Scramble to Boost Trade

Big powers race for a model to tear down trade barriers in the bustling East Asia region.
An analysis by Parameswaran Ponnudurai
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A Cambodian worker carries a bag of rice from a truck in Phnom Penh, Aug. 17, 2010, as the country steps up milled rice exports.
A Cambodian worker carries a bag of rice from a truck in Phnom Penh, Aug. 17, 2010, as the country steps up milled rice exports.

As recession fears re-emerge, pressure is mounting to step up trade in goods and services in East Asia, which has become a critical global growth engine while Western economies languish in massive debt.

China, Japan, and the United States are each pushing models to tear down trade barriers in the region.

It's a high-stakes battle as the emerging vehicle to fuel trade in the world's most rapidly growing region could also lay the framework for a long-sought East Asian architecture for security cooperation.

Beijing is pushing for the "ASEAN plus Three" regional process involving the 10 states of the Association of Southeast Asian Nations and China, Japan, and South Korea as the driver of an East Asian Free Trade Area (EAFTA).

Japan, concerned over China's rapid rise in a region where it had been the traditional financial and economics powerhouse, wants another mechanism that links up the 13 East Asian countries as well as India, Australia, and New Zealand.

Tokyo thinks this "ASEAN plus Six" process can forge what it calls a trade-fueling Comprehensive Economic Partnership for East Asia (CEPEA).

Not to be left out, the United States is marketing a Trans-Pacific  Partnership (TPP) as a cog for breaking down tariff walls, aiming a wider Asia-Pacific region.


As the three major powers slog it out, the ASEAN grouping, which has been driving the process to find the right trade boosting formula, is squeezed in the middle.

ASEAN wants to be in the driver's seat—it has free trade agreements with all the countries involved except the United States and Russia—yet it has been dragging its feet on decision-making.

First, ASEAN mulled over China's proposal in 2005. When Japan came up with an alternate plan, a parallel study was ordered two years later.

The two studies have been completed and are being "consolidated," ASEAN officials said.

Now, with financial markets plunging on concerns over the prospect of a double-dip global recession, pressure has increased on ASEAN to make a decision as it prepares to host the annual East Asia Summit (EAS) in November.

For the first time, the presidents of the United States and Russia will participate in the summit.

"With the participation of the U.S. and Russia in the expanded East Asia Summit, the regional architecture is, indeed, becoming more dynamic," ASEAN Secretary General Surin Pitsuwan said.

"Given this, it is imperative that ASEAN becomes pro-active and remains focused on relevant strategic issues," he said.

ASEAN, home to a massive 600 million market, "needs to drive the regional architecture to stay relevant as the East Asia trade arrangement will be an integral part of it," said ASEAN Deputy Secretary-General Sundram Pushpanathan.




Ahead of the EAS summit, ASEAN economic ministers are meeting in Indonesia this week, grappling with regional trade issues, including the much sought-after strategy to liberalize trade in East Asia.

They will also hold talks with their East Asia Summit counterparts—China, Japan, South Korea, India, Australia, New Zealand, the U.S., and Russia.

The ASEAN members, consisting of Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, and Vietnam, are themselves divided.

Malaysia, for example, favors the "ASEAN plus Three" process while Singapore and Indonesia prefer Japan's idea of an "ASEAN plus Six" mechanism to free trade in East Asia, sources said.

The divisions underscore deep tensions in East Asian regionalism amid concerns over China's growing economic and security muscle.

Beijing's aggressive moves to back its territorial claims over the South China Sea in recent months have rattled the region.

Amid the jockeying for trade boosting measures, export-driven Singapore's Prime Minister Lee Hsien Loong has called for an ambitious attempt at letting both the EAFTA and CEPEA projects advance "to maximize benefits."

"Taking the two studies together is a strategic move of ASEAN to get the best out of the two studies," explained Pushpanathan, the point-man for an ambitious program to forge an ASEAN Economic Community by 2015.

"ASEAN will have to figure out soon what will be the best template for an East Asia trade arrangement and how to sequence it," he said.


While ASEAN dithers, the United States is moving to launch the TPP initiative in the run-up to a summit of the 21-member Asia Pacific Economic Cooperation (APEC) forum in Hawaii in November.

Under pressure to create jobs at home, U.S. President Barack Obama said the TPP initiative being negotiated by the United States and eight other countries will be a "high-standard 21st century regional trade agreement" and a critical building block for a larger Free Trade Area of the Asia-Pacific (FTAAP).

Washington may even pull the carpet from under the feet of ASEAN.

A long-delayed U.S. free trade agreement with South Korea is moving closer to a Congressional vote after American lawmakers reached an agreement recently to bring the pact up for consideration in September.

Signed more than four years ago, the pact would be the United States' first free trade agreement with a major Asian economy and its largest trade deal since the North American Free Trade Agreement (NAFTA) in 1993.

In addition, earthquake-hit Japan is considering the possibility of participating in the TPP, which has been signed by Brunei, Chile, New Zealand and Singapore, with countries such as Australia, Peru, the U.S., Malaysia and Vietnam currently negotiating to join the pact.

Furthermore, Tokyo has agreed with China and South Korea to complete joint studies on a trilateral free trade pact this year, a year earlier than expected. The three nations jointly account for roughly a fifth of the world's trade.

Initial move

Some analysts believe the three Asian giants together with ASEAN should forge a free trade agreement first, setting the pace for East Asian trade liberalization efforts.

But an ASEAN diplomat, speaking on condition of anonymity, said ASEAN might eventually devise an East Asian free trade template outlining certain principles that can be subscribed by potential participating nations.

"It would probably be an 'ASEAN plus trade arrangement' and those who meet the requirement could come on board like the TPP," which is being marketed aggressively by the United States, the diplomat said.

An "optimal" solution would be to adopt a sequential approach to develop a region-wide free trade area, according to a joint research report by Masahiro Kawai, chief executive of the Asian Development Bank Institute, a development think tank, and Ganeshan Wignaraja, a senior economist with the Manila-based Asian Development Bank.

"This would initially involve an East Asian FTA, if India were slow to liberalize, that would later be expanded into a Comprehensive Economic Partnership Agreement," they said.

Subsequently, they added, the CEPEA could be connected with the U.S. and other APEC members, and it could be used to forge a partnership with Europe.

The two experts remain cautious, however.

"While the economic logic favors a sequential approach, geopolitics may shape the ultimate outcome and actual sequence."





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