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Asian free trade vogue could heat up

United Press International

Analysis: Asian free trade vogue could heat up

30 November 2004

By RAFAEL D. FRANKEL, UPI Business Correspondent

VIENTIANE, Laos, Nov. 30 (UPI) — Free trade agreements are flying around East Asia these days, with even India, from South Asia, getting a piece of the action.

At the summit meetings of the ten member countries of the Association of South East Asian Nations which concluded Tuesday, a total of eight trade agreements were signed in less than half those number of days.

ASEAN members Indonesia, Brunei, Malaysia, Singapore, the Philippines, Thailand, Cambodia, Laos, Vietnam, and Myanmar were joined by leaders from China, India, South Korea, Japan, Australia, and New Zealand in a scramble to get new trade deals.

But in the end, all these talks may prove to be small potatoes if the idea of an East Asia Free Trade Area, which was broached at the head-of-state level for the first time Nov. 30 when Asean leaders met with their counterparts from China, Japan, and Korea, goes forward.

Long stifled by regional conflicts, communist regimes, and widely varying levels of development, the countries of East Asia, as well as Australia and New Zealand, have made free trade the holy grail of their external economic policies. Spurred on by the largely successful economic union of Europe, and the possibly soon-to-be-expanded North American Free Trade Area, the feeling among many in the region is they must move quickly.

"You have the growth of China, and then you have the FTAs that are rapidly growing elsewhere in the world... so there is a global trend Asia intends to be a part of," said Akira Chiba, assistant press secretary to Japan’s director of international press. He added that Asia was also integrating so as not to repeat the mistakes that lead to the Asian financial crisis of the late 1990s.

It would be hard, though, to overemphasize the roll China’s aggressive trading position has had in spurring the flurry of trade activity here. The roaring engine of economic growth for much of the region, China has pushed for, and received, its FTA with ASEAN only two years after bringing up the subject for the first time. Even the dates for lowering tariffs were accelerated in these meetings.

China, of course, has the most to gain from an EAFTA. With the stunning productivity of its textile industry, and some wealthy neighboring countries, it is no wonder China is the EAFTA’s most ardent supporter. But backing for the EAFTA, once seen as a long-term prospect has emerged from other corners as well.

"An enlarged East Asian bloc can secure not only the future of the developing and less-developed countries of ASEAN, but also the future of China, Japan, and Koreas economic leaders in the Pacific Century. Therefore they must actively participate and we must all participate towards the formation of an East Asian regional economic bloc," Philippine President Gloria Macapagal Arroyo said Nov. 28

"In addition to the Asean-plus-3 (China, Japan, and Korea) there is the emerging AEAN-plus-3-plus-India and that will be a formidable regional grouping that can negotiate then with the European Union, the Americas, Africa, and such regional economic groupings," she said.

As much as money talks, however, it doesn’t talk as much as politicians, and regional political issues will have their say in the EAFTA matter well before it is settled.

After the ASEAN-plus-3 countries agreed to hold the first ever East Asia Summit next year in Kuala Lumpur in conjunction with the ASEAN summit there, a minor controversy arose almost instantaneously.

Would Australia, New Zealand, and India be in attendance? Would those countries make it into the EAFTA zone? And were so many heavy weight economies brought in, would that serve to make ASEAN, currently the epicenter for so much of the free trade movement in the region, irrelevant?

"There are a lot of different permutations, different opinions, different ideas," ASEAN Secretary General Ong Keng Yong said Nov. 29 about the East Asia Summit. Nevertheless, he added that "the possibility of an East Asian Free Trade Area has become quite a near goal that we can achieve."

Of all the sure players in the EAFTA, Japan is the most skeptical. Japan is currently pursuing its negotiations with Asean on an FTA and also studying the possibility of a three-way free trade area with China and Korea, Chiba said, calling the possibility of an EAFTA "an interesting development."

Although those talks would seem to coalesce well into an EAFTA, Chiba stressed that Japan has no time table on trying to work out the larger agreement. "That could be a very important commitment foreseen in the future," he said.

Chiba also added that Japan’s position is that "a free trade area or an Economic Partnership Agreement is not a [trade] bloc."

For all the hype about China, the Japanese economy is still the second largest in the world, and it would be impossible for any EAFTA to be formed without it. With a GDP of over $4.3 trillion dollars in 2003, according to the World Bank, Japan’s economy is larger itself than all of its possible partners in EAFTA combined, even were the area included Australia, New Zealand, and India.

With or without an EAFTA in the near future, East Asia is integrating its economies at a faster rate than ever before. For the United States in particular, long the big brother in Asian economics, the increased regionalism poses new challenges for its businesses.

The United States still ranks one or two in terms of trading partners for ASEAN, Japan, China, and Korea. But trade growth between the United States and those countries is slower than their trade growth with each other.

"We do pretty well, and over the last couple years we’ve done pretty well," Walter Lohman, the vice president and executive director of the US-ASEAN business council, said. But "time keeps moving and what was good two years ago may not be good enough today."

"I think in the long term being left out would not be a good thing. In the near term it’s not a bad thing as long as we continue to be a power. If we continue to be at the table and doing our own thing, then it’s good; we can be a part of the mix. But if it ends up developing in a way that excludes us, that’s not good," Lohman said.