President Obama will be joined by Secretary Clinton and Secretary Geithner at the APEC Summit in Hawaii this week, before Obama travels on to Australia and Indonesia, where he will be the first U.S. president to attend the East Asia Summit.
Carnegie held a media conference call with Douglas Paal and Vikram Nehru to discuss the summits and Washington’s Asia policy.
TOM CARVER: Good morning, everyone. My name is Tom Carver. I’m vice president for communications at Carnegie Endowment. And I’m pleased to have with me here Doug Paal, who’s vice president at Carnegie and head of our Asia Program, a figure who’s well-known to many of you. He worked in the Bush and Reagan National Security Council and also worked for State and the CIA – and also Vikram Nehru, senior assistant in the Asia Program, who was chief economist until recently at the World Bank for East Asia and the Pacific region, as well as being in charge of the World Bank’s debt program at one stage.
So today the subject of the conversation is obviously President Obama’s trip to the Pacific, which starts later this week. And this will be a half-hour media call, in which you’re invited to ask questions of our two guests. And it is all on-the-record. So maybe I’ll just start with a question to both of you. I mean, he goes to APEC in Hawaii, his home state first; and then to Australia and then the East Asia Summit. Let’s start with APEC. I mean, how relevant is APEC, and how important is his presence there?
DOUG PAAL: Well, the – excuse me, the context is the importance in this one. The administration has been trying to market an idea, which I think is very sound, which is, having spent a lot of time and treasure in the Middle East and Afghanistan, Iraq, we have not been attentive to our interests in East Asia, where more than half the world economy is located, where more than 60 percent of American exports are destined and where there’s some opportunity for fiscal stimulus for the global economy. And so it makes a lot of sense to focus on it.
Now, APEC started out strong in the 1990s, but it lost momentum after the Asian financial crisis in 1998. And they’ve been trying to find a new runway to get going again. The Japanese were going to try it last year but they fell apart on domestic politics. The Obama administration is trying to give it some oomph this year because next year the host will be Russia, and they’re going to hold it at a funny time in a funny place. And it doesn’t look too good.
The centerpiece of this is trying to get broad agreement on the Trans-Pacific Partnership; get people in the trade ministries and – (inaudible) – leaders to commit – at least nine, maybe 10 countries to commit to a high-quality free trade agreement among these partners. The U.S. has fallen behind in trade agreements recently. The administration hopes to build up on the basis of the recent passage of the Korea-U.S. trade agreement to build more free trade in the region. This is done in a context where China has been very competitive, building its own network of free trade agreements and where the U.S. really can’t afford to linger behind too much longer.
MR. CARVER: Vikram, I noticed from the op-ed you recently wrote for the Strait [sic] Times that you think APEC is a declining force to some degree?
VIKRAM NEHRU: Well, as Doug – as Doug just said, and after 1998, it’s lost a bit of its – a bit of its oomph and it’s still trying to find its way back. You know, we’ve had three chairs now in succession – Singapore, Japan and now the United States – all three of whom have been trying to resuscitate APEC. But there’s a real question as to, what is the role of APEC when it is a – when it’s an institution, which doesn’t lead to any binding agreements of any kind; and really ends up as being an institution where leaders, finance ministers, trade ministers discuss experiences with one another and so forth.
But in the end, it really hasn’t proven to be a very forceful institution in the past few years. And I think it’s also running up against ASEAN and ASEAN plus three and ASEAN plus six, the East Asia Summit, to which Obama is going afterwards, which are institutions which seem to have more wind in their sails at this point.
MR. CARVER: OK, well, let’s talk about the EAS, then. I mean, what will be – this is the first time that an American president’s attended an EAS, right? What will be his purpose? What will he hope to get out of it? And what will the ASEAN nations hope to get out of it?
MR. NEHRU: Well, in the EAS, first of all, this will be the first time that an American president is going and that America will be represented. but also Russia, which is an interesting development also. I think the emphasis in EAS is going to be security issues, primarily freedom of navigation of the seas and nonproliferation, so noneconomic issues, but nevertheless issues of tremendous strategic interest to the United States and to – and to ASEAN.
