Trade in a time of pro­tec­tion­ism

The Pak Banker - - OPINION - Ranil Wick­remesinghe

AS China's econ­omy slows and growth in the de­vel­oped world re­mains ane­mic, gov­ern­ments across Asia are work­ing to keep their economies on an up­ward tra­jec­tory. In Sri Lanka, where I am Prime Min­is­ter, the chal­lenge is to find a way to ac­cel­er­ate our al­ready steady eco­nomic growth. One thing is clear: We can­not ex­pect the rest of the world to wel­come our eco­nomic am­bi­tions the way it once opened its arms to China's rapid rise as an eco­nomic power or - in ear­lier decades - cheered on the growth of Ja­pan and the so-called Asian Tigers, in­clud­ing South Korea.

To­day, we Asians are wit­ness­ing, on an al­most daily ba­sis, fierce political as­saults on the tools and poli­cies that have helped lift hun­dreds of mil­lions of our cit­i­zens out of poverty. In­deed, this year, free trade ap­pears to be the scape­goat of choice among the world's as­sorted pop­ulists and dem­a­gogues.

In the United States' pres­i­den­tial elec­tion cam­paign, for ex­am­ple, the lead­ing can­di­dates in both the Repub­li­can and Demo­cratic pri­maries have ques­tioned the wis­dom of seek­ing greater open­ness in world trade. In the United King­dom, euroskep­tics cam­paign­ing for the coun­try to leave the Euro­pean Union den­i­grate the ben­e­fits of the sin­gle Euro­pean mar­ket. Else­where in Europe, pop­ulists are de­mand­ing that the draw­bridges of trade be raised.

Open trade is un­der at­tack even in parts of Asia. Ja­panese Prime Min­is­ter Shinzo Abe had to drag some of his coun­try's spe­cial­in­ter­est groups kick­ing and scream­ing into the Trans-Pa­cific Part­ner­ship. Sim­i­larly, In­dian Prime Min­is­ter Naren­dra Modi has been un­able to con­vince state gov­er­nors to lower trade bar­ri­ers within the coun­try. And in Sri Lanka, the "eco­nomic and tech­nol­ogy agree­ment" that my govern­ment re­cently planned to sign with In­dia, in or­der to bring about greater eco­nomic in­te­gra­tion, has come un­der fe­ro­cious political at­tack.

For the most part, how­ever, Asia's political lead­ers re­tain a very pos­i­tive view of the ben­e­fits of open trade. Af­ter all, much of the past four decades of ro­bust growth can be at­trib­uted to the fact that world mar­kets were re­cep­tive to Asian goods. All we needed to do to get our economies grow­ing, it seemed, was to iden­tify our com­par­a­tive ad­van­tage, pro­duce qual­ity goods at com­pet­i­tive prices, and then ex­port as much as we could.

For decades, this model worked ex­traor­di­nar­ily well, and China, Ja­pan, South Korea, and the coun­tries of South­east Asia ben­e­fited greatly from it. Even to­day, with world trade in the dol­drums, re­gional trade re­mains a key com­po­nent of th­ese coun­tries' growth strate­gies. In South Asia, how­ever, we have been much slower to take ad­van­tage of the op­por­tu­ni­ties that can arise from more open trade - with re­gret­table con­se­quences: The re­gion is home to 44 per­cent of the world's poor­est peo­ple.

We have an obli­ga­tion to try to use trade to lift our peo­ple out of poverty. But with free trade rapidly be­com­ing a global bug­bear, the win­dow for gen­er­at­ing growth by tap­ping into world mar­kets ap­pears to be clos­ing quickly. If trade is to be­come a key driver of growth in Sri Lanka or else­where in the re­gion, we will most likely have to gen­er­ate it our­selves - by trans­form­ing South Asia from one of the world's least eco­nom­i­cally in­te­grated re­gions into one of its most in­te­grated.

To­day, intra-re­gional trade ac­counts for just 5 per­cent of South Asia's to­tal trade, com­pared to 25 per­cent for the As­so­ci­a­tion of South­east Asian Na­tions. This vast un­tapped po­ten­tial presents the re­gion with an op­por­tu­nity for growth that does not rely on the strength of the world econ­omy. Last year, the World Bank es­ti­mated that an­nual trade be­tween In­dia and Pak­istan could jump from $1 bil­lion to­day to $10 bil­lion - if tar­iffs and other bar­ri­ers were slashed to lev­els rec­om­mended by the World Trade Or­ga­ni­za­tion.

Tar­iffs and other need­less re­stric­tions hob­ble trade among all South Asian coun­tries. Th­ese ob­sta­cles were sup­posed to be swept away with the es­tab­lish­ment of the South Asian As­so­ci­a­tion for Re­gional Co­op­er­a­tion (SAARC), the largest of all the world's re­gional trad­ing blocs, with close to two bil­lion peo­ple. But SAARC's re­liance on bi­lat­eral ne­go­ti­a­tions has slowed the process to a crawl, keep­ing the re­gion much poorer than it needs to be. If SAARC is to suc­ceed, a new mul­ti­lat­eral mech­a­nism for co­op­er­a­tion will be needed.

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