ASG Chair CG writes on the Potential for U.S.-China Economic Cooperation and Economic Integration in the Asia Pacific Region in the Boao Review

The Potential for U.S.-China Economic Cooperation and Economic Integration in the Asia Pacific Region

By Carlos Gutierrez

In April 2014 as a co-chair of Albright Stonebridge Group, I traveled to China’s Hainan province to meet with government, academic, and business leaders at the Boao Forum for Asia (BFA).

Now in its 13th year, the Forum has developed into one of the premier global events for leaders seeking to discuss ways to enhance partnerships, deepen engagement and promote economic growth in Asia and beyond. This year, many of the conversations at Boao Forum for Asia focused on identifying new drivers of growth in Asia, particularly in light of the ongoing weakness in the global economic recovery. BFA annual conferernce participants discussed a wide range of important drivers, including structural reforms, innovation and sustainable development.

One potentially significant driver that deserves attention is trade and investment liberalization. During my time as CEO of Kellogg Company and as U.S. Secretary of Commerce, I felt strongly that when governments work together to lower barriers to trade and investment and seek greater harmonization of our rules and regulations, we unlock untapped potential for dynamic, shared growth for all of our economies. Ambitious free trade agreements (FTAs), whether bilateral, regional, or multilateral in scope, can have a dramatic impact by helping to create a more open, fair and transparent business environment among all participants. FTAs can also be an important tool to help governments overcome domestic opposition to change and to implement needed economic reforms.

As a result, these agreements can benefit workers, farmers, businesses, and consumers by enhancing competition, encouraging the formation of international partnerships, and by unlocking the potential of sectors and industries that can be the engines of future growth. Simply put, FTAs are a win-win game for our economies.

Regional trade initiatives bring new momentum for liberalization

Countries in the Asia-Pacific region are now pursuing ambitious new trade initiatives to liberalize trade and open markets. The United States and eleven other countries, for instance, are now in the midst of negotiating a free trade agreement, the Trans-Pacific Partnership (TPP). The TPP participants have committed themselves to negotiating a “21st-century trade agreement” that will strengthen trade and investment
relationships from the Asia-Pacific region to Latin America. It would eliminate barriers in traditional goods and services, while establishing rules across a range of fields, from intellectual property to the environment. 

The TPP demonstrates the U.S. commitment to further deepening our economic ties with Asia. The TPP would increase the United States’ trade and investment ties with countries whose combined population reaches nearly 500 million people. At a time when the global economy continues to face significant headwinds, expanding access to the markets of this group of dynamic Asia Pacific economies is particularly valuable for the United States and all TPP participants. 

Even as the TPP negotiations continue, another far-reaching free trade agreement is also being pursued. Today, 16 countries -- the ten member states of ASEAN and the six states with which ASEAN has existing FTAs – are also moving ahead with negotiations on the Regional Comprehensive Economic Partnership (RCEP) intended to foster trade relations among countries with more than 3 billion people and whose combined GDP is about US$17 trillion.

These two regional trade initiatives, in some ways take different approaches to advancing regional trade liberalization. The TPP members have set the goal of establishing a comprehensive, high-standard trade agreement with limited exemptions and are seeking progress on common disciplines and regulatory approaches in a wide range of policy areas, including labor standards, environmental protection and intellectual property rights. The RCEP, on the other hand, appears likely to be structured differently to allow participants more flexibility to reduce trade barriers at different rates—especially among less developed members—and may have a narrower set of ambitions with regard to the scope and character of regulatory harmonization to be achieved.

Even though they share some participants, the TPP and RCEP are in some sense competing initiatives. Nevertheless, they can both make significant contributions to the cause of regional economic integration and can help chart a course for establishing a more comprehensive regional trade architecture in the future. Of course, the two agreements will also complicate the trade environment to some degree by establishing a range of different rules and preferences governing trade between different trading partners. Ultimately, it will be necessary to find a way to integrate and harmonize these two agreements, and all of the key participants in the TPP and RCEP should already be thinking about what next steps should follow the conclusion of these two negotiations.

Deepening US-China economic cooperation

The two largest economies in the Asia-Pacific, the United States and China, are both focused on pursuing trade and investment liberalization as an important driver for growth. For the United States, in addition to strongly supporting the successful conclusion of the TPP, it is also pursuing a comprehensive FTA with the European Union, the Transatlantic Trade and Investment Partnership Agreement (TTIP). Beyond the RCEP, China, too, is pursuing a range of other economic agreements. The growing scale and importance of the bilateral economic ties between the United States and China, however, naturally invites the question of whether Washington and Beijing should target a U.S.-China FTA as a future objective. A bilateral FTA could be extremely valuable as a longer-term vision, injecting energy and ambition into a trade relationship that has often been defined by long-standing differences over issues such as IPR enforcement, the use of industrial policies, investment barriers, trade remedies and export controls. But a serious consideration of a bilateral FTA requires that we think strategically about what concrete steps could be taken in the short and medium term to make serious progress on the most problematic issues in our relationship and lay the foundation of trust and political support necessary on both sides to make the launch of negotiations possible.

First, concluding an ambitious, market-opening Bilateral Investment Treaty (BIT) would send a powerful signal that the United States and China are capable of meaningful, market-opening agreements when there is political will on both sides. A U.S.-China BIT would be the most meaningful bilateral economic agreement since China joined the World Trade Organization. Concluding China’s accession to the WTO Government Procurement Agreement would also help demonstrate China’s commitment to fully joining the rules-based global trading system.

Another potential area for enhancing our bilateral economic cooperation is shale gas. The United States has experienced an energy revolution as improvements in technology have enabled a huge increase in natural gas production from shale. The U.S. is poised
to export not only significant amounts of liquefied natural gas (LNG) but also the cutting-edge technology and know-how that domestic firms have developed to tap shale gas deposits. These developments create important new opportunities for bilateral cooperation as China is not only a major importer of natural gas, but also has significant shale gas reserves of its own. The U.S. government can share valuable insights into effective regulatory frameworks, and U.S. firms can play a critical technical and financial role in helping China develop its domestic shale gas resources. 

Clearly, there are a host of bilateral and regional initiatives that can help countries of the Asia Pacific region advance regional trade and investment liberalization while taking advantage of this key driver of economic growth. I commend the Boao Forum for Asia for its contributions in providing an important platform for open exchanges on these important regional issues.

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