I think as far as ASEAN is concerned, there is a concern about what’s happening in the Spratlys in the South China Sea. And I think it’s going to be very interesting to see exactly how that discussion plays out in the EAS because I think China is going to be quite resistant to talking about such issues in – with the United States present.
MR. CARVER: And China was resistant to having the U.S. there?
MR. NEHRU: I think initially when this proposal was voted, yes, I think there was resistance by China. But in the end, I think the other East Asian countries, the ASEAN countries prevailed.
MR. CARVER: Doug?
MR. PAAL: Well, you know, it’s an interesting phenomenon. The U.S. has been trying to do some balancing by taking APEC as an economic forum, finance and trade, and then jumping into the East Asia Summit forum in the hopes of making that where we talk about security and political issues. Now, up to – the last four meetings of the EAS, the first four in their history, were not on security subjects. They were on energy, economic regrowth, disaster management, bird flu management and a thing that the ASEANs have as a bug of theirs, connectivity. And don’t ask me what that means.
But the U.S. is now wanting to add nonproliferation and maritime security. And this is viewed by the Chinese as trying to negotiate the South China Sea territorial claims through a bigger body that the U.S. would have a large voice in. And so China’s being very resistant to that. Whether there’s going to be much discussion of maritime security even in the most abstract is a big challenge for this. So that’s what will be the measure of whether Obama’s been successful or not. Does he get something on the record on maritime security, even if it’s weak? And does he get something on nonproliferation, his concern about Burma’s and North Korea, in particular?
MR. CARVER: Is there a space in the schedule for Obama and Hu to meet separately, or no?
MR. PAAL: Obama and Hu are going to be at the APEC meeting. The representative for China at the East Asia Summit will be Premier Wen Jiabao, which is a bit odd. I mean, normally, you won’t have the – you would have the president do the security stuff, which – this was decided long before we raised – Americans raised the subjects of maritime security and nonproliferation. So it’s an odd forum in which to try to deal with something where the person representing China has a primarily economic portfolio, not a security portfolio.
MR. CARVER: So there’s lots of speculation that the Americans are trying to kind of create a bulwark against China’s advancement in the South China Sea – (inaudible) – I mean, do you give credence to that?
MR. PAAL: No, it’s speculation. The U.S. has no ability to keep China out or to keep China down. We have to work with the ASEANs. We have tremendously profitable relationships with China. And so that kind of thinking I don’t find in the administration.
The other way of putting it however, which I think is more accurate, is, why should the U.S. be absent from these new international architectures when we have huge interests in that region? We haven’t been tending them properly since 1997. We need to get back into the Pacific, a theme of the administration, which I think is very appropriate. And now – you have to do the hard work now to get back in after exempting yourself for 12 years.
MR. CARVER: OK. Does anyone have any questions at this stage for either Doug or Vikram?
MR. PAAL: Is there a technique? Do they have to hit a button or (do they ?) –
MS. : (Inaudible.)
Q: So what – I’ll jump in. Can you hear me?
MR. NEHRU: Yes.
Q (Journalist 1): Hi. You talked about, will he get something on-the-record on maritime security, even if it’s weak. What would be the sort of thing that he might get on-the-record on maritime security? And what exactly are some of the possibilities?
MR. PAAL: Well, the administration has said that they would like to get the leaders to reformulate or restate their already existing international obligations. So restate the Non-Proliferation Treaty principles on nuclear nonproliferation. And on maritime security: Restate Law of the Sea.
Now, even that’s tough because a number of the countries that will be present there take exception to certain aspects of the Law of the Sea in their signing statements when they ratified membership. Moreover, the U.S., while we have signed Law of the Sea, we have not ratified it. And so we have an odd standing within the Law of the Sea mechanism. So it’s – there are plenty of places where procedural objections can be raised that will have the substantive effect of diluting the statements about maritime security.
Q: I’m sorry. Why would it be significant to have this meeting restate Law of the Sea?
