The South Korea-U.S. free trade agreement comes into force today–as this Bystander feels sure you have noted in your diaries. It is tangental to our brief but worth noting in passing for several reasons. Beijing, Seoul and Tokyo hope to start the sharp end of talks on their own free trade agreement later this year. China is both being dragged and dragging its trade partners before the World Trade Organisation with some regularity. And while the next round of the WTO’s global free trade talks, the Doha round, is proceeding even more glacially than reform in China, free trade agreements are popping up everywhere.
Nearly three score have come into force since January 2008. The total in effect is fast approaching 300 and many more are being talked about. (Trade trivia question: now Mongolia has struck a free trade agreement with Japan, which is the one WTO member left that is not party to any free trade agreement?)
The days when free trade agreements were seen as undermining the multilateral global trading system seem distant memory. Bi- or limited plurilateral regional free trade agreements will shape trade policies for the foreseeable future. They are also more suitable for developing existing cross-border trade flows being created by the needs of global logistics chains. Whether they undermine the big benefit of multilateral agreements, that they increase trade overall by lowering restrictions across the board, is moot. But then the Doha round isn’t doing anything to boost trade overall for as long as it remains stalled.
The most significant of the free trade agreements under discussion for the Asia-Pacific region is the Trans-Pacific Partnership (TTP) that the U.S. is taking over. China is on the outside of that at this point. Japan is the swing state. If it joins the TTP, China’s exclusion will be of more consequence than if it does not. Another free trade agreement in the pipeline that has implications for China is one between the EU and India. Meanwhile, Washington and Seoul are putting in place another piece of the new world trade order.
Footnote: The answer is Mauritania.
A glimmer of hope for China among the uncertainties over the world economy is that the recovery in world trade is firming up. The high trade growth rates of the double-digit export-led growth years are no where near being back. But the recovery from the mid-2011 contraction, slow though it is, has persisted long enough to suggest that global trade is past the trough of its current cycle.
Global trade levels rose by 1.4% in December, up from the 0.8% increase in November and a turnaround of the contractions of 0.9% and 0.7% in October and September, respectively, according to a new estimate from the Dutch Bureau for Economic Policy Analysis (the CPB; its figures are closely watched because they provide the earliest available measure of global trade.) The sharpest growth was among developing countries, up 3% over November’s rate, with export rates in Asia up 4.2%. Emerging economies are now firmly in the sights of Chinese exporters, who will get new government support to attack those markets.
That is doubly cheering for China’s exporters. In January, the country’s exports fell, largely because of the early Lunar New Year. Seasonally adjusted, they rose by 10.3% year-on-year, though that wasn’t the number that got the headlines.
The IMF still forecasts 6% growth in world trade in 2012, including a robust expansion in the trade in services. That is up from the 5.6% the CPB estimates for 2011, but down from 2010’s 14.9%. The brakes on a faster pick-up in trade are the expected ones:
- the slow pace of the global economic recovery and the continuing concerns about the euro-crisis:
- protectionist pressures increasing, if being kept politically constrained by mutual agreement of the G20, which has recently extended its pact not to go protectionist to the end of next year; and
- stalled progress on the Doha round of talks on new trade rules. In the face of that, free-trade agreements are likely to proliferate, particularly in the Asia-Pacific region.
WTO-referred disputes are also likely to be more frequent. Most will probably involve China, the U.S. and the EU as complainant or defendant. Just as they do now. The disputes mechanism is slow and unwieldy, but it does resolve disputes without letting them spill over into other areas of bilateral relations, a useful safety valve in difficult times, and not just for trade relations.
An update to our earlier post: Pascal Lamy, director-general of the World Trade Organisation, has declared the Doha round of world trade talks dead. There is a link to an audio feed of his statement here.
The finger will continue to be pointed at China, which U.S. trade officials, say at the last moment reversed its support for a compromise deal, but no country is blameless here. Commerce Minister Chen Deming said the U.S. was asking “a price as high as heaven”.
The tragedy is that a lot of good work was done on removing trade-distorting subsidies. In his audio clip, Lamy talks of progress being made on 18 of 20 to-do items at the Geneva summit before the 19th — the trigger point for protections developing countries could impose if they got a surge of food imports once farm tariffs were lowered — topedoed things.
It is too early to say if any of that can be salvaged. Or what lasting damage has been done to the multilateral trade system.
The choice for Beijing is this: scupper the Doha round of world trade talks on behalf of the poorer countries who feel they are being asked to bear the brunt of the lowering of trade barriers necessary to strike a deal, but incur the wrath of the Americans and Europeans for doing so; or help patch up a deal, however imperfect, and play the good world citizen as behooves a leading trade power.
The make or break Geneva summit of trade negotiators is now in its second week and near collapse thanks to an eleventh-hour finger-pointing row between the U.S. and India and China.
China came off the sidelines of the talks for the first time on Monday and knocked the wind out of a compromise proposal put forward at the end of last week by the World Trade Organisation’s director general Pascal Lamy under which developed nations would make cuts to their agricultural subsidies in return for more access to developing countries’ industrial and, potentially, services sectors. That was broadly the original development goals of the round which started, it seems, back when the earth was still cooling.
But, according to Xinhua, Zhang Xiangchen, an official at the Chinese Ministry of Commerce, says China’s position is that “trade-distorting subsidies are illegal while tariffs are legal measures of protection.” In particular, China wants to protect its sugar, cotton and rice sectors with higher tariffs.
More the language of deal breakers than makers.