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Asia embraces free-trade links

International Herald Tribune, Saturday, March 12, 2005

Asia embraces free-trade links

But in the rush to seal bilateral deals, much is left out

By Wayne Arnold
International Herald Tribune

SINGAPORE Rafidah Aziz, Malaysia’s trade and industry minister, spent last week in the United States, drumming up trade and investment from a country with which Malaysia hopes to sign one of its first bilateral free-trade agreements.

It was not so long ago that Malaysia opposed such one-to-one trade pacts, condemning them as Trojan horses for Western nations to gain low-tariff entry to the regional trading bloc being set up by the 10-member Association of South East Asian Nations. Three years ago this week, in fact, Rafidah told reporters in Kuala Lumpur: "We are not interested in having bilateral FTAs with anybody."

Now, Malaysia is negotiating trade deals with both Washington and Tokyo and has proposed talks with Australia, Bangladesh, India and Pakistan.

"Malaysia sees no choice because it is being left out," said Manu Bhaskaran, head of economic research at Centennial Group Holdings in Singapore. "Rafidah Aziz has had to swallow her pride," he said. Rafidah was not available for an interview.

Malaysia is only joining a long and growing list of Pacific nations rushing to sign free-trade agreements with their biggest trading partners.

To some extent, the gathering momentum behind such pairings is an expression of collective frustration with the pace of global free-trade talks under the World Trade Organization. But others say this ignores the real driver in Asia: China. Its breakneck emergence as a competitor for both export markets and crucial raw materials has turned the bilateral free-trade agreement into a fashionable statement of economic commitment.

"Anything that ties your two countries together reinforces the economic link," said Wong Chiang Voen, a trade consultant at White & Case in Singapore and a former trade negotiator.

Supporters of bilateral deals also argue that they can lead to more expansive regional groupings.

"Of course, all of us would prefer all this nitty-gritty to be settled on a multilateral basis at the WTO," said Ong Keng Yong, secretary-general of Asean, which comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Singapore, Thailand, Vietnam and the Philippines. But bilateral deals can help iron out thorny issues between two trading partners before they stymie larger negotiations, he said.

Critics, on the other hand, say bilateral free trade talks distract negotiators from multilateral trade talks, tying them up in expensive and time-consuming negotiations. Mahathir bin Mohamad, the former prime minister of Malaysia, was a staunch opponent of bilateral trade agreements, saying they distracted Southeast Asian nations from creating the Asean Free Trade Area, known here as Afta. Nations that pursued their own bilateral deals, he said, risked providing countries like the United States with a back door into Asean and a way to undermine local industries with cheap manufactured goods.

But Afta, like the WTO’s trade talks themselves, became plagued by shifting deadlines and selective implementation. Part of the problem facing Afta is the difficulty of finding common ground among a membership that ranges from Indonesia, whose 250 million citizens have a per capita income of roughly $800 a year, to urbanized Singapore, whose four million residents enjoy an average annual income of $21,000.

Trade agreements also challenge the political order by prying open cherished industries. After largely sidestepping the kind of changes prescribed by the International Monetary Fund and other Western advisers during the financial crisis of the late 1990s, Asean’s members have proved reluctant to embrace them in the name of free trade.

So even as they agreed on the urgency of forming a marketplace with economies of scale more comparable to China’s, Asean’s members have whittled away at Afta. The grouping’s four newest and poorest members - Cambodia, Laos, Myanmar and Vietnam - were given a delay of several years for dropping protectionist barriers. Agricultural tariffs were also spared, particularly for rice and sugar. The Philippines excluded its petrochemical industry. And Malaysia demanded delays for its two auto manufacturers, Proton and Perodua.

Ong defends Afta, saying it has succeeded in pushing tariffs below 5 percent on 99 percent of the products traded within the area, eliminating $1.4 billion in tariffs. Implementation has been slow, he concedes, but adds, "Tell me another place where this has been achieved in 10 years."

 source: IHT