The Future of Asia-Pacific Economies: Discussion with Wendy Cutler
16 November 2015
TOM NAGORSKI: Tonight’s program marks Wendy Cutler’s public debut on the Asia Society stage so I’ll just add a couple of addition words about her and her own remarkable background. Wendy served for nearly 30 years as a diplomat and negotiator in the office of the USTR and was responsible for those TTP negotiations and also related bilateral relations with Japan. There are very few people on the planet who have as keen an understanding as she does of global trade issues and no one really who can speak with as much inside knowledge and authority about the just concluded TTP. And Wendy, since this is something of a formal welcome let me just say how absolutely delighted I am and we all are at the Asia Society to be able to call you our colleague so thank you and welcome.
KEVIN RUDD: Well thank you very much Tom for the introduction and welcome, Wendy, to Asia Society New York.
WENDY CUTLER: Thank you, glad to be here.
RUDD: I am delighted that Wendy has come on board. She is a person of extraordinary experience, nearly 30 years in the USTR as an American trade diplomat and trade negotiator. If you follow these debates at all and if you follow the most recent utterly absorbing agenda around the Trans-Pacific Partnership for the last year or two, this has been Wendy’s primary responsibility and so everything that is now controversial about the TTP is your fault. The really good thing is that it is for us as much a part of our core business, here at the Asia Society Policy Institute, as are the continuing policy questions of national security and foreign policy.
The trade and economic agenda is, in our judgement of equal significance and it is an agenda, I know, that is a live consideration of the business community of this nation as well so Wendy it is great to have you, particularly, as Vice-President of Asia Society Policy Institute. I couldn’t think of having a more capable deputy. Unlike the President of the Asia Society Policy Institute, she actually understands America. I’m still working on that so if you could give me a tutorial later in the evening on that I’d be very grateful. And the Trump Presidency – if you could inform me of what that you look like as well.
But also Wendy will be head of our Washington office and, therefore, our engagement with the business community and the policy community of the United States and the international community of the United States will be as much New York based as it will be Washington based and that’s what the Asia Society Policy Institute is all about. Our key objective is how do we move the dial forward on the major policy debates which confront the Asia Pacific community, including the United States and the various countries of Asia, across the spectrum but in this case in trade, the economy and in the most recent set of trade negotiations. So let me ask you this to begin with my friend, how long have you been working on the TTP negotiations?
CUTLER: About five years.
RUDD: Okay, so how much scar tissue have you got?
CUTLER: It’s a secret.
RUDD: You can’t tell us which of those negotiations was the hardest? Was it the Australians? Were they the most uncompromising and most unyielding?
CUTLER: Let’s just say we had eleven trading partners and they all presented unique challenges.
RUDD: Wasn’t that diplomatic. So tell me, in terms of where we’ve now got to, because the document is now out there for all to see, it’s been released online. Tell me though, in getting to that point of the conclusion of that final set of negotiations which I think was in Atlanta less than two months ago?
CUTLER: Last month. Early October.
RUDD: What were your single biggest challenges and that of your USTR of reaching a conclusion?
CUTLER: Well let me just say I’m thrilled to be here. I’ve been on this stage before through the years but always as an official from an administration and so being on this stage and being part of the Institute is a real honour for me and I really want to thank everyone for coming out tonight. In terms of the challenges of the TPP negotiation I could probably go on all night but I’m not going to. I can probably highlight a few. I think the first one was: we had 11 trading partners with whom we were trying to conclude this deal and each presented their own challenges but they each had different levels of development, they had different priorities in the negotiations, they had different sensitivities in the negotiations. With some of these countries we already had free trade agreements, with others we did not. So trying to conclude a deal with so many different countries at the same time, at the same negotiating table really presented challenges.
Second, there were a lot of issues on the table and everyone was waiting for the text to come out and I think people really believe it now that there’s so many issues on the table. There are 30 chapters of rules, there’s hundreds if not thousands of tariff schedules as well as other related documents. Trying to reach agreement on all of these issues, some of them being new issues never really addressed in the trade system such as state owned enterprises. Trying to deal with sensitive issues, I see my Japanese friends, like agriculture – opening up the Japanese agriculture market. And then just trying to deal with issues like the environment and labour. All of these issues, bringing them all together at the same time and saying, “we’re done,” was a very big challenge.
And finally, I would just say, another challenge for us but also I think for the other trading partners as well but maybe more for the United States was that there were very high expectations on behalf of our Congress and our stakeholders of what we could achieve. I’d like to say that we were an incredible negotiating team under the leadership of Ambassador Froman and President Obama but it’s a negotiation at the end of the day. And in any negotiation you’re not going to get everything you want and so trying to live up to the expectations of our stakeholders and Congress was a challenge but I think over time, through the consultative process, there was doubt among many of our stakeholders and many in Congress that our team worked really really hard and did everything they could to deliver the best deal they could to the American people.
RUDD: Let’s just start with the United States national interest and let’s go to what I’d describe as ‘befores and afters’ in terms of where the United States was before in terms of trade access (because this is a trade access negotiation) to where that access now goes to, the negotiation having been done and the documents now having been released?
CUTLER: So for the United States, when we entered the TTP negotiations… Let me just back up for a minute because a lot of people like to say that the TTP is a US-dominated, US-led negotiation, we were not an original member of TTP. That’s a little known fact. TTP was basically, before it was renamed, was called the P4 and hopefully now I can remember the four countries that were members: Brunei, Chile, Singapore and New Zealand were the original members. They concluded a deal and over time additional countries joined this negotiation. We looked very closely, in the United States at the P4 and had a lot of policy debates under both the Bush Administration and the Obama Administration about joining this negotiation having just concluded a number of bilateral free trade agreements, including with Korea. For the United States, I think we wanted to head in the regional area and try and enter a negotiation that would be more relevant to our business community and to other stakeholders. So we were able then to work with 11 other like-minded countries to come up with an agreement that in the US view really advanced our values, our interests, our priorities but also addressed the needs and the interests of our trading partners and we also succeeded in gaining access to the markets of a number of countries with whom we did not have free trade agreements including Japan, Vietnam and Malaysia.
