Impact of multiplying trade agreements

Adding to the proliferating number of Comprehensive Economic Partnership agreements, leaders of the Association of Southeast Asian Nations (ASEAN – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam), and Australia, China, India, Japan, New Zealand, and South Korea, at the end of the East Asia Summit held in mid November, formally announced the launch of negotiations next year for a Regional Comprehensive Economic Partnership (RCEP).

This 16 country deal when completed would form one of the world’s largest trade pacts covering trade in goods and services, investment, intellectual property, economic and technical cooperation and dispute settlement inter alia.

In their joint declaration, the leaders stated that the proposed agreement “would be a modern, comprehensive, high-quality and mutually beneficial economic partnership agreement establishing an open trade and investment environment in the region”.

Formal negotiations are expected to begin in early 2013, with the goal of finishing by 2015. “With the region accounting for more than half of the global market and about a third of the global economic output, there is no doubt that a successful RCEP would significantly contribute and boost global trade and investment,” said ASEAN Secretary-General Surin Pitsuwan.

Also moving forward around the same time were efforts to initiate talks for a possible trilateral trade agreement between China, Japan, and South Korea.

This is not the only high profile agreement under discussion these days. The Trans-Pacific Partnership (TPP) Agreement among the US, Canada, Chile, Mexico, Malaysia, Peru, Australia, Brunei, New Zealand, Vietnam and Singapore with Thailand also announcing recently that it plans to seek entry to the TPP negotiations and the Japanese Prime Minister announcing that should he win re-election in December he plans to join the talks, the TPP will encompass some of the leading players in world trade.

Although some have speculated that the proposed TPP Agreement is an attempt by the US to contain China, US officials including the Secretary of State have said that they are open to China joining the negotiations as the proposed agreement is a “21st century agreement,” meant to serve as a platform for a wider Asia Pacific deal.

The talks are geared toward eliminating tariffs and other barriers to goods and services trade and investment between member countries. Some estimates suggest that the partnership could boost global trade by up to 12 per cent.

In the absence of a successful conclusion of WTO’s Doha Round, results of which could have liberalised trade among its 157 members, the current trend has been to go for separate free trade or economic partnership agreements to achieve trade liberalisation. Such agreements during the recent past have been rather successful at achieving this objective.

However, when such agreements encompass so many countries in the developed and developing world, including emerging economies which are becoming tomorrow’s leaders in world trade and encircles so many regions in the world, while the potential to increase global trade is enormous, the dangers to destabilise world trade can also be enormous. While such bilateral deals might restrict adverse effects of a global slowdown within those partners to the agreement, the effects of a global slowdown in a context where so many leading players are involved could and would be felt even by those not party to such agreements and affect global trade.

Already, there are concerns that problems in the US and continued problems in the Eurozone, coupled with reports of slowing growth in China and some of the other emerging economies could spread to their trading partners. The impact of such an adverse situation could reverberate all over the world, creating another crisis.

(Manel de Silva holds an Honours Degree in Political Science from the University of Ceylon, Peradeniya and has engaged in professional training in Commercial Diplomacy at ITC and GATT. She has served as a trade diplomat in several Sri Lankan Missions overseas and was the first female Head of the Department of Commerce as Director General of Commerce.)

Impact of multiplying trade agreements

Obviously alert to such a possibility, the Managing Director of the IMF at a recent meeting held in Malaysia, while discussing the importance of increased trade and financial integration in Asia had said it very succinctly when she said that “the main story is that the slowdown is spreading to regions that have previously held up well. This is what worries me the most. In this interconnected world, there is really nowhere to hide.”

In such a situation, small and vulnerable economies dependent on imports and exports will also be impacted adversely. But, in good times too, such economies will be impacted adversely as these agreements will give preferential market access to some countries which are direct competitors. As some of the countries will be participants of both the high profile agreements, how their negotiators will juggle to balance issues in both will be their problem. To see how we also can get a piece of the cake through one or more of the participants while the going is good will be our problem.