The WTO is at a standstill, the euro is in shambles, protectionism is on the rise. But further East, free trade is making progress
Most observers have wondered whether the last G20 summit, earlier this month, has made any step towards resolving the EU crisis. But little has been said about what it has unambiguously failed to achieve: give a second wind to the so-called ‘Doha’ round of trade negotiations. Aiming at supporting global trade by lowering trade barriers, the WTO forum had been stalled for years - it is now officially dead.
Could this announce the ultimate defeat of free-trade? Not yet, apparently.
Having silently witnessed the agony of the Doha round, but understanding the value of new export markets in crisis times, the world’s major economies are, rather, hedging their bets. For one, they’ve started to push through a series of bilateral deals that were until now blocked in parliament: the EU has just signed an agreement with South Korea; the US has done with Panama and Columbia. On the other hand, trade blocs and regionalism seems to get some new supporters, with countries like Russia - so far hardly the most devout free-trade militant - now advocating for the formation of custom unions in their neighbourhood.
That in itself is no victory. The bilateral deals recently concluded were the easy bit: they were first discussed before 2008, in an era when free-trade was still popular; and the difference in size between the two parties meant talks were not too complicated. Now that negotiations put face to face far bigger players - the EU is currently in talks with India in Japan - and take place in a context far less conducive to making concessions, progress is likely to be much slower. Regional trade agreements, on the other hand, remain either limited in scope, subject to strong domestic pressure, or one nation’s hegemonistic project. Meanwhile protectionism is on the rise and currency wars continue to flare up.
One initiative, however, has the potential to completely change the game - and the world economy. The Trans-Pacific Partnership (TPP), a free-trade area around the Pacific, started small: New-Zealand, Singapore, Chile and Brunei were the four original founders. But then Peru, Vietnam, Malaysia and Australia joined; and, most importantly, the US decided to put its weight behind the initiative. And last week-end, Japan, the world’s third biggest economy, agreed to start its own process of accession.
If the Japan deal happens, the TPP will cover a market 40% bigger than the European Union. This would then tempt other large economies, such as Canada, to join the negotiations, as well as other members of overlapping free-trade arrangements, such as the Association of South-East Asian Nations (ASEAN). In the end it could encompass close to 20 countries, and become the largest free-trade area ever created.
But the big prize, really, is China. For the moment Beijing is criticizing the initiative, saying it aims at squeezing China out of Asian trading agreements - most notably the ASEAN. Given the limited clout of the TPP so far, it can afford to do so. But i the long-run, experts say, the group could be big enough to put pressure on China to join, and thus subject a larger part of its economy to liberal discipline. That would be big news - no one has so far been able to achieve that.
Admittedly this is still quite a way away. Japan’s accession is fraught with difficulties: potent domestic lobbies, such as the farmer union, are reluctant to open-up to foreign competition and are likely to complicate talks; America’s most industry-focused states, such as car-producing Michigan, are not happy; smaller TPP countries, suspecting Japan will try to water down the treaty’s ambitions, have reacted with defiance to the news.
But these hurdles can be overcome. Japan’s PM, currently struggling with other deadly issues at home, is looking for political credit - a successful entry would bring him some. Obama is very keen to find sources of growth abroad, and would relish having China involved in binding multilateral talks. And the rest of the world is set to benefit, if the bloc manages to liberalize bits of China’s economy, and spurs additional growth in the region.
The only place where such developments are probably watched with anxiety, ironically, is where the concept of ‘common markets’ originated 60 years ago: in the EU. Whilst proving the continued relevance of the European idea, the TPP’s expansion further shifts the world’s centre of economic gravity from the Atlantic Ocean to the Pacific - away from European shores.