The Danger of the Deal

April 2, 2018

Even if America wins concessions, worry

Donald Trump’s trade policy is economically muddled and politically toxic

Print edition | Leaders

Mar 28th 2018

 JUST six words suffice to sum up President Donald Trump’s approach to trade (and, you may mutter, too much else): make threats, strike deals, declare victory. In recent weeks Mr Trump’s campaign-trail threats of 2016 have been turned into tariffs of 25% on imports of steel and 10% on aluminium, and proposed levies on up to $60bn-worth of Chinese goods.

Foreigners have duly queued to sue for peace. On March 26th South Korea agreed to limit its steel exports to America, and accepted an extension of American tariffs on its pickup trucks. China is said to be discussing cuts in tariffs on American cars, increased purchases of American semiconductors and the further opening of its financial industry. With many of America’s allies belatedly exempted from the metals tariffs, and consensus among policymakers and business types that China should indeed change its behaviour, stockmarkets are less fearful of an outright trade war (see Buttonwood). The man who tweeted that “trade wars are good, and easy to win” may be able to claim a string of victories with scarcely a shot fired.

Vindication? Far from it. For one thing, no deal has yet been done with China. Other countries have politics too, even dictatorships. Despite the South Korean deal, and keen as China is to avoid a trade war—keener than Mr Trump, it seems—the danger of a transpacific escalation remains real. Even if conflict is averted and China gives ground, however, the result will be a bad one for the world, and for America. That is partly because of Mr Trump’s character. If he thinks he has won one fight, he is likelier to start another. It is also because his policy is founded on wretched economics and dangerous politics.

Take the economics first. The President is obsessed with America’s trade deficits—not just the total, of $568bn, or 2.9% of GDP, last year, but its bilateral ones, especially the yawning $375bn deficit in goods trade with China, which he wants cut by $100bn. Mr Trump’s bluster cannot change basic economic logic. America’s total trade deficit reflects the shortfall in saving by its households, companies and government—the excess of their combined spending over their income. Tariffs and quotas can bring trade into balance only if they somehow encourage national saving or reduce investment. Protectionism predicts trade balances poorly. Just look at India, where, historically, high tariffs and high trade deficits have coexisted.

Bilateral deficits, it is true, can more easily be altered by trade policy. If America slaps taxes on Chinese goods (and nothing else changes), it will buy less of them and the $375bn gap will shrink. However, unless Americans change their total spending and saving, they will buy more from elsewhere.

The tax cuts that the President signed into law in December make his fixation on trade deficits even more senseless. Boosting the budget deficit to 5% of GDP in 2019 will, other things being equal, widen the trade gap. It is hard to imagine Mr Trump blaming himself for that—and all too easy to see him making a new round of threats against foreigners.

The President’s more fundamental error is to see trade as a zero-sum game, in which exporting is for winners (or cheats, if they are foreign) and importing is for dupes. In fact, the gains from trade come from the specialisation permitted by the free exchange of goods, capital and know-how that allows, for example, Californian-designed iPhones to be assembled in China and sold worldwide by the bucket load.

So long, Geneva’s conventions

Mr Trump’s misunderstanding of economics explains why his politics are so irresponsible. Rather than join with other aggrieved countries to put legal pressure on China, Mr Trump has threatened putative allies. Rather than work within the rules-based system of trade, which America helped create and which, despite the system’s imperfections, has served the country well, he bypasses it at will. He is particularly reckless to claim that the steel and aluminum tariffs are justified by national-security concerns (a get-out-of-jail-free card under World Trade Organisation rules that should be used sparingly). If America thumbs its nose at the WTO, why shouldn’t others?

Managed trade is a mistake, not a victory. It substitutes the power of political lobbies for market forces, favouring loud, well-organised producers over silent, disparate consumers and robbing economies of the nimbleness needed to adapt to changing technological conditions. Other countries will feel freer to follow America’s example, making a trade war a repeated risk rather than a one-off danger. Mr Trump’s approach threatens to leave everyone much worse off. Some deal.

