April 2006

Bilateral Trade Agreements in the Asia-Pacific: Origins, Evolutions and Implications
Edited by Vinod K. Aggarwal and Shujiro Urata
Routledge, 309 pages, $34

China’s Participation in the WTO
Edited by Henry Gao and Donald Lewis
Cameron May, 486 pages, $238

Reviewed by Greg Rushford

Whatever metaphorical pasta one prefers, the deals are anathema to mainstream economists for reasons that don’t require a doctorate in economics to grasp. By definition, preferential trade privileges that are offered only to select favored trading partners exclude countries that are not privy to them, and thus divert trade flows. They run against the core principle of the multilateral World Trade Organization, where 149 member states and territories (soon to be 150, when the tiny Pacific territory of Tonga completes accession) pledge to treat each of their trading partners equally. Politicians are dishonest when they refer to these deals as free trade agreements.

In their collection of 13 essays on the implications of the FTA noodle bowl for the Pacific region, editors Vinod Aggarwal and Shujiro Urata explain both the allure of the deals and the concerns. “Some argue that these accords will spur multilateral negotiations, while others believe that they will irreparably damage the trading system.” Indeed, while Professors Aggrawal (political science, University of California Berkeley) and Urata (international economics, Waseda University) include a range of carefully nuanced perspectives offered by academics across the Pacific, not all of whom are necessarily vehement FTA critics, this scholarly book provides plenty of ammunition for those who believe that these trade deals are flat-out dangerous.

A glimpse into what the two leading Pacific economic powers have been up to quickly reveals how tangled the noodle bowl is becoming. When George W. Bush became president in 2001, the United States had inked preferential trade agreements with three countries: Canada, Mexico and Israel. Now, the U.S. has wrapped up FTAs with Australia, Chile, Jordan, Morocco and Singapore, and has concluded negotiations with Bahrain, Oman, six Central American countries and Colombia. Currently Washington is negotiating with South Korea, Malaysia, Panama, the five nations of the Southern African Customs Union, Thailand, every other country in the American hemisphere save Fidel Castro’s Cuba, and the United Arab Emirates (at least until the Dubai Ports World debacle put that one on hold).

Japan inked its first FTA with Singapore in 2002, has wrapped up a second with Mexico, and is currently busy negotiating with Malaysia, Thailand, Indonesia, the Philippines, Australia, six Persian Gulf countries, Chile. It has floated the idea, with varying degrees of seriousness, with the remaining members of the Association of Southeast Asian Nations (Asean), South Korea, India and even China.

FTAs are about political power as much as economics. Contributor Richard Feinberg of UC San Diego observes that while the U.S. is still committed to multilateral trade liberalization through the WTO’s ongoing Doha Round of negotiations, signing bilateral and regional FTAs is now at “the center of” America’s trade priorities. “The U.S. sees FTAs as instruments for influencing the domestic political economy of states and for advancing U.S. security interests.”

Australia, which supported Uncle Sam on Iraq, for example, got an FTA, while New Zealand, which didn’t, has been sidelined. Meanwhile, Japan has kept a wary eye on China’s emerging FTA strategy, which began with a deal with Asean and is now looking to Australia and beyond. “Indeed, it appears that China and Japan are competing to take a lead in the FTA race in East Asia,” observe T. J. Pempel and Shujiro Urata.

Japanese business leaders, as John Ravenhill of the Australian National University points out in his chapter, weren’t happy when they were put at a competitive disadvantage thanks to the North American Free Trade Agreement between the U.S., Canada and Mexico. This spurred the Japan-Mexico trade bilateral. Now, Japan’s enthusiasm for preferential trade has taken off. Fukunari Kimura, an economist at Japan’s Keio University, approvingly notes in his chapter the advantage that preferential trade deals hold for Japanese electronics multinationals to source their own duty-free components from production units stretching from Japan throughout Asia.

Former U.S. Trade Representative Robert Zoellick (now deputy secretary of state) champions the theory that FTAs can spark “competitive liberalization,” where the laggard countries will be inclined to support multilateral trade liberalization in the WTO for fear of being left behind. But John Ravenhill points out that, to date, that theory doesn’t have a whole lot of evidence to support it. “The failure to extend agreements to other economies is producing the spaghetti bowl effect of incompatible rules of origin that Bhagwati predicted,” Mr. Ravenhill notes. “From the perspective of comprehensive global trade liberalization, such effects are unambiguously bad.”

Professor Aggarwal and Min Gyo Koo, a young political scientist also from UC Berkeley, worry about the possible emergence of a Fortress Europe, Fortress America, and a Fortress Asia. “There is a real danger that Asia-Pacific bilateralism will likely lead to pernicious, conflicting arrangements, rather than becoming nested within broader institutions,” the two academics conclude.

For readers who still regard multilateral trade liberalization as the best promise to lift uncounted millions of people from impoverishment to prosperity in the WTO’s ongoing Doha Round of negotiations, the message in this book is—worry.

The stiff price, if not the subject, would seem to suggest that China’s Participation in the WTO is a book only for specialists willing to plow through a lot of legal mumbo-jumbo. So it was much to my surprise that I found it to be a good read. Henry Gao and Donald Lewis, two University of Hong Kong law professors, brought together a mélange of China watchers for a February 2005 conference, where they assessed the complex record associated with China’s momentous accession to WTO in 2001. This book reflects the healthy debate that the conference engendered.

Contributors include French economist Patrick Messerlin—perhaps the only free-trade advocate in Paris—Zeng Lingliang, a law professor at Wuhan University, Baker & McKenzie partner Chiang Ling Li, Dongli Huang, of the Chinese Academy of Social Sciences, and Zheng Chengsi, who directs the intellectual property center at the China Academy of Social Sciences in Beijing. Such authentic Asian perspectives offer insights that one does not always see reflected in Western press reporting on China.

But two contributions from gwailos were of particular interest because they clearly explained the legal and economic pitfalls associated with the plethora of antidumping cases that the United States has lodged against China, where the Americans have basically accused the Middle Kingdom of “unfairly” pricing its exports at below cost, along with China’s reaction. This is a subject that anyone who thinks of importing products from China, or any executive who wants to sell widgets to China, ignores at the risk of having profits snatched away.

In his chapter, Mr. Messerlin clearly explains why mainstream economists dismiss the antidumping litigation against China as thinly disguised protectionist nonsense. But Patrick Norton, an American lawyer in Beijing, rightly sounds the alarm in reverse, noting that China has (predictably) responded by establishing its own antidumping bureaucracy to punish rich-country exporters. “Although none of China’s antidumping decisions have been challenged before the WTO yet, at least some of China’s current practice would not likely withstand WTO scrutiny.”

The lesson: When it comes to protectionist politics, as with life in general, what goes around, comes around.