SUNS  4287 Thursday 24 September 1998



ASIA: CRISIS DEFLATES FREE TRADE MOMENTUM

Bangkok, Sep 22 (IPS/Boonthan Sakanond) -- Just a couple of years ago, large parts of East and South-east Asia looked on their way to becoming mammoth free trade zones, wiping out national boundaries as never before in the region's history.

But Asia's economic crisis threatens to derail such moves toward integration and puts enormous pressure on emerging regional groupings to justify their utility in the face of narrow -- but
more urgent -- domestic priorities.

Trade experts say that though some form of regional liberalisation is bound to continue, it will not happen without serious delays and possible acrimony between member countries.

Most Asian economies face the twin problems of a serious drop in domestic consumption and overcapacity in key industrial sectors. Thus, any lowering of import tariffs as envisaged by free trade
accords is bound to be politically as well as economically very difficult.

In mid-September, in one of the first public airings of such concern within the Association of South-east Asian Nations (ASEAN), Thai Foreign Minister Surin Pitsuwan warned that the Asian crisis
could seriously test the commitment of member nations to get closer economically.

"The worsening financial situation in Asia could result in member countries being reluctant to move with regional economic integration," he said, pointing to the curbs on currency movements imposed by Malaysia as an example of how regional free trade agreements could get delayed.

The currency controls, imposed to stop foreign speculators from attacking the Malaysian ringgit, have already begun to affect Malaysia's trade with ASEAN countries like Thailand and Singapore.

The fixing of the ringgit at 3.80 to the U.S. dollar at a time when its open market rate was nearly 4.20 to the dollar has left many doing business with Malaysia in a quandary.

And although Indonesian officials deny it, there is strong speculation that Jakarta too may go for some form of currency controls soon.

Still, reconciling fluctuating currencies is only one part of the problem, the other major factor dampening regional trade being overcapacity in most industrial sectors.

With their economies contracting and thousands thrown out of jobs, domestic markets across Asia have shrunk and governments are more interested in keeping the market to themselves than opening them up to imports.

The region is also likely to face problems in exporting to developed Western countries, themselves worried about being flooded with cheap imports that could render domestic industries uncompetitive.

"There is already increasing pressure for protective action and in some cases recourse to anti-dumping actions is likely," warned the annual United Nations Trade and Development Report, released this month.

Forged in 1992, the ASEAN Free Trade Agreement (AFTA) envisages the lowering of tariffs on imports of most goods from member countries to under 5% by the year 2003. Vietnam has been given until 2006 to comply, while Laos and Burma, two new ASEAN entrants, have not made
any commitments to AFTA so far.

Intra-regional trade among South-east and East Asian countries has been growing rapidly since the late eighties and constituted from 45 to 60 percent of their total international trade in 1996.

Almost all these countries have experienced sharp falls in both exports and imports since the crisis began in 1997, and regional trade is expected to go down further in the coming year.

Most ASEAN members are also part of the larger Asia-Pacific Economic Cooperation (APEC) forum which also groups the United States, Canada, Australia and many other non-European economies.

In 1994, APEC economies committed themselves to create a region of "open trade and investment" by the year 2010 for industrialised economies and by 2020 for developing countries.

"Despite the financial crisis, liberalisation continues to feature high on the agenda of affected APEC members," a senior Malaysian trade official was quoted as telling a meeting of APEC officials in
Kuala Lumpur this month.

Such talk notwithstanding, the meeting failed to reach a consensus on commitments to start cutting tariffs in nine high-priority sectors to less than 5 percent by 1999.

This year's APEC meetings will be held in Malaysia in November.

"The Asean Free Trade Agreement and the Asia-Pacific Economic Cooperation, the Asia-Europe Meeting (ASEM) -- nobody is so enthusiastic anymore about these bodies," said a former Thai
diplomat.

He says these groupings were born at a time when everybody thought Asia would forever enjoy a boom. But with the crisis overthrowing governments and threatening social chaos, every country is busy protecting its own interests first, he explains.

"Although the time is propitious to significantly reduce trade protection, the political and financial fall-out of such changes in the short run suggest countries should wait until `tremors' from
the Asian crisis earthquake subside," said Michael G Plummer, an international trade economist specialising on the ASEAN region.

The crisis, he says, will definitely bring down intra-regional trade in the next few years. He urges Asian governments to push ahead nevertheless with making regional trade easier, so the region
becomes attractive to foreign investors.

With economists and political leaders now talking of an impending global depression -- characterised by overcapacity and low demand -- it is highly unlikely that individual governments are going to keep vague, long term goals in mind.

Some say that there could be even a serious rethinking of the rapid opening up of markets, advocated mainly by Western governments championing free-trade policies, and a more gradual, cautious approach adopted.

Such a rethinking is bound to please those critics for whom trade groups like ASEAN and APEC are little more than attempts by the successful "to secede from poorer countries and set up exclusive
member clubs".