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SINGAPORE: Asia needs to widen and deepen its supply chains with the global economy as it moves beyond the financial crisis. But regional and bilateral Free Trade Agreements may not be the best tool for this.
This is according to Dr Razeen Sally, director of the Brussels-based European Centre for International Political Economy, who was speaking at a seminar organised by the Institute of Southeast Asian Studies on Thursday.
Asia has been actively pushing for free trade agreements. But experts warn that FTAs may work against global free trade.
As the region is emerging from the worst recession in history, Asia should replug into the global supply chain through liberalising their economies.
Dr Razeen said: "The track record in Asia, particularly East Asia, is one of unilateral liberalisation. That's how countries in the region have opened up to the world by autonomously removing or reducing their barriers on trade and foreign direct investments.
"That's how global supply chains have arrived in the region. So in terms of liberalization in the future, I don't expect it to happen in any significant way, either through the WTO or through bilateral or regional FTAs. It will have to happen the unilateral way as it did in the past.
"Now in this short term, in this global economic crisis, it's not going to happen. The imperative in the short term is to contain the new protectionist pressures that will take countries in the wrong direction.
"Beyond the crisis, I think then is the time to try and revive this agenda of getting back to unilateral liberalization, country by country. Not just on the simple border measures, like tariffs and quotas, but particularly on the much more difficult domestic regulatory barriers - goods, services, and on foreign investments."
Dr Razeen said many FTAs have been built upon foreign policies and dominated by politicians, officials and academics. All these have resulted in FTAs being disconnected with the realities of the business world.
He added that region-wide agreements like the ASEAN plus 3 or ASEAN plus 6 may be unlikely due to political and economic differences within the region.
He added: "I don't think there's a serious and compelling case for region-wide FTAs because they hold the danger of discriminating against global integration. Now East Asia in particular is highly plugged to the global economy through manufacturing supply chains in particular.
"The task ahead is to widen and deepen these supply chains beyond the crisis. not just in manufacturing but extending into agriculture and services as well. Now that requires open trade and other policies, preferably not discriminatory.
"What might set it back are discriminatory policies. And region wide policies may add another layer of discrimination, which is why I think they're not necessarily a good idea."
Moving ahead, Dr Razeen said countries should not depend on the World Trade Organization (WTO) to promote further market liberalisation.
Previously, key Asian economies have achieved much liberalisation in the reduction of tariffs through unilateral plans, instead of multilateral and regional agreements.
With that, the WTO should play more of the role of a watchdog as a mechanism for rule enforcements, surveillance, and adding transparency to the process.
Some key areas in which he feels the WTO remains important as a framework of rules include the strengthening of its existing rules, establish new rules to accommodate newer issues of trade policies like climate change, to provide a level playing field for businesses.
Commenting on the pending WTO DOHA discussions, Dr Razeen said he remains "pessimistic" about a conclusion to the much-debated discussion in the near future.
He said the new wave of optimism has not been supported by "serious willingness to change positions in major capitals".
The DOHA round, which aims to break down global trade barriers, commenced in late 2001. Disagreements over agricultural and industrial products have emerged between the developed and developing nations, stalling discussions repeatedly for the past eight years. - CNA/vm
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