Monday, October 25, 2010

Opening for US trade agenda soon?

Business Times - 26 Oct 2010

Opening for US trade agenda soon?

Obama's strategy to expand trade ties with Korea could get the support of even the most ardent Tea Partier


HISTORIANS will probably be debating 50 years from now which of the two developments in the first year of the 21st century should be considered more historically significant: the terrorist attacks on New York's Twin Towers and the Pentagon on Sept 11, 2001 or China's accession into the World Trade Organization (WTO) on Dec 11, 2001.

Personally, I would vote for 12/11. There is no doubt that 9/11 dramatised the reach and power of radical Muslim terrorism in the form of Al-Qaeda and its allies. And it also encouraged the Bush administration to embark on a misguided military adventure in Mesopotamia. But contrary to doomsday clash-of-civilisations scenarios advanced by neoconservatives as well by fans of Osama bin Laden, 9/11 would not mark the start of a century-long global struggle between the West and Islam.

And while the Chinese entry into the WTO received little media coverage at the time, its overall impact on the global economic and geo-strategic history will be staggering in terms of unleashing the mighty forces of globalisation - led by American finance, technology and ingenuity - across the Pacific and through the entire global economy.

No skyscraper collapsed in Manhattan on 12/11 but many of tall and futuristic structures being built in Shanghai on that day symbolised the shift in the economic and political balance of power from the West to the East. The downfall of Lehman Brothers on Sept 15, 2007 and the ensuing financial meltdown revealed the extent of these dramatic changes.

So who helped set up the process that made 12/11 possible? The conventional wisdom is that it was the Democratic administration of president Bill Clinton. After all, Mr Clinton insisted that his administration would transform the United States into the economic locomotive of globalisation during the 1990s. And indeed, during his eight years in office, Mr Clinton ended up promoting an ambitious trade liberation agenda, including the negotiations of 300 trade accords with other countries, not to mention concluding a successful round of global trade negotiations and helping establish the WTO.

Yet it is important to remember that all of that would not have happened if the Democratic Party had controlled Congress during Mr Clinton's eight years in office. Indeed, many of the Democrats in the House of Representatives, reflecting the concerns of the powerful trade unions and other protectionist interest groups associated with the party, were opposed to the White House's trade initiatives.

It was only after the pro-business Republicans, riding a tidal wave of anti-incumbent sentiment to victory in the 1994 midterm elections, took control of Congress and remained in charge of it for the rest of the Clinton years that the White House could counter Democratic opposition in Congress and start winning crucial legislative battles over trade - with critical Republican help.

In fact, the passage of a milestone trade agreement with China, allowing for the lowering of trade barriers between the two countries, would not have been achieved without that Republican support. That agreement could take effect only if China was granted the permanent normal trade relations (PNTR) status by the US Congress and then accepted into the WTO. The bill approving China's PNTR status passed in the House by a majority of 237 to 197 on May 24, 2000, with 164 Republicans voting in favour and 138 Democrats against. That is, the majority of Democrats had opposed the legislation.

To put it in simple terms, it was the Republican majority in the House - the outcome of the Republican victory in the 1994 midterm polls - that made it possible to remove the final obstacle to Chinese accession into the WTO and to the evolution of full Sino-American trade ties - a development that continues to have dramatic impact on US economic policy today.

So is it possible that another centrist Democratic president and another pro-business Republican Congress would succeed in producing a re-run of the American-led global trade liberalisation show of the 1990s that made it possible to integrate China into the global economy and helped grow the American economy in the last 10 years of the 20th century?

The notion of President Barack Obama working together with the Republican-controlled House of Representatives - and perhaps even the Senate - over any issue in the aftermath of this year's midterm elections sounds like a political fantasy now. After all, many Republicans and their allies in the Tea Party movement have bashed Mr Obama as a Big Government socialist - some Tea Partiers seem to believe he is the anti-Christ - while the Democrats have accused the Republicans of being the political tool of Big Business.

Indeed, the current politically charged atmosphere in Washington and around the country makes it difficult to imagine cooperating in an effort to help liberalise the global trade system, especially at a time when the powerful trade unions are once again campaigning against it and ensuring that the majority of the Democrats in the House will oppose even modest bilateral trade schemes such as the proposed free trade agreement (FTA) with South Korea or with Colombia, not to mention the re-energising of the Doha round of trade negotiations.

But then if Mr Obama, as he prepares for his second presidential campaign, is interested in burnishing his credentials as a pragmatic and centrist Democrat, the Republican leaders, including those running for the presidency in 2012, need to win support for independents and voters in the so-called blue states; and they only do that by demonstrating that they are not political captives of the lunatic fringe of the Tea Party coalition.

From that perspective, collaboration between Mr Obama and the Congressional Republicans in an effort to strengthen America's global economic position could prove to be a winning electoral formula for both sides.

Indeed, some of the Republican candidates who have a good chance of winning do not fit into the populist mould of the Tea Party. For example, Republican Ron Portman, who is probably going to get elected to the Senate from Ohio, is a business-oriented Republican who has served as the US trade representative and as director of the Office of Management and Budget.

And here is the big surprise: Despite the anti-free-trade mood around the country, including in Ohio with its large unemployment rate, Mr Portman is running - and is probably going to win - as a staunch free trader who argues that liberalising global trade and opening new markets for American investment and exports will help accelerate the economic recovery.

This is the kind of message of 'trade promotion' that Mr Obama himself has been sounding recently, suggesting that he was going to help grow American exports as part of an effort to strengthen America's global economic competitive edge vis-Ã -vis China and other rising economic powers.

It is the kind of approach that Asean as well as Korea and Japan have been urging Mr Obama to embrace, arguing that promoting US trade and investment in East Asia will not only help increase high-paying employment in America but also strengthen US strategic position in the region.

The Obama administration's endorsement of the proposed FTA with Korea and his plans to have an amended version ready at the G-20 summit in Seoul next month provides an excellent opportunity for cooperation between the White House and Congressional Republicans. Getting the agreement approved in Congress despite opposition from Democrats is in US economic and security interests.

Under the proposed FTA, Korea and the US would benefit from increased exports, economic growth and job creation. The South Korean economic powerhouse will be in a good position to stand up to the North. In the long run, a unified Korea could become a huge market for American exports.

And expanding trade ties with Korea should also been seen as part of a strategy to accentuate US engagement in Asia-Pacific region at a time when China is trying to establish itself as a regional hegemon. Sounds like an idea that even the most ardent Tea Partier would support.

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