This article appeared in the Leaders section of the print edition under the headline “The danger of the deal”

Trans-Pacific Partnership (CPTPP): Japan-led Pacific Rim Countries Desperate to appease Trump

March 9, 2018

by Jomo Kwame Sundaram

http://www.ipsnews.net/2018/03/japan-led-pacific-rim-countries-desperate-embrace-trump/

Dr. Jomo Kwame Sundaram  seen with Khazanah Nasional Berhad’s Tan Sri Azman Mokhtar

The grandiose sounding Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will be signed in Santiago de Chile today, 8 March. Instead of doing something to advance the condition of women on International Women’s Day, trade representatives from 11 Pacific rim countries will sign the CPTPP, which some critics argue will further set back the progress of humanity, including women who hold up ‘half the sky’.

In fact, the resulting 6500 page agreement has, so far, only been used by Obama’s United States Trade Representative (USTR) to derail the already protracted Doha ‘Development’ Round negotiations under the auspices of the World Trade Organization (WTO), e.g., by ‘lame-duck’ USTR Michael Froman at the WTO ministerial in Nairobi in December 2016.

In January last year, newly elected US President Donald Trump withdrew from TPP, effectively killing the agreement. Since then, Japan has worked hard to keep it alive, with discreet help from Australia and others. Apparently, they hope to draw the US back in order to check China’s growing influence in the region while delaying other regional trade negotiations such as the Regional Comprehensive Economic Partnership (RCEP).

After signing it, at least six countries must ratify the CPTPP for the deal to come into effect. Even before signing, governments have announced plans to drag their feet, indicating they are signing under duress. Incredibly, no details of the new agreement were supposed to be released until after the signing, and few consultations have been held by the signing governments despite promises to do so.

Bad deal not improved by reheating

To make the case for the TPP, its advocates greatly exaggerated its negligible trade benefits. US government studies — by the Department of Agriculture’s Economic Research Service and the International Trade Council — projected very modest gains, even with the US in.

Despite the US absence from the CPTPP, its proponents have not hesitated to make even more exaggerated claims about supposed benefits. With already negligible trade gains from the original TPP, purported gains from the CPTPP without the US are even more paltry. Not surprisingly, the TPP11 have become even more desperate for US participation to maintain their original fictitious claims.

The old claim that trade liberalization lifts all boats is increasingly rejected in favour of more nuanced recognition that its costs may be as much as its benefits, and distributed very unevenly. Such recognition has enabled better understanding of the Brexit referendum outcome and Trump’s election following a campaign in which all major candidates were opposed to the TPP.

CPTPP losses, costs and risks are almost as great as with the TPP while actual gains are even more trivial. Meanwhile, CPTPP citizens must surely wonder why their governments are proceeding so secretively without public consultation or even the fig leaf of credible cost-benefit or other analyses.

Seducing Trump

Japan’s Prime Minister Abe appeasing US President Donald Trump

Minor amendments have been made to the original TPP agreement, largely drafted by US corporations during the Obama presidency. But the new CPTPP Preamble can only guide its interpretation, and does not replace problematic TPP provisions. Some TPP11 countries have secured ‘side letters’, exempting them from some of its provisions.

Meanwhile, several onerous provisions have been suspended, including some of those extending the scope and duration of pharmaceutical patents. Well over a thousand provisions remain, most not even challenged by the CPTPP negotiators. The 22 suspended provisions can easily be restored if the US chooses to rejoin the TPP.

At his World Economic Forum charm offensive at Davos in January, Trump stated that he “would do TPP if we were able to make a substantially better deal” despite his anti-TPP presidential campaign and post-election rhetoric. No one can be sure what he means anymore, especially following his more recent declarations celebrating trade warfare.

US positions in the ongoing North American Free Trade Area (NAFTA) re-negotiations suggest his administration will demand stronger intellectual property rights, especially pharmaceutical patent protection; this can be easily accommodated by the TPP11 by reinstating suspended TPP provisions.

However, in light of the new USTR’s pronouncements, it is likely that the White House will insist on removing ISDS provisions from the TPP to be consistent with Trump’s ‘sovereigntist’ approach of putting ‘America first’. Or worse, ISDS provisions may not be reciprocal, i.e., US corporations abroad can use ISDS, but TPP11 investors cannot make such claims against the US government.

