Sea rows bug Apec summit on free trade

Associated Press

Leaders of the Asia-Pacific Economic Cooperation forum wear the traditional Indonesian dress at their summit in Bali. President Aquino is in the back row (fourth from right) along with US Secretary of State John Kerry (extreme right). In front row are Indonesian President Susilo Bambang Yudhoyono (ninth from left) and Russian President Vladimir Putin (11th from left).

BALI, Indonesia — Sea disputes involving China, Japan and Southeast Asian countries, including the Philippines, bubbled beneath the surface of the annual gathering of the 21-member Asia-Pacific Economic Cooperation (Apec), which was aimed at forging a consensus on freer regional trade.
In speeches and meetings, territorial tangles between China and most of its neighbors were a constant subtext, even as Apec leaders on Tuesday vowed to cooperate on stabilizing a global economic recovery threatened by resource scarcity and bottlenecks to growth.
The summit, held this year on the Indonesia resort island of Bali, gave regional leaders a chance to talk through issues in formal and informal settings. 

The grouping of nations and territories includes over 3 billion people and more than half of the world economy, ranging from tiny Brunei to powerhouses such as China, Japan and the United States.
“The close collaboration will result in a win-win situation, especially at a time when the world economy has yet to fully recover,” Indonesian President Susilo Bambang Yudhoyono said in concluding the summit.
In their declaration, leaders of the Apec forum wrapped up their meeting with a pledge to protect security of food, energy and water from threats posed by climate change and population growth.
“As our region increasingly becomes the main engine of global growth, we are called by the duty to look ahead, to adapt to our changing needs, and to reinvigorate the path toward progress in the Asia-Pacific,” the group said in its declaration.
It also pledged cooperation on improving infrastructure such as roads, bridges and ports to make the region seamless for commerce. 

Most of the Apec declaration was a reiteration of longstanding goals.
Later Tuesday, leaders of the dozen countries involved in US-led free-trade negotiations called the Trans-Pacific Partnership are set to report on their progress. 

They hope to seal an agreement by the end of this year.
“It’s an ambitious goal,” said US Trade Rep. Michael Froman. 

“Ultimately, the substance will drive the timetable. We’re not going to agree to a bad deal for just the sake of meeting a deadline. But there’s a lot of momentum.”

China-Japan row
Soured ties between China and Japan surfaced after Beijing was announced as the host of next year’s meeting, putting renewed focus on the testy relationship between the two Asian powers.
No progress was achieved on a stalemate between China and Japan over Japanese Senkaku islands in the East China Sea.
Japan Prime Minister Shinzo Abe says the door is open to dialogue, but Tokyo is steadfastly refusing to discuss the conflicting claims over the Senkakus.
With the two sides so far apart, the closest the two leaders may have gotten to speaking at the Apec forum was a brief handshake.
China will host the annual Apec summit next year and many preliminary meetings before that. 

The recent souring of ties, which flared into anti-Japanese riots last year, prompted top Beijing officials to stay away from an annual meeting of the International Monetary Fund in Tokyo in 2012.
Japanese officials said they did not anticipate any problems with the Apec meeting in Beijing. 

But they were more forthcoming when asked about Chinese criticism of defense collaboration between Japan, Australia and the United States.
“These three countries are not only bound by treaties, but these countries value openness and rules-based structures,” said Tomohiko Taniguchi, a councilor in Abe’s Cabinet. 

“We have to team up together to preserve the freedom of movement of goods in these public spaces.”
US President Barack Obama’s absence from the Apec summit due to the impasse with Congress over the budget was a letdown for other leaders.
US Secretary of State John Kerry sought to fill the Obama vacuum by saying nothing will shake America’s commitment to Asia and that the government shutdown in Washington would soon be over and forgotten.

Code of conduct
Territorial disputes between Southeast Asia and China that center on the latter’s vast claims to the West Philippine Sea (South China Sea) were also under discussion.
The 10 members of the Association of Southeast Asia Nations (Asean) hope to agree on a common policy in handling territorial disputes, an aim backed by Tokyo. 

