Challenges to the Global Trading System: Adjustment to Globalization in the Asia-Pacific Region

By Pillai, Jayarethanam | Journal of Southeast Asian Economies, December 2012 | Go to article overview

Challenges to the Global Trading System: Adjustment to Globalization in the Asia-Pacific Region


Pillai, Jayarethanam, Journal of Southeast Asian Economies


Challenges to the Global Trading System: Adjustment to Globalization in the Asia-Pacific Region. Edited by Peter A. Petri and Sumner J. La Croix. New York: Routledge, 2011.

The opportunities and challenges of international trade has been an Achilles' heel amongst policymakers, academicians, and business practitioners of the contemporary world. Countries aim to maximize the gains and opportunities from trade by opening up their borders to international exchange. Weighty challenges as they are, added with the ongoing economic and financial deterioration of the global economy, this book offers a good array of scholarly papers and views from various experts specializing on issues concerning international trade and development.

In keeping with age-old discussions on globalization and free trade, Chapters 1 through 3 set the tone by providing two central critiques of free trade. On one hand, trade policy is flawed because the larger established economies and the stronger interest groups within their borders unduly influence negotiations in the real world. On the other, the phenomenon of globalization is a villain, rather than trade in particular. Douglas A. Irwin's notes that globalization is being fatigued via war and economic and social depression, rather than an institutional backlash (Chapter 3). In particular, economic growth and social macroeconomic management are fundamental reasons why there has not been a globalization backlash despite the increased integration of the world (pp. 16-17).

In light of such critiques, Chapter 5 provides a general exposition on how FTAs are rapidly spreading throughout Asia. Armed with CGE model simulations for developing countries, the authors provided evidence on how trade creation is substantial as opposed to trade-diversion, which is non-existent or small. In contrast, for FTAs involving developed countries, trade diversion is sizeable (p. 48). They attribute these differences in their trade policies vis-a-vis non-FTA members; interestingly enough, developing countries rapidly liberalized their trade regimes after joining FTAs, whereas developed countries do not as their protection levels are lower. As East Asia resorts to giving selective protection to domestic industries, they will only could create a bewildering "spaghetti bowl effect" of complex and incompatible agreements, thereby inhabiting a broadening of geographic scope of integration (p. 55).

The most notable development process of trade integration has been the economic ascent of China. China has already surpassed the United States as the most important destination of exports of all East Asian countries. Such an ascent has only caused the United States to further discriminate towards China. China's rise as an economic and political power has rearranged the geo-economics and geo-politics, especially of the United States, leading to old and new security threats that affect fundamentals in sovereignty and finance (Chapters 6 and 10). With trade, capital flows and people flows becoming interdependent and integrated in the Asia Pacific, economic volatility has become an important origin for security concerns and challenges in the region. As a result, the relationship between economic interdependence and security should be more dynamic and networking (p. 178).

With rapid economic transformations, Chapter 4 sheds light on "intra-mediate" trade, variously noted elsewhere as the "vertical disintegration of industry and the concomitant increase in intra-trade largely consisting of trade in intermediate inputs" (p. 21). Along with cross-border technology diffusion and intellectual property rights (Chapter 9), a combination of both vertically disintegrated modes of production and the increasing outsourcing activities of firms (Chapter 8) are considered to be one of the reasons behind the recent expansion of world trade. Yumiko Okamoto finds positive statistical evidence between the degree of integration in intermediate inputs and manufacturing growth in Asia-Pacific region, as compared to no direct relationship found between openness of the goods trade and industrial productivity growth. …

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