 

Moving from Defence to Offence on Trade Strategy

March 5, 2018

5 March 2018

Author: Editorial Board, East Asia Forum

  Commerce Secretary Wilbur Ross with his Boss,President Donald Trump

 

The trade architecture in East Asia — the most dynamic region in the global economy — is up for grabs. The very system on which regional arrangements are built is under threat.

US President Donald Trump’s withdrawing the United States from the Trans-Pacific Partnership (TPP), his ‘America First’ agenda and his declaration last week of the first shots in a global trade war undermine the WTO and the global rules-based economic system that it underpins. Asia and the global community, including the United States, have relied upon and benefitted from that system for over 70 years.

Can East Asia put aside its differences and define a set of arrangements that protect its own economic security interests absent the United States? US leadership put this system in place and drove its expansion throughout the post-war years. Now the United States is generating the headwinds that threaten to unravel it. Just last week Trump announced the first salvo in what could be a trade war with a 25 per cent tariff on all steel imports and 10 per cent tariff on aluminium imports. The temptation for other countries is to retaliate with their own self-harm policies.

What’s at stake?

The multilateral trade regime provides the cement and ballast that makes it easier to manage tricky rivalries and conflictual relationships of the kind that abound in Asia but around which large-scale economic interdependence and prosperity have been built. The ‘America First’ challenge threatens the collapse of that system and a descent into beggar-thy-neighbour protectionism and political conflict reminiscent of the lead-up to World War II.

How leaders in Asia respond to this challenge and the arrangements that the region settles on will matter for three important reasons. It will substantially affect the welfare of individual countries and the communities within them. It will affect the atmosphere for both economic and political cooperation in the region. And, given the size of the Asian economy, it will matter for whether the global rules-based economic system withstands the assault upon it.

No single country  acting on its own can lead a response to the vacuum that United States is daily creating in global governance. This US-sized hole in the Asia Pacific will have to be filled with leadership from the rest of the region as a whole.

Asian and Pacific nations have responded definitively so far. And leadership has come from one of the most unexpected places: Japan, traditionally shy to step out in front.

Once Trump declared that the United States was getting out of the TPP, Japan led the remaining 11 members towards the agreement’s conclusion without the United States. That deal is expected to be signed in Chile this week. The awkwardly named Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), otherwise known as TPP-11, would not have happened were it not for Prime Minister Shinzo Abe’s leadership. Australia’s also played a major role, but Japan (the Partnership’s largest economy absent the United States) was the decisive player.

As Shiro Armstrong explains in this week’s lead essay, ‘conclusion of the CPTPP does not deliver the big strategic goal of keeping the United States entrenched in Asia. Instead, it sends to Mr Trump a strong message of the region’s commitment to openness. Holding the line and pushing back against growing protectionist sentiment keeps the pressure up, with market opening and reform on which US businesses and consumers miss out’.

Most surprised about Japanese leadership are the Japanese themselves. As Armstrong says, Japan ‘has found itself in an unusual position. Japan has often relied on external pressure, usually from the United States, to advance its diplomatic goals and even to push domestic reforms’.

Asia cannot count on Japanese leadership alone, nor can it count on Japan’s continuing in this manner. In saving what’s left of the TPP, Mr Abe saw an opportunity to hedge ‘against the uncertainties that Trump has generated in regional and global trade policy, strengthening ties with other partners like Australia and India and laying the groundwork for improving relations with China’.

Australia almost single-handedly led the push back against Trump’s team  tearing up multilateralism as APEC’s central tenet at the summit in Vietnam last November.

With Australia having held the line in APEC and moved forward on the TPP, what is needed now is for the other powers in Asia to join Australia and Japan in preserving and protecting the global system.

The CPTPP, even if it expands membership to include other middle powers in East Asia, is not systemically important enough to do the job. With the United States in the agreement, the TPP would have accounted for 38 per cent of the global economy but without it the agreement accounts for only 13 per cent.

