Asia watches fate of Nafta amid Trump's review, Malaysia warns

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SINGAPORE (May 19): Asian governments are watching with some anxiety the fate of the North American Free Trade Agreement, as the Trump administration kicks off a review of the pact.

“All of us are keen to know whether America is committed to have an open, liberal trading environment,” Malaysian Trade Minister Mustapa Mohamed said in an interview on Friday, on the sidelines of the Asia-Pacific Economic Cooperation ministerial meeting in Hanoi, Vietnam.

Mustapa said ministers were “anxious to hear” from new U.S. Trade Representative, Robert Lighthizer. “In this first meeting, the first thing is to get some clarity on protectionism — this America First and how it’s going to affect us in this part of the world,” he said.

The U.S. government served notice to Congress on Thursday of the administration’s intention to renegotiate Nafta. During the election campaign, President Donald Trump called the deal with Mexico and Canada a “disaster” that cost millions of U.S. jobs and hollowed out the manufacturing sector. A few weeks ago, he was weighing whether to pull out of the deal entirely.

Trump has also said he plans to renegotiate some bilateral trade deals with Asian nations including South Korea. And in one of his first acts as president he pulled the U.S. out of a 12-nation Pacific trade pact known as the Trans-Pacific Partnership.

TPP future

The deal, which would have covered 40% of the global economy, was seen as a hallmark of U.S. engagement with Asia under the prior administration and a buffer against China’s rising economic and military clout.

There will be a sideline meeting in Hanoi of the remaining 11 nations in the TPP accord, with countries like Japan and Australia pushing to proceed without the U.S.

Mustapa said Malaysia was less keen to continue, but added he would like some clarity on the U.S. position on the pact. The U.S. is Malaysia’s third-largest trading partner and there is no direct trade deal between the countries.

“TPP countries are still keen on TPP, of course the level of keenness differs between countries,” he said. “Some countries are still very gung-ho.”

“One of the reasons we decided to be part of the TPP was the potential access to the American market and if that does not happen one of the major motivations to be part of the TPP will be removed.”

Progress on the TPP without the U.S. would require significant revision of terms that at least six states, which together account for 85% of the combined gross domestic product of all original signatories, ratify it. The U.S. made up about 60%.

Malaysia’s trade performance has improved in the first few months of the year after a “tough” 2016, Mustapa added. Exports rose 24.1% in March, outpacing the 20% median estimate of economists polled by Bloomberg News. Exports to the U.S. increased 16.5% on the year. “This year, there will be a recovery in trade with the U.S.”