RUDD: Let’s just look at services for a moment. The services sector, highly important to the United States, not just manufactured exports but services. It’s where so much of the dynamism in the American economy lies. In finance, IT related, IT platforms. In terms again of befores and afters, what are we looking at?
CUTLER: We’re looking at a services market amongst the TPP countries that is going to be more open, less discriminatory, allowing not only our companies but also other TPP companies to operate in those markets more freely and also for example be able to move their data offshore easier reflecting the way business is done these days. But you’re correct the whole industry of services, not just for the United States but for many other countries in the region they look to services trade as really an area where they can gain competitiveness and grow their economies.
RUDD: And historically where many economies, and I know this from the Australian experience, find it pretty easy behind the border to actually apply a whole series restrictions to trade by one means or another, which stands in the way of growing the entire services pie regionally and, frankly, regionally as well. So you’re confident, as a consequence of this agreement, some of that behind the borders stuff will therefore be brought under control.
CUTLER: I think it’s going to provide enormous opportunities not only one again for US service suppliers but for the other service supplies in the other TPP countries as they seek to become more competitive in this growing sector.
RUDD: It’s a difficult question for me to ask you – but that’s never stopped me before – if you were sitting in Tokyo and trying to explain this to our Japanese friends what is in this for Japan, given Japan is the third largest economy in the world and therefore a strong ally of the United States. What’s in it for Japan?
CUTLER: A lot. Firstly, I think for Japan, given where its economy is (the whole Abenomics) I think the opportunities – the export opportunities, the growth opportunities – the TPP presents will be an important contributor to growing the Japanese economy. It also provided Japan an opportunity to help write and shape the rules for the Asian pacific region and this was very important to Japan when deciding whether to join TPP or not, or just wait until it was done. So I think that was an incredible benefit for Japan and, frankly, Japan was a great partner in helping us achieve such high standards in the TPP agreement. And of course, Japan, like many others, is going to gain access to many markets. Indeed, Japan has FTAs with a number of TPP partners but, frankly, a lot of them are not as trade liberalizing as TPP is and so I think Japan, whether it’s in the services or manufacturing but also, interestingly enough, Japan is even talking about exporting agriculture. I think TPP will provide enormous opportunities on all of those fronts. And finally, we don’t talk about (INAUDIBLE) anymore but the whole idea of using an external factor to drive reform in Japan I think is very present here as well.
RUDD: And so, looking at it from a macro perspective, a macro-economic perspective, the folklore about China using the WTO accession as a lever for Zhu Rongji (the then Premier) to then open up the Chinese economy, you see this TPP also as a vehicle for Shinzo Abe to do the same in Japan?
CUTLER: Abe as well as other leaders and governments in the Asia Pacific region.
RUDD: South East Asia, any thoughts there? Not all the South East Asian states were, of course, party to the TPP but where do you see the changes there as being?
CUTLER: You know, depends on the country but I think for Vietnam, for example, they will be gaining access to the US market which is very important for them and they will also become a magnet for foreign investment in the region. We are already hearing anecdotes about companies that, when weighing where to invest in the Asia Pacific region, are now turning more and more to Vietnam in anticipation of the TPP because they will have a stronger IPR regime, they will have protections for services and investment as well as they will be a platform and have all the preferential tariff access the TPP provides. Malaysia, Singapore and Brunei will also be receiving benefits as well.
RUDD: Which is an interesting point to bring the question that we’re talking about tonight to China. Because, as we know, there has been a lot of Chinese public commentary about the TPP over a period of time. Chinese commentary saying this is primarily a tool of geopolitics and then from a pure policy point of view, our Chinese friends saying that if you begin to divide Asia between one set of trade liberalization arrangements while excluding the other half of Asia and have that half look to alternative arrangements, progressively we split the region. So, your comments on what you see as being China’s posture now, because I’ve seen some changes to that posture in recent months, and where do you think now the big debate goes – assuming TPP is ratified in all the relevant legislatures of all these countries – where do you think the debate then goes in terms of the reconciliation of what’s now the TPP agenda and what’s broadly called the RCEP agenda? You might explain to everyone else what RCEP is too.
CUTLER: So RCEP stands for (hopefully I’m correct) the Regional Comprehensive Economic Partnership negotiations being undertaken by 16 Asia Pacific countries. If I’m correct about 7 of those 16 are also members of TPP so there’s a lot of overlap. And I for one don’t see this RCEP vs TPP paradigm in the region. I don’t think they’re competing and I don’t think one has to choose one over the other. The way I see it is it’s all kind of a continuum of liberalization or coverage in terms of products covered but also of issues covered in any trade agreement. I think TPP has really moved the ball forward and is at the highest end of that continuum, if you start at the WTO, you can include some of our FTAs and FTAs other countries have concluded, and then maybe RCEP (given where they are going). But I think RCEP, when completed, will just be on that continuum of trade liberalization. I know that the RCEP countries will be meeting later this week in Malaysia and they will be seeking, if not to conclude the negotiations, conclude some sort of framework for the negotiations. I think the question for RCEP now is, given TPP, should they rush to rush to conclude this agreement or should they take a step back and see if they can do more in terms of higher percentage of trade liberalization, covering more issues or, for the issues covered, have deeper commitments.