In East Asia, there is fortunately another vehicle that has the weight to do the job. The Regional Comprehensive Economic Partnership (RCEP), which is currently being negotiated, involves the 10 ASEAN members plus Australia, China, India, Japan, New Zealand and South Korea. That grouping accounts for 31 per cent of global economy.

RCEP (perhaps the second-worst acronym in Asia after the CPTPP) is as important as it is difficult to realise with the required ambition. Including the major economies of Indonesia, India and China makes a tall order out of large and credible commitments to economic opening . The anxiety to get a deal done quickly could compromise the quality of the arrangement and therefore its impact. A hastily concluded RCEP deal that is not credible in its ambition would be a mistake and a huge lost opportunity, risking more harm than good. India is still playing its familiar role of spoiler by dragging the agreement down and other leaders have yet to expend political capital that they need to on RCEP.

There is no clear leader in RCEP. The Partnership is not China-led as is often wrongly claimed: ASEAN is the hub and inspiration, and the major powers, including China, are the spokes. The only leadership that China can show that Australia, Japan, India and others can accept is one where it commits to reforms and opening up its economy. That will benefit both China and the global economy.

RCEP is the best chance at an agreement that is inclusive of China and locks it into reforms. The CPTPP may be easier for countries to join than the original TPP since it has frozen ‘some of the more egregious provisions of TPP — especially the US-pushed intellectual property protections that were likely to benefit big business in the United States at the expense of consumers in the region’, as Armstrong explains. But expanding CPTPP membership to China is unlikely since it would close the door to any possibility that the United States might rejoin at some time in the future.

There is little chance of the United States rejoining the TPP under Mr Trump or even the president after him. Piecing together political leadership on trade in Washington will be difficult without making progress on an agenda for dealing with the issues that have led to the current problems: stagnant middle-class incomes, wider distribution of the gains from trade and a properly functioning social safety net. The US Congress is unlikely to agree to join an existing deal, even though the United States was the driving force of the original TPP. The United States’ joining a deal that China is party to any time soon is inconceivable.

If East Asia does not hold the line on corrosion of the global trade regime and protectionism, no one else is likely to.Crafting regional trade architecture without the constructive participation of the United States is the immediate challenge and will remain the challenge for the foreseeable future. Australia and Japan have led the initial charge, but China, India and Indonesia will need to step up.

Asian powers may not be ready for the sort of leadership that is needed, but the threat to their interests in the global system will not wait until they are.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.

 

Model Trade Deal Con

February 27, 2018

By Jomo Kwame Sundaram

http://www.ipsnews.net/2018/02/model-trade-deal-con/

In early 2016, the Trans-Pacific Partnership (TPP) Agreement — involving twelve countries on the Pacific Ocean rim, including the USA — was signed in New Zealand. Right after his inauguration in January 2017, newly elected US President Donald Trump withdrew from the TPP, effectively killing the agreement as its terms require the participation of both the US and Japan.

 

On 8 March 2018, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will be signed in the presence of outgoing Chilean President Michelle Bachelet. After that, six countries must ratify the deal for it to take effect.

 

Twenty-two of the original TPP provisions will be ‘suspended’, leaving over a thousand others intact. The 22 provisions have only been suspended, apparently to enable Washington to easily re-embrace the essentially US-drafted 6500-page TPP Agreement.

The CPTPP will include several changes to the TPP, but will otherwise incorporate it. Besides the investment agreement, several onerous intellectual property and other provisions will be suspended. Some ‘side letters’ can exempt some TPP11 countries on some matters. But otherwise, many of the most onerous TPP provisions remain.

The TPP11 countries are likely to give in to US demands. With very modest prospective trade gains from the original TPP, US withdrawal has made the gains from the CPTPP even more paltry, making the TPP11 desperate for US participation. For Japan’s government and some others, the TPP will draw the US back into a stronger anti-China regional coalition.

The CPTPP Preamble can guide interpretation of, but not contradict, let alone override problematic TPP provisions. Meanwhile, some countries will remove all their tariffs on products from other CPTPP parties while others, such as Japan and Canada, will not.

