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Obama's Pacific Wager

The White House is gambling America's global standing on a trade deal with Asia. Don't bet on Congress to get it done.

This week, your columnist is rebalancing to Asia. He has been preoccupied for far too long with countries like Syria, Libya, and Egypt, whose chief product is mayhem. Meanwhile, South Korea and Malaysia and ... all those other countries make inexpensive refrigerators that work perfectly well, and no one gives them the time of day. Ignore them any longer and some of those terrific countries just might get married to China.

That might be a slightly reductive account of the "pivot" to Asia first announced by Secretary of State Hillary Clinton in October 2011 (in -- please take a bow -- Foreign Policy). But over the last several years, even as it is pulled back into the morass of the Middle East, the Obama administration has labored mightily to persuade Asian leaders that it hears their call for help on global trade, regional security, and China's increasingly domineering role. Secretary of State John Kerry is at this very moment in South Korea.

It's hard, in fact, to think of any other recent foreign-policy shift that has been quite so bluntly marketed. President Barack Obama delivered a speech on the subject a month after Clinton's article, while in early 2013 National Security Advisor Tom Donilon gave a heavily publicized address in which he re-christened the policy a "rebalance" in order to avoid hurt feelings in regions feeling pivoted away from (Europe, the Middle East). The speeches were directed less to Americans than to skeptical Asian leaders. "In the Asia-Pacific in the 21st century," as Obama said to the Australian parliament, "the United States of America is all in."

Is it, though? The region certainly seems like an afterthought to Kerry, who has devoted himself heart and soul to sorting out Middle East crises. The proof of the pudding will come with the Trans-Pacific Partnership (TPP), a giant trade pact that promises to open major Asian and South American markets to U.S. commodities as well as financial and other services (and open some American markets to those nations as well). That deal, however, is now in very serious jeopardy of being scuttled, not by Republicans who can't bear to hand the president a win, but by Democrats whose constituents don't like trade deals. If Obama doesn't get the TPP, says Gary Hufbauer, a trade expert at the Peterson Institute for International Economics, "the pivot will look like a bad joke."

The other deliverables on the rebalance are less dramatic and less endangered. The administration promised to reassure coastal nations who fear Chinese territorial claims by shifting naval and aerial assets into the region, deploying an outpost of Marines in Australia and operationalizing the new "Air-Sea Battle" doctrine, which focuses on countering the Chinese military build-up. In his Australia speech, Obama delivered a specific pledge that deep Pentagon budget cuts would not impinge on these plans. On the diplomatic front, Obama is the first president to attend the East Asian summit, a regional forum established in 2005, and has promised to attend annually. It was all too telling that he had to cancel an Asia trip during the government shutdown last fall, though he has scheduled a new trip for April. The administration has also paid much more attention to ASEAN, the principal Asian regional body.

Each of these efforts has demonstrated that the administration's commitment is not merely rhetorical, even if the rhetoric has often seemed to eclipse the substance. The TPP, though, is big. Inherited from the Bush administration as a pact with six or seven countries, it now includes Canada, Mexico, and Japan -- three of America's four biggest trading partners -- as well as Chile, Peru, Australia, New Zealand, Brunei, Vietnam, Singapore, and Malaysia. Those economies account for 40 percent of global GDP. An analysis by the Peterson Institute predicts that the United States would gain $77.5 billion in net annual income from planned reductions in tariffs and regulations.

The TPP does not look like a conventional trade pact. First, it will eliminate tariffs not just in commodities like beef and textiles, but also in services, including banking, insurance, e-commerce, and the like. Second, most of its provisions concern "non-tariff barriers" including rules on copyright and patent infringement, the enforcement of investor rights, Internet security, "Buy American" standards, and access to medicines -- as well as the labor and environmental regulations that have now become standard elements of trade deals. The TPP is not only the biggest proposed trade pact in the world, but the most ambitious. Donilon, to whom I spoke earlier this week, envisions the pact, as well as another planned for Europe, as alternative models to both protectionism and to statist autocracy. "It would have a magnetic effect," he predicts, for non-members, above all for China, which currently views the rebalance as a thinly veiled campaign to curb its power. That seems a trifle aspirational.

The immense reach of the deal, whose terms have remained largely secret, has made negotiations extremely protracted. The last round of discussions in December ended with trade officials still said to be at odds over Japanese car and agricultural markets, as well as such broad issues as foreign access to government contracts. The biggest stumbling block, however, is the United States. The other partners to the deal are parliamentary governments (except for Vietnam, a dictatorship). If the head of state approves the deal, it's done. That is not true, of course, here in the United States.

