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TPP as a Lynchpin of US Anti-China Strategy

The Trans-Pacific Partnership as a Lynchpin of US Anti-China Strategy

Professor Jane Kelsey reflects on implications for the TPPA of the APEC leaders’ meeting in Honolulu.

Part 1: The Strategy

The real agenda behind the proposed Trans-Pacific Partnership Agreement (TPPA) came into the open at this month’s APEC meeting in Honolulu. As we have always assumed, the driver has very little to do with commercial gain and everything to do with revival of US geopolitical and strategic influence in the Asian region to counter the ascent of China. The US aims to isolate and subordinate China in part through constructing a region-wide legal regime that serves the interests of, and is enforceable by, the US and its corporations – and in the TPPA context, what the US wants is ultimately what counts.

The TPPA is one limb of a multi-faceted strategy. For a meeting of APEC member “economies”, US foreign and security policy had a tellingly central role. The fiction of that APEC is a community of “economies”, not states, has long served as a fig leaf to avoid the “3 Chinas” diplomatic quandary and to exclude incompatible social, indigenous, human rights and environmental obligations and constituencies. By contrast, economic and geo-strategic policies have been viewed as indivisible since East Timor dominated the APEC agenda in Auckland in 1999 and even more so post-9/11.

US Secretary of State Hillary Clinton’s speech to the East-West Centre during APEC week expanded on a piece in the November issue of Foreign Policy magazine that set out six pillars for “America’s Pacific Century”: “strengthening our bilateral security alliances; deepening our working relationships with emerging powers; engaging with regional multilateral institutions; expanding trade and investment; forging a broad-based military presence; and advancing democracy and human rights.” Security and economic challenges that currently confront the Asia Pacific “demand America’s leadership”.

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This “leadership responsibility” is reflected in what Clinton’s spokesperson at APEC termed “a substantial pivot in our foreign policy, as we responsibly draw down our commitments in Afghanistan and Iraq and focus more consequentially on our efforts in the Asia Pacific region.” US national security and defence officials depicted the US role as “the anchor of stability in the region”, committed to “managing the relationship with China, economically and militarily”.

The US aims to employ the TPPA as the economic limb of “American statecraft” over the next decades to “lock in a substantially increased investment – economic, strategic and otherwise” in the Asia Pacific region through “a more mature security and economic architecture that will promote security, prosperity, and universal values”.

The synergy between the TPPA and US military realignment towards the region, dubbed the new “Obama doctrine”, was a central theme at the Moana Nui counter-meeting held at the University of Hawaii’s Hawaiian Studies Centre. Speakers from Okinawa, Guahan (Guam) and South Korea told how the history and renewed expansion of US military dominance has displaced indigenous and local communities, destroyed self-sufficient resource-rich economies, created toxic environments for human health and ecosystems, and caused a litany of human rights violations. Local resistances and international peace movements are proving impotent against a resurgent US imperialism.

Obama underscored this remilitarization of the region in his post-APEC visit to Australia where he announced a boost to US troops stationed there and more active military exercises in nearby Singapore and the Philippines. Clinton went from APEC to strategic meetings in the Philippines and Thailand, and then to South Korea.

Once the TPPA is understood within this broader context, the People’s Republic of China emerges as the principal US target.

Throughout the APEC week US officials and corporate heads indulged in overt, provocative and patronizing China bashing. According to Obama’s advisers, during the bilateral with China’s President Hu Jintao he “made it very clear that the American people and the American business community were growing increasingly impatient and frustrated with the state of change in the China economic policy and the evolution of the U.S.-China economic relationship.”

Obama’s rhetoric pitted US superiority against Chinese recalcitrance. In his own words: “I’ve been very frank with Chinese leaders, though, in saying that the American people across the board – left, right and center – believe in trade, believe in competition. We think we’ve got the best workers in the world. We think we’ve got the best universities, the best entrepreneurs, the best free market. We’re ready to go out there and compete with anybody. But there is a concern across the political spectrum that the playing field is not level right now.” China had failed to show the same sense of “responsible leadership” as the US had tried to do.

Obama continued, without any apparent sense of irony: “I mean, we try to set up rules that are universal, that everybody can follow, and then we play by those rules. And then we compete fiercely. But we don’t try to game the system.”

Setting up US-defined “universal” rules is precisely what the TPPA aims to do. As Obama’s spokesperson explained after the TPPA leaders meeting, “the President talked about establishing international norms that would be good for the United States, good for Asia, good for the international trading system – good for any country in dealing with issues like innovation and the discipline of state-owned enterprises, creating a competitive and level playing field.” And above all, creating international norms that would be good for resurrecting US strategic and economic hegemony.

