President Obama's delayed 'pivot'

  • 4 October 2013
  • From the section Business

President Obama says that he wants to "pivot" towards Asia.

As a key policy of his second term, he is re-orienting his foreign policy as well as economically toward the world's fastest growing region.

But, the US government shutdown means that he has cancelled a trip to the region for the third time. So, where does this leave the "pivot"?

Secretary of State John Kerry is going to Asia in the president's place, but Obama's absence is likely to delay concrete progress on a new agreement that could pave the way to be the largest free trade area in the world. This is called the Trans-Pacific Partnership - or TPP.

The TPP (not to be confused with the TTIP, or Trans-Atlantic Trade and Investment Partnership, which is the proposed US-EU free trade agreement), is the biggest announcement likely to come out of the APEC meeting in Bali, the gathering of leaders of Pacific Rim countries.

In world trade, you really need to know your acronyms. APEC stands for Asia-Pacific Economic Cooperation, and describes itself as "the premier Asia-Pacific economic forum".

So, here's a Q&A on everything that you might want to know about trade agreements - TLAs (that's Three Letter Acronyms) included:

What is the TPP?

The TPP is a precursor to a free trade area (FTA) where countries lower tariffs and trade more freely.

What are tariffs?

Tariffs are the charges that governments impose on imports and exports. They're a tax, so where they are imposed they can distort the prices of goods and services. Because tariffs reduce economic efficiency, they can be a drag on growth. So, free trade areas aim to eliminate most of them.

Of course, a number of governments use them to protect their industries from competition from big global companies until they are more mature. Labour groups also want protection for domestic jobs. It's a messy area.

To make it even muddier, there's something called NTBs (non-tariff barriers). These are other ways to be protectionist without imposing tariffs, such as through standards for certain industries that can restrict imports. For instance, Thai prawn exporters found it hard to meet American standards for the type of net that allowed them to sell to the US.

Who is likely to benefit from the TPP?

This is a US idea, so they are clearly hoping to gain. About 61% of US goods exports and 75% of US agricultural exports are to the Asia Pacific region. The TPP would allow partner countries to access the world's largest market in return by reducing (perhaps eventually eliminating) the tariffs they would have to pay to export to the USA.

Which countries are involved in the TPP?

Twelve countries so far around the Pacific Rim (hence name Trans-Pacific Partnership). They are: Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam.

Who's not involved?

Notice that the biggest economy in Asia is missing - China.

Is that what this is about?

President Obama's Asia pivot could be viewed as an attempt to break the so-called "string of pearls" of China's influence in the Pacific. So termed by the US, Obama's pivot could be viewed as a counter-balance to China's economic and strategic impact that stretches from the North China Sea to the Persian Gulf.

Pivots, resets: what is going on with American policy?

President Obama is re-orienting to fast growing Asia, as that is where most of its exports go. The US sells more there than any other part of the world. But, as seen in Obama's latest speech at the UN, it's hard for the US to re-orient away from the Middle East. And, of course, let's not forget the famous (or infamous) Russia reset at the start of President Obama's first term.

Image copyright AP
Image caption Chinese President Xi Jinping has visited Indonesia this week as part of his own efforts to build bridges in the region

What about Europe?

Not left out, as President Obama is also working on the TTIP (see above) which is the trans-Atlantic FTA.

Why isn't everyone in the same FTA?

Good question. The WTO (World Trade Organisation - keeping up with the acronyms so far?) is the multilateral trade body but negotiations over its expansion have stalled.

In fact, it's probably fair to say that the whole idea behind it has stalled. After all, it has been 12 years since the last big WTO initiative - the Doha Round - was launched and there's not much sign of it making any more progress.

Instead of trying to do a deal for (nearly) the whole world, regional trade agreements have sprung up. Bilateral ones, too, to fill the void. It would be better for all countries to trade on equal terms with all others, but business goes on so we've ended up with the second or even third-best outcome.

The problem with this approach is that if a country hasn't signed up to the rules (or hasn't even been invited to join) for any of the new free trade areas, it's excluded and can't share the benefits.

What about China then?

Being left out of TPP and the TTIP means that it is doing its own thing. China is negotiating with ASEAN (Association of Southeast Asian Nations) to form its own regional free trade agreement. And China is redoubling its efforts with its prime minister Li Keqiang announcing a trip to South East Asia right after the news of Obama's cancellation.

Summing up

So, China could have its own FTA, the US may have TPP, TIPP and Nafta (the North American Free Trade Agreement, which covers the USA, Canada and Mexico). There may be more to come for both, and there will be unhelpful distortions to trade.

It's not the best outcome, but perhaps it's better than none. Although nothing may be what the APEC leaders leave Bali with once again.