Beijing, in principle committed to such a policy, says it is not in a hurry to quickly conclude the talks.
Philippine President Benigno Aquino III, speaking to Filipino journalists on Monday evening, said there was some progress in talks between Asean and China toward drafting a code of conduct to govern how the parties solve territorial disputes.
“I am not saying that the signing of the code of conduct is near,” the Philippine leader said.

“But to convince everyone to talk about—and it is really being discussed—I think is progress in finding a solution to the rift over sovereignty.”
He said that after being on the backburner for 10 years, “the issue is now at the forefront of everyone’s thinking.”
As many in the region worry over mishaps that could trigger further conflict, both China and Japan sought in Bali to reassure their neighbors over their peaceful intentions—Japan because of its wartime past, China because of its growing assertiveness as a rising economic and military power.
Meetings between Abe and his Vietnamese and Indonesian counterparts touched on their disputes with China over islands and waters in the South China Sea, said Kuni Sato, press secretary at the Japanese foreign ministry.
Many of the leaders gathered in Bali will go straight to Brunei for the annual Asean summit, where the same issues could take on an even higher profile.

Read More

Obama’s Absence Leaves China as Dominant Force at APEC

By JANE PERLEZ and JOE COCHRANE
Xi Jinping arrived at the Asia-Pacific Economic Cooperation summit on Monday.

NUSA DUA, Indonesia — Secretary of State John Kerry sat in the chair reserved for President Obama at the opening session of the Asia-Pacific Economic Cooperation summit meeting on Monday, leaving China’s leader, Xi Jinping, as the dominant leader at the gathering, devoted to achieving greater economic integration in the region.
Mr. Obama, who canceled his appearance at the meeting to try to resolve the government shutdown in Washington, had planned to use his personal persuasion to push forward negotiations for the Trans-Pacific Partnership, a trade bloc that is led by the United States and that excludes China.
A statement by foreign and trade ministers painted a fairly gloomy economic forecast for the 21 members of the Asia-Pacific Economic Cooperation group as the leaders met at an international conference center on the Indonesian island of Bali.
“Global growth is too weak, risks remain tilted to the downside, and the economic outlook suggests growth is likely to be slower and less balanced than desired,” the ministers said.
To overcome the slow growth, it is imperative for the group to agree on a “comprehensive series of structural reforms so as to increase productivity, labor force participation and high-quality job creation,” the statement said.
According to data from the group, its members account for about 40 percent of the world’s population, 55 percent of global gross domestic product and about 44 percent of world trade. 

Trade within the group has grown nearly sevenfold since it was founded in 1989, topping $11 trillion in 2011.
The American trade representative, Michael Froman, said the Obama administration remained committed to trying to complete the negotiations for the Trans-Pacific Partnership by the end of the year.

“Our message is ‘Let’s get this done as soon as possible,'” Mr. Froman said in an interview. 

The Dec. 31 goal is “ambitious, but it’s doable,” he said.
The partnership, a major element of Mr. Obama’s pivot toward Asia, is intended to achieve open market access among the 12 participants, with the United States, Japan, Mexico and Canada as the major economies.
The administration was hoping that the leader of South Korea, Park Geun-hye, would announce at the meeting that South Korea was ready to join the negotiations. 

But South Korean officials said Ms. Park would not make that declaration in Bali.
The absence of Mr. Obama took some gravitas out of the conference, and there were deep questions about how the president could get a trade pact through Congress given the hostility of conservative Republicans in the House toward his domestic programs.
The prime minister of Singapore, Lee Hsien Loong, who maintains friendly relations with China, was the most direct in describing the damage to the summit meeting by Mr. Obama’s absence.

“No other country can replace” the American engagement in Asia, he said.

“Not China, not Japan, not any other power. That is something which we continue and encourage at every opportunity.”
President Bill Clinton canceled a trip to the group’s summit meeting in Japan in 1995, and was able to recover American prestige in the region, officials said. 

But the far greater competition for influence between the United States and China and the dynamic economies of Asia make the region far more important to Washington now.
On the sidelines of the summit meeting, Mr. Kerry met with the Russian foreign minister, Sergey V. Lavrov, and the two diplomats expressed satisfaction with the progress of the destruction of chemical weapons in Syria by international disarmament inspectors. 

