The Journey Matters

Resurrected asked:

“On a very separate note, what are your thoughts on the FTA with the US? I just read on CNN that South Korea has signed theirs with the US.”

Good question :)

There are three reasons why I chose not to openly opine on this issue. Firstly, I am not adequately informed about the finer details of the US-Malaysia FTA to formulate specific arguments for or against it. And generally, informal debates on FTA are often not solely grounded on economics considerations, and occasionally, they could get quite emotionally and philosophically charged and degenerate into variants of ad hominem arguments.

Secondly, this topic is largely unexplored in the economics literature. Most economists disagree with the effectiveness of FTAs in moving economies towards a more globalised world. The argument is often about how proliferation of FTAs is akin to a spaghetti bowl of bilateral ties – disparate, chaotic and potentially inefficient. Multilateral or universal liberalisation is preferable (interestingly, as I was writing this, I was prompted to read Martin Wolf’s latest Financial Times op-ed on the danger of FTA, using the latest US-Korea agreement as a backdrop). On the other side of the argument, given the Herculean task of successfully negotiating multilateral agreements, bilateral ones could be the only realistic and practical way forward. The only problem then is on the proper designing of the agreements. I am sympathetic to both sides.

Thirdly, there is really nothing much to talk about, regarding the US-Malaysia FTA. It is a case of too little too late. Doubt that anything substantial will come out of it at all.

I am however, generally quite sanguine on the issue of trade agreements. I view China’s entry to the WTO as a clear example why. In a recent World Bank's publication, East Asian Visions: Perspectives on Economic Development (highly recommended; it is a collection of essays by some of East Asia’s most influential thinkers – eminent policy makers, statesmen, and scholars – on how competition with the west has bred success; how crises in the region have provoked introspection; and how the rise of China is catalyzing change), Long Yongtu, chief negotiator for China’s WTO accession wrote that in retrospect, the long process of 15 years that it took for China’s to enter the WTO was ultimately more valuable for the development of China than the membership of WTO itself.

“[A]s the chief negotiator of China’s WTO accession and having had to endure so much difficulty and shoulder so many burdens during this long process, I now believe that it may prove to be a good thing for China to have undergone these difficult years of negotiations. It may seem illogical, but it is true. The key is how one views the accession process. If you look at this process of negotiation only as one in which you have to make endless concessions to your partners and confront endless challenges at home for the sake of obtaining a WTO membership card, then you would find this process very painful and long indeed. If instead, you look at the process from a strategic point of view, in the framework of China’s long term economic development, as well as its relationships with the rest of the world, you will find that many positive elements have been generated through this historic process.

…

The fact is that many people only perceive the apparent difficulties and pain of the negotiations themselves. They do not know that there is another side to the coin, an even tougher and therefore more significant process, one of consensus building among our own people at home on some major issues that are being confronted not only by China, but also by many other countries, especially the developing ones. The issues include, although they are not limited to, the following:

• How to address economic globalization
• How to achieve a balance between trade liberalization and economic development
• How to tackle social issues such as unemployment in the restructuring of the economy

It is the process of consensus building around these major issues domestically that turns out to be the more important aspect of China’s WTO negotiations.

…

That is the most significant lesson we can draw from the negotiations: that we have involved not only dozens of negotiators, but also millions of ordinary Chinese in the process. To some extent, the process became an unprecedented, massive education programme for our people regarding globalization and the restructuring of the economy, with its positive, as well as negative implications for their day-to-day lives. I believe that this striking feature of China’s WTO accession—not as a diplomatic exercise in Geneva, but as a range of broad-based activities involving millions of people in a quest for a better life—is a unique experience in the context of contemporary trade negotiations. (Emphasis added)

…

In conclusion, China’s 15 years of negotiations have prepared us to participate in economic globalization in general and for a new round of trade negotiations within the framework of the WTO, as well as many regional-level and bilateral-level trade negotiations, in particular. We have discovered that a balanced approach between the opening-up policy and sustaining economic development works for China. Economic development would not take place without a real opening-up policy. That is why we support the Doha round, a new round that will bring greater economic benefits for the world and especially for the developing countries. That is also why we actively participate in the regional-level effort to liberalize trade and investment, which might prove to be the building blocks for global liberalization.”

In any reforms, there are always three groups of people – those implementing the change, those against it (who are currently in the system), and those who will benefit from in ultimately. For far-reaching reforms, the last group is often the biggest, but also unfortunately the most remote from the process (either because they are not in the process or because they do not exist yet), and the second group however, is often the group with the most power. A successful reform requires the buy in from the last group*.

Elanor.

(* On a totally irrelevant tangent, sincere oppositions should take note of this; the importance of the support from the younger generation.)