Shutdown puts trade talks on ice

US efforts to conclude trade deals with the European Union and 12 Pacific Rim nations suffered a big blow as a result of its government shutdown, with US trade officials cancelling next week’s round of talks in Brussels and Barack Obama scrapping a trip to meet Asian leaders.

Mike Froman, US trade representative, called Karel De Gucht, EU trade commissioner, on Friday to tell him that the shutdown would “prevent” his office from “proceeding” with the second round of talks.

“He noted that financial and staffing constraints related to the shutdown make it impossible to send a full team of negotiators; USTR will work with the [European] Commission to craft an alternative work plan that can begin once the US government shutdown ends,” a USTR spokeswoman said.

Mr Froman emphasised that the deal remained “a major economic priority for the US, with the potential to enhance the world’s largest economic relationship and support jobs on both sides of the Atlantic when an agreement can be completed”.

João Vale de Almeida, the EU ambassador to Washington, tweeted on Friday afternoon that “unfortunately” the round of talks had been axed and added: “The EU is ready when you are!”.

In a statement , Mr De Gucht said: “The cancellation of next week’s negotiation round in Brussels is clearly unfortunate but let me underline that it in no way distracts us from our overall aim of achieving an ambitious trade and investment deal between Europe and the US which will bring real economic benefit to people on both sides of the Atlantic.”

The cancellation of the second round of EU trade talks came after Mr Obama decided to stay at home rather than attend a summit with Asian leaders in Indonesia – which was seen as a rare chance to give talks on a Trans-Pacific Partnership a decisive push. The TPP still faces a number of sticking points but many countries are aiming for a conclusion by the end of the year.

The cancellation of the trip also undercut the Obama administration’s ambition to promote his “pivot” to Asia, a long-term strategic plan to cement American interests in the region and to push back against rising Chinese influence.

Mike Green, a former Asia director at the national security council, said the cancellation could have “consequential and lasting strategic implications” for the US in the region. “Our Chinese friends are spreading doubt around the region about our staying power,” he said.

The TPP is one of the main pillars of the Obama administration’s ambitious second-term trade agenda and is central to its plans for boosting America’s presence in Asia. Meanwhile, the EU deal was seen as a way to boost sluggish economies on both sides of the Atlantic and a way to reinforce the transatlantic relationship more generally.

The cancellations show the expanding impact of the partial government shutdown which began on Tuesday and stem from the failure of Republicans and Democrats to agree on a budget.

Having already been distracted by a raft of crises in the Middle East, from Egypt and Syria to Iran’s nuclear programme, the administration will now face further questions over its ability to make a sustained commitment of time and energy to Asia.

Mr Obama had also been due to attend a meeting of southeast Asian leaders in Brunei, to make the first presidential trip to Malaysia since the mid-1960s and to visit the Philippines where the US is negotiating broader military access.

China’s President Xi Jinping, who will attend the Apec summit, visited Indonesia on Thursday, where he addressed the parliament. On Friday he was in Malaysia.

Mr Green said the administration might be able to repair some of the damage to its standing in the region if it swiftly rearranged a high-profile trip there. President Bill Clinton was heavily criticised for cancelling a trip to Apec during the 1995 government shutdown, but he “recovered pretty well” by visiting Japan and South Korea in early 1996.

There has been talk of the president making a trip to Japan, China and other countries in the region early next year.

Trade ministers from the TPP countries met on Thursday and Friday in Bali and were due to continue their discussions on Saturday, in the hope they could make substantial progress. Mike Froman, who took over as US Trade representative earlier this year, is considered to have the ear of the president and many people involved in the discussions say that in itself has helped sustain the negotiations.

“If he [Obama] is not there, it is hard for anybody else to agree to various kinds of commitments,” said Deborah Elms, a leading TPP expert based at Singapore’s Nanyang Technological University. “Even if Obama has empowered John Kerry to make various kinds of concessions on behalf of the United States, I’m not sure how many other leaders are going to feel confident that it is the same as hearing it out of Obama’s mouth.”

Matthew Goodman, a former White House economic adviser, said a TPP agreement would be a “big, big deal”. However, failure would “seriously undermine” the administration’s economic strategy in the region.

John Murphy, vice-president for international affairs for the US chamber of commerce, said not having the US represented at the leadership level in next week’s TPP talks was disappointing.

It “is an embarrassment for the United States that we can’t be represented at this level,” he said. “However in terms of the negotiating schedule, because we’ve got a robust team on the ground, it’s not holding up the negotiations at this point.”

“There’s a lot in play at the moment,” he added.