Magazine article Insight on the News

Free Trade in Asia Gets Mixed Reviews

Magazine article Insight on the News

Free Trade in Asia Gets Mixed Reviews

Article excerpt

When America's policymakers and most economists talk of the future in Asia, they stress massive growth and huge opportunities. But some also point to potential problems on a scale never before faced.

The favorable side was highlighted at a meeting in Jakarta, Indonesia, last November. C. Fred Bergsten, a leading Washington economist and former Treasury official, headed a group of trade experts who prepared for the summit at which President Clinton met with the chief executives of 17 other "Pacific Rim" nations -- mostly East Asian, but also Australians, New Zealanders and four from the Americas. "From the U.S. standpoint, moving to free trade in the region would be an exceedingly good deal," said Bergsten. "We have already removed most of our trade barriers. Most of the Asian countries involved still have very high protection, meaning that they would be cutting tariffs and other barriers much more than we would. So the deal would give us a big improvement in access to the world's fastest-growing markets."

Or, as Australian Prime Minister Paul Keating pointed out, Pacific Rim nations' share of world gross domestic product rose from 12 to 25 percent in 20 years. "By the year 2000, the region will generate nearly 55 percent of world trade." (Bear in mind that the United States, Canada, Mexico and Chile are included in that latter number, since their Western shorelines make them part of the A group.)

Among the United States' 17 proposed partners in the group is the world's most exciting nation: China. For the first time in history, the most populous nation also has the world's fastest economic growth rate. Its pace of modernization and change from socialism to aggressive capitalism astonishes observers.

Jack Vander Vliet, senior investment consultant for Dean Witter Reynolds, compares two visits to China -- o ne in 1987, one in 1994. According to Vander Vliet, a drab, bicycle-cluttered picture of shabby streets, slow shopping and unappealing conditions, even for tourists, has given way to standing-room-only investment conferences, dozens of mutual funds, two of the world's most modern, computerized and satellite-linked stock exchanges, Chinese companies listed on the New York Stock Exchange and an economy that has been compounding at more than 10 percent annual growth throughout the 1990s. The bicycles are still there, but large numbers of working-class Chinese are saving money confidently for small cars they expect to be able to afford in a few years.

The World Bank admits to underestimating China's economy so badly that it is now four to five times larger than the bank had foreseen, and it is projected to pass Japan in a few years and overtake the United States in a decade. Most observers believe such projections are justifiable because of China's almost unbelievable national savings rate of 40 percent.

The East Asian group includes many other startling successes: Thailand, Hong Kong, Singapore, Malaysia and Taiwan. Indonesia and the Philippines are showing great promise. And South Korea, an economic miracle in itself, is seen as having an even greater surge if North Korea's political uncertainties permit the two countries to work together.

Now, although they have been acting much like the Japanese -- seeling us much more than they are willing to buy from us -- many of the East Asian countries have begun talking free trade. Even the host country of the Jakarta meeting, protectionist Indonesia, joined the chorus and agreed with Australian officials who argued that there is a new way of thinking: Lowering trade barriers should not be just a grudging concession made under pressure, but a means for nations to reduce the tax burdens on their societies. in other words, they are promising to practice what the United States has been preaching for years.

With so many pluses, what causes the deep concerns to which some of the most analytical observers give great weight? There are four:

* Skepticism about the East Asians' sincerity in promising to reduce their protectionism. …

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