RUDD: In other words, in terms of the trade liberalization spectrum, you’ve probably got the TPP at the top, bilaterals here (for example the Australia-US bilateral FTA, the Korea-US bilateral FTA) and then the current stasis that is the WTO negotiations but where the current multilateral liberalization has got to prior to Doha. So you’re up here with TPP, assuming ratification. Do you think you can act as a magnet, pulling up, pulling northward, the current assumptions about RCEP in order to make it more liberal than it would otherwise have been?
CUTLER: I think TPP is already having that effect as a magnet. Publically, since TPP has been concluded, a number of countries have publically expressed varying degrees of interest including Korea, Indonesia and the Philippines. I suspect, although I’m no longer part of the administration, that there are other private conversations going on about other countries that are interested. This week in the Philippines, in the APEC meetings going on now and around the EAS meetings in Kuala Lumpur, I suspect there will be a lot of conversations with countries trying to find out more about what’s in the TPP and what they would need to do to join the TPP. But it’s not all about the TPP either and something I’ve found of great interest is that just earlier this month Singapore and China announced that they’re going to update their FTA to seek more commitments in areas like e-commerce, the environment and services and investment, I believe. Is it fair to say that’s because of TPP? I don’t know. But I think it’s positive. I think countries in the region are looking now with the TPP, as Kevin you mentioned, up there, how they can get up that ladder, how they can move closer to the TPP type standards.
RUDD: We’re going to complete our alphabet soup here. We’ve got the TPP here (the Trans-Pacific Partnership), we’ve got RCEP (the Regional Comprehensive Economic Partnership), then you’ve got the third framework which is peculiar to APEC which is FTAAP (Free Trade Area of Asia Pacific). Tell us a little about FTAAP or is it just that there is a complicating piece of acronyms gone mad?
CUTLER: Okay, so first let me explain what the FTAAP is. The Free Trade Area of Asia Pacific. This was an idea that APEC endorsed about 10 years ago as a long term vision. I remember being in Vietnam when this concept was endorsed: the US was pushing it, China was against it but through conversations we were able to agree to it as a long-term prospect. Over time APEC has been looking at this Free Trade Area of the Asia Pacific and during Japan’s host year there was agreement on how we were going to get to a Free Trade Area of the Asia Pacific and this was called “Pathways”. And what APEC countries agreed was that we should look at existing negotiation going on in the region (like TPP, like RCEP) and not start from scratch and negotiate something new. The FTAAP last year, during China’s hosting year of APEC, became a centrepiece of their deliverables and as a result APEC launched a study of the FTAAP. This study is underway now, it’s due to go to leaders a year from this November but I suspect this week there will be a lot of discussions on the FTAAP and the question will be is this another negotiating possibility or do you get to a free trade area of the Asia Pacific through adding additional members to existing trade negotiations or existing agreements in the region.
RUDD: Which I think leaves one interesting point in the overall analysis: there are some who look at this and think it looks like spaghetti junction – you’ve got a bunch of bilateral FTAs (in our own case Australia-United States, Australia-Japan most recently, as well as Australia-China, as well as one or two others in South East Asia) then you go onto what is now TPP in prospect, then you go onto what will evolve in the RCEP and FTAAP frameworks as well – and they say, “this actually compounds the problem of free trade because you have so many intersecting and so many overlapping and so many contradictory rules depending on where you are. It’s a feast for trade lawyers.” That’s one way to look at it, which is: complexity, complexity, complexity; bad, bad, bad; awful, awful, awful.
Over here you’ve got a different view, which is one I tend to head towards myself, which is – look, the overall impetus of East Asia and the Asia Pacific more broadly is towards free trade and having begun where we began say 25 years ago with the formation of APEC (where, frankly, there wasn’t a whole lot happening) to where we are now. Then barriers to each set of these negotiations have come down and each set of negotiations has in turn triggered another set, trying to re-equalize where the region goes. Therefore, over time you’ll see a whole lot more goods and now, critically, services and a better and more liberal environment for investment than we’ve ever had before. How do you see those characterizations?
CUTLER: I agree with all of them.
RUDD: But is it the pessimists who say that this is all just too complex?
CUTLER: Yeah I think a lot of people are looking for conflict and inconsistencies and once again I don’t see that, I see it more as a continuum and I see it more as – if you liberalize it 75% versus a trade agreement liberalizing it 90% you’re not in conflict, one is just more trade liberalizing than the other. And so the idea is you keep working on that bicycle. Maybe you do a trade agreement and you cover more and then you go back to an old FTA partner like Singapore and China are doing to update their FTAs to represent liberalization they’ve done with other countries. I’m in this school of, it’s very overblown and overstated to say that we have so many paradigms and they’re all conflicting and the result is going to be different trade blocks in Asia. I just don’t subscribe to that.
RUDD: That’s a really important analytical conclusion, given the public debate that has been emerging for some time about the region and some time sooner or later this debate is going to settle around the unifying, liberalizing agenda – or the complexity and bifurcating agenda. But I tend to be on the side of the optimists, like you. You mentioned earlier that APEC is about to meet, they’ll all be donning colourful shirts in Manila fairly soon. Having been to these events several times myself, it’s what most leaders look forward to least is getting dressed up in what we call pyjamas and you call pajamas for whatever the event happens to be. You’ve had some experience with that?
CUTLER: Yeah, I’ve worked for some people who don’t want to get into those shirts.
RUDD: I have a whole cupboard full of them and my wife systematically throws them about; she’s quite brutal on those things. But APEC is coming up, it’s in Manila. I think this will be if I remember the 26th APEC since we began in 1989 and it’s summit level since 1994, it must be its 21st or thereabouts. Give me your overall take on how useful APEC has been and can be in the future.
