The long march to an Asian free trade agreement

By Zhang Lijuan
0 Comment(s)Print E-mail, April 7, 2014
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Free trade in Asia, attractive as it is, has yet to be achieved. Negotiations towards free trade in the region are probably the most complicated and dynamic in the world.

In recent years, Asian nations have been involved in two major trade forums – the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP). The former is led by the U.S. and the latter by China. It is not surprising that TPP and RCEP are sometimes described as rival trading blocs.

The recent Singapore round of TPP negotiations has once again revealed differences among the major partners, particularly between the United States and Japan. The United States has free trade agreements with 20 countries, but its major trading partners in Asia, including China and Japan, have been left behind. The U.S. has been trying to open the Japanese market to its agricultural products since the 1970s. Today, the TPP talks are another tough test for U.S. trade negotiators facing off against their Japanese counterparts.

The U.S. is demanding that currency manipulation, and environmental and labor standards be written into the TPP agreements, but other nations are not convinced. To achieve a free trade agreement that meets the concerns of 12 very different parties seems impossible. Furthermore, every nation has a national agenda corresponding to its stage of economic development, be it a developed, developing or less developed economy.

Inside the U.S., trade is a perennial political game. President Obama is highly unlikely to get Congressional approval for the Trade Promotion Authority (TPA). And as election year approaches, there is less and less that Obama can do to turn the TPP into a practical trade agreement in Asia.

For cultural, historical and strategic reasons, Asian nations are reluctant to make concessions on sensitive trade issues regarding currency, agriculture, the environment, and labor issues. It has been a decade since East Asian nations began addressing monetary and financial integration. No regional free trade agreement has yet been realized in Asia as a result of purely regional efforts.

It is understandable that Asian nations want to pursue their own path to sustainable domestic growth and political stability. The economic heyday of the Four Asian Tigers and China's superfast growth seem to have come to an end, if not permanently, than at least in the short term. China's extraordinary economic growth ended in 2012 and its economy is likely to slow down even more. The top priority for the Chinese government today is no longer chasing GDP figures, but solving critical issues such as food safety, the environment, financial stability, and building capacity to play a leading role in Asia and the Pacific.

China can lead Asian trade liberalization and negotiations, but how other Asian nations define their "coopetition" relations with China is the key. If Asian nations are unwilling to cooperate, both free trade and financial liberalization in Asia will be impossible. A wide range of issues need to be addressed in a cooperative manner.

First is trade in services. Services sectors such as transportation and financial services need integrated rules and regulations. Without such rules and regulations, trade liberalization in services will be inefficient, and even cause moral hazard.

Second, Asian nations need to work together to address environmental and labor standards. U.S. standards may be unattainable for many Asian nations at their current stage of development, but initiatives need to be taken sooner rather than later.

Third, none of the Asian nations have a mature and fully internationalized financial system, and none of the Asian currencies are strong enough to serve as a regional integrated currency. Asian nations, especially China and Japan, are major creditors to both U.S. and the EU. But Asia lacks the sort of sound, first-class financial regime on which the world could rely for financial stability. After the U.S. financial crisis and the EU debt crisis, the potential for Asian financial turmoil is becoming more and more a focal point. Regional monetary and financial cooperation is necessary in order to avoid a regional crisis. For this reason alone, a regional financial monitoring mechanism is necessary.

Fourth, a regional free trade agreement is an option, but one regional trade agreement cannot work for all. It would neither serve every nation's economic goals, nor solve all regional trade issues. In today's world, trade is political at both the domestic and international levels. Asian nations tend to cooperate with the United States with regard to its pivot to Asia, but also cooperate with China on trade promotion and expansion. Asia needs to rebalance itself before any other powers can rebalance Asia.

Finally, in the foreseeable future, Asia will continue to be the most important engine shaping global production. The sophistication of the international supply chain can be revealed by opening up any "made in China" iPad or iPhone. Asia can improve its position in the global supply chain, but only if Asian nations are willing to cooperate and are willing to accept the idea of "coopetition."

Free trade in Asia is a worthy goal, but will take a long time to achieve. The challenges are daunting, but the major issue is how well Asian nations can cooperate in regional development.

The author is a columnist with For more information please visit:

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