Financial Times | 17 November 2006
Transcript: Susan Schwab interview
By Alan Beattie
At the Asia-Pacific Economic Co-operation forum in Hanoi, Vietnam this week, Susan Schwab, US trade representative, spoke with Alan Beattie, World Trade Editor of the FT. She discussed the prospects for turning the 21 economies of Apec into a Free Trade Area of the Asia-Pacific (FTAAP), current talks about bilateral trade deals in Asia; the expiration in June next year of trade promotion authority (TPA), which gives the White House the power to submit proposed trade agreements to Congress for a straight up-or-down vote; and the expected signing of a bilateral trade agreement over the weekend between the US and Russia.
The following is an edited transcript of the interview.
The Financial Times: Let me just ask you about Congress to begin with, and not just about the vote [on a bill treating Vietnam as a full trading partner] this week, because that was partly a procedural thing. Do you actually believe the noises of bipartisanship coming out of the Democrats? I note they’re coming out from the Democratic leadership, while a lot of the rank and file seem to be a lot more suspicious about trade.
Susan Schwab: I think we’re going to see. The proof will be in action. I take the leadership at their word, that they are interested in approaching trade on a bipartisan basis. The Bush administration is certainly interested in approaching trade on a bipartisan basis. Congressman Rangel and Senator Baucus [the new Democrat chairmen of the House and Senate committees that cover trade] have both expressed their commitment to more bipartisanship in trade, and I look forward to working with both of them to see that we find a way of going forward.
FT: As well as expressing willingness, they have also brought up the traditional Democrat issues about labour standards and so forth. Is that likely to be something that actually binds or constrains you as you negotiate bilaterals?
Susan Schwab: It depends on how it plays out. I think that we need to have a better sense of what they have in mind. They need to understand that it takes two, or three, or five, or in the case of the WTO 150, to tango. And we can lay out lots of constraints in our negotiations but if nobody is prepared to negotiate with us, no one accomplishes anything, whether it’s in labour or environment or market access or increased export opportunities. So we’ll see, but as I said, I take them at their word. These are individuals that in some cases I’ve known and had a chance to work with for many, many years, and whom I respect and look forward to working with.
FT: One thing that even they have said as well is they want a tougher line on China, not necessarily a bipartisan line on China. Does that not mean that anything that has both the US and China in it, like Apec and FTAAP, is essentially pointless at this stage?
Susan Schwab: Well, I think that there is a clear recognition that the US government needs to use the entire range of tools and opportunities that are available to make sure that when it comes to US-China trade relations, we’re dealing with a level playing field. Those tools range from jawboning and commentary, and multilateral and bilateral means, right through to WTO dispute resolution and if necessary, pursuing trade litigation and retaliation. The key issue or set of issues with China is the level playing field, and the extent to which the bilateral trade relationship reflects market access and protection for intellectual property rights. And those kinds of fair trade elements are very important to a level playing field.
FT: This seems to be about enforcing current rules - dispute resolution and so on and so forth. If you actually go and say we should even consider - which is what this summit is going to say - we should consider an FTA including China like the FTAAP, we should look at whether it’s feasible or not, would you actually even be able to start negotiations in good faith? Not only the Congress but the US Chamber of Commerce and all sorts are saying: we do not want any new deals with China until we’re sure they’re actually adhering to the current ones.
Susan Schwab: Well I think actually there are a couple of things when we’re talking about China-US trade relations and the importance of a level playing field. We’re talking about enforcement of existing rules, and agreements, and commitments. We’re also talking about moving the trade relationship forward to eliminate remaining irritants. So for example in the context of the Doha round negotiations, in both our multilateral and our bilateral dialogue with China, we have trade barriers that we’d like them to remove in the multilateral context.
When it comes to the regional context, if you look at where Apec has been going up to this point, further economic integration in the meantime is inevitable. It’s a logical progression for Apec. Where that will ultimately come out remains to be seen, but let’s face it - the United States, China, any individual economy in Apec will only embrace a regional integrated trade initiative if they believe it’s in their economic interest to do so. So the conversation to date has laid out potential pathways forward rather than any kind of formal commitment, which would be a longer term process.