CUTLER: I think APEC plays a very important role with respect to economic issues. If you think the TPP with twelve countries brings together a diverse set of countries in the Asia-Pacific, APEC with 21 economies brings together an even more diverse set of economies. And through APEC over the years a lot of what we call deliverables, a lot of outcomes, a lot of progress has been made with respect to the trade agenda. I mean, just this week now in Manila countries will be announcing their plans for implementing cuts on environmental goods based on an agreement that was reached a few years ago when the US hosted APEC in 2011. APEC has also been very instrumental in helping to push forward the WTO agenda, it has pushed forward the Information Technology Agreement negotiations. APEC has really been helpful in introducing countries to issues that they’re not prepared to deal with in a binding trade agreement but they’re willing to talk about them, they’re willing go to seminars and listen, they’re willing to become more comfortable with these issues.
So we have seen, over the years, situations and issues that have been dealt with at APEC only years later to become part of a binding trade agreement and so I think APEC has a lot of strengths. That said, it also has some weakness and being 26 years old, sometimes I think it just needs to be shaken up (like Taylor Swift says – shake it up). But to really look at how it can contribute going forward to this agenda and I do think that APEC is very well positioned in the TPP world because it includes 12 members of TPP but also 9 members of APEC that are not in TPP. And so I think APEC can play a useful role in helping to bridge some of those differences between those countries.
RUDD: My observation of APEC is that it is part of the world of quiet achievers. And that is, you rarely see fireworks at an APEC meeting. But APEC meetings have had as their central focus always, the whole business of economic integration and trade integration and, frankly, behind the borders liberalization and harmonization where you can. All of which, unless you’re a trade policy expert, makes your average journalist fall to sleep. Which, if you want to get real work done, is not a bad thing. Because it is serious stuff; it affects business, it affects peoples’ lives but usually it is utterly unprintable because it deals with tariffs and bindings and behind the border negotiations.
CUTLER: What you say is so true and it just brings back so many memories for me, being at all these different APEC meetings. We’d always have to write fact sheets on what we’d achieved and as they went up the chain of the US Government to people who understood less and less of what we were trying to explain they kept making us go back and write our achievements in more user-friendly language and it was very difficult to…
RUDD: You mean as the political expectations got higher about saying, “this has been the achievement of yet another moonshot of the APEC process,” you’re actually moving binding 26.94 from here to there is that right?
RUDD: That’s why I think it’s been a quiet achiever because it’s been pretty well let free to pursue its agenda. The other advantage that I’ve seen, Wendy, is that it’s also for the first time in the Asia Pacific provided this forum for heads of government across the region including the United States to meet on a regular basis in non-crisis mode. So whatever was happening over the last 20 years or 21 years at summit level, you had an opportunity for these heads of government to have a series of bilaterals but also on other security policy questions as well. And other policy questions as well – I remember Singapore APEC a number of years ago, I used the opportunity then as Australian Prime Minister to pull together most of the, in fact all of the heads of the APEC governments around the table for a brief briefing on the upcoming Copenhagen climate change negotiations. So that enabled people to briefed upfront. We got in the Denmark Prime Minister of the time, people from the UN and briefed them. So that sort of opportunity presents itself as well. We skipped over the question a bit of China and Chinese attitude to the TPP and Chinese attitude to the future of trade negotiations more generally. Any thoughts on China’s evolving position?
CUTLER: Well I think you’re absolutely correct to call it ‘evolving’ because just one year ago or two years ago China was looking at the TPP as a plot of conspiracy by the United States to contain China. We were trying to point out to China that it wasn’t a plot by us – the TPP is not against anything or against any country, it’s more about likeminded countries getting together to achieve a high standard agreement. But since many of those comments, over time you’ve seen a lot more interest in the negotiations themselves and China trying to figure out how to respond to the TPP. Since the text has been released many Chinese officials are in public saying they’re studying it carefully and a debate is alluded to perhaps between those who view the TPP, as the WTO did, as a catalyst for change and reform in China, but others perhaps continuing to view this as a US dominated trade negotiation. So I think it’s going to take some time for China to sort this out. At the same time TPP countries are going to be very focused on ratification and not admitting new countries. Especially in our congressional debate that focus on the existing 12 will be very important. But I suspect that quiet conversations will continue with a whole host of countries that have expressed interest or just want to know more about what’s in the TPP as they try to figure out what it means for them.
RUDD: So when you get to TPP ratification process, given we’re here in the good old US of A, your Congress. The Congress, I should say. What do you do when you get the Congressman from Delaware who says, “you guys have just sold me out completely, and do I have a world beating proposal for you as an amendment to the existing draft.” I mean, how do you actually deal with that in terms of the politics of ratification?
CUTLER: The politics of ratification of any trade agreement is extremely complex and difficult, and for this trade agreement it’s going to be a very difficult process. But I’m confident that the administration will be able to secure congressional ratification. I think this deal is so important, I think there’s so many benefits for the United States in the deal, both economic and strategic. I have to believe that Congress will approve this deal. That said, it’s going to be a complex process. Congress, last Summer, approved the Trade Promotion Authority and those procedures will be followed to seek congressional approval for the TPA. The encouraging things is that this has been notified to Congress and this begins the TPA clock, it was notified to Congress earlier this month, about a week ago. And now the Administration has to wait at least 90 days before it can sign the deal which would mean probably February is the earliest the deal could be signed, and President Obama has made it very clear that he wants this agreement passed during his presidency.
