economics

May 11, 2010

West Is Wary, So Asia Seeks Free Trade Within

Filed under: Uncategorized — ktetaichinh @ 2:44 pm
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East-West trade tensions are rising, and a new global free-trade agreement seems a distant dream. Yet here’s the paradox: The drive for free trade within Asia, where the world’s greatest concentration of economic growth now resides, has never been stronger.

Fears of rising protectionism in the West are inspiring a newfound Asian enthusiasm to promote intra-regional trade. With talks for the Doha round of global trade stalled indefinitely, “we have to deal with the new normal, where politicians in the leading countries are running scared of free trade,” Kishore Mahbubani, a veteran Singaporean diplomat and policy adviser said Saturday at the 20th Asian Corporate Conference in New Delhi. The Wall Street Journal Asia co-hosted this year’s gathering in India along with Asia Society and the Confederation of Indian Industry.

For Asia, the U.S. Congress’s failure so far to pass a long-awaited free-trade deal with South Korea is emblematic of the problem. But the U.S. is keeping a horse in the race amid competing proposals for regional trade clubs. Last week, negotiators from eight nations—the U.S., Australia, Brunei, China, New Zealand, Peru, Singapore and Vietnam—held preliminary talks in Melbourne on creating an Australia-backed free-trade zone. Japan’s government, meanwhile, is pushing for an “East Asian Community” and hopes to hammer out details of its proposal in coming months.

Ideas to augment the 10-member Association of South East Asian Nations, comprised of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam , come in several flavors. There’s the “plus three” version, which adds South Korea, Japan and China. Then there’s the “plus six” version that also includes India, Australia and New Zealand. On Saturday in New Delhi, Singapore’s Senior Minister Goh Chok Tong, proposed a “plus eight” model to include the U.S. and Russia.

Bilateral free-trade pacts are sprouting like weeds. Last August, Asean signed a deal with India, and one with China came into effect in January. India also inked a deal with South Korea. Japan, South Korea and China are exploring a trilateral agreement. India and China are looking at a deal of their own.

Trade within the region has been growing by leaps and bounds. In the five years between 2002 and 2006, trade among the 10 Asean members more than doubled to $188 billion; trade between China and Asean tripled from $59 billion to $192 billion, according to data Mr. Mahbubani cited.

However, a significant portion involved components for goods ultimately destined for export to the U.S. and Europe, highlighting the limits to any aspirations of Asian regional self-reliance. Political tensions within the region also pose serious obstacles to trade growth: While trade between India and China jumped from $15 billion in 2005 to $41 billion in 2009, that’s a paltry figure considering the size of their two economies. Suspicion between the two giants dating to a 1962 border war hasn’t been helped by China’s concern that the U.S. is courting New Delhi as a hedge against China’s military ambitions.

If the conversation in New Delhi seemed utopian at points, there was still a firmly grounded message that most of those involved would agree on, enunciated by Mr. Mahbubani: All efforts to promote free trade within the region, however flawed, were still “the sensible answer to the imperfect world we live in.”
—email: peter.stein@wsj.com

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