The first weapons, including missile warheads, were destroyed Sunday, Mr. Kerry said.
“It is a good beginning, and we should welcome a good beginning,” he said. 

The secretary also praised the cooperation of Russia and the compliance of Syria in the process.
The two diplomats said they would push for a November start for a Geneva conference to reach a political settlement in Syria under the auspices of the United Nations.
In opening remarks to the leaders at the summit meeting, President Susilo Bambang Yudhoyono of Indonesia, the host nation, said the group was even more important today because its 21 member economies continued to “feel the pain” of the global economic crisis.
“In view of the difficult global economic situation these days, it becomes even more critical for all of us to work together in maintaining regional resilience,” he said.

“With this resilience, the APEC region will remain an important engine of global growth.”
Mr. Yudhoyono, citing International Monetary Fund data, said Sunday that the economies in the group would grow by 6.3 percent this year and 6.6 percent in 2014.
A report released Monday by the World Bank, however, said that developing economies in East Asia and the Pacific, some of which are members of the group, were expanding at a slower pace as China shifted from export-driven growth and focused on domestic demand. 

According to the report, the growth forecast for the region’s developing countries is 7.1 percent for this year and 7.2 percent for 2014, a slight downward projection from April.
Growth in larger middle-income countries, including Indonesia, Malaysia and Thailand, is also softening because of lower investment and global commodity prices, as well as lower-than-expected export growth, the report said. 

The only exception is the Philippines, where growth accelerated in 2013, said Bert Hofman, the World Bank’s chief economist for East Asia and the Pacific.
“It’s always a bit of a pity if you slow down, but we see a pickup next year on the premise that the global economy will do better,” Mr. Hofman said. 

“Seven percent growth for the whole region, excluding China, that’s a very decent growth rate. The East Asia and Pacific region still contributes a lot to world growth.”
One of the most important aspects of the summit meeting is the private discussions between leaders on the sidelines of the main gathering.
The Australian leader, Tony Abbott, met with Mr. Xi on Sunday night for the first time since becoming prime minister in September. 

On Monday, he said he hoped a free-trade agreement between Australia and China would be completed within 12 months.
Mr. Abbott said he planned to lead a large government and business delegation to China within the first six months of 2014, at the invitation of Mr. Xi. 

“The prosperity of every country in the region, including Australia, critically depends on trade and investment,” he said. 

“Our recent prosperity critically depends on the massive expansion of resource exports to countries in our region, particularly to China, and we want that to continue and not slow down.”
Mr. Abbott had planned to meet with Mr. Obama as well. 

The Australian leader said it was “a disappointment” that Mr. Obama had canceled his trip, but said it was understandable given the political deadlock in Washington. 

He said the president’s absence would not undermine the American “pivot” strategy in Asia.
“I fully understand the most constructive way America can engage with the world depends upon America being as strong as it can be at home,” Mr. Abbott said.

“I don’t think anyone here holds it against the president that he has very important business at home, and it is certainly in no way inconsistent with the pivot in Asia.”
Negotiations between China and Australia were described last week as “stalled” by the Australian minister for trade and investment, Andrew Robb.

Read More

Obama Absence Gives China Opening

Barack Obama's decision to skip the Asia-Pacific Economic Cooperation meetings and the East Asian Summit next week is a blow to America's image in Asia