RUDD: Of course, parallel debates are taking place in legislatures around the world, I’ve just spent a week back in a country called Australia (I’ve only been there twice this year) and the debate rages there too about elements of this deal. So this will be complex, as most but not all of the participating countries are pretty vibrant liberal democracies. Which leads us to the underlying framework which is supposed to be there guiding us all for tariff negotiations around the world, the General Agreement on Tariffs and Trade – part of the Bretton Woods 1944 – latterly, the World Trade Organization, latterly again, embodied in what we call the Doha Development Round (or as one negotiator said to me, ‘The Doha Death Round’ because it, frankly, is not going anywhere). So give me your sense about Doha, prospects for the future, non-prospects for the future? Has the United States given up and thrown its own hands in the air? What do you think can happen? And is this in any way on the G20 agenda, as we speak, in Turkey?
CUTLER: The WTO ministers will be getting together in December in Nairobi, Keyna for their biannual ministers meeting and at that time they will be once again discussing the Doha agenda and seeing if an agreement somehow can be reached. From a US perspective, the view is that there needs to be a small realistic package. But what we have point out to is that there are other negotiations the WTO is involved in – in such areas as services, environmental goods liberalization and information technology product liberalization – and those initiatives should also be sharply focussed on by the WTO countries.
I’m personally hopeful that the TPP agreement will be a wake up call for the WTO and will help spur some momentum for the talks in Geneva, because ultimately any trade person will say that the best outcome is for everyone to agree to trade rules and that they be enforced and implemented on a multilateral basis. Since this hasn’t been possible, the US and other countries have turned to bilateral arrangement and now regional arrangements. But, ultimately, I think it’s in everyone’s interests for a strong multilateral trade system to thrive and survive but it’s increasingly challenging with now 160 countries as members of the WTO.
RUDD: Well it sort of becomes the core question of the future multilateralism pyramid – whether it’s UN multilateralism or WTO multilateralism – the ability of a single state to torpedo negotiations amidships. That, therefore, given some of the reservations from some of the larger emerging economies to the successful conclusion of Doha, will bring the focus onto them in particular. I suppose this brings me to few other observations about the state of the global economy and the role of trade within it. When you look at what has just been, I think, the fifth downward adjustment of the global economic growth numbers, released just recently by the OECD. Fifth in about 6 or 7 months, downwards now to I think about a global growth projection of about 2.8 for this year. And there have been almost a parallel set of downward revisions by the IMF. We are still looking at an enormously growth challenged world.
In fact, I read a report today which, despite the enormous debate about the state of the Chinese economy, China’s economic growth itself will still contribute about 40 to 50 per cent of total global growth this year. So we have this great debate about how China is in trouble – bear in mind, if China is in trouble and it’s contributing 40 to 50 per cent of economic growth this year, then what is the rest of the world if not in some trouble.
Which brings back to the debate of what are the new drivers of economic growth globally, for which there are many answers. One is the global infrastructure deficit. Another is, of course, a resuscitation of trade in lifting growth from where it is to where it needs to be. If you look at China’s numbers, with which I’m more familiar, you see that in the last several years for the first time, net exports in China becoming a net negative contributor to China’s own growth. We know some of the reasons for that – contracting economic markets but also the relative competitiveness of Chinese manufacturing exports in some capacity being moved offshore.
But from a global growth perspective, if you could give our friends in the audience a sense of where you think trade, per se, lies? Because, if it’s not grasped by the economies of the world in terms of greater liberalization, I fear we are going to start drifting towards increasingly pathetic global growth numbers.
CUTLER: I think that’s a good point. I’m an optimist and I think trade is a driver for economic growth but also for more jobs, more high paying jobs. It’s kind of a relatively easy way for countries to attain economic growth and so I have to believe that when countries look at options of whether they want to undertake massive structural reforms domestically or enter into a trade agreement (hopefully they would do both), but I think that trade offers a very viable and positive option here.
RUDD: Therefore, requiring greater global economic and political energy than we’ve seen for some time (at least since the Crisis that we saw in 2007-2008). I saw another statistic today which is that of all OECD economies, there are only 4 or 5 of them which are in real terms larger than they were in 2007-2008. That’s sobering, in terms of it being an encapsulation of the, shall I say, slow performance of trade within that frame.
I’ll conclude on these thoughts, and I’m grateful for yours as well, before we open it to the audience for questions and anyone who’s asking questions online. I’ve just spent a week or so in China, I’ve just spent the weekend in the Middle East in Abu Dhabi and at a conference of foreign ministers talking about the growth deficit, frankly, within the Middle East as being an underpinning factor in the lack of economic activity, the lack of jobs and, therefore, further accelerating the problems of political radicalism and further fuelling some of the phenomenon we see today in terms of militant extremism and the horrendous events we’ve just seen in Paris as well. Too many people just focus on political and security questions as if they are in a vacuum, when in fact they are inevitably, in large part, an extension of underlying economic issues as well and whether the people have opportunity or not.
Then you go to this region, the Asia Pacific region, and what still remains on balance a positive set of economic opportunities – and I touched on this before, the key role of the Chinese economy. When we were in Beijing recently they announced the new public growth objectives of the 13th five year plan as being 6.5 per cent per annum. Surprisingly, when you talk to Chinese behind the scenes they are reasonably confident they can get there. When you try and interrogate the data further, sometimes you’re left scratching your head as to how that can be done. But in terms of China’s economic performance, from a US perspective but from a global economy perspective, I’d appreciate your thoughts about what you see as being the prospects there as well.
CUTLER: Clearly, China’s growth rate is declining but it is still very high and the envy of many in the region and the world at 6.5 or 7 per cent. I think it’s very much in the interests of the US for China to have a very strong economic performance, not only for China but – as you mentioned – for global economic growth. So I think that the US and China need to cooperate as much as possible on the economic front but also recognize that there are serious issues as well that divide them, that need to be dealt with frankly and amicably.
RUDD: Well there we go, let’s throw this open to questions from the audience. Who’s got a burning question if it’s related?
