Philip Bowring: When free trade sinks into the 'noodle bowl'
THURSDAY, AUGUST 17, 2006
For none is this more stark than the broadest grouping, the 21-member Asia-Pacific Economic Cooperation forum, or APEC, whose economies, from the United States and Mexico to Japan, China, Australia and Russia, account for half the world's trade. So APEC's Business Advisory Council meeting here last week in preparation for the forum's summit meeting in Hanoi in November was hard pressed for a consensus, underlining the centrifugal tendencies at work after the Doha round stalled.
General agreement exists that global arrangements are best, particularly for smaller countries, and that APEC should be pro-active in trying to restart the Doha round. But there was scant willingness among APEC business leaders to take a tough stance against the bilateral free-trade agreements, or FTAs, that have been proliferating among them.
FTAs are supposedly meant to substitute for lack of progress at the WTO. In practice they are mostly preferential arrangements that run counter to APEC's principle of "open regionalism," which allows members to pursue liberalization at their own pace but on a nondiscriminatory basis.
The United States has been signing FTAs that are designed to achieve political or industry-specific objectives rather than to promote broader liberalization. China, Japan and South Korea have been competing to offer deals both to the 10-member Association of Southeast Asian Nations and to individual countries.
Some, notably from the United States, are trying to push the idea of turning APEC itself into a free-trade area. Skeptics see this as at best politically unrealistic, even if theoretically desirable. Meanwhile, East Asian countries talk increasingly often of a free- trade grouping that includes the ASEAN members plus China, Japan, South Korea and maybe Australia and New Zealand.
To stop this rot, APEC must use the Hanoi summit meeting to return to its principles of open regionalism, pushing key members to be more flexible in global trade talks and to desist from FTAs. Smaller Asian countries are increasingly feeling forced into bilateral deals in order to remain competitive with their neighbors.
Many businessmen see the proliferation of FTAs as unavoidable and at worst irrelevant. But those involved in operating global production systems see such deals as harmful, raising costs and diverting trade rather than increasing it.
East Asia, once a bastion of multilateralism, is now moving faster than any other region to sign up FTAs. A study commissioned from the University of Southern California notes that APEC members have already signed up 21 FTAs and another 17 or more are under negotiation. It found that though they led to tariff cuts between the participants, some were not compliant with WTO rules, some introduced new elements, included many exceptions, or lacked dispute settlement procedures.
Worst of all from a practical trading perspective, rules of origin widely diverged. Singapore had seven FTAs but no standard rules of origin for them. Multiply that across all members and you have a "noodle bowl," a jumble of rules and tariffs created in the name of free trade.
East Asia's rush to FTAs looks especially ill advised given the region's role in manufacturing products that are mostly sold outside the region. The "noodle bowl" would impede the specialized cross- border production systems that make East Asia so competitive. It would raise Asian production costs and encourage other regions and countries to respond with their own preferential arrangements with non-Asian suppliers.
If APEC's summit meeting is to have a purpose beyond providing an annual photo opportunity for leaders, it must:
take a strong stand to push recalcitrants, including its own members, to recognize that the Doha round is the crux of freer trade;
persuade the heavyweight members to put new FTAs on hold, make a serious study of the effects of FTAs on business and create a mechanism for harmonizing existing ones;
proceed with efforts on trade facilitation that are uncontroversial but in advance of the WTO's;
focus on specific trade-related goals, avoiding temptations to waffle about security and terrorism.
The "noodle bowl" threatens the trans-Pacific bridge that APEC represents. And it threatens to turn East Asia inward on itself, away from the global market on which it has thrived and away from the growth potential that now lies in South Asia, West Asia, Africa and South America. APEC must wake up or die.