By JAMES HOOKWAY, NATASHA BRERETON-FUKUI and PETER NICHOLAS

President Barack Obama's decision to skip a series of Asia and Pacific summits to tackle the partial government shutdown in Washington strips the U.S. of some of its recent diplomatic momentum in the region and could leave the door open for China to expand its influence.
China and the U.S. have competing visions for the future of the Pacific Rim, ranging from trade and security to resolving deep-seated territorial disputes in the resource-rich waters of the South China Sea.
America's rebalancing, or pivot, of its foreign policy away from the Middle East and Afghanistan toward East Asia was in part a way to ensure that the U.S. isn't locked out of new trade pacts in the region.
It also was meant to ensure that smaller Asian nations can profit from what U.S. officials have described as a healthier, more equitable relationship with China.
Mr. Obama's decision to skip the Asia-Pacific Economic Cooperation meetings in Bali, Indonesia, and the East Asian Summit in Brunei next week "is a blow to America's image in Asia, where symbolism is everything," said Ian Storey, senior fellow at the Institute of Southeast Asian Studies in Singapore.
"It projects the image that America is politically dysfunctional and fiscally irresponsible, and not as committed to Asia as the Obama administration would have us believe," he said.
State Department spokeswoman Marie Harf said that while Secretary of State John Kerry "will ably represent the United States at all of the stops on this trip, this completely avoidable shutdown is setting back our ability to create jobs through promotion of U.S. exports and to advance U.S. leadership and interests in the largest emerging region in the world."
China, in contrast, has launched a full-court press in the region ahead of the meetings.
President Xi Jinping met with Indonesia's president Wednesday and addressed the country's parliament while signing a $15 billion currency swap agreement that could lend some support to Indonesia's wilting rupiah.

An Indonesian vegetable vendor passes a giant banner for APEC in Nusa Dua on Indonesia's resort island of Bali earlier this week.

Mr. Xi traveled to Malaysia on Thursday to meet with Prime Minister Najib Razak and sign commercial agreements amid signs that China's economy is beginning to regain some momentum.
Mr. Obama earlier postponed scheduled trips to Malaysia and the Philippines that were to have followed his summit appearances.
The president's advisers were split on whether to proceed with the rest of the Asia trip. 

Though the White House has said they scuttled the trip because of logistical challenges created by the shutdown, there were other considerations in play, according to people familiar with the decision.
A trio of Mr. Obama's former top aides, David Axelrod, David Plouffe and Robert Gibbs, privately advised the White House that the president should proceed with the trip, according to a person familiar with the matter.
They told former colleagues in the West Wing that it was important for the president to carry on with his official duties and not let the trip become a casualty of the government shutdown. 

But current staffers rejected the advice.
Politically, the trip posed two risks for the president. 

He would have been out of the country as the shutdown entered its second week and as lawmakers scrambled to break the impasse.
And pictures coming back to Washington of the president in sun-splashed Bali, at a moment when hundreds of thousands of federal workers are on furlough, might have proved embarrassing.
But Richard Haass, president of the Council on Foreign Relations, said the cancellation "reinforces the concern in the Asia-Pacific region that the talk about a pivot or rebalancing is mostly talk."
"Other than the secretary of defense, no other senior U.S. official seems to be making a habit of visiting Asia," he said.

"So look, there's concern."
Speaking at a news briefing this week with Mr. Najib, Mr. Xi said China was looking forward to elevating its relationship with Malaysia and to promoting more cooperation across the region.
Chinese television covered Mr. Xi's tour extensively, frequently airing images of his glamorous wife, Peng Liyuan. 

"China and (Southeast Asian) countries are linked by the same mountains and rivers and live alongside each other like members in one big family," Mr. Xi said in written answers to questions from reporters in Indonesia and Malaysia, according to a transcript released by China's news agency, Xinhua.
"China appears prosperous and full of self-confidence. As America struggles to resolve its severe political and economic problems, China will have the floor in Bali and Brunei," Mr. Storey said.

Mr. Obama's planned spin around Asia was hotly anticipated. 

The Asia Pacific Economic Cooperation meeting in Bali in particular was billed as an opportunity to observe how much personal chemistry Mr. Obama and Mr. Xi actually developed in June during their informal summit in California.
Mr. Obama's cancellation is a loss of momentum for a U.S.-China relationship that had been moving in "positive directions", said Linda Jakobson, director of the Lowy Institute for International Policy's East Asia Program in Sydney, Australia.
The U.S. "pivot" to Asia, launched in 2011, already has had some successes. 

It helped open up debate over how to resolve territorial disputes in the South China Sea, which is claimed in whole or in part by China, the Philippines, Vietnam, Brunei and Malaysia.
To Beijing's chagrin, Washington has pushed for a multilateral process to resolve the conflict, which China would prefer discuss from a position of strength with individual countries. 