FT: The interesting thing is that the integration that has taken place in the region has almost nothing to do with trade diplomacy. The [Association of South East Nations] FTA rules are not used - only 10 per cent or so is used. Everything else has just been actual companies getting on and selling stuff. And it’s not the only region in the world, by the way, where the private sector is driving it.
Susan Schwab: Yes, but let me put a different spin on it, which is some of the bilateral and regional free trade agreements in the Asia-Pacific region are formalised manifestations of where our respective private sectors have already taken us. We have countries in the region that understand the self-interest in an open trading system, and in many cases, countries that have opened their markets unilaterally. Look at Singapore as a great example. So, there’s a positive spin, a positive dynamic between the formal government-to-government agreements that are being negotiated and where the private sector has already taken us.
FT: So you might say if the private sector is doing it all and, as you say, all you’re doing is formalising it, it’s not actually clear that that contributes anything to the process at all.
Susan Schwab: Well, it’s a combination of formalising it and pushing the envelope, moving it forward in areas where the private sector would like to move and governments have precluded moving. So it’s a combination. I mean, it is really business and government moving in parallel, moving in tandem to create economic integration in the Asia-Pacific countries.
FT: And on that subject, I would like to ask about the bilaterals that you’re negotiating at the moment within Asia. Obviously a lot of the very deep stuff like enhanced IPR protection and so on and so forth clearly is a reflection of your private sector’s interests. But at the moment, it doesn’t necessarily seem to be going down that well. The talks with Thailand are stalled; the talks with Malaysia are dragging a lot on services. In the talks with Korea, it’s not even clear they’re actually going to get anywhere by the middle of next year. And outside the region as well, as in South Africa, bilaterals are not moving. Is this not because you’ve just taken on so much you’re not actually going to get it done, certainly not by the end of TPA?
Susan Schwab: Well, you raised a bunch of questions. Let me begin with the following assertion: we are capable of walking and chewing gum at the same time. In fact we’re capable of running and chewing gum at the same time.
FT: In Singapore you’re certainly capable of chewing gum. [In its bilateral trade talks with the US, Singapore agreed partially to rescind a ban on chewing gum after lobbying from the Illinois congressman whose district contains Wrigley’s headquarters.] I’ll remember that one.
Susan Schwab: As you know, administration trade policy has multilateral and bilateral trade liberalisation initiatives running in tandem, and we think they’re mutually reinforcing. In the case of the bilateral negotiations and the FTA negotiations, the Thai FTA negotiations were moving along quite well. Obviously the coup has profoundly affected the progress there.
FT: They were stalled well before the coup, on IPR and other things.
Susan Schwab: But they were very, very close, they made a lot of progress. We were within closing distance.
FT: Really? The people involved in it were saying it stalled round about the turn of the year.
Susan Schwab: Well, sure, it did stall. You get towards the end of these negotiations and guess what: you’re at the hard part. And at that point, the closer you get to the end the more likely you are to stall because you’ve picked up momentum and done the easier things and what you have left is the tough stuff. No, we were making pretty good progress with Thailand. There were some bumps in the road, but ultimately it was the coup that really stalled it.
Now in the case of Korea, the Korea FTA and the Malaysia FTA negotiations are progressing quite well. Again we’re approaching the harder stuff. As you approach the half way mark and move towards determining if and when you can finalise the FTA, you encounter the toughest decisions. Now, the key question in terms of the Malaysia FTA and the Korea FTA is: can we get these done within this allocation of trade promotion authority? That’s the issue. I’m confident that at some point in time the governments on both sides will be able to find an agreement, an FTA outcome, that both consider to be in their own best interest.
FT: Yes, but can they do it before the expiration of TPA?
