ASIA
26 March 2014
Global trade's seismic moment?
The global trading system may be approaching a seismic moment, according to discussions at the CanadAsia2013 conference organized by the Asia Pacific Foundation of Canada in Vancouver.
The global trading system may be approaching a seismic moment, according to discussions at the CanadAsia2013 conference organized by the Asia Pacific Foundation of Canada in Vancouver.
Today, countries representing some 77 per cent of the world economy are involved in at least one free trade agreement (FTA) negotiation. This could be a turning point, a seismic moment for the global trading system, argued Brandeis University's Peter Petris.
The last seismic shift in global took place with the Uruguay Round, and the creation of the WTO, following the end of the Cold War.
But the world has since changed. Leading Asian economies like China and Vietnam have joined the WTO. Global value chains have been established in different regions of the world, facilitated by rapid advances in information technology.
In this context, trade in parts and components has become an important part of global trade. And many emerging economies have been undertaking unilateral trade liberalisation.
The WTO has in many ways been left behind. The Doha trade talks, launched in 2001, have been in a state of coma for many years. And WTO talks have been struggling to achieve results on relatively uncontentious issues like trade facilitation.
As Thailand's Apiradi Tantraporn said, the WTO is not relevant to the current world economy. The WTO membership must revive the WTO, she argued. Thailand, like its ASEAN neighbours depends on global trade.
But, as Japan's Yoshiji Nogami said, the WTO is fighting yesterday's war. It is not well suited to today's business. Most member countries do not wish to negotiate services, even though they are the future of the world economy, and a key component in trade in manufactures.
With the WTO in the doldrums, the world has charged ahead with negotiations on bilateral, plurilateral and regional FTAs, as explained by Petri. By one count, there are now over 300 such FTAs, with a quarter of them in the Asia Pacific. Many of them involve the South East Asian countries of ASEAN. This "noodle bowl" of trade agreements is very messy, to such a point that many businessmen do not take full advantage of them.
These trade talks include the US-driven Trans Pacific Partnership, which now includes 12 countries. Then there is the Regional Comprehensive Economic Partnership involving the ASEAN countries plus China, Japan, Korea, India, Australia and New Zealand. China, Japan and Korea are discussing a possible FTA. And the US and the EU are about to launch discussions, as are Japan and the EU.
With many countries involved in more than one set of trade talks, they are all inter-related, and even spurring competition between them. At the same time, there are key gaps. China is not in the TPP. And the US is not in the RCEP talks.
This conjunction of many sets of trade talks provides an opportunity to consolidate them or coordinate them into one overarching framework and create a new set of rules for the future. There are already hints that China may be invited to the TPP talks at the upcoming Obama/Xi summit. But China's Yunling Zhang argued that China would want to fully reopen the TPP talks, if it joined now. Overall, he was not confident of China joining the TPP.
A convergence of these various trade talks could lay the foundation for a new wave of trade liberalisation, economic integration and economic growth. This is indeed the right moment. A new wave of trade liberalisation would provide a cost-free stimulus to the world economy.
A critical factor in the success of all these trade talks will be the willingness of all parties to say yes to a good deal. No country will get everything it wants. But a good deal in which everyone gets something must be seized.
Many countries "get it". Though it is not clear that the US does. Flexibility including about phase-in periods will be necessary, especially for countries like Vietnam.
A critical element will be having an open national debate, so that everyone (including the US Congress) is ready for approval of the trade agreements. Neither the US nor Canada have had such a debate. Somewhat surprisingly, Japan has had a very open public debate about the TPP.
Japan's Yoshiji Nogami argued that Japan has traditionally not been a trading nation. Its exports represent only 15 per cent of GDP, putting it at 145th in the world on that score. For imports, it is ranked 150th. For inward foreign investment as a share of GDP, Japan is ranked 184th in the world.
Thus, Prime Minister Abe's decision to join the TPP talks is more than a trade negotiation. It is a game changer. Japan also has trade discussions underway or starting with the EU, Canada, and Australia, as well as the China/Japan/Korea trade talks.
The TPP is a litmus test of Abenomics. It will be a catalyst for structural changes. But more will be necessary. Mobilising women into the work force will be key. As will improving Japan's English language education. Japan is now ranked 130th in the world for English language capacity.
Another major issue for Japan is the future of agriculture. The average age of Japanese farmers is 67, and young Japanese are not interested in a career in agriculture. Protection has not worked. Japan's agricultural sector represents only 1.3 per cent of GDP.
The key is to create a viable and competitive agricultural sector, such as through support by income guarantees. Japan's high quality food products are greatly appreciated by its neighbours. And eco-tourism is another field to develop.
Japan's economy has been weak for a decade or more, and the country's profile and influence in the region has suffered. A stronger economy is needed for a more confident Japan, and the TPP is crucial.
In short, the global trading system stands at a critical juncture, a seismic moment. The opportunities for a new wave of trade liberalisation, and a new set of trade rules are immense. They could launch a new wave of economic growth worldwide, as the global economy gradually muddles its way through the financial and economic crisis.
The leading role played by the US in some trade talks is an irritant for many countries. But as history shows, the international system needs leadership, and, realistically, that can only come from the US.