The joint press briefing by US officials and CEOs continued in that vein. Asked about how to reconcile the interests of US corporations in China and US nationalist concerns about the value of the yuan, the Google CEO said: “If you look at the view of America in Asia, we’re still the best – we have excellent Hollywood films and things like that – but we’re fundamentally the best area for research and new innovation for the industries that they care about. So a simple model is that America invents the technology; it’s initially commercialized in places like Korea and Taiwan, and then it’s globalized at scale in these vast manufacturing caverns of China. That’s a simplification, but it’s roughly correct. So they need what we’re doing. We obviously need access to their products, and they help monetize our debt and things like that. … So it’s in all our of countries [sic] to have these free trade agreements, it’s in their interest, too. I think in many ways, America’s best export is its companies, because when we operate in their countries, we operate by American rules. We treat women on an equal basis. We have free expression rules, and so forth and so on. So there’s many, many reasons why free trade is in fact a very a good export for America. Of course [they see that]. That’s why they’re all clamoring for it. Now, at some point, they may become sufficiently confident, arrogant, or what have you, that they’ll decide that’s not true, in which case we’ll have a different problem. But today, they all want it, and I hear it every day.”

Chinese officials clearly understood the US agenda and the intended role for the TPPA. In late September 2011, China’s ambassador to the WTO said diplomatically they had “no objections to the TPP” and were waiting to see whether there was a possibility that China might be involved in the discussions. Speaking immediately before the APEC Summit, a senior Chinese official more sharply criticised US goals as “too ambitious” and called for a balance between the TPPA and “other paths to achieve multilateral and regional trade liberalisation”. The TPPA negotiations should be “open”; China had not been invited to participate.

It was abundantly clear during the APEC week that the plan to morph TPPA into a free trade area of the Asia Pacific by signing other countries up to the negotiations – or more accurately, up to a done deal, as discussed in Part II – does not include China. Deputy National Security Adviser for International Economic Affairs Mike Froman, who is Obama’s point man for the TPPA, was asked explicitly whether the US envisions China at some point joining the TPPA or sees it more as a counterweight. He described the proposed agreement as “an open platform for those countries who can credibly achieve a level of openness and ambition that we expect of all TPP partners. … Countries that are able to achieve that level of ambition and are willing to address the major trade issues that they may have with other partners can aspire to join and begin consultations with other countries to join.” In US eyes, China inherently fails that test.

While China is not welcome at the TPPA table, it is the ultimate target of every US proposal in this “new generation, 21st century agreement”. Aside from a market-based currency (which is difficult to bring directly within the agreement), the US ambitions for TPPA regulation include stricter protection for intellectual property rights, “indigenous innovation”, anti-competitive state-owned enterprises, enforcement, removal of rules that are “unjustified and overly burdensome”, “regulatory coherence”, “regulatory convergence” and “good regulatory practice”.

The “gold standard” sought from the initial agreement is all about setting precedents among the like-minded nine that other Asia Pacific countries will sign on to and China will adopt or be isolated by.

In addition to the higher-level strategic objectives, these new rules would have commercial spinoffs for those who dictate the terms, principally the US corporations. It was not surprising to hear the CEO of Johnson & Johnson declare US business was “very happy with the TPP” and that “all aspects have been very, very positive”. Any commercial gains for the other, peripheral TPPA members – such as Fonterra – will be strongly resisted and incidental. Domestic downsides, such as undermining Pharmac, stopping stricter laws on foreign investment, mining operations or tobacco, or preventing a tax on hot money flows, are mere collateral damage.

A much-anticipated “outline” of the TPPA (the substitute for the original plan to have a final a text by the APEC meeting) turned into a deluge of documents released after the political leaders of the nine participating states met at the start of the APEC Leaders’ meeting. The most detailed was an Outlines document released by the US Trade Representative (USTR), which hailed the TPPA as a “landmark, 21st century trade agreement” setting a new standard for global trade, incorporating next generation issues to boost competitiveness. As a “single undertaking” to cover all key trade and trade-related areas it would provide comprehensive market access; be a fully regional agreement to facilitate production and supply chains; and address crosscutting issues of regulatory coherence, competitiveness and business facilitation, small and medium enterprises, and development. A “living agreement”, it would be regularly reviewed and other countries would be encouraged to join.

The sum of documents added little to what spectators to the secret negotiations have already gleaned from leaks, analyses of official speeches and corporate statements, and interrogation of officials. But they do give rise to four interesting observations.