AUDIENCE MEMBER (FRANK BROWN): You just referred to Paris and physical terrorism and, I think, a detriment to global growth obviously but also there’s cybersecurity and cyberterrorism potentially. I’m just curious as to whether that comes up in trade discussions, negotiations – state-sponsored of otherwise, because it really is a detriment from the business standpoint and has to be from a standpoint of states working together on trade?
CUTLER: Yes, in some respects it’s on a separate track to the actual trade negotiations because particularly with China our talks recently have been done bilaterally and both sides came up with an arrangement going forward. But in the TPP, the whole issue of trade secret theft, for example, is addressed by cyber means – recognizing that as we seek to address the issues that are affecting the region and really affecting trade and business, really need to be addressed in multiple fora. We dealt with that issue as well.
RUDD: So these are addressed discretely in the trade negotiations basically as an extension of IP (intellectual property) protection, as opposed to the state level negotiations which, I think it’s fair to say, are at their earliest of stages and, frankly, have yet to mature.
AUDIENCE MEMBER: Hi, I’d like to ask a question on this question of growth and the global infrastructure deficit, because it was last year’s APEC summit that Xi Jinping proposed that the United States provide joint program of the ‘New Silk Road’ (or more generally the ‘One Belt, One Road’ policy) and the Asian Infrastructure and Investment Bank. Mostly, this is unheard of in the United States. It’s largely not discussed and yet it does connect to these questions of, as you raised, in Paris. Because this whole region of North Africa and the Middle East, that is creating this vast migrant shift, requires immediate infrastructure development which is being proposed through this ‘One Belt, One Road’ policy. I have here a report from Lyndon LaRouche’s organization, proposing a way to take that ‘New Silk Road’ and make it global. As I look from the standpoint of the United States’ crumbling infrastructure and even this horrible report from the New York Times about the increasing death rate in white men, 45 to 54 in the past 15 years – we certainly need a real economic development process.
RUDD: Thanks Sir, I think I’ve got the thrust of your question and I’ll just handle it briefly. ‘One Belt, One Road’ (which I discovered recently has the acronym OBOR – sounds like a star somewhere, doesn’t it?), I was at one conference in Beijing just a week or so ago at the International Finance Forum. The bottom-line is I think our Chinese friends see the infrastructure deficit across what’s called Central Asia, South Asia and West Asia, heading into Africa, as a huge economic and financial opportunity for them. Two, their own infrastructure build, from their own calculus is not complete, but it is on the way towards completion. Three, they are looking for long-term stable infrastructure projects in which to derive a relatively stable source of revenue return for the investor. And four, they see the geopolitics of this as well, which is if you can do that then you can help build stability in these regions as well.
There’s criticism of the approach from India and from others, saying this a Chinese attempt to extend geopolitical influence in those parts of the world as well. But the bottom line is, if you look at the Asia Development Bank’s data, across Asia itself you currently have in their calculation in the next five years alone, about a $9 trillion infrastructure deficit, purely in Asia. So if you put together all the available funds from all the institutions public – whether it’s the World Bank, whether it’s the World Bank’s regional development bank itself, the Asia Infrastructure Bank, the New Silk Road fund, on top of that the so-called New Development Bank or the BRICS Bank and a few others thrown in in addition – the investable capital struggles, frankly, to get anywhere close to $1 trillion, in terms of available public capital.
So my argument about all this is, frankly it doesn’t matter too much where the investable capital comes from. The important thing is landing secure and stable investments around bankable project-ready proposals from governments across the region in question. And I think, secondly, to construct financial products that make it seriously attractive for private capital to be co-investors with risk amelioration being part of that calculus.
AUDIENCE MEMBER: I was just wondering about, as Doctors Without Borders has pointed out, that the TPP will prevent access to cheap generic drugs to millions of people. So, instead of bombing hospitals (Obama style) shouldn’t we consider reversing the TPP to avoid the unnecessary deaths of millions of people?
RUDD: Let’s just look at the whole question of the impact of TPP on, let’s call it, public goods in the health sector. Your thoughts on that, Wendy?
CUTLER: This is an area of the negotiation where a lot of thought, a lot of time and a lot of consultation took place. Basically, what the negotiators were presented with was a need to balance the important issue of access to medicines for people, with supporting innovation of the newest drugs – recognizing that these are the drugs that are going to save a lot of lives. So the challenge in the negotiation was how to achieve that balance. Neither side is happy with the outcome. I can say that now as a former negotiator, if neither side is happy, sometimes it means you did a good job. These are very serious issues and I don’t mean to discount them. I just want to underscore that it was just a very important balance to be achieved and I think the TPP countries were able to achieve a balance with respect to this issue.
RUDD: Relating to that Wendy, I’ve got a question from Mei in New York, who’s asked this question via email: “When discussing the TPP I often hear this argument against it from friends – the TPP allows companies to skirt regulations intended to protect labour and protect the environment etc. How does one respond to this type of argument? Is it a common argument? And how would Ms Cutler respond without getting too technical but not too general either as this does not tend to satisfy people.” This is what I call a very picky customer.
CUTLER: Since this person isn’t here do I have to answer that? (LAUGHTER) I interpret this question to be a question of another kind of controversial issue in TPP – adding to that alphabet soup, ISDS which is Investor-State Dispute Settlement. Which, under the investment chapter, allows private parties to seek arbitration with governments. These procedures have been included in thousands of investment and trade agreements to date and in the TPP we listened very carefully to the input of the public, of critics of this procedure and put in more transparent procedures, made sure the burden of proof was strengthened so that the complainant had a stronger burden of proof and put in procedures to ensure that the arbitrators had no conflicts of interest and the list goes on and on. Overall, this procedure is in the TPP agreed to by the twelve countries – your country Australia was not very thrilled about this – but at the end of the day with all these safeguards did agree to it.
