Free trade means free individuals and a free society.
People who cannot find certain goods and services at specific quality from local producers given their limited personal or household budget may be able to find those from foreign producers. And people who cannot sell their products or services to local buyers may find those buyers abroad.
And this highlights the beauty of free trade: No trade will occur unless both parties, the buyer and seller, will benefit. There are losers and gainers in free trade of course, the same way that there are losers and gainers in no trade (autarky) or restricted trade. Overall, there are “net gains” in free trade where the advantages outnumber the disadvantages.
Global free trade is supposed to be facilitated by the World Trade Organization (WTO) when it was created in 1995. But 21 years later, this is far from happening.
Regional trade agreements (RTAs) and even trans-continental agreements were invented such as the ASEAN Free Trade Area (AFTA), Regional Comprehensive Economic Partnership (RCEP), and the Trans-Pacific Partnership (TPP).
This topic was discussed during the recently concluded big annual international conference, “Jeju Forum for Peace and Prosperity 2016,” held in Jeju, South Korea. The forum also had a panel that had the theme, “Trans-Pacific Partnership: an Assessment of its Political Economy” sponsored by the Friedrich Naumann Foundation for Freedom (FNF) and the Economic Freedom Network Asia (EFN Asia) last May 26, 2016.
The discussion moderator was Dr. John Delury, Associate Professor at the Graduate School of International Studies, Yonsei University, Seoul, South Korea. The discussants were Dr. Sethaput Suthiwart-Narueput, Executive Chairman of the Thailand Future Foundation (TFF), Kwon Tae-shin, President of the Korea Economic Research Institute (KERI) in Seoul, and Dr. Keisuke Iida, Professor at the University of Tokyo Graduate Schools for Law and Politics, Japan. The opening remarks was given by Dr. Lars-Andre Richter, Resident Representative of FNF Korea Office.
Panel Rapporteur was Pett Jarupaiboon, who is also the also the Program Manager of EFN Asia, based in Bangkok, Thailand. Pett shared his notes with me.
The three discussants are all liberal economists and are pro-free trade, pro-WTO, but they disagree and debate on the role of the TPP.
In particular, Mr. Kwon and Dr. Iida were critical of the WTO because of the lack of progress in global free trade. Dr. Sethaput argued that RTAs like TPP would undermine the progress of the WTO.
Here are the main arguments of the discussants.
(1) Mr. Kwon, KERI, South Korea. TPP members will enjoy an increase in exports and income from an enlarged market size, and they will also enjoy more consumer welfare due to a decrease in import prices and intensive competition. According to a recent study by the Peterson Institute for International Economics, if TPP takes effect in 2017, the GDP of TPP member countries is likely to increase by 0.5%-8.1% in 2030, compared to the GDP forecast in an event of non-adoption of TPP.
(2) Dr. Iida, Univ. of Tokyo, Japan. TPP has a rule-making function, and these rules as provided in international relations as well as who wrote them are important issues. For the US, joining TPP is part of a larger strategy of “pivoting” to Asia or rebalancing to Asia. The US was preoccupied with the wars in Afghanistan and Iraq and was not paying enough attention to Asia. Therefore, TPP was part of the toolkit to achieve this new policy for the Obama Administration. For Japan, which has to rely on the US for security, TPP meant mending the fences with the US following a series of recent frictions including the planned relocation of one of the most important marine bases in Okinawa to outside Okinawa.
He added that TPP is seen to benefit Japan, projected at 2.6% of GDP (accordingly to the Cabinet Office), a significant number considering that its potential growth rate minus TPP membership is mere 0.5%.
(3) Dr. Sethaput, TFF, Thailand. A multilateral system with non-preferential treatment covering many countries like the WTO is better than mega-regional trade regimes like TPP and RCEP. Why?
(a) TPP is subject to the usual problems of trade diversion: increased trade among members, lesser trade with non-members.
(b) TPP is not just about trade, it also includes other issues like investor and intellectual property protection, labor and environmental standards, etc.
(c) The investor-state dispute settlement (ISDS) mechanism provides international arbitration that benefits US corporates. The US Trade Representative notes on its Web site that “the United States has never lost an ISDS case.”
(d) RCEP is a better alternative, has less non-trade baggage, uses the best elements of the multilateral system, like WTO dispute settlement, TRIPS (Agreement on Trade-Related Aspects of Intellectual Property Rights).
(e) Ultimate goal should be the Free Trade Area of the Asia-Pacific, which includes all the existing members of APEC including China and Russia. This can be achieved through either expanding the TPP or merging TPP and RCEP.
Personally, I believe that the best trade policy is unilateral trade liberalization. Be friends to all countries and economies who can bring in the best products and services at best qualities and at the best or most competitive prices into our shores and shops. This will bring down the cost for all local manufacturers in need of cheaper capital goods, cheaper raw materials, and intermediate products, which will result in cheaper production processes. Local consumers will also benefit for obvious reasons. And those countries will likely return the favor with zero or very low tariff for Philippine exports too.
Since this is far from happening, the second best policy is multilateral and global free trade. This is not happening too. So the third best policy is joining mega-RTAs like the TPP and RCEP. The worst policy of course is autarky or no trade, or even very restricted trade.
The Philippines and all ASEAN members are already RCEP members. The Philippines should proceed applying for TPP membership. The dreaded provision ISDS is actually important and useful. It simply protects foreign investors who come to other TPP member-countries based on TPP rules, when other member-countries will suddenly change the rules midway. The ISDS in effect will help prevent members from arbitrarily changing rules on trade, investments, IPR, competition and other policies.
Bienvenido S. Oplas, Jr. is a Fellow of SEANET, President of Minimal Government Thinkers, which is a member of EFN Asia.
BWorld 12, Investments, APEC and economic liberalization, July 25, 2015
BWorld 18, Non-tariff barriers in the ASEAN, September 12, 2015
BWorld 23, ASEAN trade bureaucracies and Doing Business 2016 Report, November 07, 2015
BWorld 44, Why the Philippines should join the TPP, February 19, 2016
BWorld 48, On unilateral trade liberalization, March 17, 2016
BWorld 59, Free trade and Norwegian salmon, May 28, 2016