A New US-ASEAN Trade Tack

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The Bush administration has belatedly woken up to growing Chinese economic influence in Southeast Asia, as its recent fitful and uncoordinated trade negotiations show. Luckily, there’s an existing trade tool — the Trade and Investment Framework Agreement, or TIFA — that could help get America’s trade game in Asia back on track. Properly enhanced, a TIFA would be easier to negotiate than a Free Trade Agreement and would show immediate benefits for both parties. It’s time to put it to work.

Since the Sept. 11 terror attacks, broad U.S. policy toward Southeast Asia has prioritized Asian countries’ cooperation on the Iraq conflict and on Islamic terrorism. Meanwhile, the trade side was neglected. Focused on other goals, America missed the bigger geo-strategic implications of China’s growing regional role in Asia.

Beijing, for its part, moved forward, signing a framework agreement on comprehensive economic cooperation with Asean in 2002. That deal is supposed to lead to full, bilateral FTAs with the six most developed Asean nations by 2010. Boosted by preliminary bilateral agreements, Asean-China trade has already risen by 30-40% annually in recent years, with the exception of 2005, when China’s import demand dropped due to domestic tightening measures. Even so, China-Asean trade still topped $130 billion last year — growing more than double the U.S.-Asean rate.

The Asean-China trade relationship isn’t a perfect fit. Asean’s imports of manufactured goods from China are increasing faster than its exports, especially in the electronics sector — long the mainstay of Southeast Asian industrialization and export-led growth. For example, Thailand’s electronics exports to China totaled $3.9 billion in last year, while imports totaled $6.1 billion. The imbalance in electronics and other manufactures trade was even worse for Malaysia as of 2004, the latest reported data.

The U.S. has responded to this opportunity by negotiating cumbersome Free Trade Agreements, or FTAs. While a worthy goal, these agreements usually require protracted negotiations over several years to resolve a myriad of commercial issues. Since the Bush administration took office, FTAs in the Asia-Pacific region have been signed with Singapore and Australia. Negotiations are currently underway with Thailand and South Korea, and may soon be formally launched with Malaysia. Still, that’s only two completed agreements in the nearly 15 years since the U.S. initiated its first Asia-Pacific TIFA with Singapore in 1991.

Now, time is getting tight. President George Bush’s Trade Promotion Authority, which allows for a quick “up or down” congressional vote on trade pacts, is set to expire in mid-2007. Since FTA negotiations usually take months to complete and are increasingly unpopular with Congress, now is a good time to begin a policy discussion about alternatives. One approach would be to offer to deepen our existing TIFAs with Asean countries.

Currently, TIFAs only seek to establish whether there is sufficient agreement on goals to move forward on an FTA. Under that framework, the U.S. has chalked up a few successes: Since 2002, America has signed TIFAs with half of the ten countries of the Association of Southeast Asian Nations, in addition to our FTA with Singapore.

But more needs to be done. I envision a broader role for TIFAs. Specifically, an “Enhanced TIFA” could serve as an interim deal that incrementally facilitates more trade and investment, but doesn’t try to resolve all the issues in one fell swoop. Already, countries can offer unilateral steps towards trade and investment liberalization in TIFA dialogues. Sometimes these are made to obtain relief from existing or threatened U.S. trade sanctions, but in these cases, there may not be enough political backing to progress to an FTA.

Enhanced TIFAs would represent a middle ground between the current arrangement and the cumbersome FTA. By focusing just on the highest priority issues, U.S.-Asean trade negotiators could bypass knotty market access disputes and hot button obstacles such as labor rights and working conditions that are required by Congress as a condition for signing an FTA.

Enhanced TIFA agreements could also strengthen the hands of Asean trade partners as they negotiate on a full China-Asean FTA. (Under the current China-Asean agreement, countries can start full bilateral FTA discussions at their discretion. As a first step, China and the Asean countries agreed in December 2003 on a package of “early harvest” tariff reductions on a range of agricultural and manufactured goods for a period of three years.) In addition, negotiating Enhanced TIFA agreements as market-opening mechanisms with Asean countries could have a wider application after the scheduled expiration of President Bush’s fast track trade authority in mid-2007.

Given the stakes, the U.S. needs to think and act strategically — not to contain China, but rather, to enhance the prospect that its growing economic role and influence will be a positive force for the region’s prosperity, stability and sovereignty. Getting Asean to trade more with the U.S. would achieve this goal by encouraging further trade liberalization. It’s time to think about pragmatic trade agreements, not deals premised on unattainable goals.

*This article first appeared in the Wall Street Journal Asia

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