Jill O'Donnell: Welcome to Trade Matters, a podcast by the Yeutter Institute at the University of Nebraska - Lincoln. I'm Jill O'Donnell. Our guest today is Wendy Cutler, Vice President of the Asia Society Policy Institute and the Managing Director of the institute’s Washington, D.C. office. For nearly three decades, she served as a diplomat and negotiator in the Office of the U.S. Trade Representative where she worked on a range of U.S. trade negotiations in the Asia-Pacific region, including the Trans Pacific Partnership.

Wendy, thank you so much for joining us on Trade Matters today, we really appreciate it. 

Wendy Cutler: Well, thanks Jill for inviting me, and it's a real pleasure to be speaking at the Yeutter Institute. Ambassador Yeutter was the first of nine US trade representatives I worked for. I was quite young then, but he just was such a gentleman and such a legend in the trade area. So it's really my honor to be doing this.

Jill O'Donnell: Well, thank you. And that's a perfect place to start, that you first worked for Clayton and worked for nine different USTRs, which means that you've seen a lot of different transitions occur between presidential administrations. And so I want to start by asking you what that's like from a USTR vantage point. President-elect Biden has recently announced an agency review team as you know, to review USTR and how it works as well as other trade related agencies in the US government. So what do you expect a team like that to do? What kinds of things do they look for during this transition period? And what was your own experience like at USTR during presidential transitions?

Wendy Cutler: So, yeah, Jill, as you mentioned, I worked for nine US Trade Representatives and that involved four transitions between the Republicans and the Democrats, or the Democrats and Republicans. And transitions, frankly, they're not easy, they're not easy in life, by definition it means a change. And so, there are a time when the career staff is getting used to the new political staff. The political staff is typically staffing up, so it's not like every one on the political staff starts at day one. And typically the US Trade Representative, a position that needs confirmation, may not even start at the agency until months after the January 20th presidential inauguration. Most transitions I've been involved in have been fairly smooth, and this notion of having a review team come in between the time of the election and January 20th is very normal. Obviously this time it's going to be a little different in that the President still hasn't conceded the election, nor is the General Services Administration certified that the formal transition can begin. It's important for these teams to really get into the agency, and I remember meeting with these teams through the years and really what they're focusing on, they want to get a better sense of the personnel, the staffing, and other administrative manners, the budget of the agency, to get a better sense of which positions they'll need to fill, they want to get a sense of the morale in the building, what things could be done differently, what things did they like about the past administration? And then moreover, they're very interested in particularly hearing about what decisions need to be taken in the early days of an administration. So in other words, what will they have to focus on in the first 30 days, or the first hundred days? And you can imagine in trade where there's a combination of reports due, WTO decisions that might be taken, or other legislative deadlines and ongoing negotiations, whatever USTR comes in their hands are typically full on day one.

Jill O'Donnell: So they have to be ready to hit the ground running, of course, because trade policy doesn't stop. So let me focus now a little bit on policy itself. And it seems to me that the focus will be China, China, China, so I want to start there with you. I want to quote from an interview that you did recently for Bloomberg Business Week, where you said, "We're going to be looking more and more through the lens of China as we pursue trade policy. When we choose negotiating partners, when we choose issues that we want to focus on, when we think of restrictions, it is all going to be through the lens of China." So China has been a major focus of the Trump administration as well. And I want to ask, how do you think the incoming Biden administration is likely to handle the situation on China that it's going to inherit, which has been shaped by the trade war, a phase one trade deal, and tariffs that are still in place on hundreds of billions of dollars worth of products?

Wendy Cutler:Yeah. And that's a great question. The president-elect has been pretty clear that our relationship with China is going to be a top focus for the administration. He has also expressed his strong concerns about not just Chinese trade practices, but their human rights record and what they're doing geopolitically around the region and the world. So what I would expect is that there will be a whole of government review of our China policy, because I think under a Biden administration will be a much more coherent China policy and trade will be part of that policy. I don't think trade is going to drive that policy like it seems to have done so in the Trump administration. In addition, the president-elect has made it very clear that he really wants to work with allies and partners and leverage multilateral institutions overall, but in particular, in dealing with concerns about China. So I think you're going to see a lot of emphasis on working with Japan, and the EU, Canada, Korea, Australia, and widening that net with the objective of the more countries that can come together and present a unified front to China, I think the better the prospects are for getting China to open and reform its market and create a level playing field.

