Trade Governance Dilemma’s in Asia – Pre and Post TPP

The Trans-Pacific Partnership (TPP) is a massive new international trade pact being pushed by Washington. The TPP is currently being negotiated between the United States, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Just among those countries, it stands to be the largest Free Trade Agreement in U.S. history covering approximately 40% of the global economy, but the TPP is also specifically intended as a “docking agreement” that other Pacific Rim countries would join over time, with Thailand, the Philippines, South Korea and others already expressing some interest. As negotiations continue, countries involved will have to factor in and figure out the necessary obstacles and roadblocks, mostly domestic, that could impede progress to an agreement. How does one intellectually make sense of these knotty issues?

Mireya Solis of the Brookings Institution gave a thought provoking talk on trade politics and Governance in the East Asian context, exploring comparatively why Japan and Korea have had such a divergent path in negotiating and ratifying free trade agreements over the past two decades. Japan’s record has been rather bleak when compared to its East Asian neighbout, in terms of the number of agreements signed, the degree of liberalisation and the amount of agricultural exemptions granted. Solis sketches an interesting model to explain the divergence whilst calling for a fresh way to approach trade politics in an era where interdependence has gotten more complex and complicated for countries traversing the treacherous waters of international economic politics. Before than, a brief overview of the conceptual aspects of the presentation.

For decades, the mainstream model of trade politics, which traces domestic sectoral preferences, how they are collectively represented and articulated through existing political institutions has largely determined the nature and constitution of free trade agreements. But as we confront novel issues and matters, new models are merited. Solis offers one taking stock of three key challenges that exist in the determination of extant FTAs. First, efficiency quest or the desire of governments to unlock large markets abroad as a way of spurring domestic reforms within; second, achieving legitimacy or the need to ensure that ongoing negotiations and eventual ratification fulfills domestic criteria and meets incumbent demands of interest groups; and finally, political expediency or the propensity to dodge clear veto points during the political process, leading to the culmination of a mutually agreed upon solution.

To tackle these obstacles and concerns, Solis forwards two key tenets, which form her model of trade politics that are framed through two fundamental dilemmas. The first dilemma is centralisation/inclusion which covers the space available for political actors, principally the chief executive, to make bold trade overtures that precipitates reforms by overriding vested groups, in turn, insulating trade concerns from the groups most affected. Centralisation, however, impedes inclusion; political activism vis-a-vis trade thus occurs at the expense of the demands of civil society and other social groups, likely disaffected in the process. Legitimacy suffers and social support erodes. The second dilemma balances concerns of compensations and reforms. To elicit domestic support for furthering liberalisation, political actors deploy side payments to those actors that stand to suffer the most, in turn, drawing the consent necessary to finalize an agreement. But obversely, this horse trading has unintended effects; it tends to perpetuate protectionist tendencies amongst those bought off and raises the fiscal burdens imposed on the state. Thus, triumph vis-a-vis FTAs hinges on balancing and overcoming these thorny dilemmas.

Solis applies this model to explain the divergence between Japan and South Korea in global trade politics. Looking at South Korea before TPP and their string of impressive trade commitments, Solis argues, their recent spate of trade triumphs rests on two factors – the centralisation of power in the trade realm domestically that resulted in a strong presidency assuming the reins of trade policy and directing it to generate results. The emergence of a strong presidency absorbed the transaction costs that inevitably rise from squabbles between bureaucratic actors and lobby groups as they attempt to extract a more conciliatory accord in their interest. Second, the onset of a hefty executive led to more efficient coordination between bureaucratic agencies that manage the trade portfolio. A reshuffling took place. The Korean Ministry displaced the Ministry of Commerce and Agriculture during negotiations, wresting the authority from their junior counterparts to negotiate and in due course, ratify amenable and rather generous FTAs. The MFA’s leadership undercut sectoral or attendant interests from suffusing and potentially stymieing the negotiations process, Korean diplomats and not labour or agricultural specialists hammered out deals that shifted the tack Korean government had pursued hitherto. However, following this tack also had costs; the backlash was rather potent. Mass protests and demonstrations ensued. Civil society and other interest groups politicized trade. Considering the other half of the equation, compensation and reform, as Korea centralised and made gains vis-a-vis trade liberalisation, also stoking domestic backlash, Seoul also had to furnish these disenfranchised groups with side payments to procure their assent. For instance, in the lead up the Chile FTA, nearly $2 billion was disbursed to allay domestic misgivings and in the US FTA, nearly $20 billion was doled out. Efforts were also instituted to devise and implement TAAs (trade adjustments assistance ), which softens the damaging impact that certain imports bring to the domestic economy, sectors, firms and workers.