Taking the widely criticized secrecy of such negotiations to a new extreme, no details of the ‘zombie agreement’ will be released until after its signing. Despite promises to “engage with various stakeholders to get their views and feedback”, most signatory governments have not conducted inclusive public consultations about the new agreement.

Already, TPP11 proponents have resumed chanting the mantra that the US-drafted TPP is a ‘model trade deal for the 21st century’, seemingly oblivious of global economic transformations of recent decades and their implications.

Privileging foreign investment

Meanwhile, CPTPP privileging of foreign investment from TPP11 countries may well perversely encourage businesses to incorporate abroad as they will be better able to make demands on the government than they can currently do as nationals.

The CPTPP enables non-TPP11 firms with branches in TPP11 countries to use it to their advantage, e.g., investor-state dispute settlement (ISDS) provisions will allow investors from other TPP11 countries to sue the host government, in a special international tribunal, for unlimited compensation and compound interest.

Critics say the text of the revised Trans-Pacific Partnership and the opaqueness around the process show little has changed in the agreement since the Conservatives negotiated the original deal eventually signed by the Liberals in 2016. –-New Coke, old Coke, new CPTPP, old TPP. 

 

As firms incorporated in other TPP11 countries may also enjoy lower taxes and other incentives, the recent trends of greater outward than inward FDI may well accelerate. China, India and other emerging market economies are already struggling to cope with such ‘roundtrip’ FDI through offshore tax havens, and there is little reason to believe smaller TPP11 developing countries will fare better.

Lower interest rates abroad in recent years due to unconventional monetary policies, such as ‘quantitative easing’, have enabled highly leveraged foreign portfolio investors to increase their ownership of the corporate sector in many emerging market economies.

Capital account liberalization has enabled net capital outflows despite sometimes inducing temporary episodes of massive inflows into emerging market economies. With greater external vulnerability the inevitable consequence, when such portfolio investment inflows are inevitably reversed, capital account management measures may be needed, but disallowed by the CPTPP.

Begging for US participation

In their efforts to justify it, CPTPP proponents have again greatly exaggerated trade benefits while ignoring the two US government studies — by the Department of Agriculture’s Economic Research Service and the International Trade Council – both projecting very modest gains from the TPP, despite including the US then.

After the ‘Brexit’ referendum and Trump’s election in 2016, the mixed consequences of trade liberalization are increasingly recognized, replacing the naive claim that globalization would lift all boats. Nevertheless, CPTPP advocates still dismiss research doubting the problematic assumptions of the modelling projections they rely on.

Meanwhile, US President Trump has already announced that he “would do TPP if we were able to make a substantially better deal”. Judging by his administration’s new demands in the ongoing North American Free Trade Area (NAFTA) renegotiations, this would presumably involve even stronger pharmaceutical patent protection and greater US corporate control of international e-commerce.

The TPP11 countries are likely to give in to US demands. With very modest prospective trade gains from the original TPP, US withdrawal has made the gains from the CPTPP even more paltry, making the TPP11 desperate for US participation. For Japan’s government and some others, the TPP will draw the US back into a stronger anti-China regional coalition.

Hence, the TPP11 are so keen to bring the US back into the TPP that they are likely to accede to Trump administration demands. By joining the TPP on revised terms, ostensibly ‘putting America first’, Trump can thus ‘prove’ that he is a much better negotiator than his predecessors, especially Obama.

 

Double standards as norm

February 23, 2018

by Bunn Nagara

http://www.thestar.com.my

Many countries can do a lot better than look to the rich and powerful among them which observe only the law of the jungle

IN an ideal world, rich and powerful countries are righteous, gracious, confident and patient – possibly even wise and generous.

It is about national character, particularly after having achieved an estimable rank. It is also about setting a good example to lesser nations that may one day also become rich and powerful.

In the real world however, self-righteousness just about substitutes all. Such unpalatable truths are seldom standard-fare in political science classrooms.

It is not necessary to be cynical, or to subscribe to the cynical doctrine of neo-realism, to make honest observations approximating to cynicism. But it takes resolve.

What is needed is an assessment of world affairs as they are and not as they should be. It will require a frank appraisal without fear or favour, or undue international relations theory.

