East Asia must show leadership to keep trade free

Hadi Soesastro, JAKARTA | Mon, 03/16/2009 11:05 AM A | A | A | - Klipping the Jakarta Post

The top priority of the London Summit will have to be cleaning up the global financial system. This has become crystal clear as various other measures taken at the national and global levels have shown meager results.

But keeping global trade open must be given a prominent place on the Summit’s agenda. Leaders must go beyond airing the usual rhetoric, which many have done. Concrete action must be taken.


Global trade has already shrunk and will continue to do so unless real action is taken. In fact, trade could become a fundamental part of the solution to the global economic crisis. Concluding the Doha Round could result in a significant global stimulus package being issued in the form of a trade deal.


But most importantly, it could help reverse the growing economic nationalism that is being manifested in various forms of trade and financial protectionism.


Leaders must provide the political push to keeping trade open. In their informal meeting at Davos recently, trade ministers shared with each other their difficulties in facing rising political pressures at home, leading to the introduction of different forms of trade barriers. They remain uncertain as to whether a global trade deal can be reached this year.


Until then, they will find themselves fighting a battle on their own and without an effective weapon. The Indonesian trade minister, for instance, has recently introduced domestic transparency procedures in the decision making process for protectionism in an attempt to minimize the damage.


The London Summit is where words must be translated into action. President Obama will be there and he will participate with a clean slate. The many noises that have come from Washington D.C., including the “Buy America” provision, have been worrying.

Obama has clearly and unequivocally signaled his opposition to that provision. He also pledged
to curb direct payments to agricultural producers. President Obama is the one that can provide the necessary leadership for open trade at home as well as globally. A clear signal from him at the London Summit would have a tremendous impact.

But the burden of leadership cannot be placed on Obama alone. President Obama’s leadership at home cannot be sustained if he is unable to show that others will favorably respond to his initiatives. East Asia must share this burden by making significant concessions. This is in East Asia’s self-interest, as the region has a very great stake in global trade.


To do so, East Asia must be organized and come up with a common stance on the key issues affecting regional and global trade and, most importantly, on how they can play a shared leadership role.


Commitment on enforcing new measures must come from the highest political level. Leaders from many East Asian countries have reiterated their commitment to “promoting free trade” but they have not been explicit in “enforcing a stand still”.


East Asia can offer credible shared leadership on trade if regional countries agree to a number of things. East Asians should be confidence that they can afford to do so.


Japan was the first country to pledge to provide resources to the IMF. At Davos the Japanese Prime Minister made another pledge to provide aid to other East Asian countries to help overcome the crisis.


China has demonstrated its “openness” to trade by dispatching a trade delegation on a “Buy European” campaign. But they and other East Asian countries need to focus on collective efforts to be able to exercise effective leadership in order to keep trade open.


First, they must commit to using their actual tariff rates, rather then their bound tariff rates, as a reference. This is the time for East Asia to make that move. They need not make this a part of their negotiations in the Doha Round, but they can rest assured that this significant decision will not go unnoticed there.


East Asian countries can proudly show that actual tariff rates in the region have fallen much faster than in other regions since the conclusion of the Uruguay Round. However, their bound tariff rates remain high.


Second, East Asian countries need to support this move by setting up a system of compliance monitoring. In their recent meeting in New Zealand, the APEC business advisory council (ABAC), representing the business community in the broader, called for the creation of such a system.


East Asian (or APEC) governments should grab this proposal and direct it back to the business community to immediately establish an “independent” monitoring system.

Unlike the EU, East Asia (or APEC) does not have a body such as the European Commission to undertake that task. It appears that even in Europe this cannot be taken for granted, as indicated by Danish Premier Rasmussen’s recent calls to the Commission to make sure that EU rules on free trade be upheld by its members. The system must focus on protectionist measures that come in disguised forms.


It may well be that a regionwide consultation is in the offing. At the sidelines of the ASEAN Summit in Thailand at the end of February, the Singaporean Prime Minister, as chair of APEC 2009, took the initiative to have meetings with the Indonesian President and the ASEAN Chairman (Thai Prime Minister Abhisit Vejjajiva), who will both be at the London Summit.


They discussed the global crisis as well as trade issues and regional economic integration. The three leaders need to follow this up with approaches to other East Asian G20 leaders, including Australia and India. South Korea, the next chair of the G20, should immediately be drawn into this endeavor.


An East Asian role in the global context helps to strengthen its own regional endeavors, including deepening regional economic integration. East Asia can also demonstrate to the world the real meaning of “open regionalism”, namely to organize the region for the well-being of the region and the world at large.


The writer is executive director of the Centre for Strategic and International Studies (CSIS) in Jakarta.