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    China Business
     Jul 30, 2011



US opens regional trade gambit in Asia
By Sreeram Chaulia

Towards the end of her five-day visit to Asia that revealed new strategic thinking on several foreign policy indicators, US Secretary of State Hillary Clinton this week delivered a path-breaking speech on economic diplomacy in Hong Kong. Grandly titled as "Principles for Prosperity in the Asia-Pacific", it purported to place the United States in the cockpit to drive the agenda of regional economic integration that is distinct from what China has been attempting under its own leadership banner.

Employing the language of economic rationality and avoidance of wasteful costs, Clinton criticized "a hodgepodge of inconsistent and partial bilateral agreements which may lower tariffs, but which also create new inefficiencies". Taking to task the over 100 bilateral trade pacts signed by Asian states in less than a decade, she beckoned towards "true regional integration" and a "genuine free trade area of the Asia-Pacific".

The strategic undercurrent of these pronouncements is a reality that the US' export-oriented businesses are feeling the pinch of being left out of the growing sphere of intra-Asian trade, with China as the center of the wheel. The possibility that American businesses - spearheads tasked by President Barack Obama to generate new export revenues to bolster the sputtering US economy - could be left out of the Asian pie as preferential trade agreements (PTAs) and bilateral deals proliferate is a long-term apparition that haunts geo-economic planning in Washington.

Clinton's emphatic assertion in the Hong Kong speech that the US is a "resident economic power in Asia" is an indication that the Obama administration aims to use its formal resumption this November of leadership of the Asia Pacific Economic Cooperation (APEC) forum to stage a comeback into a regional field that is centering and shaping around China.

Chinese demand for commodities and Chinese supply of manufactured products now form the loci around which many Asian PTAs and bilateral trade agreements are mushrooming. Beyond the obvious ASEAN-China Free Trade Area forged by Beijing with the 10-member Association of Southeast Asian Nations (ASEAN) and operational since January 2010, even those bilateral pacts which do not formally involve China as a partner (eg the ASEAN-Korea Free Trade Area) are impacted by the terms of trade and currency rates being set by Chinese economic activity across the region.

While China and other Asian powers enter into ever denser and complex trading relationships with seeming alacrity, Washington politics have stymied the Obama administration from wrapping up long-pending bilateral trade pacts with South Korea, Colombia and Panama. Frustration with domestic American political lobbies which continue to block adoption of these deals seems to have convinced US foreign policy elites that bilateralism is a spent mode which runs into tangles and public relations fiascos.

The dysfunction of a divided government, wherein the American presidency is with one political party and one chamber of congress is with the opposition, has already put Washington on the defensive in its engagements with Asia about US public debt and the value of Treasury bonds. The same institutional paralysis promises to bury a time-tested preference in the US for bilateral economic settings.

A deeper structural reason for the US apparently jettisoning the bilateral formula for the regionalist one has to do with relative decline in American power capabilities. Historically, hegemons and predominant states are temperamentally inclined to one-on-one negotiations so that their overall superiority in material might vis-a-vis the weaker party will squeeze out the most advantageous outcomes.

It bears reminder that the US was initially reluctant to join the Word Trade Organization (WTO) in the early 1990s owing to fears that a rules-based multilateral system would flatten out the benefits of power asymmetry in bilateral exchanges that Washington enjoyed in what used to be a straightforward unipolar world.

Today, the more advanced condition of power distribution among states has brought about scenarios such as those in Southeast and East Asia, where the US is unsure of how long its tag of "resident power" can be assured purely through military bases and aircraft carriers. Ambitious cross-regional trade ideas such as the "Trans-Pacific Partnership" are meant to be eventual substitutes for an inevitable fiscally dictated drawdown of US military assets from Asia.

Can the US really assume the helm of a new regional integration project in Asia? The contradictions are manifold in Clinton's claims, because Washington has characteristically been a divider of Asia rather than a unifier. In the earlier leg of the same Asia trip on which she gave the landmark Hong Kong speech, Clinton nudged India to wake up, "act east" and take a more assertive leadership role across the Asia-Pacific - a challenging invitation that suggests a reprise of the old counterbalancing maneuvers to contain China's rise.

The liberal economic vision of a seamless regional pan-Pacific trade zone which lowers tariffs and spreads prosperity requires sublimation of strategic political rivalries and a willingness of major Asian powers to accept the US as the bellwether which parcels out absolute gains to all parties. Unfortunately, the Asian terrain is nowhere close to such harmony and Washington is itself acting at cross purposes despite heralding Asian regionalism.

Since the 1997 Asian financial crisis, regionalism has had a distinctly un-American feel to it, notwithstanding the internal wrangling among Asia's big powers. If the Obama administration now hopes to divert momentum away from institutions like the Chiang Mai Initiative (a regional currency swap arrangement for financial stability among ASEAN, China, Japan and South Korea) through its own "true regional integration" via the pulpit of APEC, the result could be counter-productive by once again dividing Asia as was the case during the Cold War.

A pro-US camp and a pro-China camp may be too crude an array of forces when the US and China are themselves joined at the hip through the mechanism of American Treasury bonds. But the intense security competition between Washington and Beijing, which was most recently reflected in the rising tempers in Southeast Asia over the Spratly and Paracel islands disputes - as well as the strong animus between China and India in the political sphere, render Asia uneasily calm and on the brink of an unofficial Cold War with more than two centers of power.

In milieus of rapidly shifting power and uncertainty about which major state will end up at what stable pole position, bilateralism and short-termism will continue to rule foreign economic policies. The lifeless fate of the multilateral Doha Round of the WTO has already raised doubts about the viability of trade agreements with a large number of parties. Given the push factor of specific industries of one country aiming to capture market shares in spatially defined territories of proximate countries, the exuberance for bilateral PTAs within the Asian region looks set to multiply.

The US is thus an unlikely saviour of global free trade and an even less probable unifier of the Asian region. It is more practical to imagine a future where partisan American domestic politics would eventually yield to consensus on the yet-to-be-ratified bilateral trade pacts, opening the door for the US to sew up its own flurry of one-to-one deals in Asia.

In her Hong Kong speech on July 25, Clinton showered praise on the KORUS (South Korea-US Free Trade Agreement) as a "model agreement" which Asian states must emulate for provisioning protections for businesses, workers and consumers. Asians could well retort that they have much better domestic political capital to execute time-bound bilateral trade pacts. Some leadership lessons in economic diplomacy have to be learnt, not taught, by the Americans.

Sreeram Chaulia is Professor and Vice Dean of the Jindal School of International Affairs in Sonipat, India, and the author of the new book, International Organizations and Civilian Protection: Power, Ideas and Humanitarian Aid in Conflict Zones (I.B. Tauris, London)

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