The ABC’s of Free Trade. The Treaties that Tie.

From the ‘Belt and Road’, to TPP, AIIB, and numerous others – an alphabet soup of geopolitical initiatives have kept Asian leaders busy travelling.

The ABCs of free trade, 27 Nov, 2015The geopolitical initiative is having more comebacks than Frank Sinatra.   First up is “the Belt and Road” – of which the Belt is a proposed highway retracing the trading path of the Silk Road – down which the Mongol Emperor, Genghis Khan, rampaged in the 13th Century.

“The Road” is in fact a maritime sea route linking China with Europe; ironically tracing much the same route West, as the British East India Company took to come East 300 years ago.

Asian leaders are flying over these roads like never before, with President Xi and Premier Li spending barely a night in their own beds. Narendra Modi of India has just completed his 30th foreign trip as Prime Minister and he was only elected last year.

Then there is the TPP (Trans Pacific Partnership, formed in October) – a band of brotherly states around the Pacific, initially a few Southeast Asian nations but which now incorporates Australasia, Canada, Japan and the U.S. President-hopeful Donald Trump decried it as a way of letting China into a free trade zone – before being told that our sovereign nation is not actually one of the Partners.

Not to be outdone, the AIIB (Asian Infrastructure Investment Bank; established in June, with 57 members worldwide) is China’s answer to the World Bank. It will provide funding for infrastructure projects in developing countries, with the useful side effect of spreading emerging market (i.e. Chinese) influence. The ADB (Asian Development Bank; established 1966; 67 members) was established to do the same thing but it is now regarded as being dominated by Japan, who got there first.

Fighting for airtime is the ASEAN (Association of South East Asian Nations; est. 1967; 10 nations) which last weekend established the AEC (ASEAN Economic Community), a single market with a free flow of goods, capital and labour modelled on the European Union. It may be “a community that is politically cohesive, economically integrated and socially responsible” but there is also an urgent desire to bulk up in the face of the brewing dispute in the South China Sea.

ASEAN is also looking to incorporate Australasia, China, India and Korea into the RCEP (Regional Comprehensive Economic Partnership). Hong Kong meanwhile hopes to have its very own free trade agreement with the ASEAN by 2016.

Adding to the alphabet is the APEC (Asia Pacific Economic Council, est. 1989) whose 21 members cover the Pacific Rim. Their meetings are memorable for the photo opportunity of middle-aged leaders wearing silly theme shirts. Fortunately coconut halves and grass skirts have not yet featured.

Amid this plethora of multilateral sleepovers, a little known bilateral high-level meeting took place this week that is more important than any in getting things done. The 26th session of the JCCT (U.S. – China Joint Commission on Commerce and Trade; est. 1983, 2 members) took place earlier this week in Guangzhou between the trade ministers of both countries.

Commission working parties negotiate all year round to agree trade formulas in sectors like agriculture, pharmaceuticals and professional services. The US wants more transparency and protection for U.S. companies, a bilateral investment treaty, and more respect for intellectual property. China wants the US to release restrictions on high tech exports, travel visas, and infrastructure investment that hinder Chinese SOE’s (State-Owned Enterprises) from buying certain U.S. companies.

Indeed, China itself has reduced the number of sectors closed to foreigners from nearly 200 last year, to just 38 today. These obviously include anything vaguely military and also prohibit or severely restrict foreign participation in shipbuilding, the Internet, Chinese law, the sale of ancient artifacts, and education. The U.S. restricts many of these sectors too but it is still a very open economy. China ranks only 94th in terms of the ease of doing business.

Progress in the 26th session did happen but the U.S. left with concerns about the implementation of some of the agreements and the protection of intellectual property rights. There is unlikely to be a let up in cyber hacking on both sides as everyone spies on everyone else. In any case, these days hacking is done as much with crime in mind, rather than to compromise state secrets.

There is nothing quite like a bilateral conference between two countries that account for 35% of global GDP of the other side – to get things done. Multilateral conferences are often little more than a talking shop, an eating fest, and a chance to gossip sufficient for Wikileaks to blush. Most of the time SNO’s (Supra-National Organisations), with their well-staffed secretariats, salarymen officials, and fancy headquarters – are an expensive way to run free trade.

Richard Harris of Port Shelter (www.portshelter.com) has been in the investment industry in Asia for 37 years.

 

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