Asians growing anxious over rising American protectionist policies

Asians growing anxious over rising American protectionist policies

Michael Richardson, Yale Center for the Study of Globalization,
Singapore

As Asian countries prepare to receive American president
George W. Bush at the annual summit of Asia-Pacific nations,
there is growing anxiety about U.S. economic policy towards the
region. The failure of the Cancun talks on liberalizing farm
trade, threats of punishment to countries who opposed the U.S.
war against Iraq, and the rising protectionist chorus from a pre-
election United States are some of the concerns that will be
uppermost in the minds of leaders of the Asia-Pacific Economic
Cooperation (APEC) forum when they meet Bush in Bangkok on Oct.
20 and 21.

There is increasing concern that smaller and poorer nations,
or those that oppose American foreign policy, will be
marginalized as the U.S. and other powerful economies seek to
forge regional or bilateral pacts to boost trade as a substitute
for a global deal.

East Asian nations are also worried by the rising chorus of
American criticism of China's trade and currency policies as
politicians, unions, and industry lobby groups in the U.S. gear
up for the presidential elections in 2004. With an increasingly
integrated regional economy, any cutback in Sino-American trade
would have a negative ripple effect on all.

This was underlined in a new forecast issued by the Asian
Development Bank on Sept. 30. It said that growth in Asia, minus
Japan, would accelerate even further over the coming year, thus
securing its place as the world's fastest-growing region. But the
ADB also cautioned that part of Asia's dynamism was the result of
swapping dependence on the U.S. for dependence on China.

It noted that the latter has emerged over the past two years
as "a major growth engine for intraregional trade," and that many
of the 40 Asian developing economies have doubled the share of
their total exports going to China since the start of 2000.

China has a rapidly rising trade surplus with the U.S. that
already stands at more than US$100 billion for 2003. Beijing is
under pressure from Washington to revalue its currency to make
Chinese imports more expensive and U.S. exports cheaper.

China's neighbors in East Asia fear that such pressure will be
the prelude to U.S. protectionism that will crimp their economic
growth as well.

China recently overtook the U.S. as the main export market for
South Korea, contributing significantly to the growth momentum of
the Korean economy in the first half of 2003. South Korean
exports to China soared 47 percent year-on-year in the first
seven months of 2003. Southeast Asian countries too boosted their
exports to China in the past two years.

"China specializes in assembling imported parts and
components," said a World Bank report released in July. "Often
these components are produced in relatively high wage countries
like Singapore or South Korea, which then capitalize on China's
relatively low wage costs for product assembly."

Moreover, investors from East Asian economies are among the
top manufacturing investors in China, and many of their export
products go to the U.S.

The Bush administrations' pressure on China over the growing
trade imbalance and Washington's simultaneous push for bilateral
and regional trade deals are thus seen by many in East Asia as a
risky and unwelcome course.

When the Cancun ministerial conference of the World Trade
Organization opened in September, some East Asian leaders were
already warning that its failure would lead to a world trading
system organized around economic blocs.

"That kind of world will be less favorable for many countries,
particularly the smaller and weaker ones," said Singapore's
Minister of Trade and Industry George Yeo. "It will also be a
more dangerous world where might is right, where rules are
written by the powerful, and where even the pretense that all
countries are equal will be discarded."

Bangladesh, Cambodia, Laos and Nepal, may have benefited from
a WTO deal, but they are unlikely to be included in bilateral or
regional free trade areas (FTAs), analysts said.

After the Cancun breakdown, U.S. Trade Representative Robert
Zoellick served notice that as the 148 members of the World Trade
Organization ponder the future, the U.S. will not wait.

China, India, Malaysia, Thailand and the Philippines lined up
with other developing countries to oppose the kind of compromises
that would have produced a WTO accord acceptable to the U.S. They
are thus likely to be given low priority by the Bush
administration in its bilateral and regional FTA plans, despite
comprising some of Asia's largest and most dynamic economies.

Malaysia, Thailand and the Philippines had expressed interest
before Cancun in negotiating FTAs with the U.S., the world's
largest economy and a major investor in all three countries. Now,
however, Malaysia may be left at the back of the queue because of
its Cancun stand and outspoken criticism of the Iraq war, U.S.
Middle East policy and America's attitude to the Islamic world.

The next step on the U.S. agenda to promote what Zoellick
calls "competitive liberalization" by leaving some countries
behind until they are ready to cooperate and catch up may be to
form a trans-Pacific FTA linking the U.S., Canada and Mexico, the
three members of the North American Free Trade Agreement, NAFTA,
with "can-do" nations around the Pacific Rim.

Still, the U.S. approach of rewarding political friends and
penalizing opponents of its foreign policy will complicate the
process of extending the network of FTAs linked to the U.S.

Singapore, which supported the U.S.-led invasion of Iraq, had
its FTA with the U.S. signed in May, while Chile, which was
opposed to the Iraq war, was made to wait. Another prominent
member of the U.S. coalition in Iraq, Australia, hopes to
finalize an FTA with the U.S. by the end of the year that would
include significant mutual concessions on agriculture.

Japan, the world's second largest economy after the U.S.,
appears an unlikely candidate for an FTA with the U.S. because of
the opposition from powerful and highly protectionist farm lobby.
South Korea will probably fall short for the same reason.

Not to be left out of the FTA game, China said it wants to
speed up negotiations with the Association of Southeast Asian
Nations, on a regional FTA that would be the world's largest. It
is due to be formed by 2010. Moves by Japan, South Korea and
India to negotiate preferential trade pacts with ASEAN are also
likely to be hastened by the collapse of the Cancun talks,
analysts said.

"FTAs, bilateral and regional, will become more important,"
said Singapore's George Yeo after the Cancun breakdown. "And the
result will be growing regionalism."

The writer is a visiting senior research fellow at the
Institute of Southeast Asian Studies in Singapore. This article
appeared in YaleGlobal Online, (www.yaleglobal.yale.edu) a
publication of the Yale Center for the Study of Globalization,
and is reprinted by permission.