Question: What will have to be included in an FTAAP (Free Trade Area of the Asia Pacific) road map at the APEC Summit in Yokohama that would convince you that APEC (Asia Pacific Economic Cooperation) forum is serious about achieving a more substantial agreement by next year's meeting in Honolulu?
C. Fred Bergsten: I think the critical thing is to include a transpacific dimension in the economic architecture that is evolving in Asia. It is clear that there will be more or less free trade agreements among the 10 (nations of ASEAN [Association of Southeast Asian Nations]) plus three (Japan, China, and South Korea).
In the absence of (a transpacific dimension), what occurs is a big increase in discrimination by the Asian countries against the rest of the world, including the United States and other APEC countries not in Asia. That would represent disintegration of the transpacific region rather than the integration that is the objective of APEC.
The critical operational issue is moving ahead as quickly as possible with the TPP (Trans-Pacific Partnership) with as many APEC countries as possible. It will be essential to have a critical mass of APEC countries so that it is a meaningful, credible step in the direction of an FTAAP.
Q: Should there be a time deadline in that road map?
C. Fred Bergsten: There certainly should be targets. The (Nippon) Keidanren (Japan Business Federation) has come up with an interesting proposal and timeline. Their idea is to aim for completion of both a 10-plus-three agreement and the initial core group of TPP by 2015 and then move on to a more comprehensive agreement by 2020.
Q: What would be the real costs to Japan if it failed to commit to the TPP by the APEC Summit in Yokohama?
C. Fred Bergsten: There would be two costs.
If Japan waits until a later stage the terms of the agreement are going to be worked out, and they will be approved by the legislatures of all the nations. It will be difficult to change that once it is put in place.
So if Japan waits, it runs a severe risk of having to sign up later on to terms that it had nothing to do with negotiating, and that is clearly a disadvantage.
The other disadvantage to Japan is that Japan is clearly participating in the Asia-only agreement.
If it continues on that road without participating in the transpacific dimension, Japan winds up discriminating against US trade, hurting its economic and broader relationship with the United States, reviving some of the old concerns about Japanese barriers toward the American economy and threatening to jeopardize its relationship with the United States and the other members of APEC that are not in the Asian agreements.
Q: If Japan did commit itself to the TPP, wouldn't it have to be prepared to enter into serious negotiations?
C. Fred Bergsten: All studies show that Japan would be a substantial beneficiary of participating in a TPP agreement. If it did not participate, it would lose out because it would be discriminated against by TPP countries. TPP members would discriminate in favor of each other, and that would be adverse to Japan's interest in the markets of the TPP countries. It would lose competitive position in the US market to the other participants in the TPP.
Q: Japan is pushing for a growth strategy and action plan for APEC at the summit. What elements would have to be included?
C. Fred Bergsten: All of the countries in the region have growth strategies. It is desirable to promote their consistency. I don't think that it is a comparative advantage for APEC to worry about overall economic growth strategy. That is much bigger than any issue that APEC has tackled in the past, and I don't think it makes sense to devote much effort to that.
Q: Japan has added cooperation on human security on its agenda for Yokohama. That appears to be an example of what critics say is APEC taking on too many issues and dealing only in a shallow manner with each one. What is your opinion?
C. Fred Bergsten: I think that criticism is correct. APEC has tended to add items to its agenda every year, some of them very big items, like growth and human security.
APEC over its life has been most effective and most valuable to its members when it was pursuing a meaningful trade agenda.
That is why I would come back to the TPP moving toward an FTAAP. These are the issues on which APEC has made major progress in the past and where it has established its credibility and reputation so that is where it should focus its efforts.
Q: What should be done at the APEC Summit to bring China into being a more responsible stakeholder?
C. Fred Bergsten: I think probably the best thing is to reiterate the pledges that the leaders have made to avoid the imposition of new trade restrictions. That should apply on the export side as well as on the import side. It should prohibit China or anyone else from putting on new export controls like they have done on the rare earths.
Q: What effect would a Republican victory in the US midterm elections have on what the United States does over the next year as host of APEC?
C. Fred Bergsten: It would probably help the outcome because if the Republicans take control of the House of Representatives that means that it would be more inclined toward trade liberalization.
US participation in the TPP and later FTAAP may be enhanced by that outcome, and that would provide a stronger political foundation for the US chairmanship of APEC next year.
Q: If APEC failed by next year's summit to make major progress on the TPP with a critical mass of countries, would that indicate that it had reached the end of its road as a viable international organization?
C. Fred Bergsten: It would further weaken APEC. The initiation of the TPP process and the progress made so far is starting to revive APEC as an important element in the region and the whole trading system. So if that failed, it would be another setback for APEC.
I don't think it will totally fail. I think the core group of countries will move ahead with an agreement. But it does need three or four more to achieve critical mass.
Q: There have been reports that China is looking into participating in the TPP. Do you see that happening any time soon?
C. Fred Bergsten: I don't think it's likely that they will try to join right away, but there are a lot of signs that they are indicating keen interest.
There is the same consideration for China that I mentioned before for Japan. If they stand outside and let a substantial group work out the agreement and they come in later, they have less impact and influence.
Q: Would having both Japan and China in the TPP negotiations make it that much [more] difficult to achieve an agreement?
C. Fred Bergsten: It cuts both ways. It would make the agreement much more worthwhile for everybody because there would be much more market access being offered. (But) it would increase the adjustment requirements for the trade-competing sectors of the other countries.
From the US standpoint, the inclusion of all the big Asian countries would be helpful because the United States runs big deficits with those countries and needs more access to their markets. The US market is pretty open anyway. The United States would be a net beneficiary from the kind of liberalization that would be implied by involvement in TPP.
Q: If Japan and China did decide to join, would the United States lower the standards it has set for the level of trade liberalization required for TPP?
C. Fred Bergsten: The principle would be that everything is on the table for negotiation, but in the usual negotiating, there is give and take ... some things would be limited or even a few possible exclusions.
I think all the countries that are in the negotiations are committed to a high-standard agreement, being as comprehensive as possible. I think that would apply to any of the newcomers to the talks as well.
Q: If the TPP morphed into an FTAAP, would that mark the end of the need for APEC?
C. Fred Bergsten: The closer you get to equivalence between APEC membership and FTAAP, I think the more relevance APEC would have. It would revitalize APEC, and a lot of APEC forums would be used to discuss different aspects of FTAAP implementation and evolution over time.