Reject CPTPP, stay out of new Cold War

Reject CPTPP, stay out of new Cold Wa

Jomo Kwame Sundaram and Anis Chowdhury

KUALA LUMPUR. Joining or ratifying dubious trade deals is supposed to offer miraculous solutions to recent lacklustre economic progress. Such naïve advocacy is misleading at best, and downright irresponsible, even reckless, at worst.

TPP ‘pivot to Asia’

US President Barack Obama’s ‘pivot to Asia’ after his 2012 re-election sought to check China’s sustained economic growth and technological progress. Its economic centrepiece was the Trans-Pacific Partnership (TPP).

But the US International Trade Commission (ITC) doubted the Washington-based Peterson Institute for International Economics (PIIE) and other exaggerated claims of significant TPP economic benefits in mid-2016, well before US President Donald Trump’s election.

The ITC report found projected TPP growth gains to be paltry over the long-term. Its finding was in line with the earlier 2014 findings of the Economic Research Service of the US Department of Agriculture.

Meanwhile, many US manufacturing jobs have been lost to corporations automating and relocating abroad. Worse, Trump’s rhetoric has greatly transformed US public discourse. Many Americans now blame globalization, immigration, foreigners and, increasingly, China for the problems they face.

Trump U-turn

The TPP was believed to be dead and buried after Trump withdrew the US from it immediately after his inauguration in January 2017. After all, most aspirants in the November 2016 election – including Hillary Clinton, once a TPP cheerleader – had opposed it in the presidential campaign.

Trump National Economic Council director Gary Cohn has accused presidential confidantes of ‘dirty tactics’ to escalate the trade war with China.

Cohn acknowledged “he didn’t quit over the tariffs, per se, but rather because of the totally shady, ratfucking way Commerce Secretary Wilbur Ross and economic adviser Peter Navarro went about convincing the president to implement them.”

Cohn, previously Goldman Sachs president, insisted it “was a terrible idea that would only hurt the US, and not extract the concessions from Beijing Trump wanted, or do anything to shrink the trade deficit.”

But US allies against China, the Japanese, Australian and Singapore governments have tried to keep the TPP alive. First, they mooted ‘TPP11’ – without the USA.

This was later rebranded the Comprehensive and Progressive TPP (CPTPP), with no new features to justify its ‘progressive’ pretensions. Following its earlier support for the TPP, the PIIE has been the principal cheerleader for the CPTPP in the West.

Although US President Joe Biden was loyal as Vice-President, he did not make any effort to revive Obama’s TPP initiative during his campaign, or since entering the White House. Apparently, re-joining the TPP is politically impossible in the US today.

Panning the Trump approach, Biden’s US Trade Representative has stressed, “Addressing the China challenge will require a comprehensive strategy and more systematic approach than the piecemeal approach of the recent past.” Now, instead of backing off from Trump’s belligerent approach, the US will go all out.

Favouring foreign investors

Rather than promote trade, the TPP prioritized transnational corporation (TNC)-friendly rules. The CPTPP did not even eliminate the most onerous TPP provisions demanded by US TNCs, but only suspended some, e.g., on intellectual property (IP). Suspension was favoured to induce a future US regime to re-join.

Onerous TPP provisions – e.g., for investor-state dispute settlement (ISDS) – remain. This extrajudicial system supersedes national laws and judiciaries, with secret rulings by private tribunals not bound by precedent or subject to appeal.

Lawyers have been advising TNCs on how to sue host governments for resorting to extraordinary COVID-19 measures since 2020. Most countries can rarely afford to incur huge legal costs fighting powerful TNCs, even if they win.

The Trump administration cited vulnerability to onerous ISDS provisions to justify US withdrawal from the TPP. Now, citizens of smaller, weaker and poorer nations are being told to believe ISDS does not pose any real threat to them!

After ratifying the CPTPP, TNCs can sue governments for supposed loss of profits due to policy changes – even if in the national or public interest, e.g., to contain COVID-19 contagion, or ensure food security.

Thus, supposed CPTPP gains mainly come from expected additional foreign direct investment (FDI) due to enhanced investor benefits – not more trade. This implies more host economy concessions, and hence, less net benefits for them.

Who benefits?

Those who have seriously studied the CPTPP agree it offers even fewer benefits than the TPP. After all, the main TPP attraction was access to the US market, now no longer a CPTPP member. Thus, the CPTPP will mainly benefit Japanese TNC exports subject to lower tariffs.

