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Opinion - Foreign Trade


Ambition gets Asean aggressive

S. Sethuraman

Asean is now seeking Asia-wide opportunities for sustained export-led growth and the intricate web of trade accords planned will certainly lead to a significantly higher share of Asian exports in world trade in the coming decades. However, this may not substantially alter the pre-eminent position held by Western Europe and North America, says S. Sethuraman.

EACH annual summit of South-East Asian Nations raises the level of ambition not only for itself but also for the major Asian powers whom Asean strategically befriends for its own unhindered economic prosperity amid growing competitiveness.

This is how it has gained the adherence of China, Japan, India, and Republic of Korea to the Treaty of Peace, Amity and Cooperation, all of them joining a Great Asian Race for Free Trade on the coattails of Asean.

The ten-nation grouping, far from evolving into a tight economic bloc, is now seeking Asia-wide opportunities for sustained export-led growth. This makes the setting inviting for China, which has already emerged a major importer for the region; Japan, with its historic investment role in the neighbourhood; and India, aspiring to secure its own position as a potential world power.

It is a paradox that most countries are ready to embrace the concept of free trade on a bilateral and plurilateral basis, with all the obligations and concessions it entails, while paying obeisance to multi-lateralism with trade rules and disciplines of universal application. This trend is partly attributable to the perception of promising markets with easier access among countries in proximity, even if some of the negotiated deals cut across continental divides and here, perhaps, trade diplomacy serves geopolitical interests as well.

Part of the reason could be that some countries are disenchanted with the complexities and delays that characterise global trade negotiations such as the ongoing Doha Round and opt for terms more forthcoming. Whatever that may be, regional trade agreements (RTAs) have long been in the making with over 200 already in force accounting for 45-50 per cent of world trade, the bulk of it accounted for by the European Union and the North American Free Trade Agreement (NAFTA).

The proliferation of bilateral and regional free trade agreements with provisions that are not applied to third countries has aroused the concerns of the World Trade Organisation and the World Bank.

At this year's Summit in Vientiane (Laos) in the last week of November, Asean's out-reach was extended to Australia and New Zealand, for the first time, and there was an understanding to launch free trade negotiations to be completed by 2007.

This was the opportunity Australia had waited for with a desire to "enmesh" itself in Asia, without giving up its long-term security alliance with the US. Indeed, the Prime Minister, Mr John Howard, scored a diplomatic triumph despite his rejection of Asean's plea to sign what it regards a non-aggression pact to which leading Asian nations including India have acceded.

Regional leaders had earlier been dismayed by Mr Howard's Bush-like stance of "pre-emptive" strike against any country from which a terrorist threat emanated. At least for the present, Mr Howard has had his way, though New Zealand Prime Minister, Ms Helen Clark, seemed willing to go along with the Treaty.

Canberra has hailed it as a big breakthrough that would boost Australian exports by about $2 billion and also benefit Asean, particularly Indonesia, its immediate neighbour. Its already-concluded free trade agreements with the US and Thailand will take effect from January 1, 2005. Mr Howard plans to push ahead with similar bilateral negotiations with China and Malaysia in 2005.

The most striking agreement in Vientiane was the one between Asean and China to remove barriers for free trade by 2010, which would bring South-East Asia and China closer and raise bilateral trade to an estimated $130-140 billion. China reaffirmed its support for a nuclear weapon-free zone in South-East Asia.

Over the years, Asean had begun to feel it was losing importance especially in relation to China, which has been drawing the bulk of foreign direct investments in Asia. This has forced the bloc to embark on a swathe of trade and investment deals to regain its dynamism and build for the future.

China, with its ravenous appetite for oil, metals and other commodities, has a high stake in securing vital sea-lanes for its trade with a region that is already benefiting from exports to the mainland. More important, China's readiness to make concessions to its neighbours, with some early harvests, is also seen by analysts as underlining its potential for a strategic challenge to American influence in Asia.

On the other hand, the US' own free trade campaign was moderated at this year's 21-nation APEC Summit at Santiago when the President, Mr George W. Bush, and other leaders resolved to do their utmost to get the Doha Round reactivated and work for a successful conclusion, a victory of sorts for multi-lateralism.

The US was coming up against demands for freeing its agricultural market in its negotiations for an all-American Free Trade Area and it felt such issues as farm subsidies and market access should be tackled at the global level.

A somewhat unexpected development was the Asean leaders pushing for an East Asian Summit in Kuala Lumpur next year, reviving the former Malaysian Prime Minister, Dr Mahathir Mohammad's pet project for an East Asian Community comprising Asean plus China, Japan and Korea whose combined exports in 2003 exceeded $1.6 trillion.

This decision was taken even as the Asean Summit became the launching pad for its negotiations not only with China but also with Japan, Korea and India besides Australia and New Zealand. Within Asean itself, elimination of tariffs in the nine remaining sectors of goods towards becoming a free trade area is due to be completed by January 1, 2007 by the six original members and by January 1, 2012 by the four new member-countries (Vietnam, Laos, Cambodia, and Myanmar). Priority sectors such as automobiles, electronics, fisheries, textiles and apparel, electronics, health care and IT have an average 5 per cent tariff at present.

For India, the Partnership for Peace, Progress and Shared Prosperity was a landmark declaration going far beyond trade and investment with commitments to addressing common challenges to comprehensive political and economic security including food and energy, combating terrorism, and developing regional infrastructure for all forms of transport to increase connectivity and facilitating greater movement of goods and people.

It was agreed that the Asean-India Free Trade Area would be implemented by 2011 in respect of original Asean-5 and by 2016 for the four new members.

The two-way Indo-Asean trade now at $13 billion is targeted to hit $30 billion by 2007. It is only lately that Asean has begun to measure India's rise as a dominant economic power, and not to be swamped by China's spectacular growth in the foreseeable future, it plans to strike free trade deals with the three largest Asian economies including Japan.

The intricate web of trade accords that is planned will certainly lead to a significant higher share of Asian exports in world trade in the coming decades but may not substantially alter the pre-eminent position held by Western Europe and North America.

In 2003, according to WTO data, Asia exported $1,901 billion of goods out of a global total of $7294 billion or about 25 per cent, and roughly half the continent's exports was from Japan and China. Intra-Asian exports were $949 billion and the balance went mostly to North America and West Europe. Asean-10 accounted for $451 billion, of which intra-ASEAN exports were $105 billion (23 per cent).

Intra-regional trade is the highest in West Europe (mainly the EU) at 65 per cent of its total exports of $2,900 billion.

(The author, former Chief Editor of PTI, is a New Delhi-based freelance writer.)

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