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Stephen Olson at Chinese Development Institute Conference


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Steve Olson teaching trade negotiations at the Mekong Institute...


Stephen Olson to speak at upcoming workshop organized by the International Institute for Trade and Development on 

"Economics of GMS Agricultural trade in goods and services towards the world market"

Chiangmai, Thailand Sep 8-12.

(11/10/09) Prestowitz in Business Times Singapore

The Business Times Singapore

November 10, 2009 Tuesday

From Seattle to Singapore; America's free market model has, since 1993, been challenged by major geo-strategic setbacks and the global financial crisis.


WHEN then US President Bill Clinton convened the first APEC Economic Leaders Meeting in Blake Island near Seattle, Washington, on Nov 19-20, 1993, America and the world seemed to be going through very dramatic political changes - not unlike today, when the 17th annual APEC Economic Leaders Meeting opens in Singapore.

In 1993, the end of the Cold War, coupled with the ushering of the era of globalisation, had driven Washington to assert its leadership role in promoting free markets around the world and in liberalising global trade and investment. And the Pacific region was becoming a central arena for promoting this ambitious American geo-economic agenda.

Sixteen years later, in the aftermath of major geo-strategic setbacks and against the backdrop of the global financial crisis, America's free market model has been challenged. Its ability to affirm its global economic leadership has also been restricted, especially in East Asia, where China is emerging as a central political and economic power.

As in 1993, a new US president is trying to adjust American policy to the new geo-political and geo-economic realities in a way that affects the American approach towards APEC. And just as in 1993, the US is represented at the 2009 APEC Summit in Singapore by a young and charismatic president marking a historic generational change in American politics.

Mr Clinton was the first White House occupant to be born after World War II - the first Baby Boomer president. Barack Obama, who is about 20 years younger than Mr Clinton, will always be recalled in the history books as the first African-American president whose rise to political power signifies the coming of an age of a more multicultural America - one that in addition to blacks, includes Hispanics and Asian-Americans who are gradually becoming the majority of the population in key states like California.

Just as in 1993, the US is represented at the APEC summit in 2009 by a young and charismatic president marking a historic generational change in American politics.

In a way, Mr Clinton's commitment to forging close ties with the new rising Pacific economies that formed APEC - demonstrated by his determination to upgrade the status of the annual meeting of the group from a gathering of government ministers to a summit of heads of states - reflected the interests and values of the young and educated members of America's urban professional class. These ranged from high-tech executives in Silicon Valley to investment bankers in Wall Street.

Business leaders like Microsoft head Bill Gates or Goldman Sachs executive Robert Rubin (who ended up serving as Mr Clinton's treasury secretary) believed that the emerging markets of East Asia were going to become the new destination for American trade and investment. The post-Cold War age seemed to be dominated by the process of 'globalisation' - the sweeping term describing the evolution of a new global economy where products, finance, people and ideas were moving freely across borders, including to the new capitalist economies of China, India and Russia.

Push for free trade
Indeed, since coming to Washington in early 1993, Mr Clinton, a so-called New Democrat, had made it clear that he was intent on pressing his Democratic Party - whose members tended to promote the interests of labour unions representing decaying manufacturing centres - to move towards the political centre and to embrace the reigning free market principles, including the deregulation of the financial markets and the liberalisation of global trade.
Abandoning his earlier anti-China election campaign rhetoric, Mr Clinton had aggressively advanced legislation facilitating Sino-American trade and investment relations. Resisting strong opposition from some of the Old Democrats on Capitol Hill, he called on Congress to approve the North American Free Trade Agreement (NAFTA) with Mexico and Canada which was passed on Nov 17, 1993, a few days before he left Washington, DC, to attend the APEC meeting in Seattle, Washington.

Assembling the first APEC Economic Leaders Meeting in Washington State where the headquarters of Microsoft, Boeing and other leading American high-tech giants were located had a clearly symbolic value. It highlighted the dominant US role in the new global economy as well as its commitment, under Mr Clinton, to liberalise global trade and investment and to shift much of US attention and resources from the 'old' Atlantic zone of Europe and the Middle East - the focus of American strategic and economic interests since the War of Independence - to the 'new' Pacific region, representing the future frontier for US political and business leaders.

But there were also some very practical policy considerations that encouraged Washington to play a more activist role at APEC at the start of the 1990s. There were, in particular, concerns over earlier plans by Asian governments at the East Asia Economic Caucus which would have excluded non-Asian countries such as the US, Canada, Australia and New Zealand.