With respect to what he's going to inherit, and I don't think that's over yet because there are reports that the current president between now and January 20th is even going to put in more restrictions with respect to China, particularly in the area of export controls or putting more Chinese firms and officials on an Entity List, which would mean that there would be restrictions about doing business with these entities. I think the Biden administration is going to have to sit down and really review all of these measures, including the tariffs and try and figure out, do we keep them in? Should they be lifted? If they should be lifted, what can we get from China in return? So I do not see a Biden administration coming in, for example, and saying, let's get rid of all of the tariffs we put on China, that's not going to happen. I do think the tariffs don't have to be lifted all at once either. They can be lifted incrementally, rates can be reduced depending on what China would provide in return.

Jill O'Donnell: Okay. Yeah. So that's an existing point of leverage that exists now that will be inherited by the new administration.

Wendy Cutler:Exactly. And why give up that leverage for nothing.

Jill O'Donnell: Right. So let me pick up on your point about multilateralism, that's something that we've heard a lot that the Biden administration is expected to take a more multilateral approach to many issues, including trade, and many critics over the last few years have decried the Trump administration's unilateral approach to trade policy. But I just want to ask you, since you've got so much experience on this front, how easy is it really in practice to construct a united front with allies on this complex issue, like we are dealing with China, when our allies have their own interest and domestic politics too?

Wendy Cutler: I think we need to have very realistic expectations as we work with allies and partners, because let's remember for most of our allies and partners, China is their largest trading partner, number one. They have extensive business ties with China. China is a large and growing market with a middle class that's growing by leaps and bounds. And so when it comes to working with us to reign in some of these Chinese practices, they may have differences with us, particularly in two areas. The first being the level of ambition, typically the US is much more ambitious than their allies and partners in this area. And second, with what's the approach? And I think a lot of our allies and partners really want us to work within the WTO, which frankly is a good objective, but let's be honest, the WTO's negotiating function is pretty broken and it takes a long time to negotiate deals in the WTO. And so I think if we are realistic in our expectations, and we also understand and respect where our trading partners are coming from, including as you mentioned, their domestic politics, I think we can achieve some success, but I don't think all of our eggs can be in the basket of working with allies and partners. I think we need to give a lot more weight to that approach, but also recognize that there are going to be areas where we're probably still going to want to pursue things bilaterally with China, as well as maybe take unilateral measures if needed.

Jill O'Donnell: Okay. So that's an interesting point, and more of a re-weighting of the approach toward multilateralism rather than simply replacing those other tools with that.

Wendy Cutler: We need a multifaceted approach. And I think the question is where do you put the weight? And frankly, it's not like the Trump administration didn't work with any allies or partners, they did, but they just didn't put emphasis on that leg of their policy. And frankly, when they work with allies and partners, it seemed to be in a much more junior level. And so I think in the Biden administration you're going to see senior officials, cabinet level and even the president himself getting involved in these discussions.

Jill O'Donnell: Okay. So shifting focus just a little bit then to free trade agreement negotiations themselves, many times it was pointed out during the election campaign that the Biden campaign emphasize that a Biden administration would focus on domestic policy as a priority over entering into any new free trade agreements at first. So what do you think that means for the status and future of trade negotiations that are currently still underway between the US and Kenya, the US and UK, and others? What might happen to these agreements under a new Biden administration in January, especially with Trade Promotion Authority that is set to expire July 1st of next year?