MR. PAAL: The U.S. wants to get Law of the Sea and maritime security on the agenda because we want to state again the principle of the major maritime powers, who inaugurated the Law of the Sea back in the ‘80s, that they have freedom of navigation, even in areas that are within the economic – exclusive economic zones of the coastal countries.
Now, China says the South China Sea is China’s, but they don’t object if we sail through it as long as we don’t sail Navy vessels on operations. And we say, hell no, we’re free to go there anytime we want as long as we don’t go within 12 miles of your territory. And so stop telling us what we can and cannot do.
And there’s a big difference there.
Q: So under the Law of the Sea, we could set – put a naval cruiser right down the middle of it if we wanted to?
MR. PAAL: That’s our view of the Law of the Sea and most of the 180 or so signatories. But there are six or so – China, Malaysia, India, Peru, Nigeria – who state that the EEZs exclude naval activity. And this is important because China has a new submarine pen down in the South China Sea. The U.S. would like to know where Chinese submarines are going, like to go and do surveillance operations. And China doesn’t want us to do that. And we’ve been in a wary standoff over this since 2009, when we had a confrontation in the South China Sea.
Q: OK, so basically – I’m sorry. I’m don’t mean to be (dominating ?), but restating Law of the Sea would be restating it in terms of our understanding of what it means, or –
MR. PAAL: Well, we would try to get as much as we can get of our understanding and try to give as little to China and Malaysia’s understanding and India’ s understanding as possible.
There’s also the desire to go beyond that to have commitments by the leaders to capacity-building. So for example, they would build some kind of – the secretariat or maybe something less formal than a secretariat that would follow up on maritime security or on nonproliferation. So you would have a recommitment to norms in the first instance; capacity-building, helping the little countries that don’t have capabilities on maritime security. And that would be, for example, giving the Philippines better patrol boats. That would be an example of capacity-building – and then having an action agenda: what to do between now and the next meeting that would signify progress on these issues.
As of now, these are not settled matters. They’re going into this with a lot of unanswered questions about how this is going to come out.
MR. CARVER: OK, does anyone else have questions?
Q: Yeah, can you hear me?
MR. CARVER: Yeah.
Q (Journalist 2): Could you talk a little bit about how nearly two and a half years into this sort of new Asia policy, focus on Asia of the Obama administration, it’s been viewed by governments in the region? Do they think that the U.S. is now constantly engaged in Asia? And is there a view that this is something that will outlive the current administration?
MR. PAAL: This is Doug Paal again. I think that the – by and large, this has been welcomed. You know, the first year there was some uncertainty. Did we mean it? Would we hang in there? The second year, which was 2010, was a bad year for China’s neighbors. China got into spats with a number of its neighbors. It didn’t start the spats, but once they started, they got pretty ugly. China showed a greater deafness to the thoughts and wishes of their neighbors, and their neighbors started drawing closer to the U.S. and welcomed strong rhetoric from Hillary Clinton and strong shows of military support from the U.S. forces in the Far East.
This year, the administration has been sort of cranking up in preparation for the president’s trip to the region. Hillary Clinton did an article for Foreign Policy, and they sent the – Mr. Panetta out to do a number of meetings with his counterparts. And we’re starting to hear people who are saying, you know, you’re going a little too far this time. Could you back off a little bit? We don’t want to militarize our relationship with China. It’s not in our interest to do so. Can we have a little bit of a quieter approach?
So I do hear, you know, nuances but generally I think it’s fair to say the administration’s reinvolvement has been more welcome than not. These countries are looking for some source of outside counterweight to balance China. But it’s a counterweight. They’re not looking for an alliance. They’re not looking for us to come in and do everything with them. But when China pushes, they’d like us to push back but then stop pushing when China stops pushing.
MR. : (Inaudible.)
Q: And obviously, you know, although this is – this trip is going ahead for good foreign policy reasons, there’s always a domestic audience. I apologize if you talked about this at the top. But how easy do you think it’s going to be for Obama to sell two summits in Asia within five days – (inaudible) –
MR. PAAL: Well, we haven’t talked about two days in Australia in between – (inaudible) –
Q: (Inaudible) – Australia might be easier to sell as kind of a security alliance, as a kind of historic tie, then people might say, well, why is he getting to Bali to another summit when he just had a summit in Hawaii, if you see what I mean.
