Free-trade agreements more to do with politics than goods and services
Free-trade agreements have more to do with political calculations than goods and services, and US-led Trans-Pacific Partnership is key example
Two months ago I flew down to Singapore to give a presentation titled: "Are FTAs history?". There was a particular mischievous pleasure in taking this to a Singapore audience, where the government, more than any in Asia, has invested massively in securing free trade agreements (a total of 38 at present).
The message was simple and persuasive: today in Asia, about 80 per cent of all trade is in intermediate goods that are progressing along long and complex supply chains that embrace a dozen or more economies. Negotiating bilateral trade agreements that secure preferential tariffs for the export of finished goods from one economy to a second economy is a total waste of time. It gave me great pleasure telling off Singapore officials for wasting so many thousands of hours, and so many millions of taxpayer dollars, negotiating deals that were useless and would never be used.
An Asia-Pacific trade agreement [under the TPP] that excludes China is next to useless
My second message was that officials should instead be focusing on a global multilateral trade deal or (since nothing is going to happen soon on the Doha round) on "mega-regionals" - trade agreements that include a larger group of economies that offer better prospects of embracing entire supply chains.
In the Asia-Pacific region, these mega-regionals include the Regional Comprehensive Economic Partnership, which embraces the 10 Asean countries plus China, Japan, Korea, Australia, New Zealand and India; the Pacific Alliance, which covers the Latin American economies of Colombia, Mexico, Peru and Chile; the Asean-China free trade agreement; and Asean itself, which aims to complete its "single market" by the end of 2015.
Then, there is the "big daddy" of mega-regionals, the Trans-Pacific Partnership (TPP), which is led by the US, excludes China, but embraces 11 other Apec economies in committing to new and much more challenging liberalising commitments in areas like intellectual property protection, procurement, state-owned enterprises and a wide range of services.
It is the TPP that is in the headlights as the heart of the economic agenda in President Barack Obama's grand tour of four Asian economies that began in Japan yesterday. But look closely at all of the antics this week on the TPP and you discover why my original thesis - that FTAs are history - is completely wrong. Because the TPP is much more to do with international diplomacy than it is to do with any economic benefits that might arise from trade liberalisation.