The plan was opposed not only by the US but also by Australia and Japan, who wanted the Americans to continue maintaining their military and economic presence in the Pacific region where the US could counterbalance a rising China. Hence, the idea of enhancing the status of APEC through its annual Economic Leaders Meeting was seen as a move aimed at preventing the creation of an Asia-centric Pacific economic grouping by empowering a broader economic alignment that included, in addition to the US, Australia and Canada, even several Latin American economies.

Moreover, Mr Clinton was hoping that the APEC summit in Washington State would help bring the stalled Uruguay Round of trade talks on track by putting pressure on the members of the European Union (EU) which was established on Nov 1, 1993, to abandon some of their protectionist policies.

The message coming out of the APEC meeting was that the Pacific Rim economies, brought together through US leadership and ready to integrate rising China as a major partner, would not only help reduce barriers to trade and investment in the region and serve as a basis for the evolution of an Asia-Pacific economic community, but could also become the powerful political-economic locomotive driving forward the liberalisation of the global economy.

Indeed, some of the goals enunciated by the APEC Leaders in 1993 were realised in the coming months and years. In fact, it took just another month of negotiations to conclude the Uruguay Round on Dec 15, 1993, with a deal signed by ministers from most of the 123 participating governments at a meeting in Marrakesh, Morocco, on April 15, 1994.

The successful conclusion of the so-called Round to end all Rounds created the conditions for replacing the General Agreements on Tariffs and Trade (GATT) with the new World Trade Organization (WTO). Moreover, China was gradually being integrated into the global economy, and an agreement on the terms for the Chinese to join the WTO, which the Clinton Administration had concluded with Beijing in 1999, paved the way for China's accession into the organisation two years later.

APEC's role

But it would be an exaggeration to suggest that APEC had played a major role in providing strong foundations for the process of US globalisation. It was President Clinton and his top economic officials, including Fed chairman Alan Greenspan and treasury secretary Rubin, who succeeded in mustering the necessary political support among Democrats and Republicans in Congress for an ambitious trade liberalisation agenda, and in particular, for making the needed American concessions that allowed the normalisation of its trade relationship with China, as well as for resisting protectionist pressures in Washington and demands in East Asia for creating an exclusive regional financial club during the global financial crises and the trade wars of the 1990s.

Nevertheless, at the time when American commentators like the New York Times were celebrating the many benefits that Americans were reaping from globalisation and the rise of China and the other emerging markets in East Asia, the annual APEC Economic Leaders Meetings helped anchor American position in the Asia-Pacific region.

'I think APEC has had some success just by dint of the fact that the meetings force the leaders to get together and talk,' suggests Clyde Prestowitz, founder and president of the Economic Strategy Institute (ESI), who served as counsellor to the secretary of commerce in the Reagan Administration and who attended several APEC meetings.

'But in terms of US integration into the Pacific region, I don't think APEC has had much impact,' he adds, arguing that while the US economy and those of the major Asian exporters 'have become quite interdependent ... that had nothing to do with APEC'.

The APEC Secretariat, based in Singapore, which was established to coordinate the activities of the organisation and the annual APEC meetings, 'have been helpful at a technical level in removing lots of irritating barriers to trade and investment, and has also been helpful for intra-Asian integration', Mr Prestowitz says. 'But if you ask me, if they have played a major role in fulfilling US objectives in Asia, I would have to say that APEC has played only a limited role in that regard.'

Hence, the fact that the US continued to invest a lot in China and other parts of the region while not exporting much to East Asia reflected the structural economic realities and ensuing political pressures of the time, and was very little affected by APEC's annual summits and the policies and decisions its members embraced.

Global shocks

And then the world as we knew it in the 1990s came to a swift end. A series of remarkable political and economic shocks shattered the foundations of the glo-balisation process that was being celebrated in Seattle in 1993 and had, by extension, a major impact on the US global economic position and in the Asia-Pacific region.

The dotcom bubble in 2000 started raising questions about the notion that America's high-tech explosion could continue sustaining the unprecedented growth of the US economy. Then, the Sept 11, 2001, terrorist attacks on America and the ensuing US wars in the Middle East forced Washington to shift its attention from the Asia-Pacific region - the new focus of US policy in Seattle in 1993 - back to Europe and the Middle East and to replace the emphasis of the 1990s on global economic policy issues with the kind of geo-political-military agenda that had dominated US policymaking during the Cold War.

It was not surprising therefore that as Middle East terrorism topped the US agenda while trade with East Asia was placed on the backburner, top US officials were now spending more time travelling to Cairo and Jerusalem than to Beijing and Jakarta.

