Congress last month passed a key piece of legislation that helps the U.S. clear the way for a massive trade deal with 11 nations across the Pacific Rim. The move is significant not only because it involves nearly half of the world’s economy, but it also opens an opportunity for the U.S. to strengthen trade relations with Asia and further liberalize markets in the region. This comes as many Asian countries seek financial support for badly needed improvements to their roads, bridges and other infrastructure.
Efforts are well under way, but it’s not the U.S. taking the lead. Rather, it’s China through creation of a new Asian Infrastructure Investment Bank (AIIB) with an initial capitalization of $100 billion. Its Articles of Agreement were signed by 50 countries at the end of June, with another seven countries committing to be founding members.
It makes eminently good sense for the U.S. to contribute directly to the new bank. Having spent enormous energy in working to create the Trans-Pacific Partnership, the Obama administration and Congress should recognize that development assistance, particularly that which is dedicated to infrastructure, is a natural complement to expanded trade relations with Asia. Moreover, as the U.S. ranks first in experience in working with international financial institutions, it can contribute its expertise to this start-up and lend its support for strong governance.
From a commercial point of view, assuring procurement that is open (and in which U.S. companies can share) is in the national interest. In terms of its geopolitical interests, America does not wish to see its role in Asia decline. Lastly, there are any number of areas where there will be stresses in the relationship between the U.S. and China. Where the two countries can work together, they should do so.
The Obama administration has had a number of reasonable concerns about the new bank: officials expressed concerns about governance – presumably referring to whether there would be sufficient safeguards against corruption, discriminatory procurement, and inefficiencies. The existing international financial institutions had a strong record and decades of experience to avoid some of the pitfalls that a new institution might succumb to. Moreover, the bank was yet another institution alongside the World Bank and the Asian Development Bank. While there is much to be done to improve infrastructure in Asia, would the new institution simply compete with existing institutions, or bring in net additional resources?
Such questions are valid, and the U.S. expressed these views to its allies.
However much the U.S. might have doubted the bank, it has become a reality. Fourteen of 28 European Union members have signed on, as well as other countries that partner with the U.S. on international initiatives, such Australia and New Zealand. In addition, the International Monetary Fund’s Christine Lagarde has said that the IMF will work closely with the new bank.
The interim head of the AIIB, Jin Liqun, has a series of important credentials that bode well for the new bank. He has served as a vice president of the Asian Development Bank, an alternate executive director of the World Bank, a deputy finance minister of China, and chaired the committee that oversaw China’s sovereign wealth fund, the China Investment Corporation. There is hardly anyone China could name who would rival Jin’s standing internationally.
The AIIB is no longer a theoretical possibility; it is coming into being with a broad base of international support. President Obama has said the U.S. would work with the bank, but there is a further step not yet taken that would be both in the best interests of the United States and the new institution. The U.S. should join the Bank. There is no substitute for direct participation.
Alan Wm. Wolff is a senior counsel in the international practice of the global law firm Dentons.
