TCS Daily


Help Wanted: Leadership in World Trade

By Charles Finny - September 7, 2006 12:00 AM

The position of world leader in free trade that was occupied by the United States since the end of the Second World War is now vacant. While there is still a chance that the United States can regain the mantle, there is an opportunity there for the EU, Japan, and maybe even China.

With even the United States Trade Representative indicating at the recent ASEAN talks in Kuala Lumpur that a conclusion of the WTO Round is now most probably 2-3 years away, it is inevitable that the focus of most WTO members will be shifting from the multilateral to the regional and bilateral over this period.

Regionally, two immediate opportunities beckon: Some in Asia Pacific Economic Cooperation (APEC) are championing the idea of an APEC-wide FTA. Japan has an interesting idea on the table for a 16 member FTA stretching from India to Japan and reaching down to Australia and New Zealand. And the EU is showing ever increasing interest in linkages with ASEAN or some individual countries in the Asia/Pacific. Bilaterally the negotiations in progress, in prospect or potential, are too numerous to mention.

Unfortunately, not that many negotiations are going to serve as either good examples of free trade, or as outcomes that will help add momentum to the multilateral process. The exceptions will probably be outcomes -- should they be achieved -- in the United States negotiations with Korea and Malaysia.

This is where China has an opportunity to display real leadership. It is in negotiation right now with New Zealand and Australia. There is no limit to the extent of ambition in the New Zealand-China negotiation, but one can never be absolutely sure about Australia, as there is still some residual protectionist influence in the manufacturing and agriculture sectors (mainly in horticulture). Even then, a clean and ambitious outcome is there for China's taking. In its previous negotiations with Chile and ASEAN China has hardly delivered outcomes that come close to best practice. But these were negotiated before the stalling of the Doha negotiation. Maybe the Doha delays will give Beijing's policy mandarins cause for a rethink.

If China concluded clean and comprehensive deals, covering all goods, and with good sectoral coverage in the services and investment arena, this would make the rest of the world sit up. It would increase pressure on those competing with Australia and New Zealand to knock even harder on China's door. And it would increase the appeal of a rapid resumption in the WTO negotiations for those not yet able to contemplate free trade with China.

For Japan, already concerned about its relative marginalization vis-à-vis China, the 16-nation proposal is a good one. It has grabbed the region's attention, but it has also raised some concerns and also caused markers to be put down by those outside the 16 target nations. Most of these concerns and markers relate to the quality of what might be envisaged. In both APEC and the WTO Japan has not exactly been at the forefront of those prepared to make substantial liberalization offers in agriculture, fish or forestry. Japan has also been a little bit suspect on some aspects of services liberalization. If these attitudes continue and infect the planning and execution of the proposed 16 nation FTA, Japan will hardly be stepping into the leadership vacuum. Indeed, as Alan Oxley notes in a recent article, the idea could well backfire.

The EU is similarly suspect on agriculture, but seems more able to contemplate something genuinely open in this area than Japan. And on the rest of goods, services and investment, the EU has the potential to be particularly ambitious. Indeed, should the EU want to engage with a country such as New Zealand, there is a real opportunity to raise the quality bar above anything that has been seen since the development of the Australia/New Zealand FTA in the 1980s.

This leaves the United States. It wouldn't take much for the US to cement its leadership mantle back in place. Why not, for example, throw down the gauntlet to the rest of the world? Free trade overnight. In all goods, all services, and investment -- available to anyone willing to reciprocate.

Crazy? Not at all. There are 5 or 6 counties who could move rapidly to meet this challenge. Some already have FTAs with the US -- Chile, Singapore and Australia, for example, but there are others -- New Zealand and Hong Kong who would jump at the chance. And would the EU really want to stay outside such a deal for long? This would be a powerful plurilateral, delivering exciting gains to those participating. Longer term, would the rest of ASEAN, Korea or Japan really stay outside such a deal? What about European Free Trade Association (EFTA)? And what about Mercosur? And imagine the impact on the WTO process if instead of the US and the EU being in opposing camps, they were essentially on the same side?

Charles Finny is CEO, Wellington Regional Chamber of Commerce, New Zealand.

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2 Comments

Death of prosperity by 1,000 cuts - - - -
You're on the right track. All this venal, protracted intenational bickering is bureaucratic horse puckey, that produces nothing. We definitely should make the offer you so astutely suggest, to eliminate tariffs and all other impediments to commerce reciprocally with anyone, automatically. (Sensitive military technology excepted.)

We should then go to the logical conclusion of this brilliant thrust immediately, as Chile did. By unilaterally, without consultation, reducing all its tariffs to low levels, and thus assuring its own prosperity.

The moment we do this we will increase our own national wealth, and that of all our trading partners. Third-world countries will benefit much more than by "giving" them "aid". All it takes is some politically gutsy leadership, and it doesn't cost a dime.

And make it true free at that
Most so called free trade deals are really freeish trade deals.


I note this is not on the Main tab.

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