An Asian economic community

Some months ago, the outgoing director general of the WTO, Dr Supachai Panitchpakdi told some journalists visiting his office at Geneva that there was a real threat today of regional trade arrangements (RTAs) overtaking the tedious multilateral negotiations under the WTO. After all, the number of RTAs signed in the last 10 years is many times more than those signed since GATT came into being several decades ago. Supachai also warned that too much energy spent by nations on signing RTAs could slow down the progress at the WTO, though he concedes that RTAs done in a calibrated way could act as building blocks for the multilateral framework.

However, the subtle point he had tried to press home was that the larger focus must be on the WTO. But is this happening? Certainly not, from what one can discern on the ground. On the contrary, there is a lot of anxiety in the developed world that Asia, buttressed by markets such as China and India, might be emerging as a big free trade block by itself.

This anxiety was reflected in the recent visit to India by British Prime Minister Tony Blair, who led an EU team to India in his capacity as the current president of the EU. The British trade minister was particularly concerned that the EU in general and Britain in particular was at a big disadvantage on account of the comprehensive economic cooperation agreement signed between India and Singapore. He was particularly concerned that Singapore banks will now have a far greater access to the Indian market than the European banks. The Singapore agreement encompasses trade in goods and services, besides giving pre-establishment investment guarantee to Singapore firms. Obviously the EU wants all of this for itself.

But is the EU willing to give India what Singapore has accorded — recognising 127 Indian professional degrees ranging from engineering to architecture and bio-chemistry? Indian professionals in 127 vocations will now get temporary work visas to provide services in Singapore. Obviously, neither the EU nor the US can make such a bold offer as Singapore has done. Even at the WTO, India’s core position is that it is willing to fully open up its services sector — financial, retail, telecom, etc — if the EU and US allow greater scope for skilled Indians to provide temporary service in their country. The EU and US are not ready for this. Unfortunately, the larger success of the multilateral framework hinges largely on this.

This is where the real import of the Singapore agreement lies: something that could not happen multilaterally is succeeding in a regional trade arrangement. This is exactly what Dr Supachai had meant when he said the RTAs might overtake the WTO. Singapore is just the beginning. Dr Manmohan Singh has already instructed that a Singapore-type agreement covering goods and services must be signed with all the Asean countries. In internal meetings, the PM has asked these agreements to be fast-tracked so that India gets the benefit of integration with the Asean block to begin with.

The Singapore Prime Minister, Mr Lee Hsien-Loong, during his recent India visit told this writer that he could visualise a larger open trade block emerging in Asia. He said China and India would act as catalysts around which a larger trade bloc would intermesh together. In some sense, this is already happening with both China and India separately hooking into the Asean. This process, though nascent now, must worry both the EU and US.

Even today, statistics show that India’s trade with the EU grouping is 19% of its total merchandise trade and the share of North America is 13%. But interestingly the share of Asean plus China, Japan and South Korea in India’s total trade is 20%. This will gallop further if a larger open trade bloc emerges in this region with China and India as the main drivers. In fact, such a community has already been mooted by China, Japan and the Asean countries. The Chinese ambassador in New Delhi, Mr Sun Yuxi, told this newspaper that India would be invited to an East Asian Summit later this year to discuss the broad contours of a larger Asian economic community.

“We will even talk about the possibility of an Asian currency”, he said. The grand idea is to move in the direction of an EU-type economic arrangement in the long run. Mr Sun recognises that Asian nations have very diverse histories and cultures which will need to be overcome over time.

However, what can be achieved in a relatively short period is a freer trade and investment regime promoted by the larger Asian community. Mr Sun also believes that Asian economies can discuss a common financial architecture which will help deal with financial crises of the kind that visited East Asia in 1997. While all these are nascent thoughts, it appears there are many big ideas in the larger Asian region whose time may have come.

(Excerpted from The Economic Times, 20 September 2005)