IT IS time for Asia to seize the initiative on trade. Negotiators have made progress this year on a number of substantial trade accords around the world. But there has also been a striking rise in populist and nationalist sentiment, particularly in Europe and the United States.
The Brexit vote in the United Kingdom, the challenges in Europe to the EU-Canada Comprehensive Economic and Trade Agreement, and the protectionist mindset of the incoming US president do not bode well for trade liberalisation, at least for the next few years.
In contrast, Asia still views trade positively, particularly in emerging markets. This is not surprising because increased market openness in Asia has clearly helped improve economic performance.
Though Asian leaders have already launched a variety of ambitious initiatives to promote trade liberalisation and regional integration, some areas in need for immediate action include concluding the Regional Comprehensive Economic Partnership agreement (RCEP), implementing the imminent WTO Trade Facilitation Agreement and provision of Asian support for the nearly-complete WTO Environmental Goods Agreement.
Among the proposed mega-regional accords, RCEP has emerged as the leading contender for early completion. It offers the best prospect for deep, large-scale trade liberalisation covering goods, services and investment in an integrated manner.
The two bigger-potential competitors in gross domestic product terms – the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP) – appear to have run aground, with no obvious way out of the shallows for the time being.
This situation opens a tremendous opportunity for the 16 nations participating in the RCEP initiative, including Thailand, to show leadership in global trade. Interestingly, RCEP includes seven partners from the TPP and offers an alternative potential source of economic stimulus via trade.
RCEP has sufficient scale to shape the rules of trade across a large swathe of the world economy. RCEP partners include nearly half of the global population and nearly a third of global GDP.
The proposed agreement offers participants potential access to three of the largest consumer markets (China, India and Asean). Thus, although RCEP has taken a less ambitious liberalisation approach than TTIP and TPP, it partially compensates through its tremendous scale.
More importantly, the Chinese-led One Belt, One Road initiative is a good complement to RCEP. While investment in transportation and communications infrastructure is a key aspect of the Belt and Road initiative, the intention behind it goes beyond this to include complementary “softer” policy dimensions of trade promotion in the longer term.
Meanwhile, the Asean Economic Community Blueprint 2025 offers a further initiative in support of trade. Asean has already made significant progress in removing traditional trade barriers such as tariffs. Further progress in addressing non-tariff measures and ensuring effective liberalisation in services, in line with the blueprint, could significantly help to advance regional trade integration.
In the face of rising protectionist sentiment, an appropriate Asian response should be further pursuit of market-opening trade policies. This is in Asia’s own direct economic interest and it also sends an important policy signal to partners around the world.
To be fully effective, liberalisation efforts need to be accompanied by flanking policies to address bottlenecks in the economy and support adjustment.
There is room in some economies for stimulus to support domestic demand in the region through investment spending, notably on infrastructure.
In addition, support for labour market measures may be needed to address adjustment costs related to worker dislocation and to prepare the labour force for a more open and dynamic economy.
So, the ball is in Asia’s court. Its leadership in further trade liberalisation would offer an alternative to inward-looking populist policies elsewhere in the world and provide much needed support for the regional and global economy.
This presents a clear trade policy opportunity for Asia, and now is the time to act.