Unsurprisingly, South Korea and Taiwan want to join so that their TNCs do not lose out. China too wants to join, but presumably also to ensure the CPTPP is not used against it. However, the closest US allies are expected to block China.

The Soviet Union sought to join NATO in the 1950s before convening the Warsaw Pact to counter it. Russian President Vladimir Putin also tried to join NATO years after Vaclav Havel ended the Warsaw Pact and Boris Yeltsin dissolved the Soviet Union in 1991.

Unlike Northeast Asian countries, Southeast Asian economies seek FDI. But when foreign investors are favoured, domestic investors may relocate abroad, e.g., to ‘tax havens’ within the CPTPP, often benefiting from special incentives for foreign investment, even if ‘roundtrip’.

Stay non-aligned

The ‘pivot to Asia’ has become more explicitly military. As the new Cold War unfolds, foreign policy considerations – rather than serious expectations of significant economic benefits from the CPTPP – have become more important.

Trade protectionism in the North has grown since the 2008 global financial crisis. More recently, the pandemic has disrupted supply chains. With the new Cold War, the US, Japan and others are demanding their TNCs ‘onshore’, i.e., stop investing in and outsourcing to China, also hurting transborder suppliers.

Hence, net gains from joining the CPTPP – or from ratifying it for those who signed up in 2018 – are dubious for most, especially with its paltry benefits. After all, trade liberalization only benefits everyone when ‘winners’ compensate ‘losers’ – which neither the CPTPP nor its requirements do.

With big powers clashing in the new Cold War, developing countries should remain ‘non-aligned’ – albeit as appropriate for these new times. They should not take sides between the dominant West and its adversaries – led by China, the major trading partner, by far, for more and more countries.

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Aid for power in new Cold War

Anis Chowdhury and Jomo Kwame Sundaram

SYDNEY and KUALA LUMPUR. Long a means for powerful nations to influence developing countries, development finance has gained renewed significance in the new Cold War. Unlike during the US-Soviet Cold War, the rivalry now is between mixed market capitalist systems.

Development aid rivalry

After reneging repeatedly on development aid and climate finance promises, the G7 big rich nations dutifully lined up behind US President Biden’s Partnership for Global Infrastructure and Investment (PGII) at their 2022 Summit in Schloss Elmau, Germany.

With a $200bn US commitment, the G7 promised to mobilize $600bn in public and private funds for infrastructure investments in developing countries to compete with China’s multitrillion dollar Belt and Road Initiative (BRI).

The White House denounces BRI, claiming the PGII offers “values driven, high-quality, and sustainable infrastructure”. Hence, G7 funding is more likely to have strings attached, e.g., taking sides in the new Cold War.

A Chinese foreign ministry spokesman emphasized, “China continues to welcome all initiatives to promote global infrastructure development”, but insisted China is “opposed to pushing forward geopolitical calculations under the pretext of infrastructure construction or smearing the Belt and Road Initiative”.

US national security priority

At the 2021 G7 Summit, Biden had unveiled a similar Build Back Better World (B3W) initiative, insisting it would define the G7 alternative to China’s BRI. Based on his domestic Build Back Better (BBB) programme, B3W was soon ‘dead in the water’ when the Senate rejected BBB.

The White House’s claim that with the B3W, the “United States is rallying the world’s democracies to deliver for our people, meet the world’s biggest challenges, and demonstrate our shared values” has also been dropped from PGII.

With few B3W details forthcoming, the European Union (EU) launched its own Global Gateway for developing countries in December 2021, promising €300bn in infrastructure investments by 2027.

At the EU-African Union Summit in February 2022, the EU announced €150bn financing for the Africa-Europe Investment Package, half the Global Gateway budget.

EU leaders have touted their Global Gateway, suggesting G7 initiatives should be not only complementary, but also mutually reinforcing. But the EU’s African priority is not necessarily shared by other G7 members.

EU funding of €135bn will be from the European Fund for Sustainable Development. The UK Clean Green Initiative, from the 2021 Glasgow Climate Summit, and Japan’s $65bn for regional connectivity may also not be additional.

Acknowledging scepticism about how much is new money, German Chancellor Olaf Scholz urged G7 members to present their pledges consistently to allay doubts about double-counting and the low grants share viz loans.

When the PGII was announced to replace the B3W, it “created significant confusion”. Making clear its purpose, the White House unequivocally asserted PGII will “advance U.S. national security”.

Far-fetched, risky, conditional

The G7 also urges using public money to leverage private sector funds. But such initiatives have previously failed to mobilize significant private funding – hardly inspiring hope of meeting the trillion-dollar financing gap.

