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Asian Countries Must Make Free Trade Pacts Work for Development

SEOUL, REPUBLIC OF KOREA (5 November 2002) - Policy makers and trade and development specialists met for two days of talks to find ways to ensure recent trade agreements boost development and poverty reduction.

Meeting at the 4th Asia Development Forum in Seoul, some 200 participants from 21 Asian economies discussed the implications of People Republic of China's (PRC) World Trade Organization accession, new regional trade agreements, behind-the-border competitiveness issues, and how to share benefits and minimize risks of globalization and regional integration.

"Regional trade agreements are an integral part of the broad economic cooperation initiatives launched by some Asian countries, providing new momentum to move forward on regional economic cooperation," Mr. Ifzal Ali, Chief Economist for the Asian Development Bank (ADB), said. "If implemented properly, regional trade agreements can help accelerate policy and structural reforms and build enabling environment for poverty reduction and sustainable development. It will also help Asian economies to maximize the benefit of PRC's WTO entry, and effectively participate in the Doha Round of trade negotiations."

"Regional trade is the most dynamic element of Asian growth right now," said Mr. Homi Kharas, World Bank Chief Economist for the East Asia and Pacific Region. "Moving forward, increased trade resulting from recent agreements could play a major role in improving the livelihoods of Asia's poor, if proper policies are designed." Mr. Kharas said that increased integration is already having an impact. "In the first half of 2002, exports of eight East Asian economies to People's Republic of China grew by 50 percent, while exports to the US and Japan were flat or declining. This boost in regional trade, particularly when demand from developed countries is lagging, is a major boon for the region," he said.

"What really matters is how the details of these agreements are implemented and how countries respond with their own domestic reforms," Mr. Kharas said. "Some countries such as Cambodia may be hurt by the elimination of garment quotas and PRC's emergence as a major exporter of garments and textiles. These economies must find strategies to offset these losses," he said.

Increasing market access in agriculture, liberalizing the service sector, and putting in place regulations, domestic reforms, skills and capacities were high on the agenda to ensure all participating developing countries benefit. Domestic reforms in PRC and other Asian countries will be pivotal in determining how the gains from increased trade are shared.

Speakers at the forum stressed the need for customized approaches to managing the new trade regime, both for different countries and for different groups within countries or geographic areas. Textile and apparel workers in Thailand, the Philippines, and Indonesia, for example, could be hurt by expansion in Chinese exports, while farmers in Vietnam, Thailand, and the Philippines, may benefit from increased demand for rice and other agricultural products.

Countries must also develop their own policies to boost innovation. Participants said that off-the-shelf intellectual property rights regimes need to be tailored to each country's needs and development circumstances. Foreign investment policies that place fewer constraints on technology transfer and ownership requirements are more conducive to nurturing domestic production and technology capacity. Better investment climates, including liberalizing the services sector, will have a higher payoff. Progress on services liberalization, which has not kept pace with trade reforms, could give another competitive boost to industries in East Asia.

Policy makers called for increased capacity building and additional support in specialized areas, including trade negotiation, services liberalization, regulatory issues, and poverty reduction projects.

The multilateral development banks promised to step up their assistance. The ADB-initiated Greater Mekong Subregion (GMS) Program is another practical example to integrate countries in the GMS region, foster peace, facilitate sustainable growth, and improve living standards. The program has already made investments in 10 critical physical infrastructure projects totaling almost US$2 billion.

The World Bank has several research projects to promote these ideas and is also contributing through capacity building, technical assistance, and development projects. In the PRC and Viet Nam, the World Bank is financing social safety nets for workers downsized in state enterprise reform and the Northern Mountains Development Program in Viet Nam, which eases the stresses on ecologically fragile areas.

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