World Economy

Asian Coalition Needed to Keep Multilateral Trade Alive

Professor Peter Drysdale says TPP is small and pins his hopes on the RCEP, a colossal trade deal involving 16 Asia-Pacific countries
The ADB said that the share of Asia’s international trade rose to 57.3% in 2016 from 56.9% in 2015,  and above an average of 55.9% over 2010 to 2015.The ADB said that the share of Asia’s international trade rose to 57.3% in 2016 from 56.9% in 2015,  and above an average of 55.9% over 2010 to 2015.

Asia is crucial to keeping multilateral free trade alive, and the region will need to build a coalition to maintain its momentum, according to Peter Drysdale, emeritus professor of the Australian National University and a prominent advocate of trade liberalization.

"Asia is in the box seat now, it is in the spotlight. If it doesn't respond to this, Trump dominates, and the corrosion of the global trade regime is going to happen," said Drysdale, who was recently in Tokyo to attend the 39th Pacific Trade and Development Conference, news outlets reported.

"Already the uncertainty around it has corroded the confidence and outcomes, business decisions are made in a different way because of this uncertainty," he continued. "That is the big challenge and that means building a coalition in Asia that will actually act decisively, basically to demonstrate that they are committed to multilateral liberalization."

With so many countries in the region relying on international trade to grow their economies, keeping the multilateral free trade regime alive will be essential. Active regional trade also provides "a buffer against potential headwinds emanating from global policy uncertainties and a worsening global trade environment," according to the Asian Development Bank.

The ADB also said that the share of Asia's international trade measured by value that was conducted within the region rose to 57.3% in 2016 from 56.9% in 2015, and above an average of 55.9% over 2010 to 2015.

Coalition Pact Exists, But Small

The region already has a coalition of sorts in the shape of the Trans-Pacific Partnership. Six of the 11 member countries are from the Asia-Pacific region and the pact will be signed on March 8 in Chile. 

However, Drysdale noted that the pact is "actually a fairly small thing" when discounting Japan and, more notably, the US—the only country to have withdrawn. Instead he pinned his hopes on the Regional Comprehensive Economic Partnership, a colossal trade deal involving 16 Asia-Pacific countries.

That deal was supposed to have been signed last year, but negotiations have dragged on and the chances of a swift conclusion to the talks appear remote.

The liberalization standards of RCEP are widely seen as being lower than those of the TPP, but crucially, India and China are involved. If enacted, RCEP would cover half the world's population and a third of global trade and gross domestic product.

"I don't think RCEP should be underestimated in the way it often is in this respect, both for its liberalizing potential and also for the economic cooperation dimension of it," said Drysdale.

"RCEP will lead to a substantial liberalization of regional trade and investment and a shift in the direction of reform in each of the countries, in a way that you need to realize the growth potential of the region. But it is also important for taking a decisive stance on what you think about the trading system."

India Objects 

India will register its unhappiness with the “inadequate’’ fresh offers in services made by partner countries negotiating the RCEP as members converge in Indonesia this week for a crucial round of talks.

“There has been some improvement in the fresh offers on services but it is marginal and falls woefully short of the market access India has been seeking,” a person close to the development told BusinessLine. Most of the 15 partner countries of the RCEP, particularly the 10-member ASEAN countries, have not made any substantial offers in Mode 4 related to movement of workers and professionals, despite repeated push by India.

Other members of the group, which includes China, South Korea, Japan, Australia and New Zealand, too, have not been forthcoming in the area.

“The RCEP, which calls for ambitious tariff dismantling in the area of goods, can make economic sense for India only if it gets a lot of concessions in the area of services. Since the effect of tariff reduction is apparent right from day one and the benefits from services remain in the pipeline for a long time, it is important for the gains in services to be substantial to compensate for all this. Half-baked responses in services won’t do for India,” the official said.

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