AIPAC (American Israel Public Affairs Committee), Israel's powerful lobby in Washington, was suddenly 'in' again; APEC seemed to be 'out'. And around the world, America's unilateral approach helped ignite nationalist responses that ran contrary to the dictums of globalisation in countries such as Russia, Iran, Venezuela and China.

Then came Sept 15, 2008, the day that Lehman Brothers, one of America's legendary financial institutions, filed for bankruptcy. It was an event that marked the onset of a devastating financial earthquake in Wall Street that ended up producing the most destructive global economic crisis since the Great Depression of the 1930s.

The crisis and its aftershocks seemed to threaten the intellectual assumptions of America's 1990s geo-economic policies and, in a way, the 'irrational exuberance' about the American economy and the entire creed of globalisation - encouraging the spread of American-style free markets, deregulating of American and global financial markets, liberalising global trade, and expecting China and other emerging markets to join and support an American-led geo-economic and geo-stra-tegic system.

The political backlash at home and abroad against these and other tenets of American-propelled economic policymaking has been quite remarkable and explains why the agenda of the US president attending the APEC meeting in Singapore this year is so different from that of the US president who showed up at the APEC summit at Seattle in 1993.

Return of protectionism?

If Mr Clinton had presided over a process that led to diminishing the control of the federal government over the American economy, the deregulation of the financial markets, the liberalisation of global trade and the normalising of the trade relationship with China, Mr Obama has been reversing many of these policies. Through expansive fiscal stimulus measures, an ambitious health care reform plan and a costly energy agenda, he is taking steps to expand the power of the federal government over the economy.
v Mr Obama is also responding to the pressure of the members of a struggling middle class and impoverished blue-collar workers who blame competition from China, India and other emerging markets, and the rest of globalisation schema, like immigration, for their economic woes.

Mr Obama may not be 'de-globalising' the American economy, but he is certainly not a happy free-trader. Hence, if Mr Clinton's presence at Seattle in 1993 was preceded and followed-up by critical steps towards trade liberalisation - approving NAFTA, concluding the Uruguay Round, creating the WTO, normalising trade rela-tionships with China - Mr Obama is attending the summit in Singapore at a time when his administration has been embracing protectionist measures and stirring up trade disputes with China.

Mr Obama has been sending mixed messages on trade for quite a while. During the presidential campaign, he indicated that he was open to renegotiating the NAFTA, even as an adviser reassured Canadian officials that he wouldn't tamper with free trade. And while he has continued to employ the rhetoric of free trade, some of his actions seem to run contrary to free-trade principles. Bilateral trade agreements with Colombia, South Korea and Panama, three important US allies, are languishing in Congress, and the US still refuses to give Mexican trucks access to most US roads, while America's economic partners have been critical of the 'Buy American' provision in the US $787 billion economic stimulus package.

Most recently, invoking a section of the Trade Enforcement Act meant to permit US industry to adapt to competition from China, Mr Obama raised tariffs on imported Chinese tyres for three years: by 35 per cent in the first year, 30 per cent in the second and 25 per cent in the third. While the move is not expected to lead to a major Sino-American trade war, it is certainly going to ignite economic tensions between two of the world's largest economies while sending an encouraging signal to the protectionist forces in Washington who are bound to pressure the president to punish China and other economic partners for other alleged trade violations.

By yielding to the political pressure from the left-wing of the Democratic Party and the powerful labour unions who want his administration to adopt a 'tougher' approach towards China and other trade partners, Mr Obama's policies could help bring to a halt the momentum towards global trade liberalisation that, in any case, has been slowing down in recent years as economic nationalism is rising in other parts of the world.

That could threaten to create an environment that would not be conducive for a successful conclusion of the Doha Round of trade negotiations. Moreover, threatened with economic sanctions, China and other East Asian economies may resist to continue financing growing US deficits. This could put a downward pressure on the US dollar and encourage China to flex some of its might as a growing economic power and call for an overhaul of the global monetary system by boosting the use of an alternative to the greenback.

Indeed, coupled with other indications of eroding US global economic and military power, a more protectionist America would make it more likely that the economies of East Asia could move in the direction of forming a regional economic community dominated by China.

And that would certainly be a historical irony if one recalls that by empowering APEC through its 1993 Economic Leaders Meeting in Seattle, Mr Clinton had hoped to pre-empt earlier efforts to create an Asia-Pacific grouping that would exclude the US from its ranks.

One of Mr Obama's main challenges in the coming years should be to revive the spirit of Seattle 1993, and build up political support in Congress and from the American people for a new global trade liberalisation agenda and for maintaining US economic and military presence in the Asia-Pacific region.

The author is the Washington correspondent of The Business Times

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