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US, Asia differ over free trade mechanics
2006-12-01
The United States and Asian economies are divided over how to implement a plan to set up an Asia-Pacific free trade area, two weeks after agreeing to study the ambitious proposal. The Asian economies want to first establish a free trade area among themselves before considering the implementation of the Free Trade Area of the Asia Pacific but Washington wants them to be hooked to the plan simultaneously. Leaders of the 21 economies of the Asia-Pacific Economic Cooperation (APEC) forum agreed at a summit in Vietnam on November 16 to commission a study of the free trade zone linking Asia and the Americas for evaluation next year. The plan was pushed for by the United States, with President George W. Bush saying it "deserves serious consideration." East Asian economies are looking into setting up their own free trade zone incorporating Southeast Asia, China, Japan and South Korea and possibly even India, Australia and New Zealand. Japan and several other East Asian nations want to launch their regional free trade area before embarking on a Asia-Pacific wide free trade agreement. But Washington is pushing for a swift implementation of the Asia-Pacific plan, saying it would jolt non-APEC members, such as Brazil and India, to restart stalled talks for a new global trade accord. "If you go to Asia, there are still lot of sensitivities on the part of East Asian economies to move immediately into this exercise," said Masahiro Kawai, a top Japanese official with the Manila-based Asian Development Bank (ADB). Kawai, speaking Thursday at the fourth annual US Asia Pacific Council conference in Washington, said that while many East Asian economies regarded the United States as their "most important ally from the security perspective," they wanted more time to join America in the free trade initiative. "From an economic point of view, perhaps, the order of liberalization with the United States may be for East Asia to consolidate itself first and then move to a Free Trade Area of the Asia Pacific," said Kawai, who is in charge of the ADB's regional economic cooperation and integration program. Kawai then asked whether the free trade plan was "realistic at this point of time," citing for example the "imbalances" between China and the United States. He also was doubtful whether President Bush's authority to negotiate trade agreements, called trade promotion authority (TPA) and which expires in mid-2007, would be renewed by a Democratic-controlled Congress. Kawai's remarks at the conference drew a critical response from a former senior US Treasury official, regarded as a key architect of the Asia-Pacific free trade plan. "Let me suggest that this is very, very dangerous and an inferior cost for proceeding on the two tracks simultaneously," Fred Bergsten said, proposing that the East Asian economies implement their and the Asia Pacific free trade plans simultaneously. He said that an East Asian free trade area would "draw a line down the middle of the Pacific" and lead to substantial trade discrimination by Asia against the United States. While Kawai forecast that the East Asian free trade plan could cause a trade diversion effect to the tune of three billion dollars per year on the United States economy, Bergsten said his study suggested it would reduce US exports alone by a whopping 25 billion dollars. "That's very immediate, very short run, very static but once you take into account dynamic effects and trade investment flows, the numbers would be very, very large," he warned. "I can tell you the United States won't like it and there will be very negative reaction that will spill over into security relations and threaten the overriding interest across the Asia Pacific," Bergsten said. The United States has half a century old military alliances with Japan and South Korea and strong overall security links with the region. The cog of the East Asian free trade plan is the Association of Southeast Asian Nations (ASEAN), comprising Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. ASEAN has free trade plans, covering goods, with China and South Korea and is negotiating similar deals with Japan, Australia, New Zealand and India.
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