Asia Goes Back to the Future on Trade to Manage in Trump Times

EghtesadOnline: Everything old is new again when it comes to trade deals. There’s been a flurry of interest in reverting to one-on-one talks with the U.S. after President Donald Trump ditched a 12-nation Pacific trade pact. Japanese Prime Minister Shinzo Abe went to Washington in part to talk about the potential for a bilateral agreement.

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15 February 2017

The Trans-Pacific Partnership went well beyond traditional pacts and addressed everything from intellectual property rights to state-owned enterprises to labor standards. In theory, direct deals should be easier, Bloomberg reported.

Still, getting traction may not prove that simple, given Trump’s attacks on trade deals in general and his “America First" policy on jobs. Countries may find themselves being asked to make major concessions on key industries -- like autos or agriculture -- in order to get Trump’s sign off.

“Those who have been involved in bilateral deals know how difficult they are,” said Mark Michelson, chairman of the Asia CEO Forum in Hong Kong, a networking group of about 300 international corporate chiefs. “Multilateral agreements are difficult too but if you get one you can have a lot of people signing up. That’s what makes them so valuable.”

‘Jobs Killer’

During his campaign, Trump called an accord with South Korea enacted in 2012 a jobs killer. Though he hasn’t directly identified it a target for renegotiation -- unlike the North American Free Trade Agreement -- Korean officials are concerned: This month the trade minister outlined plans to explain the benefits of the deal.

Trump has repeatedly said that every decision the U.S. makes on trade will benefit American workers. “Believe me, we’re going to have a lot of trade deals. But they’ll be one-on-one,” he told Republican lawmakers after announcing the U.S. exit from the TPP, which would have covered 40 percent of the global economy.

In Asia, New Zealand and Japan, both TPP signatories, have expressed interest in exploring bilateral agreements with the U.S., but even exploratory talks aren’t expected to begin until Wilbur Ross, Trump’s nomination for commerce secretary, and Robert Lighthizer, his pick for U.S. trade representative, are confirmed.

Trump has said U.S. negotiators on multilateral deals like the TPP allowed countries to gain at America’s expense. Bilateral agreements will let his administration “create fair and economically beneficial trade deals,” according to his executive order canceling TPP. He’s also suggested he’d terminate deals if the other party treats the U.S. unfairly.

Fair, Unfair

“How do you define fairness?” said Kim Jong-hoon, a former Korea trade minister who was a key negotiator for the U.S-Korea agreement. “What’s fair to you can be unfair to me.”

The prospect of sitting down at the table will be daunting for any country, according to Deborah Elms, executive director of the Asian Trade Centre, a Singapore-based consultancy that also trains trade negotiators.

“In order for you to have a U.S. first at all time and in all categories, the other party in a bilateral negotiation must be getting the short end of the stick every single time,” she said. “Why would any party sign up to that kind of agreement?”

Trump’s officials would need to convince partners that the reward of a deal with the U.S. -- access to the biggest market in the world -- is worth devoting the time that might be better spent on a multilateral pact that could offer access to multiple markets including China.

The U.S. has Free Trade Agreements in the region with Australia, Singapore and South Korea. Most of its other trade relationships are governed by World Trade Organization rules, under which trade has flourished. Malaysia abandoned FTA talks with the U.S. in 2009. Since then its exports to the world’s biggest economy climbed more than 40 percent.

“To have a negotiation there has to be a mutual understanding from both sides that the negotiations are a good idea and should take place,” said Carlos Kuriyama, who was Peru’s chief trade negotiator on the Peru-China FTA that was signed in 2009, and is now a senior trade analyst with the Asia-Pacific Economic Cooperation secretariat in Manila. “If you don’t have that, you don’t have a negotiation.”

In the wake of the U.S. withdrawal from TPP, the Asia-Pacific signatories -- Japan, Vietnam, Malaysia, Singapore, Australia, Brunei and New Zealand -- are also focusing on the Regional Comprehensive Economic Partnership. China, which wasn’t part of the TPP talks, is an advocate for completing the RCEP.

“If two parties negotiate it is probably going to be faster than ten or 12 at the same time,” said Kuriyama. “But even between two parties it takes time.”

Smaller Firms

Bilateral deals impose costs, particularly on small-and-medium-sized businesses that don’t have the resources of larger companies to comply with a myriad of rules rather than one set of multilateral regulations, according to Jayant Menon, lead economist for trade and regional cooperation at the Asian Development Bank. “Have you seen an FTA? If you dropped one on someone you’d kill them.”

Multilateral deals can ease road blocks to access, according to Frank Lavin, a former U.S. ambassador to Singapore who was a lead negotiator for the U.S.-Singapore Free trade Agreement in force since 2004.

For example, giving U.S. access to New Zealand’s dairy products in a bilateral deal could hurt U.S. dairy producers. But a broader pact including countries without large dairy industries would absorb some of New Zealand’s production, mitigating the effect across a wider population.

“That is the advantage of a multilateral rather than a bilateral agreement -- you are getting more bang for the buck,” said Lavin.

Lavin is hopeful the confirmation of Ross and Lighthizer would help the U.S. articulate what it wants from trade policy. “It might take another month or two for them to put some cards on the table.”