Wendy Cutler: Well, I applaud the president-elect's intention to focus on making America strong again. First of all, we need to deal with the COVID pandemic. We need to get our economic recovery back on track, but we need to build our competitiveness. We need to focus on education, and infrastructure, innovation, research and development, and also take care of our workers who've been left behind by trade globalization and really technological advances. And if we can do all of that, in my view, negotiating trade agreements will become easier in that the expectations of what trade agreements can achieve and not achieve will be eased. Too often as a trade negotiator I felt that everyone expected us to somehow turn the domestic economy around as well, or make sure that income was distributed more evenly throughout our country. That's not the job of trade agreements, they're more about opening up markets, making sure there's fair trade, and so taking measures against unfair imports, as well as getting other countries to level the playing field with respect to, not just trade measures, but also with respect to the environment and labor conditions as well. So, number one, I applaud that and I think if we can do that at home, then we negotiate also from a position of strength abroad. But that said the president-elect has been very clear about taking a pause on pursuing new trade agreements. Now he may inherit two ongoing negotiations that you mentioned, the UK and Kenya. My understanding on the Kenya talks is they're just getting off the ground, this is a negotiation with a developing country, there's going to be a lot of work to do, so I think the decision that the Biden administration will need to take is, should we continue these negotiations, but I don't see them wrapping up in the next year or two, frankly, based on my understanding of where things stand now and my experience in negotiating with developing countries in particular.

The UK negotiations may however present a decision point for the Biden administration. I think a lot will depend on how far along those negotiations are, whether the content of the draft text begins, or in some fashion addresses the priorities the Biden administration has put forward of dealing with middle-class issues, labor and the environment, and I think will also depend on where our stakeholders are, as well as where Congress is. And I think it will also depend on where the Brexit negotiations are, and frankly where the whole issue of the Ireland issue stands. But you mentioned Trade Promotion Authority, it expires July 1. The UK negotiation is covered under Trade Promotion Authority. If we were going to conclude that negotiation under this current trade promotion authority, the UK negotiations would need to be basically completed by April 1. And that timeline is going to present an enormous challenge for any incoming administration, particularly if you keep in mind that a new USTR may not even be confirmed by then. So we'll just have to see where that negotiation is, and the Biden team will need to review all those factors I mentioned, and make a decision, is this something worth going forward with, or do we continue the negotiations, but recognize it won't be covered under this Trade Promotion Authority, or do we just pause the negotiations for a while as we get our act together domestically and figure out which provisions will be most important to a Biden administration in pursuing trade agreements. I think that's a longer answer than you expected.

Jill O'Donnell: Well, it's a very comprehensive one. So we appreciate that.

Wendy Cutler: You're diplomatic.

Jill O'Donnell: I want to talk now about a report that you released recently, which is called, "Reengaging the Asia-Pacific on Trade: A TPP Roadmap for the Next US Administration." You published this back in October before we knew which administration might be coming in. But I think I want to start with what I thought was a really unique and insightful aspect of this report, and also to remind our listeners, the TPP, the Trans-Pacific Partnership is a trade agreement that the Trump administration pulled out of very early on when President Trump took office. A revised version of that agreement called the CPTPP went forward without the United States with about seven member countries, that has now been enforce for a while. So you've written this report offering some options for the US to reengage in that region. And one thing that you did was you interviewed several foreign officials and former foreign officials from CPTPP member countries. So I want to ask you first, who did you talk with? What types of officials did you talk with? And what were the key takeaways for you from them?

Wendy Cutler: Yeah. I thought it was really important if I was going to draft a report on options for the US returning to the CPTPP, or the TPP, to actually talk to current and former CPTPP officials in the various Asian and Latin American countries, and North American countries, because too often we get so focused in the United States and what we need and what we want, and this is a very different prospect because we would be asking to basically join an agreement that they put in place. We chose to leave it, the CPTPP countries under Japan's leadership decided to go forward, now it's their deal and we'll be knocking on their door. So I thought it was important, again, to reach out to them and to seek their views. And I was very heartened to hear that everyone I interviewed, and there were about a dozen officials I interviewed, they all, the first thing they said is, we welcome the United States back into the agreement, but then as the conversations continued, I heard a bit more, well, when I asked, for example, would you be open to changes? And then the response was, well, as long as they're targeted and strategic, we don't want a big renegotiation, be asked to make tough political decisions, particularly because we don't know where you might be in four years. And if you look at the election results, we still remain a very divided country, and I think our trading partners are just wary about going forward with us again, making big political decisions and have another president take office in four years and tear up that agreement. So I think we're going to need to to be very respectful if we wanted to return to the CPTPP, and it couldn't be the text as is, we would need to seek changes. We need to seek updates, frankly some of the provisions are already outdated, particularly with respect to the digital economy, but I think we'd also need to seek revisions, some of them reflected in the US Mexico Canada Agreement. And so a Biden administration would need to figure out what the content would be, what changes we would need to seek. And so, we'll have to see how that plays out. What I do recommend in my report is that since I think it's going to take time for any decision to be taken about reengaging on CPTPP, let's not wait, and maybe let's proceed with a narrower agreement in the region, and I suggest maybe one on digital trade, or supply chains, particularly with respect to the medical sector, or given the president-elect's emphasis and attention on climate change, why not see if we can do a narrow agreement on climate change/ the environment, and trade, all in an effort to regain trust, build momentum in the region, and also get some victories and some success under our belts, because I think many of these narrower agreements would not need Trade Promotion Authority, would not need a vote by Congress, and so they could come into effect a lot quicker.

