Regional FTAs thrive as WTO takes a backseat
As the WTO takes a long hiatus, lots of regional free trade areas are sprouting around the world as countries seek for markets to trade at better terms.
In the case of the ASEAN Free Trade Area (AFTA), its economic integration is a strategy by which the 10-member states can negotiate FTAs and comprehensive economic partnerships with major trading and dialogue partners as one.
The economies of scale created by the 10 southeast Asian countries make it very attractive for other countries to seek partnership with ASEAN, which has over 600 million young population. ASEAN is also a staging point for international markets. It has strong demand for industrial production goods, price-competitive source of inputs, and high growth in service industries.
ASEAN has already forged FTA deals with China, Japan, Korea, India, and Australia-New Zealand.
These FTAs have been hammered out in the name of freer trading arrangements between parties and better economic opportunities for people.
Forging FTAs with these big economies is also mutually beneficial because it further builds scale for both parties.
In the case of the Philippines, an original member of ASEAN, it partly anchors its export strategy on the maximization of benefits from FTAs for its exporters to take advantage of.
The Philippine Exports Development Plan aims to grow exports to $82 billion by 2013 and double up or at least hit $120 billion by 2016.
If exporters are just keen, there are better trade opportunities under the various FTAs. For instance, the ASEAN-China FTA grants zero tariff on more than 90 percent of China’s tariff lines. China’s total import from the world is valued at $1 trillion.
The ASEAN-Korean FTA allows zero tariff for around 90 percent of tariff lines. Korea has a growing affluent consumer base with GDP per capita growing from $30,000 in 2010 to $31,700 in 2011. Korea also imports 70 percent of its agricultural needs.
Japan is the world’s fourth largest importer while Australia-New Zealand offers zero tariffs for all products by 2020, an opportunity for Philippine exporters.
The Philippines enjoys reduced tariffs for its top exports to India under the ASEAN-India FTA. As much as 94 percent of the Indian market is being opened for the Philippines.
Based on economic figures, regionalization appears to be a very good value proposition.
Thus, without leaving the over-arching WTO, countries tend to lean more closely, and naturally so because regional FTAs are closer to home. With smaller group, an FTA is more manageable, easier to implement and therefore more effective.
The sprouting of FTAs can also be blamed partly to the almost catatonic state of WTO. Regional FTAs now serve as fallback if the WTO collapses.
Philippines Trade and Industry Secretary Gregory L. Domingo would rather look at the inclusiveness of the WTO as against the exclusivity of the regional FTAs.
“In general, the smaller the trading block, the easier it is to craft a more progressive trade agreement. However, the downside is there will be a lesser number who will be part of that agreement,” Domingo said.
Adrian S. Cristobal Jr., DTI undersecretary for international trade group of the Philippines, said the multilateral system is the preferred means for promoting global trade.
“Rules agreed upon among 159 member states in the WTO simplified world trade relations in many ways and makes it predictable for business,” Cristobal said.
“Regional agreements, however, help boost more trade among members of a particular region; hence, offer many advantages for growth. We take advantage and seize opportunities in both multilateral and regional agreements,” he added.
But whether it is regionalism or multilateralism trading arrangements, economies of scale will always play a crucial role.
Former GE CEO Jack Welch once said “…globalization must be taken for granted. There will be only one standard for corporate success: international market share. The winning corporations will win by finding markets all over the world.”
This is because any effort at increasing or widening trade, it is always the more developed economies who could take the first crack because they have the economies of scale.
The small and least developed economies are the most affected, they have little choice but to go with the flow or else be left further behind. It is a bandwagon that everyone must climb unto.
Philippines Exporters Confederation (Philexport), president Ortiz-Luis Jr., believes that the WTO has a big role in the opening up of the world economy.
“The problem is that developing economies are at the losing end because the big economies have more voices in this multilateral negotiation. So, they take advantage of the small,” said Ortiz-Luis.
“Whether it is regional or multilateral, there is not much choice for the developing economies,” he added.
“There is no choice for any country though. The big and advanced economies are into regional FTAs so the small ones just have to cooperate or be left behind,” said Ortiz-Luis.
“WTO is good because there is no need to negotiate with each country, but there are 159-member states in WTO making it difficult to move compared with the regional trade agreements with lesser members and therefore more manageable. The problem is that small and developing economies like the Philippines even if they are not prepared must join,” he reiterated.
In the case of the Philippines, it was even one of the very first to unilaterally and substantially reduce import tariffs ahead of the big and advanced economies.
“Regional free trade areas have emerged because WTO is not working. Regionalism is becoming better but only because WTO is almost dead,” Ortiz-Luis added.
“Regional FTAs are more advantageous than bilateral because you can negotiate as a whole as one economy, and you create economies of scale and huge market,” Ortiz-Luis stressed.
But while the regional FTAs are rules-based and even offer better trading benefits than WTO, no FTA can give the same level of comfort that the multilateral trading body provides.
The WTO maybe slow, but only because it accommodates everyone who wants to be part of a rules-based simplified global trading regime. It tries to provide a fair playing field for everyone, not for an exclusive few. As such, it is more encompassing.
It cannot be accused of being biased to a few because it serves no constituency of its own. It does not represent the interest of a single country. It is an institution, an authority, not a country, but a multilateral body whose main task is to make that utopia “freer trade for everyone”, a reality.
In the meantime, regional FTAs are thriving as WTO is taking a backseat.