Recently, all major US free trade deals in North America, Latin America and Asia Pacific have come under fire. American legacy in free trade is dimming.
LAST December, the Philippines exported $4.17 billion worth of products. The top-10 market destinations accounted for 83 percent of the total. These destinations included China/Hong Kong (28 percent of the total), US (14 percent), Japan (14 percent), and markets in Asia (Singapore, Thailand, Taiwan) and the EU (Germany, Netherlands, Portugal).
As the Philippines is building its export and manufacturing prowess, the global and regional trade landscape is in dramatic flux. Not so long ago, America fueled the Asia-Pacific trade. But those days are fading.
The rise and decline of NAFTA
After the fifth round of talks on the North American Free Trade Agreement (NAFTA) ended amid simmering tensions last fall, Canada and Mexico are hedging their bets against a potential NAFTA collapse by pushing for deals with new partners, particularly with China and other Asian countries.
NAFTA is not just another free-trade agreement. It is America’s post-Cold War blueprint for other free traded agreements (FTAs). It came into force amid the globalization boom in 1994.
NAFTA was promoted as a receipt for regional success in the US, Canada, and Mexico. Yet, its record has proved mixed. While the agreement has benefited consumers in the three countries, it has also contributed to investment outflows, unemployment and off-shoring.
US officials have 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 the NAFTA talks; in Canada, conservatives are positioning for 2019 elections.
As American farmers are pushing the Trump administration to remain in the NAFTA, the White House has signaled that NAFTA withdrawal is not imminent, but the priority is to renegotiate the deal.
The rise and decline of FTAA
In the 1990s, Washington’s trade bureaucrats tried to extend the NAFTA to the proposed Free Trade Agreement of the Americas (FTAA).
Venezuela’s Hugo Chavez condemned the FTAA as a “tool of imperialism.” Yet, Latin America’s leaders, including the then presidents of Brazil, Luiz Inácio Lula da Silva, and Argentina, Néstor Kirchner, did not oppose the FTAA. However, they demanded the pact to eliminate US agriculture subsidies, effective access to foreign (read: US) markets and consideration towards their member states’ needs.
Despite friction, Washington sought non-trade-related concessions through the FTAA. That was a typical effort to extend a NAFTA-like deal across Latin America.
So, instead of opening South America to free trade, the FTAA split the region into two blocs, as President Lula had predicted.
Two decades later, the Obama administration sought something similar in Asia Pacific.
The rise and decline of TPP
As he had pledged in the campaign trail, Trump killed the Trans-Pacific Partnership (TPP), President Obama’s legacy deal. But the move did not come out of the blue.
Historically, 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. That changed in the early 2010s, when Washington began to lead talks for a significantly expanded economic free-trade agreement, which was fueled by US geopolitical interests in Asia and the Americas.
The new TPP was an integral part of Obama’s “pivot to Asia.” The negotiations were assigned to the new US Trade Representative Michael Froman, who was not a trade specialist, but a former security and Soviet Union expert. The talks were geopolitical, secretive and China was excluded from the pact.
After the 2016 US election, some TPP partners began to push for a revised TPP without the US. In the process, many of them, including Japan, began to hedge between a revised TPP, a bilateral free trade deal with the US, and China-led talks on the Regional Comprehensive Economic Partnership (RCEP).
Last fall, 11 countries announced their commitment to resurrecting the TPP, without the US. The TPP-11 participants hope to create a new deal in March, but it must still be signed and ratified by each country.
The Trump administration has suggested it would consider rejoining, if the US were granted a “better deal.” Yet, some TPP-11 participants hope that he will prove a one-term president and that the next US president will reverse Trump’s withdrawal.
Historically, the TPP was NAFTA déjà vu all over again, but in Asia Pacific. Not only did it seek to split Asia Pacific (in order to “contain” China). It also divided the United States from within, contributing to Trump’s election victory in 2016.
Toward real free trade in Asia Pacific
Ultimately, China seeks to establish the Free Trade Agreement of Asia Pacific (FTAAP), which would be broader and more inclusive than current trade pacts. In effect, the idea of free trade in Asia Pacific has been around since 1966 when Japanese economist Kiyoshi Kojima advocated a Pacific Free Trade agreement.
The talks for such a deal began with the Asia Pacific Economic Cooperation (APEC) forum in 1989. Practical measures ensued during the 1994 meeting in Bogor, Indonesia, when APEC leaders opted for free and open trade and investment in the Asia Pacific.
In 2006, C. Fred Bergsten, then chief of the Peterson Institute for International Economics, an influential US think-tank, made a forceful statement in favor of the Free Trade Area of the Asia Pacific (FTAAP). A successful deal would represent the largest single liberalization in history.
Oddly enough, the Obama administration set aside the FTAAP to focus on the TPP talks. Despite its rhetoric of cooperation, it sought to use geopolitics to hammer an economic pact, mainly in the US interest. While the Trump administration has similar objectives, it calls the stance proudly “America First” – which is what it really is.
What Asia Pacific really needs is an inclusive bloc. No sustainable free trade agreement in Asia can ignore either China, or the US, or both. Perhaps that’s why China is now coupling its One Road One Belt initiative with an effort at the FTAAP.
Dr Dan Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net/