MR. PAAL: I have the same –
Q: So he – (inaudible) – domestic audience.
MR. PAAL: I have the same issue in my mind. I think over and over again – and I’m sure – I know the bureaucrats trying to arrange this trip are thinking, is the president really going to make it? Are the White House people going to tell them this?
Sitting on – what appears to be sitting on a beach in Bali looks too much like not taking care of jobs in America.
Now, you’ll be hearing again and again the theme that building cross-Pacific trade, free trade agreements, those are good for American jobs; they’re going to produce jobs. You won’t be able to see the jobs they’re producing immediately, but they’re out there. And that will be the theme throughout.
Now, when they get to Australia, there will be material changes in our relationship with Australia with respect to the ability to exercise our armed forces in the northwest of Australia and to preposition war stocks there. Now, back in the mid-1990s when this was raised to our side, the American side said, why would we want to be in Australia? It’s not near the action.
But now Japan is so crowded, people are nervous about China’s growing missile capabilities, we’re looking for places to operate that are a little bit outside China’s range of missiles for tactical purposes, and that would be more politically sustainable over time so we can train our troops to be ready for any conflict that may arise.
Sitting in Bali (with this ?) agenda that I’ve described to you, which is pretty soft, it’s – I can imagine where – as in the previous two cases of going to Australia, the president was persuaded not to go because of the medical reform fight and over the budget fight; I can see again the political – domestic political advisers saying, 10 days in the Pacific while people are out of work in the U.S. – Mr. President, you ought to cut this one short.
They tell me they’re not going to cut it short. That’s where they are right now, but I wouldn’t be surprised if it happened.
MR. CARVER: OK. Any other questions?
Doug and Vikram, we’re on this issue of jobs. As you said, it’s critical to their message. I mean, how much truth is there in this that it can unleash jobs in the U.S., do you think?
MR. NEHRU: Well, let me just say a couple of things. First of all, in the – in the action plan, which has come out of Cannes and the G-20, there’s this recognition that Asia is now the biggest contributor to global growth, right? Over 50 percent of global growth now is coming out of Asia. And two-thirds of the world’s current account surpluses are in Asia. So Asia is being looked at as the region that is going to have to inject demand into the global economy, as the United States and Europe have to consolidate fiscally. And that’s why it’s terribly important that they play their role in the process.
And one of the objectives – as Doug mentioned right at the beginning – one of the objectives, I think, of the APEC meeting in Honolulu is going to be to get the Asians to buy into the G-20 action plan, on the broader – (inaudible). As it happens, a lot of them are already doing their bit. Japan is reconstructing after the tsunami. Malaysia has just announced an expansionary budget. Thailand is going to have to spend a lot just to get out of the problems it’s got with floods. Indonesia is already growing very well thanks to domestic demand growth. So there’s a lot of fiscal stimulus that’s already taking place in the region, but it’s very important for the global economy that this continue, that there be exchange rate flexibility. And all of that is going to translate into greater exports of the advanced countries, including the United States, and that translates into jobs. So Asia’s continued growth, continued domestic demand growth and rebalancing is going to be very important for U.S. jobs.
MR. CARVER: Are they looking for specific free trade acts?
MR. NEHRU: Well, you know, there are 39 free trade agreements right now in (Asia Pacific ?). If anything, you know, there are too many. The issue really is now to try and consolidate some of these free trade agreements, which is why the Trans-Pacific Partnership, which Doug mentioned, is one of those initiatives by initially four countries but now the United States to have a deeper, more meaningful – what they’re calling 21st-century agreement on trade for Asia and the Pacific.
Of course the problem is that when you have a deep, integrated – a meaningful agreement, fewer countries are willing to participate. So there is a problem here getting the major countries in East Asia to participate in something like a Trans-Pacific Partnership.
MR. PAAL: China has been building a lot of relatively shallow free trade agreements that’s benefited the Chinese in a lot of their exports in Southeast Asia, for example. And we’ve had some political resistance emerge as small competitors in those countries find themselves swamped with Chinese products.