In this regard, an effective US/China partnership will be necessary. This weekend's summit meeting between Barack Obama and Xi Jinping is crucially important.
Executive Director
Asian Century Institute
www.asiancenturyinstitute.com
Today, countries representing some 77 per cent of the world economy are involved in at least one free trade agreement (FTA) negotiation. This could be a turning point, a seismic moment for the global trading system, argued Brandeis University's Peter Petris.
The last seismic shift in global took place with the Uruguay Round, and the creation of the WTO, following the end of the Cold War.
But the world has since changed. Leading Asian economies like China and Vietnam have joined the WTO. Global value chains have been established in different regions of the world, facilitated by rapid advances in information technology.
In this context, trade in parts and components has become an important part of global trade. And many emerging economies have been undertaking unilateral trade liberalisation.
The WTO has in many ways been left behind. The Doha trade talks, launched in 2001, have been in a state of coma for many years. And WTO talks have been struggling to achieve results on relatively uncontentious issues like trade facilitation.
As Thailand's Apiradi Tantraporn said, the WTO is not relevant to the current world economy. The WTO membership must revive the WTO, she argued. Thailand, like its ASEAN neighbours depends on global trade.
But, as Japan's Yoshiji Nogami said, the WTO is fighting yesterday's war. It is not well suited to today's business. Most member countries do not wish to negotiate services, even though they are the future of the world economy, and a key component in trade in manufactures.
With the WTO in the doldrums, the world has charged ahead with negotiations on bilateral, plurilateral and regional FTAs, as explained by Petri. By one count, there are now over 300 such FTAs, with a quarter of them in the Asia Pacific. Many of them involve the South East Asian countries of ASEAN. This "noodle bowl" of trade agreements is very messy, to such a point that many businessmen do not take full advantage of them.
These trade talks include the US-driven Trans Pacific Partnership, which now includes 12 countries. Then there is the Regional Comprehensive Economic Partnership involving the ASEAN countries plus China, Japan, Korea, India, Australia and New Zealand. China, Japan and Korea are discussing a possible FTA. And the US and the EU are about to launch discussions, as are Japan and the EU.
With many countries involved in more than one set of trade talks, they are all inter-related, and even spurring competition between them. At the same time, there are key gaps. China is not in the TPP. And the US is not in the RCEP talks.
This conjunction of many sets of trade talks provides an opportunity to consolidate them or coordinate them into one overarching framework and create a new set of rules for the future. There are already hints that China may be invited to the TPP talks at the upcoming Obama/Xi summit. But China's Yunling Zhang argued that China would want to fully reopen the TPP talks, if it joined now. Overall, he was not confident of China joining the TPP.
A convergence of these various trade talks could lay the foundation for a new wave of trade liberalisation, economic integration and economic growth. This is indeed the right moment. A new wave of trade liberalisation would provide a cost-free stimulus to the world economy.
A critical factor in the success of all these trade talks will be the willingness of all parties to say yes to a good deal. No country will get everything it wants. But a good deal in which everyone gets something must be seized.
Many countries "get it". Though it is not clear that the US does. Flexibility including about phase-in periods will be necessary, especially for countries like Vietnam.
A critical element will be having an open national debate, so that everyone (including the US Congress) is ready for approval of the trade agreements. Neither the US nor Canada have had such a debate. Somewhat surprisingly, Japan has had a very open public debate about the TPP.
Japan's Yoshiji Nogami argued that Japan has traditionally not been a trading nation. Its exports represent only 15 per cent of GDP, putting it at 145th in the world on that score. For imports, it is ranked 150th. For inward foreign investment as a share of GDP, Japan is ranked 184th in the world.
Thus, Prime Minister Abe's decision to join the TPP talks is more than a trade negotiation. It is a game changer. Japan also has trade discussions underway or starting with the EU, Canada, and Australia, as well as the China/Japan/Korea trade talks.
The TPP is a litmus test of Abenomics. It will be a catalyst for structural changes. But more will be necessary. Mobilising women into the work force will be key. As will improving Japan's English language education. Japan is now ranked 130th in the world for English language capacity.
Another major issue for Japan is the future of agriculture. The average age of Japanese farmers is 67, and young Japanese are not interested in a career in agriculture. Protection has not worked. Japan's agricultural sector represents only 1.3 per cent of GDP.
The key is to create a viable and competitive agricultural sector, such as through support by income guarantees. Japan's high quality food products are greatly appreciated by its neighbours. And eco-tourism is another field to develop.
Japan's economy has been weak for a decade or more, and the country's profile and influence in the region has suffered. A stronger economy is needed for a more confident Japan, and the TPP is crucial.
In short, the global trading system stands at a critical juncture, a seismic moment. The opportunities for a new wave of trade liberalisation, and a new set of trade rules are immense. They could launch a new wave of economic growth worldwide, as the global economy gradually muddles its way through the financial and economic crisis.
The leading role played by the US in some trade talks is an irritant for many countries. But as history shows, the international system needs leadership, and, realistically, that can only come from the US.
In this regard, an effective US/China partnership will be necessary. This weekend's summit meeting between Barack Obama and Xi Jinping is crucially important.
Author
John WestExecutive Director
Asian Century Institute
www.asiancenturyinstitute.com