Jill O'Donnell: Your report is also a really good reminder that Asian countries, and other countries, don't stand still when the US pulls back. So much has been said in just the last 48 hours about the Regional Comprehensive Economic Partnership, or RCEP, which was signed on Sunday, November 15th, which includes China and all the ASEAN member countries and other partners, new trade deal. Signed, but not yet enforced, but will still have to go through a national ratification process in the member countries. But I want to ask you now, how significant a development you think that is? RCEP has been discussed by some as a lower quality agreement, for example, than the TPP would have been. We haven't seen the full tariff schedule yet, I don't think. So how do you assess that agreement so far? And how significant a development is this, that now there is a second major trade agreement that's been signed in the Asia-Pacific region that the US is not part of?

Wendy Cutler: Well, I think it's a significant development and one that the United States needs to pay close attention to. As you mentioned, 15 countries entered this trade agreement, they signed it just 48 hours ago. The earliest could come into effect practically from my understanding would be a year from this January, and it may take longer, but coming after eight years of negotiation, and basically three years after the CPTPP came into effect, this is one more mega Asian deal where the United States is basically on the sidelines. And I think that this is going to have impacts on supply chains, on trade flows, on investment decisions, and it's something that the United States should not dismiss, I think we need to view this as another wake up call and figure out how we can reengage on trade in the region. You're going to hear a lot of people say, Oh, this agreement is so weak, once you read the text, there are so many exceptions and loopholes, and some of the tariffs cuts won't come into effect for 20 years. Some of the rules provisions won't come in effect for five years, and I get all that. But I think that's missing the point because just the fact that these 15 countries could come together and reach this deal, I think is significant. And let's remember, this is an ASEAN based deal, and one thing the ASEANs love to do in their trade agreements is they view it as a living document, a living agreement. So maybe two years from now they'll add new rules, they'll truncate some of the transition periods, it's not the end of the story. I think it's more a beginning of another trend in Asia and one that, if this trend continues and we continue to be on the sidelines, we're going to be put at a great disadvantage and maybe 20, 30 years from now, we'll look back and we'll think, what were we doing? How did we end up in the position that we are? And that means on the outside, looking in.

Jill O'Donnell: Yeah, the idea of a living agreement too, seems to be the approach of ASEAN itself as a block. And just to remind our listeners, that's the Association of Southeast Asian Nations, a grouping of 10 nations in Southeast Asia.

Wendy Cutler: And it is amazing, because among the 10 countries, there are very different levels of development. So you look at a Singapore, for example, as opposed to a Laos, or Cambodia, but all of these countries sign this agreement. And that's one of the reason why there are some long transition periods, some apply to the larger countries, more advanced countries for sensitive products and issues for them, but for a lot of the rules, I think some of the least developed ASEAN countries were given longer transition periods. That means they have more time to undertake the obligations of the agreement.

Jill O'Donnell: Okay. So bringing this back home, again, one recommendation in your report I want to focus on for a moment is that you included the recommendation that we need to make the case for trade. And it sounds like going back to what you said earlier, there oftentimes maybe too many expectations put on trade agreements, that there's an expectation that can solve everything in the domestic economy. So perhaps the way we talk about trade needs to change, perhaps that's an order. So I want to ask what compelled you to include that recommendation in your report and how you think that that can be done?