After emerging as a world power in the late 1880s, the US grew into a global superpower by 1945. Britain and the Soviet Union were the other superpowers.

The British Empire was the most extensive in spanning the globe. Nonetheless the cost of two world wars had consigned it to advanced terminal decline, and the 1956 Suez Crisis ended Britain’s superpower status conclusively.

The US was clearly the world’s leading superpower, with the Soviet Union soldiering on in a distant second place. The Soviet economy bore inherent flaws that would soon prove fatal.

In 1991 the Soviet Union collapsed, its economy in tatters as it imploded into its several components. Since then the US became the world’s sole superpower, with the unchallenged capacity to project global power on multiple levels: economic, cultural, technological, political, diplomatic and military.

For nearly three whole decades the US dominated these spheres like no other country, perpetuating its dominance in each and seldom according to formal expectations of its international obligations.

Rand’s ideas may well have influenced Trump in some indirect way?

With a deeply ideological polity, the US adheres to the constant mantra of “free markets” – in theory. This means a stated commitment to the notion of keeping private industry and the “public” state separate and distinct, a supposed adherence to laissez-faire free enterprise without state intervention.

And so trade battles raged between the US and Japan when the Japanese economy was the world’s second-largest with the prospect of becoming larger. Japan with its state-supported industrial policy and “closed” keiretsu system was said to be trading unfairly.

Today, the US is accusing China of unfair trade. China, now the world’s second-largest economy with the promise of going further, also has its version of industrial policy and public-private partnership.

A cooperative partnership between state and industry is common to the rapidly growing economies of East Asia. It is a generic feature of the Newly Industrialising Economies (South Korea, Taiwan, Hong Kong, Singapore) even if they were individually too small to be accused of “unfair trade.”

Yet when it suited the US, it would happily intervene with tariffs of its own. The 1930 Smoot-Hawley Tariff stands as a historic monument to state intervention by raising taxes on more than 20,000 imports, being among the most severe protectionist measures restricting US trade in a century.

The US Congress has even applied protectionist measures against parts of the country. The 1828 Tariff of Abominations imposed even higher taxes than Smoot-Hawley, aimed at the southern states and harmed their economy.

For a whole decade from the 1970s to the 1980s, the UN laboured on a set of rules and conventions for better order and safety on the high seas.

In later years more negotiations over the details for amendments followed. The US insisted on certain changes, and those changes were made.

The UN Convention on the Law of the Sea (UNCLOS) came into force in 1994, and since then more than 160 countries around the world have ratified it. But until today the US still refuses to do so.

President Bill Clinton signed UNCLOSs but Congress blocked it. Since then nobody in Washington has made a serious effort to push for ratification.

Some US officials say that by not ratifying the treaty the US is able to observe it as and when it pleases, and that should be good enough. For other countries, that violates the spirit of law and makes a mockery of acceding to international treaties.

When Donald Trump campaigned for the presidency he vowed to withdraw from the Trans-Pacific Partnership (TPP). Soon after taking office he did just that.

Those who favour the TPP blame Trump, but the decision was bipartisan. In the final stages of his presidency Barack Obama did nothing for the TPP.

More tellingly, Hillary Clinton herself rejected the TPP in her campaign. As Secretary of State she was the TPP’s most ardent champion, being resolutely for it before she was firmly against it.

No serious candidate in the 2016 US presidential campaign favoured the TPP since an election season meant they had to champion their own national interests. Other countries have signed on to it with all its obligations and restrictions, while the US is left free to do as it pleases again.

For years, the US has been pressuring foreign tax havens like the Swiss banking community to release details of confidential client accounts. US pressure also focused on the Swiss government, supposedly to help US authorities trace possible terrorist financing, but it is more than that.

With East Asian economies on the rise, typically a cash-rich China, US authorities worry about outflows of US funds to evade taxes. Swiss bankers however say their foreign clients have secret accounts more for security than tax evasion purposes.

In recent years Swiss bankers have pressed their foreign clients to divulge details of their accounts to their own governments while systematically closing undeclared accounts. A result has been an outflow of funds from these accounts by clients seeking alternative havens.

