Doha, recovery, and the TPP

was my Trade Tripper column in last Friday-Saturday's issue of BusinessWorld:

While many people are celebrating the reelection of US President Barack Obama (for who knows what reason), the realities that such brings are none too cheerful. For an administration that seemingly has been focused on reviving its sputtering economy, its lack of engagement in the area of international trade is quite disconcerting.

Furthermore, while there have been promises indeed about placing focus on the Asia-Pacific region (again bringing cheers from this part of the world), the reality actually is far different. As Greg Rushford ("Disconnect," Nov. 13, 2012) insightfully puts it: "There’s a disconnect. Obama’s foreign policy -- the so-called Asian ‘pivot,’ or ‘rebalancing’ -- promotes closer security ties across the region, with a particular emphasis on traditional Asia-Pacific treaty allies like Japan and the Philippines (which are embroiled in threatening maritime disputes with China). But the president’s trade agenda excludes the Japanese, the Filipinos, and other important Asian trading partners from participation anytime soon in the ongoing Trans-Pacific Partnership trade talks."

The quandary is evident. With a more energetic economy, the desire for increased trade by Asian countries is understandable. Whether Mr. Obama will respond positively to such is another matter. His administration has been noticeably detached, even perhaps wary, of trade. Mr. Obama certainly has no affection for the WTO: "Doha was a multilateral-liberalization initiative; and ironically, it was killed by President Obama who had ironically been awarded the Nobel Peace Prize by Norway in the expectation that he would promote multilateralism and turn his back on US unilateralism! [This is so because] under the Obama Administration, already under siege from the labour unions who were hostile to trade, was resolutely opposed to closing the Doha Round unless numerous concessions were made to appease its business lobbies." (see Jagdish Baghwati, writing for Handelsblatt)

Instead, what Mr. Obama decided to do is: 1) center his trade policy around threatening other countries who, in his mind, are engaged in unfair trade; and 2) dangle the Trans-Pacific Partnership in front of other countries.

But this strategy, coming from a country of which leadership in the global economy is expected, is not helpful. To have an energetic dispute policy would make sense, perhaps even beneficial, in a situation where you have a healthy global economy. But in a time when the European countries are staggering under the weight of their own entitlement systems, with Japan still unable to get fully going, China under fears of a bubble bursting, and the US misguidedly wanting to spend their way out of their problems, to aggressively proclaim disputes (either as a political sopping rhetoric or as an actual policy to be carried out) is bizarre.

As for the TPP, Mr. Rushford was more trenchant: "The TPP… is increasingly being perceived as ‘part of a U.S. foreign policy strategy to contain China.’ Already the White House has heard from officials in Australia, New Zealand that ‘it is not in their interests to participate in trade arrangements that are seen to be hostile to China.’ The Aussies and Kiwis have laid down a red line that they could bolt the talks, if the Americans don’t step up their economic game." Furthermore, while "the White House has been happy to use such high-sounding rhetoric, much of what Washington has actually put on the negotiating table is a familiar litany of old-style protectionism aimed at pleasing Obama’s base in the anti-trade wing of his Democratic Party. It mainly comes down to special carve-outs to protect US sugar quotas, subsidies for US dairy farmers, legally binding rules on labor and the environment to satisfy US labor unions, no liberalization of widely-resented US anti-dumping rules, high tariffs on athletic footwear, and complex rules of origin aimed at preventing Vietnam from expanding its exports of garments to the United States. (Strident American demands for just the latter two alone could be deal killers.) Consequently, the once-promising TPP is beginning to look like just another ordinary trade-distorting scheme, and one that is not particularly economically important.

The Philippines, correctly, has expressed no hurry in signing on to the TPP. Baghwati calls free trade agreements (of which the TPP is one) as "termites in the trading system," used "by hegemonic powers to foist on weaker trading partners demands unrelated to trade but desired by domestic lobbies, at times in a markedly asymmetric way." Such is a sentiment this column shares. Specifically, the TPP imposes certain conditions, a lot requiring constitutional amendments, as well as measures that for a still developing country like the Philippines, would simply not make sense. This is on top of this column’s repeatedly stated position that free trade agreements are just poor trade distorting substitutes for the WTO.

However, there is an added point: perhaps what’s worse than an ill-conceived US trade policy is an ill-conceived trade policy half-heartedly carried out by the US. For a country presumably wanting to maintain its sole superpower status, such flip-flopping is unbecoming.