East Asia free trade pact: An enormous task ahead

from Money control

Nearly half the world's population, an annual economic output (over $9 trillion) almost as large as that of the European Union, and foreign exchange reserves larger than the European Union and the United States combined. Those are the statistics of the 16 countries of East Asia whose leaders met on Monday in the resort island of Cebu in the Philippines, and mused over the prospects of coming together as an economic community.

They know they have an enormous task ahead. As the President of the Asian Development Bank, Mr Haruhiko Kuroda, reminded them at their second summit meeting, East Asia may have done much to reduce poverty in the region, yet over 750 million people subsist on less than $2 a day, 220 million of them on less than $1 a day.

"Asia is home to 12 of the world's 15 tallest buildings — a testament to its ability to rapidly generate wealth. But it is also home to some of the world's largest slums," he told them.

They may have about $3 trillion in foreign exchange reserves but they need to spend almost as much on building their infrastructure.

Road map

His advice was that East Asia chart a road-map for a free trade agreement. 'To take better advantage of the sources of dynamism within East Asia, it is essential to facilitate the cross-border movement of goods, services, capital, and people. Inadequate transport and communication infrastructure, uncompetitive transport and logistics services, and restrictive policies will all push up the cost of doing business in East Asia,' he said.

It was not an idea that the leaders had not heard before. For some months now, Japan has been one keenest proponents of an East Asian free trade agreement, and after the ADB President spoke, it pushed the idea harder, winning enough support for the summit to declare the launch of a feasibility study on a Comprehensive Economic Partnership Agreement that would go beyond free trade in goods.

`Arc of prosperity'

The Prime Minister, Dr Manmohan Singh, saw it as a logical continuation of India's policy to get more deeply involved in East Asia in order to create 'an arc of prosperity'.

The economic union may not exactly happen quickly though. Studies on the feasibility and advantages of having such an economic community would take at least two years, according to an official in the Commerce Ministry.

The negotiations in the World Trade Organisation to get countries across the world to reduce import tariffs may have stalled, but countries in East Asia are getting the urge to do it on their own with countries and regional groups such as ASEAN launching bilateral and regional free trade regimes.

For example, Singapore has a free trade agreement with South Korea even as ASEAN, of which Singapore is a member, has its own free trade deal with South Korea. A 'spaghetti bowl' of agreements is how the Australian Prime Minister, Mr John Howard, described it.

Behind China

India has gingerly joined the bandwagon, but it is a good way behind China. In contrast with the laboured progress India is making on the agreement on trade in goods with ASEAN that will not see a deal done till July this year, China on Sunday inked the higher order agreement with ASEAN that opens up trade in services from July this year. The agreement on trade in goods has been operational for a year.

'We are a late starter in this process,' conceded Dr Singh in a press conference on board the aircraft bringing him back from Cebu on Monday. 'The destination is the same... but it will take time before we reach there. We are moving at a pace which our system can sustain.'

Asked about the reported move to invite India to join the Asia Pacific Economic Community that includes the US and Canada, Dr Singh said, 'I am told that membership of APEC is closed until now. Whenever admission of members is on the agenda, we will explore the options.'

Taken from Business Line

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