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SFC Asia-Pacific Trade Hearing

Senate Finance Subcommittee on International Trade, Customs, and Global Competitiveness

The Strategic Benefits of a Multilateral Approach to Trade Policy in the Asia-Pacific Region

Tuesday, June 22, 2021

Witnesses

  • Wendy Cutler, Vice President, Asia Society Policy Institute
  • Donald Allan, Jr., President & CFO, Stanley Black & Decker
  • Peter Petri, Ph.D., Professor of International Finance, Brandeis International Business School & Nonresident Senior Fellow, Brookings Institution
  • James B. Cunningham, Nonresident Senior Fellow, Atlantic Council & Former U.S. Ambassador to Afghanistan, Israel, and the United Nations

Opening Statements
Chairman Thomas Carper (D-Del.)
In his opening statement, Carper outlined how he has worked for several months with Senator Cornyn on the issue of Asia-Pacific trade relations, noting the withdrawal from the standing Trans-Pacific Partnership (TPP or TPA) agreement during the Trump Administration. Carper said the TPP agreement was not perfect, containing major flaws in labor and environmental regulations but continued that much has changed pursuant to the TPP agreement. He acknowledged the Subcommittee’s interest in conducting a hearing on the United States-Mexico-Canada Agreement’s (USMCA) implementation with specific regards to labor and environmental regulations. Carper stated that there exists a key opportunity for American leaders to work in a bipartisan fashion to create a far better economic position for America and forge multilateral trade partnerships in the region. He noted that the Asia-Pacific region is home to some of the fastest growing and most dynamic economies in the world, with more than one-third of the global GDP centered in the region. Carper recognized that after having left the TPP, America’s trading partners have not been idle, with many more economic partnerships having been created recently, including the Regional Comprehensive Economic Partnership (RCEP), which was signed last year and brings together 15 nations, including China, that account for 30 percent of the world’s population and 30 percent of the world’s GDP. Carper stated that the potential for these partnerships to restructure economic and trade deals without America having a voice is a cause for concern. He emphasized that the TPP allowed America to have a seat at the table and write rules for the dynamic trading relationships in this region of the world, opportunities that America is currently lacking. Carper closed by stating how America needs to take China’s interests seriously and reengage with U.S. allies in the region.

Ranking Member John Cornyn (R-Texas)
In his opening statement, Cornyn stated that the topic of U.S. trade policy in the Asia-Pacific region must stand at the forefront of how America approaches the labor, environmental, and economic conditions of global powers like China. Cornyn recognized that America’s own national security must come first, by identifying smart, democratic measures that account for the censorship and human rights abuses that occur within China. He enumerated several pieces of legislation, including the SECRETS Act that would prevent the importation of specific products containing intellectual property stolen via economic espionage, the SPEECH Act that would require America to review items for export that could be used for human rights or censorship abuses by other governments, and the National Critical Capabilities Defense Act that would safeguard America’s critical supply chains in the event of a public health crisis, natural disaster, or national security crisis. Cornyn stated that America must work to strengthen the international rules-based trading system, support critical reforms to organizations like the World Trade Organization (WTO), help open new markets, and reduce tariffs. He stated that America needs a seat at the table in the Asia-Pacific region, and that this would be the most effective weapon to combat Chinese economic hegemony.

Testimony
Wendy Cutler, Vice President, Asia Society Policy Institute
In her testimony, Cutler stated that the Indo-Pacific region offers America enormous opportunities to drive American prosperity and innovation for the future, but without strong and sustained economic engagement in the region, America risks foregoing these opportunities and becoming marginalized as the region forges ahead without America. She noted how the trade landscape has shifted significantly due to legislation like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and RCEP, and how China has flagged interest in joining the CPTPP favorably, with Chinese officials currently consulting with CPTPP members. Cutler stated that as long as America is on the sidelines, there will continue to be less political and economic influence to exert on the global stage. She stated that America was successful in defining the topics and shaping the rules that comprised the TPP agreement and that America can once again play the same role in future negotiations, with agreements like TPP bringing together numerous like-minded countries committed to encouraging development of resilient supply-chains. Cutler noted how negotiating a comprehensive agreement among many countries is a complex process, and that initial negotiating objectives may be overtaken with changing public sentiment. She advised that there should be a mid-term review to reassess U.S. negotiating objectives and realign them with changing stakeholder and congressional views. Cutler closed by recommending that even if America is not ready to consider a comprehensive negotiation, its voice in the Asia-Pacific region must be regained sooner than later.