But on the whole, China has promoted a deeper and richer trade arrangement with each of these partners in the – in their free trade agreements. The United States just signed one with Korea. Korea is about to enter in negotiations with both Japan and China to have a free trade agreement. They expect to get theirs with China very quickly. And so Korean trade will be drawn toward China presumably at the end of that free trade agreement in ways that we haven’t seen up to now where it’s already a robust level of trade.
And so China’s role in the region, thereby, is growing. And the U.S. just can’t sit by and have one country after another sign agreements with China and not have its own agenda. The Obama administration, because of the campaign politics of 2008, got way behind on free trade agreements and were poorly positioned, but now they seem to understand that this is a good place to find jobs.
MR. CARVER: Please, go ahead.
Q: Can we go back – I think you mentioned this before, but I’d like to expand on a little bit about the – about Australia and the U.S. military presence in Australia. What do you make of that and what do you – what do you – put what we’re expecting to happen here into some sort of – the context of regional security.
MR. PAAL: Well, the – you may be – at the back of your mind, may be more so – understand that we’ve had trouble with Japan over our facilities in Okinawa. You know, we’ve took over Okinawa after the war. We built a lot of bases there, put a lot of Marines on the territory and had freedom to operate. But it’s become a highly densely populated place since then. And we’ve been in the process year after year surrendering land back to farmers and urban developers on Okinawa. And we have less and less scope for our military to fly helicopters, jets, do bombing runs, have live fire exercises.
Australia’s got a vast amount of territory in the northwest around Darwin. And that has now been made available to us through some negotiations that were concluded in September. Announcements have been reserved for the Obama visit, but we know the – we know the agreements pretty well.
There’s also going to be prepositioning of stocks. One of the key things in any kind of crisis is to have access to your ammunition and the consumables in a conflict nearby the venue. And this will give us a good place to store some stocks.
I wouldn’t be surprised if there were also some new telecommunications and intelligence arrangements, but I’m not aware of those being announced, and it’s not the sort of thing they tend to say much about.
China, by the way, has the way has just leased from a Scandinavian country a satellite tracking station in Australia. So Australia is playing an interesting game here where they have a very economic dependence on China, and yet they’re wary about China’s security footprint in the region. And so on the one hand, they’re working with the Chinese, trying to stay friendly, keep their trade relationships and others going, and at the same time, take precautionary measures with their alliance partner, the United States, to protect their long-term security interests.
MR. CARVER: Is there any suggestion of a naval base happening in Australia for the Americans?
MR. PAAL: The United States doesn’t look for naval bases anymore. Bases were a 19th-century idea because we had – we had coal-fired ships and those places out there didn’t, so we had to have bases with our engineers there to do the work. Now, those ports all over Asia are more modern than our ports. So we just pull in and get commercial services. And a base invites trouble in politics. Better just to be able to come and go. No place is friendlier to us on a come-and-go basis than Australia.
MR. CARVER: OK. We got a couple more minutes. Does anyone else have any questions?
Q (Journalist): I certainly do, so I could jump in.
MR. CARVER: Sure.
MR. CARVER: Please go ahead.
Q: I would like to. The Trans-Pacific Partnership is a big issue for Japan, certainly, because there’s a lot of controversy involving the flood of cheap food imports from other countries. What quantitative benefits would Japan actually expect? And what incentive do they have to join the TPP? And likewise, what effect would America have that are positive that they could expect from having Japan as a member of the TPP?
MR. PAAL: The – this is Doug Paal again – (coughs) – excuse me – TPP promises for Japan some freedom from this enthrallment with agricultural security and safety. You got one and a half of GDP holding back the rest of the GDP and free trade agreements to protect an antique, aging agricultural sector which has disproportionate representation, as you know very well, in the two houses of the national assemblies.
The – everything about Japan screams, get into the TPP and modernize the country. Deregulate the internal economy. Make it open more to foreign direct investment. Liberalize services. Open labor market. Change immigration policy. Change female employment policy. All of these things have been stuck in Japan for a lot of reasons. And Japan needs to get some growth going again. The country’s full of bright analysts and many companies and organizations that represent industry who are pressing the Noda government to move ahead, but they’ve got the huge party and constitutional problems of the disproportionate representation of rural sectors in the national Diet that has – had them stuck.
