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SAARC, RCEP and free trade
Free trade is
beautiful. A seller decides the price that he/she thinks will optimize the sale
of goods and/or services. A buyer comes and if he/she thinks the price is
commensurate to the quality, he/she gets it, or walks away to find another
seller who will give him/her good value for money. Things happen voluntarily,
little or no coercion involved. Trade can happen only if it benefits both
parties and hence, public welfare is served.
Elevate the scene at
the international or global level and
the same principle happens. Trade can happen only if it benefits both the
sellers and consumers overall. Otherwise, there
is temporary “market failure” where supply does not need demand or vice
versa, until market solution involving new pricing and product/service quality
comes in.
Free trade
negotiations at the World Trade Organization (WTO) keep dragging into minor and
not-so-significant changes despite years of talks, meetings and what some people
say as frequent “junkets”. Thus, bilateral and regional talks and free trade
agreements (FTAs) and economic partnership agreements (EPAs) arose.
These FTAs and EPAs
are not exactly “free trade” deals because there are still so many
preconditions and protectionist measures involved. With human and economic evolution through time, member-countries of
such FTAs are moving towards real free trade in
the future.
One such regional FTA
is the South Asian Association for Regional Cooperation (SAARC) composed of
eight countries – Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan,
and Sri Lanka. Potential members in the future are China, Myanmar, plus other
observers: Iran, Japan, Mauritius, S. Korea, Australia, EU, US.
SAARC was formed to promote
peace, stability, progress and economic cooperation in the region. Among the
mechanisms to attain this goal is the establishment of the South Asia Free
Trade Area (SAFTA) where traded goods among member-countries will have zero
customs duties by 2016.
The 5th
column, exports expansion over the past 14 years, is not part of the ADB report
and is added only in this paper.
There is a huge
disparity in trade performance in the association as two countries have
expanded their exports more than six times (6x) while four countries were still
unable to export more than $1 billion in
2014.
Another regional trade
agreement is the ASEAN FTA (AFTA) composed of the 10 member-states of the
Association of South East Asia Nations (ASEAN): Brunei, Cambodia, Indonesia, Laos,
Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.
The creation of the ASEAN
Economic Community (AEC) by end-December 2015, zero export duties among member-states,
will be a huge market market of around 620+ million people, slightly higher
than the combined population of the US + EU.
A bigger FTA is the
Regional Comprehensive Economic Partnership (RCEP) composed of all ASEAN
countries + 6 partner economies: China, Japan, S. Korea, India, Australia and
New Zealand.
Table 3. Merchandise exports of the 6 ASEAN
partners in RCEP, in $ Billion
|
|
2000
|
2005
|
2010
|
2014
|
Expansion, 2000-2014
|
|
China
|
249.20
|
761.95
|
1,577.75
|
2,342.75
|
9.4x
|
|
Japan
|
479.32
|
595.70
|
767.82
|
689.92
|
1.4x
|
|
S. Korea
|
172.27
|
284.42
|
466.38
|
572.66
|
3.3x
|
|
India
|
45.30
|
103.50
|
255.09
|
317.07
|
7.0x
|
|
Australia
|
63.98
|
106.21
|
212.03
|
239.74
|
3.7x
|
|
New Zealand
|
13.29
|
21.70
|
31.36
|
39.43 #
|
3.0x
|
|
|
|
|
|
|
|
|
* Hong Kong
|
201.86
|
289.32
|
390.13
|
473.65
|
2.3x
|
|
* Taiwan
|
151.46
|
198.17
|
273.59
|
312.50
|
2.1x
|
# New Zealand, 2013
data
RCEP is looking at a semi-FTA
among the 16 countries by 2015.
It may sound ironic
that socialist governments in China and Vietnam were able to maximize their
integration with global capitalism that they experienced exports expansion of
10x and 9x respectively, in just 14 years.
Some national laws and taxes like gross sales tax (GST) or value added tax (VAT) can distort a free trade policy. For instance in the Philippines, while most imported goods are levied with zero to three percent import duties, they are slapped with 12 percent VAT and that immediately raises the price of previously cheap imports. Lots of oil smuggling in the country for instance, is done not so much to avoid the one or three percent import duties for oil products, but to avoid the 12 percent VAT.
Asian people may consider
the policy of unilateral trade liberalization over the long-term. Trade with no
political preconditions, no prolonged trade negotiations and disputes. Such
policy has been practiced by some dynamic economies like Hong Kong and
Singapore.
All goods are allowed
at zero tariff, except for a few regulated items like guns, bombs, poisonous
substances, fake medicines, disease-tainted meat products, and so on.
We are far from that
ideal trade policy, so we have to live with the reality of continued
intervention by governments in trade like SAFTA, AFTA and RCEP. These trade alliances are better
than economic nationalism and protectionism.
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See also:
Business 360-27, Public health in Asia, July 18, 2015
Business 360-28, FDIs in South and East Asia, August 22, 2015
Business 360-29, Low oil prices and energy development in South Asia, October 25, 2015
Business 360-30, Freedom to trade in South and East Asia, October 29, 2015
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