First, known areas of conflict that go to the fundamentals of the US position and achievability of a final agreement, such as restrictions on market access to the US for agriculture, rules of origin for textiles, rules on intellectual property and medical products, and inclusion of an investor-state dispute mechanism, were invisible to those who were not aware of the subtext. Clearly, they want to play down the significant obstacles.

Second, the Trade Ministers report to Leaders – the only document emanating from all the parties – made no reference to several US priorities, such as state-owned enterprises (SOEs) or environmental goods and services, which feature prominently in the other statements scripted by the US hosts and speeches to US business. “Disciplines” on “anti-competitive SOEs” are a US priority directed at China; but the precedent also has serious implications for Vietnam, Malaysia, Brunei and Singapore, and depending on the text, for present and future SOEs in New Zealand. Vietnam flatly rejected the US proposal at the October TPPA round in Lima.

Third, very few areas of legal text were identified as “close to consensus” or where parties had “substantially concluded general provisions” or “agreed on almost all core elements”. Progress on the remaining list of areas was variously described as “significant progress on text”, “text will”, “text should”, “discussing elements for a chapter”, “substantial progress on provisions”, “progress on disciplines”, “agreed to establish principles and obligations”, “agreed to have a common set”, “proposals include”, “considering new proposals”, “special obligations under discussion”, “will contain new commitments”, “considering new initiatives”.

All three points feed into a fourth crucial observation: there was no new deadline in the formal texts, but numerous oral statement of political commitment to complete negotiations in 2012. Presumably this double play was deliberate. The trade ministers’ report to leaders implicitly downplayed expectations. It said the negotiations were complex and time consuming, but their framework would provide “structure and momentum to a successful conclusion”. The US-issued documents said new meetings would be scheduled in December 2011 for 2012. It was only the various briefings with individual ministers and officials that disclosed the goal to complete the legal text in 2012, with as much progress as possible on schedules and other specifics. The Malaysian Prime Minister went furthest, reporting agreement on an “ambitious but achievable” July 2012 deadline, subject to “the few key operative words include being flexible, realistic in taking into account our domestic requirements, different levels of development and different levels of domestic priorities”. According to Froman, that meant trying to finish a legal text for ministers to review by the mid-year APEC trade ministers meeting, presumably in Russia which is the APEC chair for 2012.

It seems there are only four rounds of TPPA negotiations pencilled in before then. A partial round (meaning no “stakeholder” presence) will be held in Malaysia in December 2011, a full round in Melbourne in early March, and further rounds in Brunei and New Zealand by mid-year. Given the current state of play, a legal text by 2012 would seem to require complete capitulation to US demands or the US sacrificing some of its more extreme and controversial commercial objectives, weakening the precedent it needs to achieve the bigger game plan. It would also skew the sequencing of trade-offs in a process where in theory “nothing is agreed until everything is agreed” in US favour. Specifically, completing the “legal text” requires certain disputes to be resolved, including intellectual property (pharmacy and Internet), while the schedules setting out commitments (such as access to agricultural markets) would be left until later.

This process is complex enough when the US is dealing with relatively small, compliant and inconsequential players. There is a tension between expanding the critical mass of countries involved in the negotiations and keeping the conflicts to a minimum. Those who indicated an interest in joining (to date the Japanese, Canadian and Mexican governments) have been put on a “parallel track” of consultations about their participation; these will not be completed, if at all, to enable their participation before mid-2012. Matters already agreed between the existing nine will not be reopened.

New Zealand’s Trade Minister Tim Groser described the 2012 target as “totally achievable”. Acclaiming the momentum achieved in Honolulu, Groser said the lesson from past negotiations, including the paralysed Doha round, was that more time makes agreements more difficult to achieve rather than less difficult. The media failed to Groser ask why that might be so. Basically, the more debate there is about negotiations and their implications, the more reservations governments tend to have about taking positions they might have adopted under political pressure and without balanced analysis. From a free trade perspective, this is a problem caused by protectionist interests and “political market failure”, ie democracy.

This analysis of the strategy raises three pivotal questions about its execution that will be discussed in Part II. Do the existing eight negotiating parties share the US’s geopolitical and commercial objectives sufficiently strongly to conclude a deal? Can negotiations for a “gold standard” agreement between the US and APEC’s less significant economies become attractive enough to other Asian countries to pose a potent counterforce to China? Does this grand plan have any chance of meeting a 2012 target, or is it more likely to go the way of the Doha round, the Free Trade Area of the Americas, the Multilateral Agreement on Investment and numerous US FTAs?

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