunei, Chile, New Zealand and Singapore. Its original version had more economic, transparent and inclusive foundations. After 2010, Washington began to lead talks for a significantly expanded free trade deal, which reflected US interests in Asia and the Americas. So the talks were assigned to the US trade representative, Michael Froman, a former security and Soviet Union expert.

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The new Trans-Pacific Partnership was an integral part of Barack Obama’s “pivot to Asia”. That’s why these negotiations were more geopolitical, secretive and exclusive by nature and China was excluded from the pact.

After the 2016 US presidential election, some TPP partners began to push a revised deal without the US. In the process, many – including Japan – began to hedge between a revised TPP, bilateral free trade deals with the US, and China-led talks on the Regional Comprehensive Economic Partnership.

In November, 11 countries announced their commitment to resurrecting the TPP without the US. But a new deal will have to be signed and ratified by each country.

In fact, the idea of free trade in the Asia-Pacific has been around since at least 1966, when Japanese economist Kiyoshi Kojima advocated a Pacific free trade agreement. Practical measures ensued during the 1994 meeting in Indonesia, when Apec leaders opted for free and open trade and investment in the Asia-Pacific.

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In 2006, C. Fred Bergsten, then chief of an influential think tank, the US Peterson Institute for International Economics, made a forceful statement in favour of the free trade area of the Asia-Pacific. If the agreement could be achieved, he argued, it would represent the largest single liberalisation in history.

Oddly enough, the Obama administration set this aside to focus on the geopolitical TPP talks.

What the Asia-Pacific really needs is an inclusive free trade agreement. No sustainable regional pact can ignore China, the US – or both. Perhaps that’s why China now seeks to couple its “Belt and Road Initiative” with renewed efforts on the ree trade area of the Asia-Pacific that would be broader and more inclusive than past efforts.

Dr Dan Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (US) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). See https://www.differencegroup.net/

Correction: An earlier version of the article referred to allegations in the 1990s of fraud over the purchase of Airbus jets in Canada, and said former prime minister Brian Mulroney was blamed for it. This is misleading. In fact, Mr Mulroney later sued the Canadian government for libel, and subsequently received an apology and financial award in an out-of-court settlement. We are sorry for the omission.