Susan Schwab: And that’s the key question, and I don’t know the answer. Let’s put it this way. In the conversations that I’ve had with my counterparts, both in Malaysia and Korea, they know that they have a unique opportunity to conclude an FTA with the United States within this trade promotion authority allocation. That does not by any means guarantee success. And neither side will close on an FTA that doesn’t meet the high aspirations and expectations of each side. So, while the timing creates a unique window, the timing will not dictate substance. I think both sides will do our best to get these FTAs concluded in time for this allocation of trade promotion authority. Russian accession to the WTO is another tough negotiation.
FT: There’s a bunch more things to do on Russia at the next stage.
Susan Schwab: Yes, we are hoping that we are going to be able to sign the bilateral accession while here in Vietnam and when the two presidents get together. I think the key significance there is that once concluded, Russia is in a position to move to the next very important and final stage of their accession, and that’s the multilateral stage.
FT: But your domestic constituency and in particular the music and movies people - or that’s what they say to me anyway - want to see results between this stage and the final signing, including actual enforcement of IPR.
Susan Schwab: In the case of the intellectual property rights component of the bilateral, there have always been two elements. One is commitments and the other is evidence, and both Russia and the United States agree that we need both to be successful.
We’ve been watching with interest as President Putin has made some very forward leaning statements about IP protection and the importance of intellectual property rights protection for Russia’s own sake, and for the sake of Russian entrepreneurs and innovators and intellectuals and the creative class. The key challenge is: how does that translate into reality? How does it translate into enforcement? But again, I think that the bilateral agreement that we are closing on, and hope to close on soon, lays out both the path and an expectation of results that both sides see as the way to go in copyright protection. The US industry has said that’s great as far as it goes and they now want to see results, and results are what Russia wants to see too.
FT: One thing that several people have said to me is that in retrospect in the China WTO accession [in 2001], which was obviously quite similar, in retrospect they should have asked for a lot more evidence of enforcement before actual admission. Do you think that’s fair, looking back now? Do you think you should ask to see more enforcement?
Susan Schwab: Well I’ll tell you something. As a trade negotiator, it is so easy to second-guess somebody else’s deal. I will not second-guess the previous agreement, other than to say that the United States remains committed to the commitments they adhered to in the area of intellectual property rights protection. And it’s particularly true in the case of China.
FT: And finally, if TPA does expire, are you concerned that the European Union will be prancing all over Asia signing FTAs right, left and centre at the expense of US interests in the region?
Susan Schwab: The first part of your statement about if TPA expires. As I’ve said before, no self respecting US trade representative would want to be without trade promotion authority. And quite frankly if you are a Congressional trade leader you wouldn’t want your trade representative to be without negotiating authority, so we’ll see how that plays out going forward. It’s obviously an area where I look forward to having a conversation with both the Democrat and the Republican leadership in Congress.
When it comes to other countries negotiating bilateral and regional agreements, I am less concerned about the number of those agreements than the nature of those agreements. And I think the key with the proliferation of bilateral and regional free trade agreements, or open trade agreements, or trade agreements is: do they stifle economic growth? Do they protect and lock in sensitivities, or do they in fact over time contribute to more open trade? I would argue very strongly that the US FTA is a gold standard.
FTAs negotiated by the United States ultimately contribute to trade liberalisation in a multilateral context. The key question to ask is whether the FTAs negotiated by the EU or by China or by Japan or by India in fact free trade agreements, and to what extent they contribute to or detract from the multilateral trading system. If they contribute to the multilateral trading system, then I’m all for them. If they detract from, or negate or undermine the multilateral trade system, then I think we’ve got a problem on our hands.
FT: In terms of industrial goods and services, the EU is also quite ambitious and it wants investment rules which in a sense are similar to IPR. So it wouldn’t strike me that would do much damage. Are you referring to agriculture?
Susan Schwab: Well I’m looking at sensitivities. It could be agriculture, it could be footwear or textiles. Anything that is carved out. Remember the WTO standard [coverage rules for FTAs] is “substantially all trade”, and if you start carving out and working around sensitivities, you are arguably making them permanent. And you could make it that much harder in a future multilateral setting to achieve real market access in those areas. So, again it depends not on the number of FTAs negotiated, but the nature of those FTAs.