Spurred by supply chain interruptions, US lawmakers appeared open on Tuesday to engaging with allies in Asia on a multilateral trade agreement after Washington’s withdrawal from the Trans-Pacific Partnership four years ago.
Senator Tom Carper, the Democratic chairman of the Senate Subcommittee on International Trade, Customs and Global Competitiveness, and John Cornyn, the panel’s ranking Republican, agreed with former US trade negotiator Wendy Cutler that re-engaging with Asian countries on a narrower pact as a starting point is in the US interest.
“The coronavirus pandemic has shown just how much Americans rely on the internet for work, for education for health, for commerce and a lot more in order to remain competitive in the digital economy,” Carper said. “We need to be strategic and to work cooperatively with our allies to ensure fairness, transparency and openness in our e-commerce and data rolls. This is especially true in the Asian-Pacific region.”
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Cutler, the US Trade Representative Office’s chief negotiator for the TPP pact agreed upon during Barack Obama’s administration, urged lawmakers to consider a scaled-down, sectoral agreement, focusing on digital trade as a way to avoid drawn-out, multi-year talks that run a greater risk of being rejected by lawmakers. With such an agreement as a foundation, the trade representative’s office could more easily forge multilateral deals in other sectors.
“We have a strong interest in remaining at the table, shaping the rules on digital trade and digital technologies,” Cutler said. “Our small- and medium-sized enterprises rely on these tools to survive and trade, and I think a digital trade agreement would offer benefits to our workers and our middle class.”
Her portrayal of multilateral pacts as “reliable supply chain agreements” resonated with Cornyn.
“I think the pandemic taught us a lot of lessons that we need to pay heed to, but one of which [is] we can’t depend on a country that doesn’t play by the rules,” he said, referring to China.
He added: “If we couldn’t have a supply chain agreement or a trade agreement with a country like China, then maybe that ought to be a signal to us that … we ought to be looking for other friends and allies.”
Proposed as a free-trade agreement among 12 nations – including the US as well as Southeast Asian nations like Malaysia, Singapore and Brunei – TPP became the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) after Donald Trump pulled the US out in one of his first acts as president.
Cutler’s comments come amid a debate over whether Washington should re-engage with members of the pact with a view to joining. During the presidential campaign of 2016, the issue resonated with some voters who blamed participation in multilateral trade agreements for a decline in US manufacturing. As a candidate, Trump held up the TPP as proof that most politicians had little concern for the plight of industrial workers.
Since then, China’s growing economic and geopolitical influence has become an overriding concern for both political parties. The Senate recently passed a sweeping bill designed to strengthen Washington’s hand in countering China, although the House of Representatives has yet to take up the measure.
Members of the CPTPP, which does not include China, are committed to easing or eliminating tariffs and other barriers on goods and services, and establish trade rules beyond World Trade Organization commitments. These measures would be difficult for the Chinese government to implement given the tight controls it keeps on its economy.
On e-commerce, for example, the CPTPP restricts data localisation mandates and prohibits customs duties on online digital products, an area in which the WTO provides little guidance, as its provisions were agreed to before large-scale trade in software products, online gaming and other digital assets.
The pact’s rules prevent governments from demanding access to an enterprise’s proprietary software source code and oblige members to protect users from the unauthorised disclosure of their personal information.
CPTPP parties are also prohibited from imposing measures that restrict or limit access of financial institutions in each other’s markets, and the pact commits members to domestic adoption of internationally agreed-upon labour laws and environmental commitments.
Cutler and some CPTPP members have expressed doubt that Beijing is willing to accept membership requirements.
However, Beijing has integrated more deeply with its neighbours through the Regional Comprehensive Economic Partnership (RCEP), a free-trade agreement among the 10 member states of the Association of Southeast Asian Nations (Asean) bloc and five other countries including China.
That agreement, which is not as comprehensive as CPTPP in terms of digital trading rights, labour protections and environmental standards, accounts for approximately 30 per cent of global trade and gross domestic product.
That gives RCEP “the potential to restructure some trade patterns and supply chains in Asia through lower trade costs and streamlined rules”, according to a US Congressional Research Service report published in November.
“As RCEP enters into force, Congress might consider how US commercial interests could be affected by an agreement that allows firms from other developed economies to make supply chains more efficient, as well as the impact of the perceived diminishing US role in shaping trade rules,” the report said.
Peter Petri, a senior fellow in the John L Thornton China Centre at the Brookings Institution, a Washington-based think tank, warned that the US absence from the CPTPP and RCEP was exacerbating trade disruptions.
Speaking at Tuesday’s hearing, Petri said that the amount of tariffs lowered or eliminated by the two multilateral pacts more than make up for the US$500 billion annual cost of the US-China trade war.
“For the United States, however, the trade war’s effects will not be offset,” he said. “They will be amplified by the new agreements as now structured” because they are set to create preferences for regional trade at the expense of trade with outsiders.
None of the other six members of the subcommittee who questioned Cutler and other witnesses on Tuesday expressed any opposition to re-engaging with CPTPP members, with most citing China’s progress in trade negotiations with its neighbours as a motivating factor.
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