RUDD: We’re team players. Sometimes.
CUTLER: There is a lot of discussion, a lot of debate about this issue. But a lot of misinformation as well and I think a lot of unfounded fears.
RUDD: Here’s a related one which I’m sure you’ll enjoy as a trade negotiator. Cameron in New York asks via twitter: “A lot of criticism was directed at the secrecy of the negotiations, how would you respond to that?” Presumably by saying that all diplomatic negotiations should be conducted in public.
CUTLER: That was another huge criticism of the Administration throughout the negotiations. The criticism was that we were negotiating this deal in secret. Our response was that we weren’t going to release a text that was evolving everyday with different words being put in or taken out because we didn’t want to negotiate in public. We had a lot of consultations with the public, we had a lot of … But let’s remember the text is out there now and it’s sitting out there for at least 90 days before we’ll sign the text and then after that the TPA – Congress will have at least 90 working days from signature if not more to allow for more discussion of the text. The text is out there. People are coming in with questions, people are coming in with comments. But my view as a negotiator, you can’t negotiate in the public and if you looked at some of the texts I was negotiating – some of the proposals that even I was putting on the table (and I don’t want my trading partners that are in the room to look at me) but sometimes they weren’t even serious. They were a way to get more in another area.
RUDD: Are you shocking us with the revelation that countries put down ambitious claims? I’ve never heard of that before.
CUTLER: But when something is out there in the public and a number of the texts were leaked during the process, there was outcry as people parsed through every word. A lot of those words just didn’t show up in the final text.
RUDD: It’s kind of what I would describe as a baseline truth about democracy. If you believe that diplomacy has any value whatsoever – whether it’s political diplomacy or economic diplomacy – there is a point in it all where you ask do you want an outcome or don’t you? And if you want an outcome, at some point in the system and some point in the process, the negotiations have to be absolutely confidential. Because what happens around the world is the leaking of contents or the leaking of revelation of contents on an ongoing basis, paralyses the ability of national negotiators to operate within a parameter of possibilities before they can narrow it down to something they can live with. It’s just life. If you’re going to have this perfectly transparent diplomatic negotiating process well that’s terrific – except you’ll never have a negotiating outcome about anything. Anyway, that’s how I see it and I’m sure it’s politically incorrect to say so.
Craig Olers in New York has asked a particular question from twitter, which relates to those in the Asia Pacific who are currently not members of the TPP and specifically asks about Indonesia. He says: “President Jokowi recently indicated Indonesia’s willingness to join TPP (important – 240 million plus people in Indonesia, if growth continues into the future Indonesia will emerge as one of the world’s top ten economies). What do you think are the major hurdles for Indonesia in joining?” Don’t be too specific or too general.
CUTLER: I think I want to respond to that question just more generally. The TPP was always envisioned as an agreement that would include more countries – it’s what we call an ‘open platform’ agreement and there are provisions about accession to the deal in the TPP text. Over time the US, Australia and other members of the TPP would welcome other countries if there are indeed ready to sign up to the obligations of the deal that was just concluded. The Administration and other countries are consulting with other countries who, since the TPP was concluded, have expressed interest and I think the new Prime Minister of Australia was just down in Indonesia welcoming Indonesia’s interest. Once a country expresses interest, generally other TPP countries enter into consultations with that country to describe what the expectations would be and now what the obligations would be in order to join TPP. So with any new candidate country I’m sure similar procedures would follow. But I would say, and I think it’s fair to say, that the focus amongst the twelve is getting the deal that was concluded into a fact, which means getting the approval of their respective legislatures and support from their respective publics for the deal.
RUDD: May I just make some observations of my own and we’ll take any questions as they come. I don’t expect you to comment on this because I know you’ve recently been working on it, but what’s missing from so many of these negotiations? Think about it – what’s missing from TPP, what’s missing from FTAAP the other part of the alphabet soup which is the Free Trade Area of the Asia Pacific, it’ll be on the agenda at the APEC Summit soon. The answer to that question is India. India is in neither. Nor in India in APEC. So we’ve had many, many discussions in this room over the future of India’s economy. We know that, politically, Prime Minister Modi is experiencing some serious headwinds. He recently failed to prevail in the state elections of one major state and the commentariat in the Indian press are beginning to question whether there is momentum for the future. But my own observation is that, we as the international community also have a bit of a responsibility to extend a helping hand to our Indian friends, in terms of them participating more fully in the economic opportunities of East Asia.
It’s a little known fact – I think, though a stand to be corrected by Wendy because this is something she has direct expertise in – that in fact to be a TPP member, you have to first be an APEC member; if you want to be an FTAAP member you first have to be an APEC member. I stand to be corrected on those in case it’s changed. The problem is that India is not even at first base – it’s not an APEC member which underlines why we, the Asia Society Policy Institute, launched a policy taskforce with one objective: how do we get India into APEC? We’re talking about all of what’s transpiring across the economies of the Asia Pacific – the world’s largest economy, the United States; the world’s third largest economy, Japan. We’re talking about China being in or out (China as an APEC member). And we’re talking about the emerging dynamic economies of South East Asia and the critical mass that is Indonesia. The country that by 2026 is going to be the world’s most populous country – India – is over there, not in any of these. So I would simply leave that as a reflection for people to mull on this evening as well. Am I right on the rules by the way?
CUTLER: TPP contemplates APEC members but I question whether that is something that will be looked at by the twelve going forward.
RUDD: So you think there is a way around going through the APEC hurdle?
CUTLER: I would think that’s something that the twelve would want to discuss going forward because it’s not just India – there are other countries too including Colombia for example that have expressed an interest.