The US introduced the Foreign Account Tax Compliance Act in 2010, requiring financial services companies abroad to provide details of accounts held by US citizens to US tax authorities.

For its part, the US has rejected the OECD’s Common Reporting Standard in providing details of foreign offshore accounts in US tax havens. A result: an inflow of funds from offshore accounts elsewhere, with a spike anticipated this year.

In East Asia the leading tax havens for offshore accounts are Hong Kong and Singapore, NIEs that have diversified well from the industrial sector. China itself is joining in on the mainland, but its offshore banking potential is still limited and underdeveloped.

Meanwhile US tax havens are racing ahead, reaping fresh dividends of new accounts once held in the Cayman Islands, Bahamas, Panama, BVI and Switzerland itself. US bankers say their clients seek security rather than to evade taxes.

Where some set profitable examples, others are certain to follow. But double standards and rash laws can be counter-productive, exposing a country as a deceitful, self-seeking, double-dealing hypocrite – and worse.

The Smoot-Hawley Tariff led to the Great Depression; protectionism is still protectionism even if it is claimed to “make America great again.” Reneging on a commitment to Unclos is emboldening China’s claim to the South China Sea, for which the US has no answer.

It should not require an ideal world just to make the rule of law  and ensure due justice.

Bunn Nagara is a Senior Fellow at the Institute of Strategic and International Studies (ISIS) Malaysia.
Read more at https://www.thestar.com.my/opinion/columnists/behind-the-headlines/2018/02/11/double-standards-as-norm-many-countries-can-do-a-lot-better-than-look-to-the-rich-and-powerful-among/#mPp9R4uWArElCyWP.99

Double Standards as Norm, particularly in Trump’s America First

February 11, 2018

by Bunn Nagara@www.thestar.com.my

Many countries can do a lot better than look to the rich and powerful among them which observe only the law of the jungle.

IN an ideal world, rich and powerful countries are righteous, gracious, confident and patient – possibly even wise and generous. It is about national character, particularly after having achieved an estimable rank. It is also about setting a good example to lesser nations that may one day also become rich and powerful.

In the real world however, self-righteousness just about substitutes all. Such unpalatable truths are seldom standard-fare in political science classrooms.

The World according to Donald Trump but America is in a political gridlock as another Government shutdown looms large.

 

 It is not necessary to be cynical, or to subscribe to the cynical doctrine of neo-realism, to make honest observations approximating to cynicism. But it takes resolve. What is needed is an assessment of world affairs as they are and not as they should be. It will require a frank appraisal without fear or favour, or undue international relations theory.

After emerging as a world power in the late 1880s, the US grew into a global superpower by 1945. Britain and the Soviet Union were the other superpowers.

The British Empire was the most extensive in spanning the globe. Nonetheless the cost of two world wars had consigned it to advanced terminal decline, and the 1956 Suez Crisis ended Britain’s superpower status conclusively.

The US was clearly the world’s leading superpower, with the Soviet Union soldiering on in a distant second place. The Soviet economy bore inherent flaws that would soon prove fatal.

In 1991 the Soviet Union collapsed, its economy in tatters as it imploded into its several components. Since then the US became the world’s sole superpower, with the unchallenged capacity to project global power on multiple levels: economic, cultural, technological, political, diplomatic and military.

For nearly three whole decades the US dominated these spheres like no other country, perpetuating its dominance in each and seldom according to formal expectations of its international obligations.

With a deeply ideological polity, the US adheres to the constant mantra of “free markets” – in theory. This means a stated commitment to the notion of keeping private industry and the “public” state separate and distinct, a supposed adherence to laissez-faire free enterprise without state intervention.

And so trade battles raged between the US and Japan when the Japanese economy was the world’s second-largest with the prospect of becoming larger. Japan with its state-supported industrial policy and “closed” keiretsu system was said to be trading unfairly.

Today, the US is accusing China of unfair trade. China, now the world’s second-largest economy with the promise of going further, also has its version of industrial policy and public-private partnership.