I don't have space to list all the reasons why labor, environmental groups, Internet activists, and good-government types object to the deal, but it is important to understand that the comprehensiveness of the TPP cuts both ways. All trade deals create losers, as well as people who fear that they will be losers. But a trade deal that seeks to re-write fundamental economic rules is going to magnify opposition from those real and would-be losers, as well as support from beneficiaries. Such a pact, negotiated in secret as trade agreements usually are, will arouse profound suspicion. (See Massachusetts Democrat Sen. Elizabeth Warren's letter on the subject.) In his State of the Union speech in January, Obama asked for what is known as "fast-track authority," through which Congress agrees to limit debate and vote up or down, with no amendments. It's not surprising that legislative leaders have been under pressure to refuse.

That's where we are now. Senate Majority Leader Harry Reid (D-Nev.) has said that he will not bring up such a measure. Rep. Nancy Pelosi (D-Calif.), the House minority leader, says that she will support only a version of fast-track that contains provisions on labor and environmental rules (which Republicans are certain to oppose). In a meeting last week with Reid, Obama reportedly did not even raise the issue, presumably because he knew that it would be a waste of time. According to Hufbauer of the Peterson Institute, none of the other parties to the treaty will make painful concessions unless and until Congress votes for fast-track. So where we are right now is nowhere.

The pivot to Asia represents Obama's affirmative vision for foreign policy -- an "opportunity," as Donilon puts it, rather than "managing a threat." The TPP is the crown jewel of the policy, the Big Thing that Changes the World. Both to establish his own legacy and to position the United States for a post-9/11 world, Obama needs the trade deal. Why, then, has he come up shy? He may have decided to put off the issue until after the midterm elections, when Pelosi and Reid can afford to take an unpopular stand. If so, he will have to demonstrate gifts of persuasion, or ruthlessness, he hasn't often showed in the past.

In my conversation with Donilon, he kept repeating the idea that the trade pact is a "critical strategic leadership initiative" for the United States. I finally realized that this was his message, and, presumably, the president's, to Reid and Pelosi. The world, and not just Asia, has begun to lose faith in Obama's leadership, and in America's. The TPP, if it passes, will be an unarguable demonstration of American leadership, and its indispensable role in the world. If it fails, it will confirm their worst fears. The White House will be asking congressional leaders to put aside their political calculus and, perhaps, their own views in the name of America's global standing. That's a big ask, even after the election. I wouldn't want to handicap the outcome.

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Terms of Engagement

The Autocrat's Emergency Bailout Fund

Are billions of dollars from Russia and the Gulf really worse than Western assistance?

A new trend is afoot in the world of foreign aid: The Autocrat's Emergency Bailout Fund. This past summer, Saudi Arabia, Kuwait, and the United Arab Emirates agreed to give $12 billion to Egypt after a military coup unseated a Muslim Brotherhood-led elected government which the Gulf states feared and despised. And now Russia's president, Vladimir Putin, has topped that reward all by himself with his $15 billion gift to Ukrainian President Viktor Yanukovych, who has been reeling from mass protests after he spurned a proffered partnership with the European Union. In both cases, the autocrats effortlessly outbid Western institutions.

Democracies are not, of course, pure of heart in matters of development assistance. Hans Morgenthau, that bleakest of realists, argued in his 1968 book, A New Foreign Policy for the United States, that development assistance was a perfectly effective instrument with which to bribe allies, though otherwise a waste of money. The billions of dollars in development aid which the United States has given Egypt since the Camp David Accord, like the billions it has given in military assistance, were just that. It was money given to reward a regime, just as is Egypt's new windfall from the Gulf, though in both cases the donor hopes to help the people as well.

Let us grant, then, that everyone has mixed motives -- even Vladimir Putin, who has said with a straight face that he was acting "not for the sake of the Ukrainian leadership but for the sake of the Ukrainian people." Nevertheless, it remains true that most Western aid is explicitly designed to encourage good political and economic governance, while the autocrat's bailout fund is designed to keep fellow authoritarians in place, and thus has the effect of encouraging bad governance. And because autocracies are better configured than democracies are to play and win this game, that's a serious threat to the cause of political and economic reform.

"Autocracy promotion" is not itself a new phenomenon. A 2010 study cited the examples of China's support for the Hun Sen regime in Cambodia and Russia's support for the increasingly autocratic regime in Kyrgyzstan as evidence that both countries, apart from promoting economic and geopolitical interests, sought to undermine democratic forces and consolidate authoritarian ones. Both like to keep their neighborhoods safe for autocracy.

