Schwab sizes up the mood in America towards free trade, and the likelihood of a US-Asean FTA
ASIA INTERVIEW
WHAT has the US-Singapore FTA accomplished so far for both sides and what more needs to be done?
The Singapore-US FTA has been successful. US exports to Singapore are up. Singapore’s exports to the United States are up. The growth in Singapore-US trade has been very dramatic, more dramatic than our trade with the world. It’s been successful whether it’s in manufacturing, agriculture, or services.
Singapore is now our third-largest destination for foreign-direct investment in Asia after Japan and Australia, and that keeps growing.
The FTA has helped contribute to US competitiveness in the region. American firms carry out a lot of regional activities from Singapore that make us that much more competitive vis-à-vis China or Japan.
We are building on what we have accomplished. Singapore has also been instrumental in our Tifa (Trade Investment Framework Arrangement) and activities related to Asean.
We have been able to build on the FTA relationship regionally in Apec and Asean and then ultimately in multilateral ways through the Doha Round where Singapore and the US are of the same mind in the need for an ambitious outcome.
Can there be a breakthrough in global trade talks after six years of deadlock?
The United States is still fully committed to a successful Doha Round outcome. I really thought that we were going to have a breakthrough in Potsdam but that did not play out for a variety of reasons.
The good news about what happened in Potsdam is that we had a sense of what a potential landing zone might look like for a Doha outcome. We had a better idea of what the contours might look like in agriculture and manufacturing.
But that will require all participants in the talks to compromise. It will require that they not be too greedy.
One of the most significant characteristics of the Doha Round, relative to other multilateral trade rounds, is the role developing countries are playing.
So far, the jury is out on whether India and Brazil are actually leading developing countries in a direction that is going to result in the strongest possible Doha outcome.
Has a Democrat-controlled Congress hijacked US trade policy by not renewing the Trade Promotion Authority?
US trade policy is the product of a very delicate relationship between the executive and legislative branches because the responsibility is shared. TPA is needed to enact trade agreements. As a technical matter, we don’t really need it right now; we have no agreements. There is no Doha Round to enact.
On the other hand, there is a limit to how much negotiating you can do if you’re in my position without trade promotion authority. Every president since 1974 has had TPA. We have called on Congress to renew the authority.
In the meantime, we have a lot on our plate. We have free-trade agreements with Panama, Peru, Colombia and South Korea that need to be enacted into law that were finalised under the previous delegation of TPA. And the Doha Round continues.
If we get a breakthrough, we are hopeful and optimistic that Congress will respond by providing TPA. Up to this point, Congress has looked at the last six years of the Doha Round negotiations and sort of shrugged and said: “Why do you think you need the TPA?”
You have been handling trade issues for nearly 30 years. How would you compare the mood in Congress and the American public towards free trade and globalisation over this period?
Trade politics tends to go in cycles. Trade has always been a heavy lift politically. It has always been challenging politically because it’s much easier to (be a) demagogue than it is to defend. The benefits of trade are very diffuse, and the costs or the downside is concentrated.
I have seen at different points in time over the last 30 years where the mood was much more negative than it is now.
The negatives that we’re facing right now can be traced back to 1993-94 and the debates over Nafta (North American Free Trade Area). Nafta was successfully “demagogued”. The perception was that it hurt the US economy.
But if you look at the numbers, the opposite is true. Nafta has benefited the United States, Mexico and Canada. What we are seeing now is a reluctance to enact trade-liberalising legislation that is far more emotional than it is economic.
So, are free trade and globalisation dirty words in America today?
I don’t think so. There is a level of anxiety out there. China has something to do with that. It’s not just the United States that is concerned. There are concerns about the implications of a manufacturing behemoth like China that is not yet a market economy. There could be significant economic dislocations.
Some countries look at China’s over-capacity in steel, for example, and want to know what it means for them. Free trade and globalisation are sort of the whipping boy for that anxiety.
Again, if you look at the facts, trade is not the cause of the anxiety, and neither is protectionism the solution. The solution lies with retaining our competitiveness through education, knowledge and skills, and making sure that there is labour mobility so that people can move into more competitive jobs.
How realistic is a US-Asean FTA given the failure to establish bilateral FTAs with several Asean countries like Malaysia and Thailand?
At this stage, we have only just signed the US-Asean TIFA. We are working with our Asean partners to build on that TIFA. The idea is for TIFA to help further economic integration among Asean members, not just between Asean and the United States.
In the past, we had used the TIFA format as a building block to a free-trade agreement. At some point, we could build towards an Asean-wide FTA.
I don’t think any of us has ruled that out, but at this stage of the game, it is premature talking about it.
Negotiations are still continuing with Malaysia for a FTA. We would need Trade Promotion Authority to implement it but I am optimistic that we can get that done.
In the case of Thailand, FTA negotiations stalled before the coup. With the coup, it obviously became impossible to proceed. We have given up having an FTA with Thailand. {SEE CORRECTION ABOVE}
If the Doha Round were to collapse, what would Washington do? Is there an alternative to the Doha Round?
We would not see it collapse. It could go into hibernation for a couple of years that would see an upsurge in more bilateral and regional agreements. For the United States, we have a number of bilateral FTAs that we could consider, both smaller and larger ones.
Regional trade agreements are also viable. There is a potential for an Apec-wide FTA, which is a longer-term vision.
Clearly, there are a variety of options. But there is a limit to how far we can or we would want to go without Trade Promotion Authority.
What are America’s biggest trade concerns in Asia?
There are two trade concerns in Asia. One is making sure that we continue to be an integral part of the economic architecture in the region. That is a major objective.
The second is how China’s role will play out in the international trading system. We are definitely not in a trade war with China. These disputes are a natural part of a healthy trade relationship. We also have a steady stream of trade disputes with the EU.
The key is how to handle those disputes. The best way is to resolve them quietly in a market-opening manner. Failing that, you have to resort to litigation.
We have a broad range of tools to address trade disputes with China. The key is to address problems in a business-like manner and with maturity.
Do you see China forging FTAs with several countries in the region at the expense of the US?
It is something we need to be conscious of. It is one of the reasons that we would like to see the TPA so that we can move forward with other trade agreements. It is the reason that we need to see the Korea-US FTA enacted into law.
It is also the reason why the Singapore-US FTA, for example, is so very important. But the fact of the matter is, if you look at US commerce trade flows, such a huge proportion of the US trade investment is in the Asia-Pacific region.
No amount of bilateral or regional trading relationships will change the fact that we are a major presence in the region.
SO FAR SO GOOD
“The growth in Singapore-US trade has been very dramatic, more dramatic than our trade with the world. It’s been successful whether it’s in manufacturing, agriculture, or services…The FTA has helped contribute to US competitiveness in the region.”
MS SCHWAB, on the US-Singapore FTA
