[asia-apec 1653] Singapore Straits Times 11/11/00 - Regional Trade Pacts

[APEC Monitoring Group]

      Regional trade pacts the need of the hour 

      FROM Egypt to Zimbabwe, the world's latest regional trading arrangement (RTA) this week means Africa has joined Europe, Asia and the Americas on the fast track to economic integration. 

      But that does not mean the road to a new round of global trade talks is closed. 

      Even as they weave more RTAs of their own, Asia- Pacific leaders will once again call for fresh global trade talks when they meet in Brunei later this month. 

      In fact, world leaders never miss an opportunity to do so, but will their focus on building trade blocs hinder the path to freer global trade? 

      According to the World Trade Organisation (WTO), out of 130 RTAs now in force, 90 were set up in the last five years. 

      Apart from the free trade agreement (FTA) signed this week between nine east and south African states, ranging from Egypt to Zimbabwe, this year has seen others concluded between the European Union and Mexico, and the United States and Jordan, to name a few. 

      Singapore, last month, saw a landmark agreement with Japan to negotiate an FTA. 

      Singapore has been a part of Asean's FTA -- Asean Free Trade Area (Afta) -- since 1992, and it recently embarked on a series of new FTAs. It signed one with New Zealand in August and is also talking to Mexico and Canada. 

      As a staunch supporter of WTO, Singapore's efforts clearly represent a recognition that without progress at the multilateral level, its business interests have to be secured through other means. 

      The FTA with New Zealand, for example, tackles not just trade in goods, but also services, as well as providing for investment protection. 

      Strategically, the tie-up also spurred efforts to bring Afta and the Australia-New Zealand FTA closer together. 

      Of course, much more significant is Singapore's proposed FTA with Japan. 

      That particular FTA marks a major policy shift on the part of Japan, and will be its first ever FTA. 

      Although Japan is the world's second largest economy, and has extensive manufacturing investments in East Asia, it did not respond to North America Free Trade Area (Nafta) and the European Union (EU) with proposals for its own RTA. 

      In fact, it is alone among the world's most developed countries in not having any FTAs for a variety of reasons, including its historical and agricultural sensitivities. 

      Some critics of FTAs fear that such deals undermine the relevance of the multilateral trading system and could create closed blocs which would undermine the global trading system. 

      Already, the two major trading blocks -- Nafta, which groups the US, Canada and Mexico, and the EU -- have been consolidating. 

      The EU has been steadily expanding its FTAs with Eastern Europe, the Caribbean and Africa, while the US is supporting the development of what would be a 34-member Free Trade Area of the Americas. 

      In the worst-case scenario, trade wars could see any country not affiliated to a significant RTA, like the European Union or Nafta, shut out from trading competitively. 

      To prevent this, the WTO requires that RTAs do not make trading conditions for non-members any more restrictive than before they were set up. 

      But the reality, as recognised by Japan's federation of economic organisations, Keidanren, is that with so many FTAs already, countries without them are putting their companies at a disadvantage. 

      In Mexico, for example, Japanese companies not only face tariffs on their exports that their American or European competitors avoid, but also miss out on investment protection and government procurement opportunities that FTAs facilitate. 

      ""To combat this situation, Japan obviously needs to conclude similar agreements,'' Keidanren said, urging its government to display political leadership. 

      Singapore, a small, developed economy with no agricultural sector, is an ideal partner for Japan to enter the world of FTAs with. 

      For Singapore, the deal has immense strategic importance. Indeed, Prime Minister Goh Chok Tong said last week that ""strategically, this is a very important step, that North-east Asia is being linked to South-east Asia first through the Japan-Singapore free trade arrangement''. 

      North-east Asia, of course, includes the industrial dynamos of Taiwan and Korea -- not to mention the huge potential market of China. 

      According to an official study into the Japan-Singapore FTA, it would ""enable Japan to anchor its foothold'' in Asean, and, enhance Singapore's ""access to North-east Asian markets''. 

      Mr Goh noted that the EU and Nafta expansions have not been matched by significant Asian economic integration efforts yet. 

      But by seeking FTAs with New Zealand, Mexico and Canada, as well, Singapore is obviously not focusing solely on Asian economic integration. 

      Indeed, as the Ministry of Trade and Industry's Permanent Secretary Khaw Boon Wan puts it tellingly: ""The primary objective of our trade policy is to guard our trading interests by ensuring a free and open international trading environment.'' 

      RTAs can strengthen that environment, he says in an open letter on MTI's website. The jury is still out on whether RTAs are a stepping stone or stumbling block for global free trade. 

      But the stepped-up RTA efforts by large and small countries alike, such as those between Japan and Singapore, do show that -- in the words of WTO director-general Mike Moore -- ""trade ministers aren't going to sit around and do nothing in the absence of global trade talks''. 



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      A BRIEF HISTORY OF TRADE AGREEMENTS 



      a.. 1948: General Agreement on Tariffs and Trade (Gatt) establishes global trading rules. 

      a.. 1951: European Coal and Steel Community established, eventually becomes the European Union (EU). 

      a.. 1992-1993: Gatt talks stalled; Europe moves towards closer economic union; the US, Canada and Mexico agree to set up Nafta and Asean agrees to set up Afta. Proposals for an East Asia economic caucus championed by Malaysia. 

      a.. 1994: World's trade ministers agree to set up World Trade Organisation to institutionalise Gatt. 

      a.. 1995: EU and South America's Mercosur agree to set up an FTA. 

      a.. 1996: Singapore hosts inaugural WTO ministerial meeting. 

      a.. 1998: Apec attempt to free up trade in 16 sectors fails. 

      a.. August 1999: WTO members, unable to agree on who should be its new chief, decide to split the job between New Zealand's Mr Mike Moore and Thailand's Mr Supachai Panitchpakdi. 

      a.. September 1999: Singapore and New Zealand agree to negotiate an FTA. 

      a.. December 1999: WTO ministerial meeting in Seattle ends without agreement even on a joint statement. 

      a.. May 2000: Asean agrees to let Malaysia postpone its Afta commitments. 

      a.. June 2000: Singapore and Canada agree to start work on an FTA. 

      a.. July 2000: FTA between EU and Mexico comes into force. 

      a.. October 2000: Proposed FTA between Afta and Australia and New Zealand put off for study; Japan agrees to talks for FTA with Singapore