High-Profile Negotiations across the Pacific

By Meredith Miller

January 15, 2015

The coming year promises to be pivotal for U.S. economic policy in Asia. Asia is central to President Obama’s efforts to revive the U.S. economy by attracting more investors, increasing exports, and deepening scientific and technological cooperation. As the Obama administration heads into its final lap, the urgency of executing flagship initiatives, such as the Trans-Pacific Partnership Agreement (TPP), has increased. Relations with China, Asia’s economic center of gravity and the United States’ second-largest trading partner, will occupy center stage as U.S. concerns heighten over Chinese economic espionage and industrial and currency policy. Asia’s regional economic integration continues as trade and investment steadily rise and deadlines rapidly approach for the ASEAN Economic Community (AEC) and the Regional Comprehensive Economic Partnership (RCEP) agreement.

The TPP is arguably the most ambitious free trade agreement negotiation the United States has ever undertaken. Ultimately, it aims to tie together twelve Asia-Pacific economies into an arrangement that would liberalize approximately one-third of world trade and address issues central to the modern economy, such as e-commerce, intellectual property rights, and cross-border investment. The TPP would have an open accession clause and is envisioned as a building block toward an eventual Free Trade Area of the Asia-Pacific (FTAAP). The initiative thus has huge symbolic and practical implications for U.S. leadership and economic standing in Asia.

Closely associated with the Obama administration’s Asia “rebalance” and widely viewed in Asia as a U.S.-led initiative, the TPP will have an impact on the United States’ competitiveness in Asia and ability to set new norms and standards for global trade. The new Republican congressional leadership has pledged support for trade promotion authority (TPA), which provides for a congressional up-or-down vote on trade pacts without amendment and is considered by many to be a prerequisite for congressional passage. TPA would offer U.S. negotiators a boost as they work to resolve thorny issues such as market access for agricultural products and textiles, intellectual property rights, foreign investor protections, and investor-state dispute settlement. Negotiators are under increasing pressure to wrap up the agreement ahead of the U.S. presidential election cycle, with many analysts suggesting that to ensure passage during the Obama administration, the TPP must be concluded in the first half of this year.

While China is not a party to TPP negotiations, 2015 also holds great potential for further advances in the framework of U.S.-China economic relations. In 2014, the two sides made important breakthroughs on the expansion of the WTO Information Technology Agreement, the negotiation of a bilateral investment treaty, and other new measures to facilitate trade and investment. Yet even with these areas of progress, the U.S.-China relationship remains tense. China’s industry policy, complaints of cyberespionage and intellectual property theft, and China’s recent targeting of foreign companies for alleged violations of anti-monopoly law are matters of deep concern for the United States. Coming out of an election cycle, the new U.S. Congress is likely to place a stronger focus on resolving these concerns and shine a brighter spotlight on the U.S.-China relationship.

As the Asian Development Bank reported in 2014, Asia’s cross-border trade and investment and tourism flows have continued to rise despite a weak global economic outlook. This trend is underpinned by significant policy initiatives, and important deadlines for regional integration loom. Notably, ASEAN is in the final stretch of fulfilling the requirements for the AEC by the end of 2015. Approximately 80% of these requirements have been met, but the remaining issues, including investment and labor flows, are the most challenging. Indonesia’s new president Joko Widodo (known as “Jokowi”) raised eyebrows in the region with his statement that Indonesia would not be supportive of the AEC’s goal of a single market and production base by the end of 2015 if it puts Indonesia at a disadvantage. Under Malaysia’s 2015 ASEAN chairmanship, the group will develop and finalize a strategic plan and targets for deeper integration beyond 2015.

Both endeavors are important indicators of the future viability of a unified and integrated ASEAN region able to compete with regional giants. The sixteen negotiating parties to the RCEP (the ten ASEAN members, Australia, China, India, Japan, New Zealand, and South Korea) are also facing a December 2015 deadline to conclude their talks. If successful, the RCEP would create an integrated market with a combined GDP of approximately $20 trillion, though it would not have the scope of coverage or depth of the TPP. Significantly, the RCEP would also present an alternative and less comprehensive vision for a future FTAAP, thereby further raising the stakes for successful conclusion of the TPP this year.