Japan, on the other hand, experienced the converse of centralisation and  more inclusion insofar as domestic interest groups are concerned. The past decade, pre TPP, has been one of political stasis and deadlock with a rather feckless PM(s) at the helm hovering through a revolving door on annual basis. Such instability ushered weak results on the trade front. Given the carousel of chief executives, policy focus on long term issues like FTAs was wanting; consequently, centrifugal pressures thrived leading to a scenario where interests were diffuse and so were the attendant agreements, few and far between, limited in nature with protectionist impulses strong in certain areas like agriculture. Veto players strangled FTA processes.  Bureaucratic sectionalism flourished with special interests capturing their respective bureaucratic counterparts, thereby ensuring that as a whole, agreements were quite tepid in liberalising tarrif barriers. Under this rather divisive political ambit, interest groups benefitted. As their interests and views found voice and salience, their disaffection was rather muted. Protests were low-key and demonstrations largely absent. Social politics of trade barely roiled the negotiations process given their salience in the character of agreements engendered. As the political deadlock hampered trade negotiations, compensations to domestic groups were also negligible. Tokyo forcefully insisted on not deploying largesse to discipline and bring interest groups under control, instead choosing to continue broad based direct payments that shielded sectoral interests and muted their concerns. Partly, this was due to Tokyo’s refusal to encourage subsidies from being institutionalized or entering into a process of subsidization for an indefinite period. Payments disbursed were not seen as quid pro quo measures either, thereby effectively keeping forces in check for deals struck since an existing relationship already existed ex ante.

Post TPP, each nation’s trade agenda and the significance accorded to it shifts. Tokyo prioritizes free trade. Under Abe’s leadership and dynamism, trade finds a new lease of life alongside his impetus to alter and reform Japan’s economy. Following his arrival, trade is resurrected as a critical objective, dispelling the prevailing gloom over Japan’s erstwhile status as a passive trade player. This volte face, in many respects, could have only been a product of an agreement as large as the TPP, given the advantages that exist to be leveraged through trans-continental integration, energizing Japan’s lethargic trade diplomacy on many fronts. Using the same framework, we can explain this recent shift. The arrival of Abe and his concerted and active leadership lends more energy and drive to proceedings, leading to further commitments on NTBs. An energized executive branch is also able to marshal domestic forces in line, quelling dissent and limiting squabbles. Administrative coherence is also salvaged through greater bureaucratic coordination, previously absent. At the same time, the government has also not shied from ruffling the agricultural lobby’s feathers through several policy measures that introduces them to foreign competition. However, these measures have come at the expense of a more virulent social politics that has manifested through backlash and protests in Tokyo, proving another proposition in the model. On the compensation/reform front, some reforms of direct payments are being made, including measures that limit the duration of payments for those affected parties. As of now, it is not known whether further compensatory measures will be introduced as a result of further liberalization.

Korea, on the other hand, found its trade momentum ebbing as the TPP ascended. Quite possibly, this was due to the fatigue or negotiations drift that emanated out of arduous trade talks with the US over the bilateral FTA. Trade energies were essentially sapped. However, other shifts also occurred. A change in the executive branch brought a new leader who did not choose to prioritize free trade, instead opting to de-emphasize trade from her agenda. In addition, MOFAT loses its prerogative to negotiate and ratify trade agreements in favour of Industry ministry that has a more sectoral outlook; this precipitated bureaucratic tussles. Thus, Korea’s shift is also attributable to shift in government that resulted in executive power ebbing, as compared to their activism over the preceding decade. Thus, Korea’s experiences over the recent past appear to bear the possibilities forwarded by the framework, as political leadership diminishes and bureaucratic wrangling rises, trade negotiations become more complex with momentum sapping for amenable outcomes. Conversely, the rising Japanese interest with the TPP emanates out of Abe’s dynamic leadership and the centralization of trade authority close to him, leaving other peripheral and arguably disruptive actors out of the process. But this comes at the cost of growing backlash as protests also rise across Japan over TPP negotiations.

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