Commentary: Free Trade In Asia: Bogged Down Again

Back in the boom years, the winds of free trade seemed set to blow down tariff walls across Asia. True, the 1997-98 economic crisis "threw a monkey wrench" into regional free trade, as U.S. Trade Representative Charlene Barshefsky puts it. But even then, liberalization seemed inevitable.

Now, however, free traders fret that the process is getting bogged down again. At the Asia Pacific Economic Cooperation forum that just concluded in Brunei, the region's leaders, especially those from Southeast Asia, were noticeably reticent about free trade. That's in large part because much of the region continues to suffer the lingering effects of the crisis. Not only that, imported oil is at a decade-long high, even as prices for the region's electronics exports are falling. Moreover, foreign direct investment is down an average of 62% across Southeast Asia. No wonder free trade is a low priority in many Asian capitals.

The region's leaders have never been short of reasons to retreat behind tariff barriers. At the Brunei APEC meeting, they acted defensive about the West's technological advantage. "The digital divide is going to be the new excuse to start putting barriers on top of e-commerce," warns Robert G. Lees, secretary-general of the Pacific Basin Economic Council in Honolulu. Indeed, Malaysia already bars foreign banks from selling electronic financial services, keeping out the likes of Citibank, which already markets such products to the rest of the region. Indonesia, for its part, has banned foreign investment in local dot-coms, and it may not be long before other countries do the same, however futile the exercise.

ALL TALK. Meanwhile, some nations have conveniently forgotten prior commitments. Consider the brand-to-brand complementary scheme, which in theory requires a multinational to pay tariffs only once--when it imports components or unprocessed goods into a Southeast Asian nation where it has a factory or assembly line. Such companies should be able to ship goods tariff-free among any of the 10 members of the Association of Southeast Asian Nations.

Yet that isn't happening. Motorola Inc. says it pays a 34% duty to import to Malaysia the cell phones it makes in Singapore. And Samsung Electronics acknowledges that it pays a duty to import the picture tubes it makes in Singapore to Indonesia, where it assembles TVs for the domestic market. Multinationals would simply rather pay the original duties rather than deal with the years of red tape required to get tariff-free privileges.

Free trade in Southeast Asia has sunk to such a low ebb that Singapore is set to sign a bilateral trade deal with Japan. It was a no-brainer because the two nations don't compete in any important sectors, such as agriculture, which is highly protected in Japan. Such bilateral deals risk making the World Trade Organization and such regional forums as ASEAN irrelevant--and could prompt some Asian governments to hold back their market-opening reforms. "What I fear now is they'll say: `I'm going to wait until I see what the other guy is doing [on trade],"'says Lees.

Clearly, it will take more than another international conference to break the current impasse. Rather, Asia needs to muster its political will and improve economic conditions. Neither is likely to happen anytime soon.

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