Asia Pacific must be wary of trade protection: Report

Asia Pacific must be wary of trade protection: Report

SHANGHAI, China (Reuters): Asia-Pacific trading powers must
kick-start another round of trade liberalization to head off a
growing tendency of protectionism amid a global economic
downturn, the APEC think-tank said on Wednesday.

In a report to be presented to APEC trade ministers, the
Pacific Economic Cooperation Council (PECC) said slowing growth
and rising unemployment in the United States could resurrect the
specter of protectionism in the Asia-Pacific.

"There will be greater resistance to maintaining open markets
for imports from China and other East Asian surplus economies,"
PECC said.

"It is in the interests of all Pacific economies to regain
momentum in multilateral trade liberalization, to reduce the
risks of emergence of the protectionist reactions."

PECC is commissioned to do much of APEC's economic research.
The report will be used by the trade ministers of the 21-country
Asia Pacific Economic Cooperation forum, meeting in Shanghai.

The ministers have plans to revive a stalled APEC tariff-
cutting agenda and were also expected to call for another round
of global trade talks.

PECC said current account imbalances in the Pacific region
reached unprecedented levels in 2000.

East Asia's global account surplus hit $252 billion in 2000
even while the U.S. trade deficit climbed to $428 billion. PECC
sees the U.S. deficit reaching $441 billion in 2002.

"Imbalances of these extreme magnitudes... risk generating
negative political reactions in the deficit countries," the PECC
report said.

The regional trade picture will remain weak through the
remainder of the year, said the report.

Real import growth is expected to fall by more than two-thirds
to about 5.5 percent, while export growth will slump to 3.5
percent -- only a whisker higher than at the height of the 1997-
98 Asian financial crisis.

The slowdown in export growth could suffer further if the
dollar depreciates more than expected following the aggressive
easing of U.S. monetary policy this year.

"(That) would place additional short-term pressure on other
Pacific economies' export growth," the report said.

PECC foresees a "fairly hard landing" for Asia-Pacific
economies in 2001 -- with weighted average growth falling by half
to about 2.9 percent -- rebounding only in 2002. The downturn
will engulf most countries except Vietnam and China.

China, consistently rated a safe haven of economic growth by
analysts, will nonetheless feel some heat.

Countries with exchange rates pegged to strong currencies --
like China, Hong Kong and Malaysia -- would feel more pressure
from the weak regional performance than those with free-floating
currencies, PECC's report said.

It further highlighted the possibility of a gradual loosening
of China's yuan currency, which is currently strapped in a tight
band of between 8.2770 and 8.2800.

"A loosening of the peg would allow smooth downward adjustment
in future if the regional problems turn out to be more severe
than current mainstream expectations, and if the United States
dollar remains strong," the report said.