In November 2017, US President Donald Trump unveiled the Free and Open Indo-Pacific Strategy (FOIP) as the country’s policy towards Asia. FOIP differs from the policy approach of previous administrations as it rests on an assumption that the United States and China are locked in strategic competition. This approach means that FOIP also contains economic elements as manifested in 5G technology rivalry and trade wars.
Although sometimes obscured by security issues, the economic elements of FOIP have been discussed in Australia–India–Japan–United States consultations on the Indo-Pacific. This includes Washington’s plans to collaborate with regional countries on trade, investment and infrastructure. On trade, the Trump administration aims to foster ‘free, fair, and reciprocal’ trade, as stated. Concerning investment, it wants to boost the investment climate, enhance private sector participation and ensure that investment in the region encourages entrepreneurship and innovation. And on infrastructure it seeks to promote good governance, especially in the facilitation of high-quality infrastructure, cost-effective connectivity projects and sustainable development.
But how does this US agenda gel with the policies of other states on regional economic governance? The prospects for advancing cooperation on investment and infrastructure appears to be favourable when compared with trade issues. But the jury is still out on how collaboration will unfold as the agenda of each country varies across each issue.
The Trump administration’s insistence on bilateralism, as seen in its withdrawal from the Trans-Pacific Partnership (TPP), contrasts with the preference of regional states for multilateralism. This is reflected in their support for the WTO, the TPP and the Regional Comprehensive and Economic Partnership (RCEP). Asia Pacific nations see multilateralism as a way to effectively address fragmenting trade governance and multiple overlapping rules and regulations.
US tariffs, including a 25 per cent tariff on Chinese goods, disrupt transnational production networks and increase uncertainties. This negatively affects regional economies, especially those where China is part of their supply chains. The US emphasis on defining trade ‘fairness’ in terms of trade balances leaves little room for governments around the region, especially those running trade surpluses with the United States, to negotiate deals that satisfy everyone.
Having watched the North American Free Trade Agreement and the US–Korea Free Trade Agreement re-negotiations, states around the Asia Pacific are increasingly concerned that they will be forced to accept contract terms favouring Washington. The Trump administration’s blocking of appointments to the WTO Appellate Body has heightened uncertainties about the future of the global trade governance regime.
These trends may tempt Asia Pacific nations to integrate among themselves — the ongoing RCEP negotiations are case in point. Critics claim that RCEP is less ambitious than the TPP. But its quality could be improved if the members agree to add a ‘consulting mechanism’ which would allow for a regulatory framework upgrade. The Trump administration’s approach to foster international collaboration in the realm of investment has been welcomed by the region. But there are still concerns about the future of regional investment governance.
The Committee on Foreign Investment in the United States (CFIUS) is mandated to review transactions that result in the foreign acquisition of US companies to determine their impacts on national security. The body has recently been empowered by the Foreign Investment Risk Review Modernization Act of 2018, enabling it to become more vigilant in preventing the foreign acquisition of US innovations.
Under a pilot program launched in November 2018, CFIUS is able to review investments that either result in foreign investors’ access to non-public information or contribute to a foreigner entity’s ability to make substantial business decisions in 27 technological and innovative sectors. The strengthening of CFIUS has paved the way for Washington to implement stricter regulations on international investment. Asia Pacific economies are worrying about the implications of these changes on the future of investment governance.
The Trump administration also created the United States International Development Finance Corporation (USIDFC) via the Better Utilization of Investments Leading to Development Act of 2018 (BUILD Act). The USIDFC consolidates the work of several former development finance institutions while the BUILD Act allocates US$60 billion to
the USIDFC to help implement programs.
This has been well-received by the regional due to large gaps in infrastructure financing and the desire to diversify away from China’s Belt and Road Initiative (BRI) which presents debt trap risks. The Vientiane–Kunming high-speed railway project, for example, is costing Laos US$6 billion or around 50 per cent of the state’s GDP. The Institute of Southeast Asian Studies (ISEAS) 2019 survey reveals that 70 per cent of respondents believe that their governments should be cautious when striking BRI deals with Beijing.
Asia Pacific countries are uncertain how the United States will implement its infrastructure policies. Despite the establishment of the USIDFC and promising words from senior figures in the Trump administration, regional stakeholders want to see more concrete action.
The prospects for collaboration on investment and infrastructure between the United States and the Asia Pacific are brighter than those for cooperation on trade. An empowered CFIUS may end up jeopardising international investment flows and governance. In the same way, if words are not followed up by action, Washington’s formation of the USIDFC may result in less development of regional infrastructure.
Kaewkamol Pitakdumrongkit is Deputy Head and Assistant Professor at the Centre for Multilateralism Studies (CMS), S Rajaratnam School of International Studies (RSIS), Nanyang Technological University (NTU), Singapore.