APEC - Pacific trade pact gains, but friction remains

HONOLULU (AP) — Moves toward a Pacific free trade zone gained momentum Saturday, though friction over the U.S.-backed initiative were apparent, with China visibly cool to the idea.

President Barack Obama, flanked by leaders of eight other nations involved in negotiations on setting up the trading bloc, dubbed the Trans-Pacific Partnership, said he was optimistic the group could set a legal framework by next year.

"It is an ambitious goal, but we are optimistic that we can get it done," he said on the sidelines of an annual Asia-Pacific Economic Cooperation summit.

By progressively removing barriers and bottlenecks that slow trade and business, APEC members hope to give their economies a significant boost over the longer-term. At the same time they are working toward a broader agreement, countries are still forging separate free-trade deals, aiming to re-energize growth at a time when the world economy most needs dynamism in the Asia-Pacific region to offset the malaise spreading from crisis-stricken Europe.

All 21 members of APEC have committed to the eventual goal of forging a regionwide free-trade zone. The so-called TPP is billed as a "building block" of that ambition, but other, rival arrangements have already emerged.

The current membership of the Pacific trade pact includes only Chile, New Zealand, Brunei and Singapore. The U.S., Australia, Malaysia, Vietnam and Peru are negotiating to join, and Japan announced Friday that it intends to participate.

China, which some economists say is on course to overtake the U.S. as the world's biggest economy this decade, has appeared unenthusiastic, describing the plan as "overly ambitious." Its reluctance to endorse the proposal likely reflects wariness of being drawn into what has become a U.S.-led initiative that encroaches on its own sphere of influence in Asia. China also has commitments to other free trade arrangements in East and Southeast Asia.

Chinese President Hu Jintao, in a speech to corporate bosses also meeting at the summit, skirted the issue, saying only that his country supports several free trade arrangements aimed at "achieving economic integration in the Asia-Pacific."

Chinese Trade Minister Chen Deming had earlier said Beijing would "seriously study" joining the pact if invited. But U.S. officials say at issue is not an invitation but whether China aspires to reach the high standards demanded of those joining.

"They have not expressed interest," Mike Froman, U.S. deputy national security adviser for international economic affairs, told reporters. He would not say if Obama would raise the issue in his meeting later Saturday with Chinese President Hu Jintao.

Obama, speaking in a less formal interview exchange before the same group of CEOs, was blunt in his criticism.

Asked about U.S. trade friction with China, Obama exhorted Beijing to "play by the rules," citing controls that keep China's currency, the yuan, undervalued as a good example. The currency is also known as the renminbi.

"There are very few economists who do not believe that the renminbi is not undervalued. And that makes exports to China more expensive, and it makes exports from China cheaper. That disadvantages American business. It disadvantages American workers," Obama said.

Obama listed a lack of protection for American intellectual property, such as patents and copyrights, as another area Washington found "not acceptable." He also urged China to reciprocate for access to U.S. government contracts by allowing U.S. companies to bid on an equal basis on Chinese projects.

"The bottomline is that the United States can't be expected to stand by if there's not the kind of reciprocity in our trade relations and our economic relationships that we need," he said. "Where we see rules being broken, we'll speak out and in some cases we'll take action."

The trans-Pacific trade pact under discussion is one of many that have been cobbled together in what has been described as a "spaghetti bowl" of free trade arrangements. Obama said it is more forward looking than past deals, describing it as a potential 21st century model for the region and for other trade pacts.

The U.S. recently clinched long-sought free trade pacts with South Korea, Colombia, and Panama — agreements that if ratified will bring to 20 the number of countries that have free trade agreements with the U.S.

On Friday, Vietnam and Chile signed a free trade agreement on the sidelines of the APEC meetings that will further boost the already thriving trade between the two in Chilean copper and steel and Vietnamese garments, rice and coffee.

APEC's lack of negotiating power — all decisions are by consensus — means prospects for major, immediate changes are slim, though over time its incremental efforts have helped build support for closer economic ties and freer trade.

The outline for the free trade pact announced by Obama and other leaders pledges to work toward eliminating tariffs and other barriers to trade and investment, facilitating trade and other business, harmonizing regulatory standards, aiding small and medium-size companies and contributing to development and poverty relief.

Adding Japan, the world's third-largest economy, would vastly expand the reach of the bloc. But it will be a challenge, given strong opposition from the country's politically influential farm lobby.

Obama said he was due to meet with Japanese Prime Minister Yoshihiko Noda later Saturday to "get a sense about the degree to which Japan wants to go through the difficult process involved."

"And I don't underestimate the difficulties of this because each member country has particular sensitivities, political barriers," he said. "For Japan, for example, in the agricultural sector, that's going to be a tough issue for them."

ELAINE KURTENBACH, AP Business Writer

Associated Press writers Ben Feller, Erica Werner and Jaymes Song contributed to this report.

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