What has, however, made this often ham-fisted policy far more effective is the redistribution of global wealth which has sent vast amounts of money sloshing through the treasuries and sovereign wealth funds of Russia, China, and the Gulf. Vast amounts of money are sloshing through the treasuries and sovereign wealth funds of Russia, China, and the Gulf. The aid competition now looks decidedly one-sided. The windfall from the Gulf enabled Egypt to decline a $4.8 billion loan from the International Monetary Fund. The grant from Russia, plus a sharp reduction in the price Russia will charge for natural gas, allowed Ukraine to reject a $4 billion package from the International Monetary Fund (IMF).

It's not just a matter of size, but also efficiency and speed. The wonderful thing about authoritarian states is that when a paramount leader decides to spend the country's money, the check can be in the mail next day. Western governments, by contrast, dithered for years over how to extend significant assistance to Egypt's civilian government. Prompt action might have done a world of good for the shaky legitimacy of President Mohamed Morsi.

And then there's the quid pro quo. The IMF and the European Union wanted Ukraine to clean up the rampant corruption and dysfunction that has plunged the country into economic crisis. The IMF demanded that Egypt increase revenue and reduce fuel subsidies. To have given the money without the accompanying demands would only have encouraged more reckless behavior. But only regimes with very strong popular support can afford to demand such painful sacrifices from their citizens. Morsi seriously considered concluding a deal with the IMF, but then backed off. Had he agreed, he might have been forced from office even earlier than he was. The Gulf states, of course, gave Egypt's generals the money with no strings attached, as Putin did to the "sister nation" of Ukraine. They were reinforcing behavior, not trying to change it.

The one Western institution with the power to make its demands stick is the European Union, which is prepared to provide tens of billions of dollars in order to prevent weak members like Greece or Spain from leaving the union, and thus has been able to exact painful sacrifices from both. Because of the sums involved, and because of the immense advantages of membership, the European Union is unique in its capacity to shape desirable behavior both among member states and aspirants to membership. Indeed, what has been extraordinary about the drama in Ukraine is that Russia has managed to trump the one Western institution which truly has adhesive power.

You'd like to think that a rational citizen would choose Western aid, even with all the encumbrances, over the autocratic quick fix. That assumes that the bitter medicine offered by the West will ultimately cure what ails weak states. There is actually not much evidence that this is so. In a 2003 paper, the development economist William Easterly compared the top 20 recipients of IMF and World Bank "structural adjustment loans" between 1980 and 1999 to a developing country sample and found that the economic outcomes of the two groups were indistinguishable. Many of the beneficiaries had received over a dozen such loans, and had kept finding artful ways to avoid the onerous conditions. The United States has tried to solve this problem through the Millennium Challenge Corporation, which offers development assistance to states which demonstrate good governance. But the funds amount to less than $2 billion a year, which means they have real leverage only with small states, and no other donor has adopted a similar policy. Easterly, an aid skeptic, argues that development assistance is generally ineffective in shaping desired behaviors.

That's not to say that Western aid and loans cannot produce better governance and wiser economic policies. You can find evidence that it has done so in fragile democracies like Liberia, or in relatively effective autocracies like Ethiopia. Such assistance only works, however, "if you really, really have an honestly keen recipient," as Charles Kenny of the Center for Global Development puts it. Some states have jumped through hoops to join the European Union, but President Yanukovych and his compliant parliament dragged their feet on the political and economic reforms the union required. Even had Yanukovych agreed to sign the "association agreement" offering free trade with Europe, he probably would have reneged on his reform commitments.

The bottom line, then, is that the autocratic bailout offers short-term relief, while the long-term benefits of conditioned Western assistance are less marked than they appear to be.The autocratic bailout offers short-term relief; the long-term benefits of Western aid are patchy.  We can guess who will win in that marketplace. The only limiting factors for the autocrats are, first, the high cost of bribing feckless states and, second, the danger of provoking the public. This is not a problem in Egypt, where the current regime enjoys widespread support, but it certainly is in Ukraine, where an aroused citizenry has mocked the nation's leader as a Russian pawn. And Moscow is, of course, a uniquely terrifying dance partner.

The obvious way for the West to start winning these contests is to imitate the European Union by offering irresistible incentives for good behavior. But that would require a commitment to aid, trade, and investment which Western states and institutions are not about to make. And it still might be a fool's errand, since bad regimes would take the money and slip the yoke of promised reform. Perhaps patience is the best policy. Given recent reports that Egypt will preserve its subsidy policy as is, and that the IMF views Ukraine as a basket case in the making, both countries' sugar daddies may conclude that they can't subsidize ruinous policies forever. 

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