from Asia Program

Objectives and Future Direction for Rebalance Economic Policies

March 31, 2016

Testimony
Testimony by CFR fellows and experts before Congress.

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(Jonathan Ernst/Reuters)

In testimony before the U.S.-China Economic and Security Review Commission, Elizabeth Economy discussed the economic components of the “rebalance to Asia” and its prospects going forward. She recommended that the U.S. Congress ratify TPP, continue to support the Ex-Im Bank, and increase support for NGO operations across the Asia-Pacific in fields such as legal education and anti-corruption that help promote good economic governance. She also called for greater coordination between commercial diplomacy and strategic economic plans and greater support for the proposed U.S. New Silk Road initiative.

Takeaways:

  • Above all, the U.S. Congress should ratify the TPP. It is the economic heart of the rebalance and its realization is critical to the credibility of the United States in the region.
  • If not underway already, the USTR should initiate dialogues with other nations interested in joining the TPP, such as the Philippines, Taiwan, South Korea, and China.
  • The next administration should make the realization of a BIT with China a top priority. As the European Union moves forward with its own China BIT negotiations, the United States should coordinate its positions to the extent possible. The BIT provides the United States with the best opportunity to achieve a level playing field with China through greater access to the Chinese market for U.S. financial services, national treatment for U.S. investors, reduced caps on foreign ownership, increased transparency, relaxed controls on repatriated profits, enhanced cross-border data flows, and the elimination of policies such as enforced technology transfer and forced localization of production.[1]
  • The United States should develop a strategic plan for how it wants to participate in the next stage of Asia’s economic development. It could, for example, target three or four particular areas of infrastructure development, such as transportation, clean energy, agriculture, and telecommunications, and focus the energy of U.S. agencies around those issues. Without such strategic guidance, U.S. trade and investment efforts will suffer in Asia’s highly competitive economic environment, particularly in the face of China’s, and even Japan’s, strategic economic planning.
  • Congress should ensure continued and unwavering support for the Ex-Im Bank. The political gamesmanship surrounding the Bank is detrimental to the interests of thousands of U.S. companies. In order for U.S. firms to be competitive with those of other countries, particularly those from countries such as China that receive strong state support for their commercial activities abroad, export finance is essential.
  • The White House should more closely integrate U.S. commercial diplomacy with the region’s strategic economic plans.  The Asia Pacific has significant infrastructure needs in agriculture, information and telecommunications, and energy. Targeted delegations as part of presidential summits in these particular arenas would be particularly beneficial for boosting the visibility and impact of U.S. firms.[2]
  • The Obama administration should breathe life into dormant initiatives. The U.S. New Silk Road, which engages Central and South Asia, was announced in 2011 with four main areas of focus: regional energy markets, trade and transport, customs and border operations, and business. To date, the United States has invested roughly $1.7 billion in developing energy and transportation infrastructure, primarily in Afghanistan. Additional projects are progressing slowly. If greater support is not provided, the initiative will cost the United States its credibility, particularly in light of the far more robust Chinese One Belt, One Road initiative, and the deep engagement of both China and Russia in the region. Opportunities to cooperate and partner in the region with others such as Japan or the European Union should also be explored.
  • Congress should increase funding for NGO work throughout the Asia Pacific that contributes to strengthen good economic governance. The United States devotes roughly 4 percent of its global aid spending to Asia, a very small amount given the population of region.[3] Support for organizations such as the Asia Foundation,[4] the National Endowment for Democracy, and the International Republican Institute should be increased. These organizations help nascent and emerging democracies establish the foundations of governance for open and well-functioning markets. The Asia Foundation, for example, supports a program in the Philippines to improve the effectiveness of the judicial system, has worked with Mongolia to improve transparency and accountability in the country’s anti-corruption effort, and has supported legal education for Indonesia’s top law schools.

[1]Dan O’Flaherty, “The U.S.-China BIT Debate,” Investment Policy Central, 2012,

http://www.investmentpolicycentral.com/content/us-china-bit-debate.

[2] Lucio Blanco Pitlo III, “US-ASEAN Summit: Is the US Catching up with China,” China-US Focus, March 9, 2016, http://www.chinausfocus.com/foreign-policy/us-asean-summit-is-the-us-catching-up-with-china/.

[3] Joshua Kurlantzick, “The Pivot in Southeast Asia: Balancing Interests and Values,” Council on Foreign Relations, January 2015, http://www.cfr.org/asia-and-pacific/pivot-southeast-asia-balancing-interests-values/p35925.

[4] I have served a board member of the Asia Foundation since 2014.

 

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