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.