Noda is talking bravely of breaking through this, but I – you know, when you take the wiring diagram of policy approval in both the DJP and the LDP in time for next week’s meeting with all the interests that are engaged, if Noda makes an announcement that he’s getting into the TPP, it may very well be undermined by the lack of support in the process back in Tokyo. I hope he can do it. I think it would be great for Japan if he can do it, but they’ve got this very deep-running political problem in their system to keep it from happening.
Q: And how about American sort of benefits?
MR. PAAL: Well, TPP for the U.S. would get us – it’s overwhelmingly weighted in terms of trying to help American services get into countries where our services are constrained. We’ve been able to get limited financial services in Japan. There’s a lot more that can be done in insurance, banking, investment banking, legal services, entertainment. There’s just a whole range of restrictions on those services that have been cleverly devised over the decades that American negotiators would like to break down.
Q: So you would characterize the benefit as mostly in the service industries?
MR. PAAL: That’s right. We’re a mostly service economy, and that’s where we go, although you can bet that the Sacramento and Louisiana rice farmers and others will be very loud in their effort to get some of our commodities into the Japanese market as well.
MR. CARVER: OK. Any others?
Q: (Inaudible.) Can you hear me?
MR. CARVER: Yes.
MR. PAAL: Yes.
Q: Yeah, so I wondered if any of you have heard anything about the prospects for the TPP framework agreement being initialized in Honolulu or – and if so, you know, were there any hitches? Do you – are you hearing anything out of, you know, the round out of Lima?
MR. NEHRU: But all that we’ve heard is that they – if there is going to be an announcement, it would be the announcement of a framework agreement – in other words, a framework for going forward rather than any initialization of an agreement right now. And I don’t believe that there’s any prospect of even a timetable for a final signature on the agreement going forward. So at this point, it’s just a framework as to where things – where they’ve agreed on issues and where they haven’t, and at what (sort of ?) progress needs to be made.
MR. PAAL: As an observer who gets in to talk to those people from time to time, I’ve been very frustrated at trying to elicit specifics from administration officials. I don’t know this, but my suspicion is, they’re having a hard time getting internal agreement within the administration on what constitutes a broad outline for TPP and what constitutes high standards. And so they continually return to the phrases “broad outline” and “high standards” without reflecting on specific content.
Q: Thank you for those insights. And with that in mind, do you think that there’s much of a prospect for building momentum for bringing in other countries? And you mentioned Japan, but I was thinking more in terms of possibly Korea.
MR. PAAL: Well, Korea has just done the KORUS agreement, which is a pretty high-quality agreement. And then they’re – they will be preoccupied with their Japan and China free trade agreements. Talking to senior Korean officials just this past week, they believe they’re going to move very quickly with China because the Chinese agreement will be a low-quality agreement – (inaudible) – they can reach that quickly. And the Japan agreement will be the hard and perhaps impossible.
And they say – and beyond that, they cast doubt that TPP will ever be realized. They’re very skeptical that the Asian trading partners are going to want to go as far as the American demands from our economy will be for opening the economies of East Asia and reducing barriers.
Q: Thank you.
MR. CARVER: OK. We’re right on the half hour, so unless anyone has a very urgent question, you can always follow up by talking to Karly here, and she can make arrangements to talk one on one with either Doug or Vikram.
MR. PAAL: And email is always welcome.
MR. CARVER: And email as well.
Q: Doug, what’s your email?
MR. PAAL: Yeah. Delta-papa-alpha-alpha-Lima at C-E-I-P – Charlie-echo-India-papa dot O-R-G.
Q: OK. Thank you.
Q: Can we clarify whether this is on the record or off the record?
MR. CARVER: This is on the record. On.
Q: On the record. OK, good.
MR. PAAL: Thank you for calling, again.
MR. CARVER: Thank you very much.
MR. NEHRU (?): Thank you.
(END)