The Economist has found blended finance – mixing public, charitable and private money – “starry-eyed” and “struggling to take off”. Even the International Monetary Fund (IMF) and World Bank warn public-private partnerships (PPPs) incur contingent fiscal risks.

Worse, PPPs distort national priorities, favour private investors and worsen debt crises. They have also not improved equity of access, reduced poverty or enhanced sustainability.

Developing country debt crises typically involve commercial loans or private sector money. For example, the 1980s’ Latin American debt crises were triggered by US Fed interest rate hikes to kill inflation.

Private sector loans usually involve higher interest rates and shorter repayment periods than loans from governments and multilateral development banks. Unsurprisingly, they lack equitable restructuring or refinancing mechanisms.

Ignoring yet another UN resolution, powerful nations disregard developing countries’ appeals for fair and orderly multilateral sovereign debt restructuring arrangements. Similarly, the West refuses to fix unfair trade, tax and other rules disadvantaging poorer countries.

Trust deficit

Over half a century ago, rich nations promised 0.7% of their gross national income (GNI) as development aid. But total overseas development assistance (ODA) from rich Organization for Economic Development and Cooperation (OECD) members has barely exceeded half the promised amount.

Worse, the share has actually declined from 0.54% in 1961, with only five nations consistently meeting their 0.7% commitment in many years. Oxfam estimated 50 years of unkept promises meant a $5.7 trillion aid shortfall by 2020!

At the 2005 Gleneagles Summit, G7 leaders pledged to double their aid by 2010, earmarking $50bn yearly for Africa. But actual delivery has been woefully short, with no transparent reporting or accountability.

Most development aid is neither transparent nor predictable. After some earlier progress in untying, aid is increasingly being ‘tied’ again – requiring recipients to implement donor projects or to buy from donor country suppliers – compromising effectiveness.

The US ranked lowest among the G7, giving only 0.18% in 2021. To make things worse, US aid effectiveness is worst among the world’s 27 wealthiest nations. Clearly, besides aid volume shortfalls, quality is also at issue.

The Syrian refugee crisis and Covid-19 pandemic have provided some recent pretexts to cut aid. Some powerful countries have turned to ‘creative accounting’, e.g., counting refugee settlement and ‘peace-keeping’ military operations costs as ODA.

Unsurprisingly, the UN Deputy Secretary-General is “deeply troubled over recent decisions and proposals to markedly cut” ODA to service Ukraine war impacts on refugees.

Controversies over what climate finance is ‘new and additional’ to ODA have not been resolved since the 1992 adoption of the UN Framework Convention on Climate Change at the Rio Earth Summit.

G7 countries also fell far short of rich countries’ 2009 pledge to annually give $100bn in climate finance until 2020 to help developing countries adapt to and mitigate global warming.

The OECD’s reported $79.6bn in climate finance in 2019 was the highest ever. But OECD estimates are much disputed – e.g., for double counting and including non-concessional commercial loans, ‘rolled-over’ loans and private finance.

Cooperation, not conflict

Although China is new to development finance, it is now among the world’s biggest development financiers. Following broken promises and duplicity, even betrayal, China’s significance has increased as OECD donor funding declined relatively.

China is now a bigger player in international development finance than the world’s six major multilateral financial institutions together. Many developing countries have few options but to engage with, if not rely on, China.

Undoubtedly, there are justifiable concerns over China’s development finance and practices. These have included adverse environmental impacts, poor transparency and a high share of commercial loans – even if at concessional rates.

In 2019, IMF Managing Director Christine Lagarde suggested the new BRI phase would “benefit from increased transparency, open procurement with competitive bidding, and better risk assessment in project selection”.

Lagarde approved of China’s new debt sustainability framework and green investment principles to evaluate BRI projects. She expected “BRI 2.0 … will be guided by a spirit of collaboration, transparency, and a commitment to sustainability that will serve all of its members well, both today and tomorrow”.

The new Cold War may well spur more healthy and peaceful rivalry, inadvertently improving development aid and prospects for developing countries.

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Weaponizing free trade agreements

Anis Chowdhury and Jomo Kwame Sundaram

SYDNEY and KUALA LUMPUR. Long seen as means to seek advantage on the pretext of providing mutual benefit, free trade agreements (FTAs) may increasingly be used as economic weapons in the emerging new Cold War.