The U.S. also has notably expanded military ties with the two countries most frequently at loggerheads with China over the waters, Vietnam and the Philippines.
Washington's move to eliminate many of its economic sanctions against Myanmar as the former military state continues its transition to democracy has helped open up the country to outside investment and reduce its economic dependence on China, analysts say.
The Obama administration's efforts to push forward the proposed Trans-Pacific Partnership trade pact, which involves the U.S. and 11 other countries including Japan, Australia and Chile, were also expected to be a major point of discussion.
The U.S. now ships more exports to the Asia and Pacific region than it does to the European Union or Canada, and hopes that a new trade pact providing more access to Asian markets can be wrapped up by the end of the year. 

China so far isn't involved in those discussions and is working to expand its own free-trade pact in the region that doesn't include the U.S.
Speaking before the White House canceled Mr. Obama's trip, U.S. Trade Representative Michael Froman said in an interview in Bali that the coming TPP discussions would help assess the progress of the trade talks, and that a deal by the end of this year "is ambitious but doable."
Yoshihide Suga, Japan's chief government spokesman, said that government officials attending pre-summit talks agreed to keep up the momentum for wrapping up the trade deal this year. 

Mr. Suga also expressed Japan's hope that the impasse in Washington will be resolved "as soon as possible so that the domestic problem doesn't impact diplomacy."
Scholars in China, however, described Mr. Obama as a victim of domestic politics and said they weren't reading much significance into the White House decision to skip the summits.
"The absence is just a technical problem" and won't have a lasting impact on U.S. influence in Asia, said He Maochun, an international relations specialist at Tsinghua University. 

"China's influence in the Pacific Rim is increasing, but remains very limited."
Still, the fallout from the government shutdown is reviving doubts about the U.S.'s standing in Asia, said Dewi Fortuna Anwar, who heads Indonesian Vice President Boediono's political affairs team.
"There are jokes going around now," she said. 

"'Why did Mr. Obama cancel his trip? Maybe because he can't pay his fuel and hotel bills.' It's not a funny joke."
Ernest Bower at the Center for Strategic International Studies in Washington noted that China increased its influence across Asia while the U.S. was preoccupied with the wars in Iraq and Afghanistan and adopted a much more assertive posture on its territorial claims during the low point of the global financial crisis.
U.S. allies will "have little choice to pursue some level of hedging behavior as the U.S. signals that its political system does not allow for consistent top level engagement in the region,'' Mr. Bower said.

Read More

China and the TPP, Part II

China would like to see both sets of negotiations -- the TPP and the TiSA --  either fail or become bogged down, WTO-style, for a decade or more. 

By James Parker

Yesterday, Pacific Money wrote about China’s “Trojan Horse” option for the Trans-Pacific Partnership. Today, we follow up with a little bit more analysis of how these trade deals look from China’s point of view.
In the previous post, this blog highlighted that some feel China may be pursuing a kind of “spoiler” strategy with regards to its apparent recent interest in joining the Trade in Services Agreement (TiSA) and even possibly the TPP negotiations. 

We noted that China had recently single-handedly ruined the WTO’s Information Technology Agreement (ITA) negotiations by trying to get an unreasonably large number of products excluded for the benefit of its domestic industries. 

Hence, some are assuming that China may be planning a similar strategy with regard to the TiSA or TPP agreements.
For the countries currently engaged in these two proposed frameworks, China’s joining and subsequent spoiling of the negotiations (note that here “spoiling” could mean either watering down the conditions or tying up negotiations for years, even indefinitely) would be an extreme negative, frustrated as they are with the failure of WTO-sponsored agreements to make any significant progress in recent years. 

The TPP and TiSA, to some extent, represent a “if you can’t persuade ‘em, then ignore ‘em” strategy for the negotiating members, a trade “coalition of the willing,” if you will.
For China though, things look quite different, and indeed attempting to derail or alter these negotiations is perfectly natural and understandable. 

For example, if China were to find itself excluded from a successful and extensive TPP or TiSA, then it would be negatively affected. 

