Asian countries should look to simpler ways of furthering free trade while mega-regional agreements such as the Trans-Pacific Partnership (TPP) remain mired in difficulties, a senior ADB economist said.
The sweeping free trade deal has missed three deadlines already with the most recent last October. US president Barack Obama ended a state visit to Japan last week, having failed to secure an agreement with Japan on the TPP.
Jayant Menon, lead economist for trade and regional co-operation at ADB’s office of regional integration, said that Obama had not achieved the breakthrough he had hoped for, while it was not clear he would be given the “fast track” powers by US Congress to approve any deal.
Menon told Emerging Markets: “It’s uncertain whether the other countries will be happy to sign up to highly ambitious reforms if the key proponent isn’t also able to deliver.”
Nor is the TPP agreement, if finally finished, likely to be as all-encompassing as originally intended. Of the 12 countries attempting to negotiate the sweeping agreement — Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam — each has a wish list of exemptions and is likely to get them, Menon added. These include:
· Malaysia is reluctant to accept changes to its government procurement policies.
· Japan does not want to fully open its agricultural markets.
· Australia is concerned about higher prices for pharmaceuticals.
· US politicians want a currency manipulation clause that other countries are unlikely to accept.
“And almost all the countries are concerned about the dispute resolution mechanism, which allows corporations to sue governments,” Menon said.
Mega-regional trade agreements are notoriously difficult, particularly those like the TPP that involve countries as such different stages of development as Singapore and Vietnam. With only 12 countries involved the TPP is not on the same scale as the failed Doha round of World Trade Organisation talks, but the countries involved are scarcely less diverse.
The risk of political failure is likely to keep countries pushing for the TPP, but in the meantime there are measures that involve none of the horse-trading or feats of political co-ordination, and yet would be a huge step forward for free trade. Multilateralism may have fallen by the wayside but countries could — and should — opt to unilaterally harmonise tariffs and non-tariff trade barriers across their existing free trade agreements (FTAs), said Menon.
“It gets to a point where a country has signed enough FTAs that it ends up making sense for it to harmonise its trade policy and offer the same preferences to everyone,” he added.
One example is the Regional Comprehensive Economic Partnership (RCEP), which has a deadline of 2015 and involves the 10 Asean member states along with Australia, China, India, Japan, Korea and New Zealand.
As more than three quarters of imports in most of the RCEP countries are already covered or about to be covered by an FTA, there is little point in waiting to try to negotiate reciprocal agreements with the remaining countries, Menon said.
Whether or not countries wish to pursue mega-regional agreements, in the meantime they should simply pick the lowest tariff among their myriad agreements and adopt this single measure. The solution would also apply to many non-tariff barriers, and would have clear economic benefits in addition to further the cause of global free trade.
Countries would avoid the administrative costs that come with implementing multiple rules regarding where goods originate. They would no longer risk having to choose more costly or less efficient exporters because of trade restrictions. And though the idea that countries would unilateral opt to offer the same trade preferences on a multilateral level might seem ambitious, it has history on its side.
“This it not a pie in the sky idea,” said Menon. “In the two decades leading up to 2003 over two-thirds of trade liberalisation in developing countries occurred through unilateral actions like this.”