Pivot to Asia, containing China

In November 2009, President Obama observed, “in an inter-connected world, power does not need to be a zero-sum game… the United States does not seek to contain China”.

But Obama soon changed course with his ‘pivot to Asia’, first announced in November 2011. After his re-election in 2012, the Trans-Pacific Partnership (TPP) became the economic centrepiece of the new US strategy to check China’s growth and technological progress.

His US Trade Representative (USTR) claimed the TPP was based on principles the US champions, such as protecting intellectual property (IP) and human rights. While claiming all who accept its principles would be welcome to join, China was conspicuously not among countries negotiating the TPP.

For Washington, this new rivalry with China involves strengthened US alliances with Japan, South Korea and Australia. In October 2011, the US Congress ratified the Korea-US (KORUS) FTA.

With the military and economic containment of China central to US security strategy, the TPP was concluded in 2015. Obama emphasized, “TPP allows America – and not countries like China – to write the rules of the road in the 21st century.”

Creating an “anyone but China club” was the US motive for establishing the TPP. But with changed public sentiment since Trump’s presidency, once Obama’s loyal Vice-President, now President Biden did not attempt to revive the TPP during his presidential campaign, or since.

Security alliances

“American prosperity and security are challenged by an economic competition playing out in a broader strategic context… We must work with like-minded allies and partners to ensure our principles prevail and the rules are enforced so that our economies prosper”, noted President Trump’s national security strategy.

Accordingly, the ‘Quad’ – Quadrilateral Security Dialogue group for maritime cooperation of the US, Australia, India and Japan, initiated after the 2004 Indian Ocean tsunami – has become a putative anti-China security arrangement.

By 2020, leaders of all four countries were more aligned in their concerns about China’s rise. In November 2020, navies of all four countries participated in their first joint military exercise in over a decade.

Meanwhile, under Shinzo Abe, Japan radically transformed its security policy. Abe has greatly expanded the Japan Self-Defence Forces’ role, mission and capabilities within and beyond the US-Japan alliance, especially in East Asia.

‘Defence cooperation’ has also been enhanced through country-to-country arrangements, such as the recent Japan-Australia Reciprocal Access Agreement as well as the earlier Japan-India Acquisition and Cross Servicing Agreement.

The US security profile in the region has been boosted by the AUKUS (Australia-UK-USA) alliance. Its clear intention is to enhance the US and its allies military presence in the Indo-Pacific, with the greatest ‘China focus’ of all regional security arrangements.

World hegemony

The US is also linking trade to its national security strategy, especially to contain China, in Africa and Latin America. As the USTR notes, “The Biden Administration is conducting a comprehensive review of U.S. trade policy toward China as part of its development of its overall China strategy”.

Her office also emphasizes, “Addressing the China challenge will require a comprehensive strategy and more systematic approach than the piecemeal approach of the recent past.”

Reflecting his Interim National Security Strategic Guidance, Biden emphasizes, “The United States must renew its enduring advantages…; modernize our military capabilities…; and revitalize America’s unmatched network of alliances and partnerships”. He notes “growing rivalry with China, Russia… reshaping every aspect of our lives”.

Biden insists his administration “will make sure that the rules of the international economy are not tilted against the United States. We will enforce existing trade rules and create new ones… This agenda will strengthen our enduring advantages, and allow us to prevail in strategic competition with China or any other nation”.

His administration announced a review of all Trump-era trade negotiations. Due to expire in 2025, President Clinton’s African Growth and Opportunity Act has offered enhanced US market access to qualifying African countries since 2000.

In April 2021, Secretary of State Antony Blinken confirmed US-Kenya FTA talks would resume. Observers believe the US-Kenya FTA, initiated by Trump in 2020, would help expand US ‘carrot and stick’ trade and security policies on the continent to counter China.

In the US ‘Monroe doctrine backyard’, six US FTAs already involve 12 Latin American and Caribbean countries. On 8 June, Biden announced a new regional economic partnership to counter China. His speech inaugurated a Summit of the Americas, criticized for omitting countries seen as friendly to China.

But Biden’s Americas Partnership for Economic Prosperity is still seen as a work in progress. Not even offering FTAs’ standard tariff relief, the US anticipates initially focusing on “like-minded partners”. Although Biden hailed his “ground-breaking, integrated new approach”, responses suggest “waning” US influence.

Now, five years after Trump withdrew from the TPP, Biden has revived Obama’s China strategy with his own Indo-Pacific Economic Framework. Smug, he could not help but echo Obama’s TPP brag, “We’re writing the new rules”.

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