As the U.S. hammers on China’s front door with demands to further open up its economy, Obama administration officials are negotiating a potential back alley to the same end — a trade agreement with other Asian nations they hope will challenge China to change some of its core economic policies.
China is not party to the Trans-Pacific Partnership talks that the United States is pursuing with 10 other nations. But the proposed treaty has become a central part of the administration’s “pivot” toward Asia and is meant to address issues, such as the role of state-owned enterprises, that figure in the central disputes between the United States and China.
The ongoing talks include countries like Vietnam and Malaysia that are direct competitors with China for international investment, and they could give these countries freer access to U.S. markets and make them more attractive to multinational businesses as foreign investment in China has ebbed.
If U.S. ambitions are met, the pact will unite large portions of Asia, North America and South America in a trading bloc of lowered tariffs and common rules — a tidal pull that the Chinese could find hard to resist.
“This really embeds us in the fastest-growing region of the world and gives us a leadership role in shaping the rules of the game for that region,” said Mike Froman, deputy national security adviser for international economics. “It is creating a platform for the Asia-Pacific that more and more countries will want to be part of.”
After 14 rounds of talks, most recently at Virginia’s Lansdowne Resort, negotiators are aiming to complete the agreement next year among the 11 countries currently involved. Most of them — including Australia, Singapore, Chile and Peru, with Mexico and Canada about to join — already have trade agreements with the United States, which could limit the short-term effect of an additional regional pact.
But the breadth of the agreement, and the potential for its membership to expand, makes it perhaps the central trade discussion underway in the world as global trade talks have ground to a halt. By delving into issues that World Trade Organization rules don’t cover — the proper place of state-owned enterprises, for instance, or questions of electronic commerce — U.S. officials and others hope it will frame a new stage in trade relations for those who join.
After China joined the WTO, Beijing viewed its commitments “as a ceiling” that did not have to be exceeded, said Ted Dean, chairman of the American Chamber of Commerce in China. “We want them to treat it as a floor. If at the margin Vietnam looks better, Malaysia looks better [because of the Trans-Pacific Partnership] . . .that has an impact.”
China already faces increasing impatience among its major trading partners to loosen control over the state-dominated economy, allow more competition, give freer rein to foreign investors and rely less on exports. Top Communist Party figures have often said that is their intent, and Obama administration officials in recent months have said the country is making strides on important issues, such as state control of the financial system.
But progress on many fronts has been slow, and American public opinion is ambivalent about whether freer trade is a good idea. A March Pew Research Center poll found that 48 percent of those questioned supported free-trade agreements, with 41 percent opposed. But other surveys found large majorities who felt China’s economic rise had damaged U.S. prospects.
The issue has figured in the U.S. presidential campaign, with President Obama saying that Republican challenger Mitt Romney’s business deals sent American jobs overseas, and Romney saying that Obama has not been tough enough with China. Romney has also endorsed the treaty, calling it a “dramatic geopolitical and economic bulwark against China.”
Finishing the treaty — not to mention winning congressional approval — will be no easy task.
The trade talks have touched off vigorous opposition from a broad range of interest groups and companies and have drawn protests from members of Congress. Negotiators have been criticized for not revealing more of the proposed treaty to the public.
There are disputes brewing over regulation of Internet commerce — groups such as the Electronic Frontier Foundation argue that the treaty may go beyond what’s been settled under U.S. law — and pharmaceutical patents and pricing. As the Lansdowne talks proceeded, Maine state representative Sharon Treat monitored them from the resort’s lobby, concerned that the Trans-Pacific Partnership might prevent state governments from negotiating better rates from drug and biotech companies.
There are still deep divisions among the countries involved, and U.S. domestic interests may clash as well. The Sweetener Users Association, a coalition of major food and beverage companies, hopes the trade negotiations lead to the elimination of import restrictions that protect U.S. sugar producers. The country’s small footwear industry opposes lowering tariffs on imported shoes, a levy that shoe importers want lifted.
The issue prompted U.S. Trade Representative Ron Kirk to visit the New Balance shoe plant in Norridgewock, Maine, last week, where executives said the tariffs protect the company’s 1,350 shoe-making jobs.
“A TPP with Vietnam imperils our ability to keep making footwear in this country,” said company spokesman Matt LeBretton. “People are tripping over themselves to get to Vietnam. There is no need to give them an additional advantage.”
But given the stakes — with administration officials calling it a “gold standard” agreement integral to their Asia policy — domestic trade-offs may well be required.
Why expect Vietnam to start dismantling stated-owned enterprises or ask New Zealand to change its drug pricing if the United States restricts its sugar imports or keeps a tax on imported sneakers? U.S. officials say they are determined to bring the trade deal to completion and say that the disputes emerging now are a sign that the talks have reached bedrock.
“We are going to have to solve a lot of issues to bring this over the finish line, but there is unanimous consensus to keep the momentum,” said Demetrios Marantis, deputy U.S. trade representative. “We are that advanced, we are getting to the hard stuff.”