A cooperative partnership between state and industry is common to the rapidly growing economies of East Asia. It is a generic feature of the Newly Industrialising Economies (South Korea, Taiwan, Hong Kong, Singapore) even if they were individually too small to be accused of “unfair trade.”

Yet when it suited the US, it would happily intervene with tariffs of its own. The 1930 Smoot-Hawley Tariff stands as a historic monument to state intervention by raising taxes on more than 20,000 imports, being among the most severe protectionist measures restricting US trade in a century.

The US Congress has even applied protectionist measures against parts of the country. The 1828 Tariff of Abominations imposed even higher taxes than Smoot-Hawley, aimed at the southern states and harmed their economy.

For a whole decade from the 1970s to the 1980s, the UN laboured on a set of rules and conventions for better order and safety on the high seas.

In later years more negotiations over the details for amendments followed. The US insisted on certain changes, and those changes were made.

The UN Convention on the Law of the Sea (UNCLOS) came into force in 1994, and since then more than 160 countries around the world have ratified it. But until today the US still refuses to do so.

President Bill Clinton signed UNCLOS but Congress blocked it. Since then nobody in Washington has made a serious effort to push for ratification. Some US officials say that by not ratifying the treaty the US is able to observe it as and when it pleases, and that should be good enough. For other countries, that violates the spirit of law and makes a mockery of acceding to international treaties.

When Donald Trump campaigned for the presidency he vowed to withdraw from the Trans-Pacific Partnership (TPP). Soon after taking office he did just that.

Those who favour the TPP blame Trump, but the decision was bipartisan. In the final stages of his presidency Barack Obama did nothing for the TPP.

More tellingly, Hillary Clinton herself rejected the TPP in her campaign. As Secretary of State she was the TPP’s most ardent champion, being resolutely for it before she was firmly against it.

No serious candidate in the 2016 US presidential campaign favoured the TPP since an election season meant they had to champion their own national interests. Other countries have signed on to it with all its obligations and restrictions, while the US is left free to do as it pleases again.

For years, the US has been pressuring foreign tax havens like the Swiss banking community to release details of confidential client accounts. US pressure also focused on the Swiss government, supposedly to help US authorities trace possible terrorist financing, but it is more than that.

With East Asian economies on the rise, typically a cash-rich China, US authorities worry about outflows of US funds to evade taxes. Swiss bankers however say their foreign clients have secret accounts more for security than tax evasion purposes.

In recent years Swiss bankers have pressed their foreign clients to divulge details of their accounts to their own governments while systematically closing undeclared accounts. A result has been an outflow of funds from these accounts by clients seeking alternative havens.

Like his comrade  Donald Trump, Malaysia’s Najib Razak is lying too. He is practices double standards. Good Governance in reverse.

The US introduced the Foreign Account Tax Compliance Act in 2010, requiring financial services companies abroad to provide details of accounts held by US citizens to US tax authorities.

For its part, the US has rejected the OECD’s Common Reporting Standard in providing details of foreign offshore accounts in US tax havens. A result: an inflow of funds from offshore accounts elsewhere, with a spike anticipated this year.

In East Asia the leading tax havens for offshore accounts are Hong Kong and Singapore, NIEs that have diversified well from the industrial sector. China itself is joining in on the mainland, but its offshore banking potential is still limited and underdeveloped.

Meanwhile US tax havens are racing ahead, reaping fresh dividends of new accounts once held in the Cayman Islands, Bahamas, Panama, BVI and Switzerland itself. US bankers say their clients seek security rather than to evade taxes.

Where some set profitable examples, others are certain to follow. But double standards and rash laws can be counter-productive, exposing a country as a deceitful, self-seeking, double-dealing hypocrite – and worse.

The Smoot-Hawley Tariff led to the Great Depression; protectionism is still protectionism even if it is claimed to “make America great again.” Reneging on a commitment to UNCLOS is emboldening China’s claim to the South China Sea, for which the US has no answer. It should not require an ideal world just to make the rule of law ensure due justice.

Bunn Nagara is a Senior Fellow at the Institute of Strategic and International Studies (ISIS) Malaysia.