Donald Allan, Jr., President & CFO, Stanley Black & Decker
In his testimony, Allan stated how Stanley Black & Decker employs 17,000 workers in America and 55,000 globally, with the majority of workers occupying manufacturing jobs. He stated that Stanley Black & Decker currently has over 2,000 manufacturing and operations jobs open in America, with hiring and investment in America being the manifestation of the company’s commitment to move supply-chain and manufacturing closer to its customers. He stated that Stanley Black & Decker is guided by a desire to help those who use its products pursue better, safer, and more significant work. Allan noted that the company has the privilege and responsibility to solve the world’s biggest challenges, including building the workforce of the future, addressing environmental concerns, and addressing issues of equity. He stated that the company is building new factories, adding manufacturing jobs, and bringing products closer to customers. Allan argued that America should remain engaged in the region and develop strategic partnerships to promote high standards in trade and recommended strengthening diplomatic ties with countries like South Korea, Japan, India, and other allies to ensure that no one country is over-relied on to serve the world and to serve America, while also strengthening rules-based trading globally.

Peter Petri, Ph.D., Professor of International Finance, Brandeis International Business School & Nonresident Senior Fellow, Brookings Institution
In his testimony, Petri stated that America has made the Asia-Pacific region safer and helped it gain access to world markets, noting that even five years ago, America was particularly engaged in the region and spearheading the new high-quality TPP agreement. Petri contrasted this with how today, America’s ties with the region are weak, while China has become the largest trading partner of all eleven large economies in East Asia. He stated that American policies have lately tilted towards protectionism, with rising concerns on the impact on the American middle class. He recognized that not only did America abandon the TPP, but that it also only attended three of the last eleven East Asian summits, with these being consequential trends signifying how intra-Asian ties are overtaking trans-Pacific ties. Petri noted that East Asia is working to build two major agreements, namely CPTPP and RCEP, and said that while the current trade war will cost the world economy $500 billion annually, the new agreements will more than make up for these losses. He continued that these new agreements would amplify the costs of the trade war for the U.S. Petri argued that America cannot neglect the challenge of building stronger foundations both abroad and at home, working to empower and incentivize communities broadly and inclusively to embrace Asia-Pacific opportunities and create a truly national strategy for future Asia-Pacific ties.

James B. Cunningham, Nonresident Senior Fellow, Atlantic Council & Former U.S. Ambassador to Afghanistan, Israel, and the United Nations
In his testimony, Cunningham stated that America and its partners are in a long-term competition with China over economic interests and political values. He stated that whether or not America’s relationship with China turns to be confrontational, the existence of competition with China is inescapable in the current era. He said that America’s global vision is based on liberal democratic values and fair open trade, while China’s is contrastingly based on maximizing authoritarian control, and that the contest between these visions is the defining theme of the current age. Cunningham stated that China seeks to rewrite the international norms and the rules-based framework from which it has itself benefited, and used the example of Hong Kong’s current status to embody the clash between liberal and authoritarian values on the global stage. Cunningham closed by stating that American partnerships in trade, diplomacy, and security will bolster efforts to curb China’s behavior, and that bilateral relationships in trade are inefficient to develop the specific shared purpose that is required for economic prosperity, as China seeks to divide rather than unite in order to develop its global economic hegemony.

Question & Answer
Asia-Pacific Trade Importance
Carper asked for the witnesses’ thoughts on the most important considerations in this space. Cutler said there is clear a message around the importance of the Asia-Pacific to the U.S. and the need to re-engage. She added that domestic issues must remain top of mind in order to respect and incorporate workers’ views in any trade agenda going forward. Petri said the trends are not favorable to the U.S. and there is a need to act and expressed his support for membership in the CPTPP trade agreement. Allan said the biggest takeaway is the need to engage in the Asia-Pacific region as such engagement will benefit our competitiveness. He added the need to enhance some of the language around labor and environmental commitments. Cunningham said everyone agrees the U.S. is in competition with China. He acknowledged that the TPP had flaws, but outlined his belief that it is a valuable strategic instrument that could have helped the U.S. maintain political security via an economic partnership in the Asia-Pacific region.

Re-Entering the TPP
Sen. John Thune (R-S.D.) asked why American engagement in Asia is critical for both U.S. leadership abroad and our domestic economy as well as if re-entering the TPP would boost jobs at home. Cutler called it a lose-lose situation if we do not engage, arguing if the U.S. is not at the table setting agreements and rules, China will fill that hole and cause the U.S. to lose its influence and ability to write rules for new technologies. Allan said if we have a mutually agreed upon arrangement associated with CPTPP that has labor and environmental standards, it will make the U.S. more competitive. He added that inconsistencies with Section 301 tariffs are hurting U.S. manufacturers and need to be addressed.