Wendy Cutler: Well, the reason I included it is because at the end of the day we need domestic support for these trade agreements, right? Typically they need congressional approval, and congressional approval often relies on where the public is. And so it's very important that the public understands the benefits of trade and trade agreements. I think in agriculture, those benefits are pretty apparent. And I think farmers for the most part are very supportive and probably the most supportive constituent for trade agreements because they have a lot of produce and commodities to export and the markets are overseas, right? And so, they get it. But when you think of manufacturers, it's kind of a two-edged sword. It depends which industry you work in. If you're working for a firm that relies on exports, that's one thing, but many manufacturers also look at the import side and they're very concerned about unfair competition. So we need to do a good job of explaining the benefits of trade. Now, this is not a new suggestion. I have worked for a number of administrations that have made this a priority. We've tried a lot of different approaches. The ideas don't talk about the benefits in a macro sense, bring it home to the consumer, bring it home to the worker, get real life stories from small and medium size enterprises. And we've done that. So, there's no silver bullet here, but I would just to conclude and say, in a crazy way, president Trump has almost made the case for trade in that, by imposing all of these tariffs and making trade policies such a preeminent part of his overall foreign policy, Americans are talking about trade now, and Americans understand that tariffs are taxes, and either companies are paying more money for their inputs, or consumers are now paying more money for what they buy in the store. So in a crazy way, he's almost brought home the benefits for trade. So I'm hoping going forward, as we talk more about trade and the benefits, people will recognize that, yeah, I just went out to buy a desk as I'm remotely working at home, and because of these tariffs on China, I'm paying a lot more money for that desk, versus had that tariff not been put on. So again, I think that Americans in the past four years are getting it that trade affects all parts of their lives.

Jill O'Donnell: Okay. So following up on that for a moment, you laid out the differences between perhaps the way that agricultural producers view trade, because there's a reliance on foreign export markets for their goods, versus the way manufacturers might see it, where it's a more complex picture. There are perceptions that trade has perhaps contributed to job losses in manufacturing, for example, over the last couple of decades. So I want to ask two questions, one is, because trade policy can have disparate impacts in different US states, depending on what's driving economies in those states, people in those states may have different perceptions about trade and policy. So how can trade negotiators take into account different public perceptions on trade when their job is to pursue the national interests on trade policy? And then secondly, how is the US government organized to take in input from people, from anyone, who wants to provide it on trade? Is it properly organized to get anybody's view and perceptions on trade as foreign policy and trade policy is being developed?

Wendy Cutler: I think you put your finger on a really tough question. As trade negotiators your job is to pursue the national interests, but what happens when different constituents want different things and often conflicting things in a trade agreement? And so as a government official you need to balance all of these interests and try and come up with a policy that takes those concerns, and valid concerns into account as proposals are pursued with foreign governments. But it's not easy. Sometimes domestic measures can help here because sometimes I remember constituents would come to our building at USTR and try to explain why they were against the trade agreement. And the more you talk to them, the more you recognize that it wasn't really trade that either they could pursue their concerns through a trade law, our existing trade legislation, but that didn't preclude us proceeding with the trade negotiation, or there was something that could be done domestically, separate from a trade agreement to address their concerns. But again, it's not easy, and for every constituent that came in, many also got their congressional representatives to come in as well. And so as trade negotiators, you can imagine the pressure that is put on you to try and navigate through all of these different views to hopefully come up with a good policy and then negotiate a good trade agreement that works for our country overall. And one of the things I learned was that when you bring any trade agreement home, they always face major criticism and the critics are from all sides. So either certain critics feel that you didn't get enough for them, other critics feel you got too much for the other side and not enough for them. And so, you have to recognize that sometimes if everyone's unhappy, then maybe you did a good job.

With respect to your second question, I think the US government does a very good job in soliciting input from all around the country, through a federal register notice process. Public hearings are typically held before trade agreements are entered into. And then throughout the negotiations there is, I can't pronounce this word, iterative discussions with stakeholders, including through a formal advisory process, which has many different committees, one on agriculture, another one on labor, and then broken down to different manufacturing sectors as well. But I think we can do a better job here. And one of the areas where I think we should really look at is trying to span our negotiators out all around the country to solicit input from different States, from different localities, from different regions, and really factored that input into our trade negotiating proposals, because we're not a monolith country, particularly when it comes to trade. So I think, again, there's always room for improvement in inviting public comments. And I think it's so important that our citizens take advantage, because I can tell you if we got 400 comments before a trade negotiation, I'd be up really late at night reading through them, and we took them seriously. And sometimes we would get written submissions and would lead to really further discussions with that constituent to really understand what their concern was, either a defensive concern, or an offensive concern, in terms of what they wanted the other country to do.