There will almost certainly be benefits for any player if they were to base production or service facilities within a member economy (thus being able to sell more competitively within other member economies tariff-free or at reduced rates). 

Already suffering from diminishing competitiveness, China is keen to avoid any further hits to its trade position.
So China does not want to be excluded, but on the other hand, being included in an extensive agreement with tough requirements would be bad for Beijing, too. 

China is still far behind more advanced economies in the quality, extent and abilities of its nascent services sector. 

Equally, many of its companies depend on government support or benefit from facilities that would be hit hard by current TPP conditions.
Hence China faces somewhat of a dilemma. 

If the TPP or TiSA go ahead successfully without China, then it will lose out. 

On the other hand, if China joins the TPP or the TiSA as they are currently being framed, then it will again suffer (as would have been the case if the ITA negotiations had gone ahead). 

In an ideal world then, China would like to see both sets of negotiations either fail or become bogged down, WTO-style, for a decade or more. 

Failing that, if they were watered down to the extent that they were not significant, China could happily join or not without concern.
These failures may occur naturally, without China running interference from the inside. 

After all, the TPP is wide-ranging and already contains some potentially difficult sticking points (South Korea, Japan and the United States find it hard to agree on agriculture and automobiles, for example). 

The TiSA is probably less contentious, but it does contain a structurally and geographically diverse set of economies: the EU, the U.S., Israel, Australia, Canada, Chile, Taiwan, Colombia, Costa Rica, Hong Kong, Israel, Japan, Liechtenstein, Mexico, New Zealand, Norway, Pakistan, Panama, Paraguay, Peru, Republic of Korea, Switzerland and Turkey.
Of course China has not yet actually entered into the TPP or TiSA negotiations, and may be prevented from joining the latter even if it were to try and do so. 

So for now, we simply look at the logic of why China might pursue such a course of action in the future. From Beijing’s point of view, something needs to be done, and whether it acts from the outside or the inside is less important than this fact.

Read More

China and the TPP: The Trojan Horse Option

China is thinking of joining the TPP talks. The more skeptical might question its motives.
By James Parker

The Trans-Pacific Partnership (TPP) has rightly been getting a lot of attention given the potential impact of the talks on the global economic and trading landscape.

Indeed, one of the most important aspects of the TPP may well be its role as a divider, with who may be excluded perhaps as important as who may end up on the inside.
Given these facts, an announcement back in May that China was studying the possibility of joining the TPP talks caused quite a bit of commentary and interest. 

Some more Machiavellian-minded observers would see such a move more as China trying to sabotage or dilute the content of the talks from the inside – the Trojan Horse option – rather than as a sincere attempt to meet current goals of the TPP members.
Supporting this more conspiratorial view are the events that befell another trade agreement – the Information Technology Agreement (ITA) in July of this year. 

Talks were underway to expand the number of IT goods that could be shipped duty-free, but were suspended by a diverse group of negotiating members after China made what most considered to be unreasonable demands about nearly 150 products it wanted to exclude from tariff cuts.
Now concerns are being raised that China might be trying to join yet another set of trade negotiations with the possible of goal of spoiling them or rendering them impotent.
The proposed “Trade in Services Agreement” (TiSA, outlined in an EU document here), unlike the recently collapsed ITA talks, is not being negotiated under the auspices of the World Trade Organization (WTO), with its member rights and rules and difficulties in reaching a consensus. 

In fact, like the TPP, the TiSA is being held up as one possible way of making progress on trade agreements outside the WTO framework. 

Many countries (especially those with more developed economies and some more specialized ones) feel that progress is being “held hostage” at the latter by certain developing economies (basically China and India).
Of course, suspicions about a Chinese “Trojan horse” strategy could turn out to be misplaced. 

Perhaps China, with its new president and premier, has genuinely undergone a volte-face and abandoned its previous opposition to any and all trade deals outside of the WTO – where China has relatively more influence.
Perhaps… but after the experience of the ITA talks earlier this summer, the other members will take quite a bit of persuading before they drop their suspicions of Chinese intentions. 

With the current TiSA scope covering an annual $4 trillion of trade, the stakes are certainly high enough for the members to think very hard before coming to any decisions.

Read More