Thune expressed his concern that there has been no TPA renewal proposal and asked what message that sends in terms of American interests to remain a leader in the global economy. Cutler said she hopes there will be a TPA bill. However, she said there are certain negotiations in narrower sectoral areas where the U.S. could proceed without TPA but in close consultation with Congress. She said it would not require the U.S. to change its laws but rather bring other countries into line with ours. She said these smaller sectoral agreements could be building blocks for a larger, more comprehensive one.

Domestic Impact
Sen. Pat Toomey (R-Penn.) asked Petri about his research in pursuing a comprehensive multilateral free trade agreement and the narrative that it will be harmful to U.S. workers. Petri said comprehensive trade agreements like the CPTPP and the TPP must have strong labor provisions. He said the impact of an agreement are complicated, but his research suggests that all the workers and firms will benefit and that overall wages for both skilled and unskilled workers tend to rise as a result of the TPP agreement.

TPP Reforms
Sen. Catherine Cortez Masto (D-Nev.) asked if re-engaging in the existing multilateral framework, such as the CPTPP and the RCEP, would be sufficient to meet U.S. expectations going forward around labor, environment, and digital protections. Cunningham said if it were possible to do it expeditiously, that might be the case. He did note that negotiations take time and that he was intrigued by the idea of sectoral arrangements as a faster solution.

Sen. Steve Daines (R-Mont.) asked if the U.S. were to re-engage with TPP, what areas should the U.S. amend to better reflect the challenges faced today. Cutler said if we were to return, it would be critical to seek revisions and prioritize labor and the environment.

Mid-Year Review
Carper asked Cutler to further explain her recommendation to institute a midterm review for U.S. trade deals going forward, and if there is a similar model that has been used in the past. Cutler said the idea stems from multilateral negotiations typically taking a long time, and noted that two years into a negotiation, public sentiment can change, as was seen with TPP. She said if negotiations go on for a year or so, there should be a formal mid-year review with Congressional and stakeholder input. As for similar past models, she noted that TPA contained detailed consultation provisions between Congress and the executive branch, but added that her suggestion goes further and would specifically apply to negotiations that take a long time.

WTO Reform
Thune mentioned an amendment he recently introduced to have the WTO reform its special and differential treatment rules, so major economies like China cannot self-designate themselves as a developing country. Cutler said she agrees those rules need to be changed and hopes China would say they will no longer designate themselves as a developing country.

China
Daines asked what the U.S. can do better to enforce IP protections in China. Petri said it will be a difficult problem for the U.S. to solve, and that we need to work with partners. He said currently the U.S. is not part of a trade agreement, aside from the Phase One deal, which could impose additional pressures on China. He added that a lot will depend on where China decides to go in terms of IP policy. Petri said the U.S. does not have leverage right now, but that we could if we were to build a network of like-minded partners in the Asia-Pacific region.

Sen. Todd Young (R-Ind.) asked in what ways is the U.S. poised to build a better trade agreement than China. Cunningham said the biggest instrument we have is engagement, an attraction for partnerships, and our relationships, all of which China does not have and will not have for the foreseeable future.

India
Daines asked what potential opportunities and challenges arise from wanting to expand our ties and enter formal negotiations with India. Cutler said when it comes to India, there are enormous opportunities but also enormous challenges. She said there is so much potential but a lot of disappointment, mainly stemming from the face that India faces a lot of domestic opposition to trade liberalization and is not ready to take steps to open its market yet. She added that she is not optimistic this will change.

Supply Chain
Cornyn asked Cutler to expand on her statement that “trade agreements are trusted supply chain agreements”. Cutler said it gets rid of barriers and allows trade to move freely between countries, setting common rules of origin, and encouraging trade to take place. She said if the U.S. were to re-enter the CPTPP, we still might need to seek a separate chapter on supply chains or include annexes with supply chain agreements and respect to certain products, such as semiconductors.

Digital Trade
Carper asked what the U.S. should do to re-engage with our allies on digital trade matters. Cutler said a digital trade agreement would offer benefits to workers and the middle class, including exploring issues like digital inclusiveness and values of fairness and transparency. She noted that other countries in the Asia-Pacific region are foraging their own deals on digital. She said the U.S. is well positioned to enter a conversation with regional partners and provide a forum for shaping rules regarding new technologies.

For more information on this hearing, please click here.