Jill O'Donnell: That is a really interesting idea, Wendy, too, that you mentioned about having trade negotiators span out across the US, because as you said, there are a lot of established communications channels through public comment periods, or hearings, but to actually bring trade negotiators out here on the ground to pull more information out of people who might not be familiar with those channels, I think that's really fascinating. We'll have to watch and see if that is something that develops going forward. I want to ask you one last question, which is the same one that I ask every guest on this podcast. And that is, what are you reading lately? What is something you've read lately about trade, or global commerce, that has been particularly striking to you?

Wendy Cutler: You had warned me about this question, so it's interesting because this was the one I really had to think about. I have to admit that I read so much for work that when it comes to just reading in my spare time, I love fiction. I don't sit and read histories of trade and foreign policy, I find that I need an escape, but one speech that I really wanted to bring to the attention of everyone, and this is something, I remember when it was given, and it's just had a real impact on me, and I read it again early this morning before I came on this podcast, is a speech that Prime Minister Abe gave to his public, this was in 2013, in March. And it was when he told the Japanese people that he planned to join TPP. Now, at that time, I had been working on these negotiations to try and get Japan into the TPP, we were going back and forth with them. You can imagine it was a very tough political decision for Japan, particularly given its agriculture interest, and for years they had been extremely protectionist, a very closed market, and Japan knew if they join the TPP, they'd have to open up that market, which for Japan was an extremely, you cannot discount what a tough political decision it was. And when I looked at the speech this morning, I think it's extremely relevant today. And what it showed to me was just a lot of leadership, the speech starts, and he basically says, "I have decided to join the TPP," then he lays out the reasons why Japan needs to do this. And he points to demographic changes in Japan. He points to the fact that if Japan isn't there writing the rules, others will write the rules for Japan. But then he also talks about the concerns, and that he understands that his citizens have concerns, particularly in agriculture. And it wasn't just about their fear of agricultural imports, it was a fear that almost by opening up in agriculture, they'd be ruining their way of life in terms of farm villages. So it got into the whole culture of Japan and he talks about all of this, but he basically says, nevertheless, I'll look out for you during these negotiations, I'll pursue the national interest, but nevertheless, we need to do this as a country. And for me it shows leadership, and it shows the intersection between domestic and international policy when it comes to trade. And the fact that every political leader really faces domestic challenges when they decide to open up, or to reform further. And so I would urge anyone who's listening to Google that speech and read it. It's not very long, but it had a huge impact on me in 2013. And when I negotiated with Japan in the TPP, they turned out to be incredible partners in TPP. And if you had told me in 2013 that the story would have ended with the United States out of TPP, and then Japan leading the other 11 countries to conclude the deal, I would've told you, you're crazy, this will never happen. But that's the way the story happened. And hopefully that story isn't over.

Jill O'Donnell: Thank you, Wendy. That's a fascinating pick. Thank you for pointing us to that speech.

Wendy Cutler: I'm sure your other listeners didn't pick that one.

Jill O'Donnell: No, I don't think anyone's ever picked a speech in answer to that question, so you're breaking new ground here as well.

Wendy Cutler: Trend setter.

Jill O'Donnell: Yes you are. Wendy, thank you so much for being on this podcast today, we really appreciate it.

Wendy Cutler: Thank you.

Jill O’Donnell: That's it for this episode of Trade Matters. Thanks for listening, and a big thank you to Alex Voichoskie and Jacy Thoman for helping produce this podcast. Please subscribe to Trade Matters on iTunes, Spotify, Stitcher, or wherever you get your podcasts. If you have ideas or topics you would like to hear about on Trade Matters, we'd love to hear from you. Send us an email at yeutterinstitute@unl.edu or follow us on Twitter @YeutterUNL. Opinions expressed on Trade Matters are solely those of the guests or hosts and not the Yeutter Institute or the University of Nebraska - Lincoln.