5 Questions with Ambassador Ron Sorini on Trade and Asia

March 3, 2014

Negotiations on the Trans Pacific Partnership (TPP), a free trade agreement between the U.S. and 14 other Pacific Rim nations, are coming to a close this year. TPP has the ability to open up new countries for American companies to manufacture, while helping the U.S. build stronger political ties in the region. However, the growing threat of conflict in the region could cause problems for America’s consumers and its overall economy.

To help sort out trade issues and their impact in Asia, War on the Rocks interviewed Ambassador Ron Sorini, the Co-Founder and Principal of Sorini, Samet & Associates, which represents several major U.S. corporations and trade associations before the U.S. Government and the Congress on international trade issues and legislation. Sorini was appointed by Presidents Reagan and Bush as Ambassador and Chief Textile Negotiator for the Office of the U.S. Trade Representative from 1983-1993. As ambassador he chaired the U.S. delegations in the negotiation of NAFTA, the Uruguay Round, which led to the creation of the World Trade Organization, and over 50 bilateral agreements. Prior to that he served as an International Trade Specialist at the U.S. Department of Commerce, where he monitored and implemented numerous trade agreements with such countries as Singapore, Taiwan, and Korea.

 

1.  Thanks for joining us. Conventional wisdom holds that TPP is a tool to help Southeast Asian countries build their industries by taking away comparative trade benefits from China. Is this the really case – would China become a less attractive place from which to source goods? How does this fit with talk about China joining TPP?

The combination of rising costs in China and a successful TPP will lead many companies to shift production of footwear, apparel and other soft goods such as backpacks to Vietnam. However, these industries will not totally abandon China as that country has sound infrastructure and supply chains for many sectors. China will still be an important producer for many years to come. However, U.S. companies now want to diversify beyond China and Vietnam, because of several factors, including risks relating to currency and potential conflict in the South China Sea. That is why the U.S. should look to enhancing relationships quickly with other Southeast Asian countries, and modify current programs such as Generalized System of Preferences (GSP) to include footwear and travel goods. Prominent trade associations such as the Footwear Distributors and Retailers of America (FDRA) are already working on such efforts, which will further help U.S. companies diversify and eliminate one of the most regressive taxes on the books – the tariffs we charge on footwear. However, it is premature to consider inviting China to join TPP. I think current participants, with the possible additions such as Korea and the Philippines, need to establish a solid foundation agreement before engaging China, a country that will bring a number of issues to the table.

Overall, I do believe TPP is part of the Obama Administration’s “pivot to Asia.” As with NAFTA twenty years ago and other U.S. free trade agreements, there are both economic and geo-political reasons for the Obama Administration to pursue TPP. There is clearly a focus today on Southeast Asia, similar to President Reagan’s focus on Central America and Mexico. In addition to TPP, the United States is considering expanding the GSP program, which grants preferential access to certain developing countries, to include Myanmar (Burma) and Laos as beneficiary countries. Thus, enhancing relations and expanding economic engagement with allies in Southeast Asia is a major foreign policy objective, and very much in the national security interest of the United States, particularly as China’s economic and military power grows.

Also, the Administration has assessed that emerging markets such as Vietnam and Malaysia, and access to more mature markets such as Japan and New Zealand, will provide great opportunity for U.S. manufacturing, service sector and agriculture, creating new investment, jobs and greater economic growth in the United States.

2.  The White House is asking Congress to grant trade promotion authority (TPA) to negotiate the details of the TPP and present it as a whole package to Congress. Some legislators, including Senate Majority Leader Harry Reid, House Minority Leader Nancy Pelosi, and 150 other Democrats, oppose giving President Obama this authority. What explains this opposition from the President’s own party? Should Congress give the President what he wants on TPA? If they don’t, what does this mean for TPP?

Senator Reid and Minority Leader Pelosi are not supporters of free trade, so their opposition is not surprising and consistent with their past positions. It is surprising, however, that they would not at least attempt to work with the Obama Administration to find a common position. Labor unions are generally opposed to Trade Promotion Authority (TPA), which was previously known as “fast track,” and TPP, so this explains why most Democrats are not willing to support TPA and TPP. Democrats rely heavily on union support, including political contributions to finance their campaigns. I do think there is enough Republican support in Congress to pass TPA and a good TPP agreement after the 2014 Congressional elections, perhaps in a lame duck session of Congress. President Obama only needs to convince 50 out of 200 Democrats in the House to support these initiatives. It would amaze me if the president could not convince 25% of his own party to support him on trade. If President Obama really wants to pass TPA and TPP and works hard to gain support in Congress, TPA and TPP both will pass.

3.  In Asia, there is a lot of saber rattling in the East China Sea and the South China Sea. We focus a lot on what policymakers in the region are saying, but what are you hearing from the business community?

Business executives are nervous but generally do not think that a military conflict is imminent. However, businessmen are becoming more and more aware that rising nationalism in the region is raising tensions. I think the larger fear for businessmen is that regional trade tiffs would be more likely than actual conflict. Nonetheless, most companies I talk to believe that it is prudent to be less reliant on China for supply of products. Again, this is for a combination of reasons, partially economic – concern that costs will continue to rise steadily in China – and partially out of concern that China might do something to elicit trade sanctions from the United States and other countries. Also, in the event that a conflict over the East or South China Seas were to occur, companies will need supply chains that avoid that area.

4.  If a war were to break out over territorial disputes in the East or South China Seas, what would the impact be on trade and commerce? Could you sketch out a likely scenario for us that our readers should consider?

If an armed conflict were to break out it in Asia it would be highly disruptive to businesses and likely cause tremendous inflation in the United States. Today China dominates so many industries; a disruption in trade would cause shortages of numerous products very quickly. For example, China accounts for over 80% of shoes sold in the United States, and the vast majority of toys and electronic equipment. Perhaps five years from now, when industries are more diversified out of China, the impact would be less severe, but I don’t think that is likely. Production of many goods are moving from China to Southeast Asian suppliers, so a disruption in trade for the foreseeable future would likely have severe negative consequences on the U.S. economy. We must remember we often think of China as a low-wage supplier of basic products. But it is also a great market for U.S. agriculture and industrial machinery. Add to that the implications for other U.S. trading partners in Asia, particularly Japan and Vietnam, that a broader conflict would have, and the results could be profound. Total two way trade with China was over $562 billion in 2013, and was $203 billion and $29 billion to Japan and Vietnam respectively. Nothing good would come from an armed conflict in Asia.

5.  In all your travels in the region, what would you say are the drinks of choice among business executives in the region? Are there favorites country-by-country?

Beer if you are asking about alcoholic beverages. Most countries have great local beers, whether in Thailand, the Philippines or China. My favorite alcoholic beverage is tequila, which I discovered during the NAFTA negotiations. Good quality tequila is like sipping cognac. But probably my very favorite beverage is non-alcoholic – green tea in Japan.

 

Ryan Evans is the assistant director of the Center for the National Interest. He is the editor-in-chief of War on the Rocks.