RUDD: Well it’s interesting, I was in the Middle East on the weekend and I met the Colombian Foreign Minister who was on her way to Manila. And Colombia, a country of about 50 million, its politics are going well, doing well economically – also on the Pacific side of South America and wanting to become a part of APEC because it sees its economic future lying with those countries. They see Chile as already in, they see Peru as already in, they see Mexico, USA, Canada – so why not them? They’re actually heading off to Manila to be observers for the process and prosecute the case for getting the meeting in Manila to open its membership list for new members to be considered. India lies at the top of that, in my judgement, then you’ve got Colombia and I’m sure others as well who are in the queue. In fact, I think our friends in Laos, Cambodia, Mongolia from memory are there as well. For Colombia to enter APEC in the absence of India would strike me as pretty odd in terms of the economic trajectory of the region.
AUDIENCE MEMBER: My question goes back to Indonesia. If I recall correctly, Indonesia has the world’s largest Muslim majority population. Should Indonesia join TPP? Will its participation have an effect on the fight against terrorism?
CUTLER: I hear what you’re saying and I’m going to answer it more as a trade technocrat. TPP isn’t just something put your hand up and everyone says, “come on in.” It’s for countries that can live up to the high standards and obligations that the twelve have agreed to. So if Indonesia is serious about that and can live up to that, then I think the twelve countries would be more than willing to work with them on a path to accession.
RUDD: I think the thing to add to that, more broadly about Indonesia – it’s a new neighbour of ours in Australia – is, 240 million people and you’re right, it’s about 90 per cent Muslim. That makes it the largest Muslim country in the world but it has managed to pursue a remarkably conciliatory Islam in its country. We Australians have been the object of a couple of terrorist attacks, and others in the last couple of years, but so far the Indonesian government – especially under SBY, the most recent President, and I’m sure under Jokowi too – has been pursuing moderate education policies, extending secular curriculum across the school programs, cooperative partnerships, for example between the Australian Aid Agency and the two peak Muslim organizations of the country called NU – Nahdlatul Ulama – and the other one called Muhammadiyah. They basically run most of the schools beyond the state system itself.
So far this has gone reasonably well but we all face the dilemma, given that Frank and others have raised the question about Paris, of what now happens with returning jihadists from ISIS/ISIL operations from Syria and Iraq. There are Americans people resident in this country and have come back or sought to come back. We face the same problem in our country – we’ve got 200-300 Australian Muslims who have gone there to fight and sought to come back. There’s a similar number, perhaps a little more, from Indonesia. What’s remarkable about Indonesia, given the size of the Muslim community, is that it’s actually been a relatively small number. But it only takes a few, frankly, to get control of what’s called a Madrasa or a Pasentren (a local Indonesian school) to reintroduce forms of militant Islamism into local communities and then you start to see further challenges on the security front emerge.
So far so good, but I think the universal principle which was alive again at the seminar I was at on the weekend with foreign ministers from right across the Arab world – some of them on their way to Vienna for the conference for how to bring about an outcome on Syria, which was literally the day before the Paris bombings. The Paris bombings occurred overnight as they were flying to attend that meeting. The universal conclusion of those foreign ministers and representatives of governments across the Middle East is, unless they can somehow beyond oil and gas generate a more broadly based set of economic opportunities anchored also in trade, then we have a real problem with long-term militant Islamism in many countries in the Muslim world. Trade and investment and all rules in the international system which open the doors of opportunity, frankly, are among the best long-term investments. In the meantime the burden falls upon all of those men and women in uniform who have the difficult task of running our respective security services and working with each other in what is a global problem for us all.
We have few minutes, Wendy. Why don’t you tell folks here a few of the things you’d like to work on in the future and how you would like to extend the work you’ve done in public office through the USTR into public domains? Talk a little bit about women and the economy as well.
CUTLER: Look, I’m very excited to come on board with the Asia Society Policy Institute and opening the Washington office is a real thrill for me. I think we’ll need to – there’s a lot of think tanks in Washington – and we’re going to have to find our value added and figure out how we can really contribute to the policy debate in Washington. I think, as being part of the Asia Society, we’re unique in being able to bring the Asian perspective into that debate in Washington and I think that’s something everyone would benefit from. In terms of my own work in addition to running the office in Washington and raising the profile and getting us in the centre of the policy debate on a wide range of policy issues. I hope to concentrate my work on trade issues and some of the issues we discussed today, that is, bridging the gap and making sure there aren’t regional blocs in terms of trade liberalization in the region. I’m an optimist and so I think that there is a lot of good work that can be done and that there are a lot of smart people in the region that are looking at this issue, that I really look forward to working with.
The other issue of keen interest to me is the issue of women’s empowerment and getting women more involved in the workforce, being able to attain senior levels in their companies and the government, and other issues of inequality and discrimination. That’s a very important issue – again, a lot of different people and a lot of different countries are looking at this issue. Some countries like Japan are making this a real policy priority right now. Once again, in the Institute I think we do have a unique contribution to make and I’m very excited to be able to work on these issues for the Institute, and hopefully share some of my experiences – as a women who has really worked in a man’s world in Asia – with young, aspiring women in Asia who are really trying to get to senior level positions and really are going to be the future leaders and the future entrepreneurs of Asia.
RUDD: That’s terrific. We’re in the Asia Society Policy Institute, we’re in the business of making a difference – doesn’t matter what area it is: security, foreign policy, business, the economy or gender equity. Our interest is to move the dial in a positive direction so that’s why we’re doing this. Not just in public diplomacy and keeping people informed, but through policy commissions and policy taskforces we create aimed at solving particular problems which are hard problems to fix. But once again, I’m delighted to have Wendy on board to help with the fixing process – please express your appreciation for her contribution her this evening.