NZ urged to keep Asia trading open

By COLIN JAMES

A prominent Asian business leader yesterday condemned sub-regional and bilateral trade deals as bad for trade and called on New Zealand to work through Apec to ensure Asia is an open trading region.

Kim Kihwan, international chair of the private sector Pacific Economic Co-operation Council (Pecc), who will join a panel in Auckland today discussing such trade groupings, said he wanted also while here to highlight Asia's economic importance to New Zealand. His mission coincides with the Asia 2000 Foundation's Seriously Asia programme to revitalise interest in the region.

Kim, a former academic economist trained in the United States who has served twice in South Korean Governments, noted that some 30 sub-regional (smaller than Apec) and bilateral deals had been negotiated or were being negotiated.

Such deals may be even more sought-after since the stall at Cancun two weeks ago in the World Trade Organisation Doha multilateral liberalisation round.

"They are not the next best to multilateral liberalisation," said Kim, now senior adviser with Goldman Sachs in Seoul. "They are just bad."

Notably concerning Kim is the arrangement China is developing with the Asean countries. And the more such deals that are concluded, the more momentum will build.

"You know they are bad but they are there and you feel you have to join to protect yourself," he said.

"Like-minded countries should work together to prevent their proliferation" and to "make Asia an open region".

The deals are obviously bad for those left out. So Kim sees a bleak future for New Zealand.

"Very few will invite New Zealand. New Zealand is not attractive because of its small size and because, ironically, of its relative openness already" - enhanced slightly by yesterday's tariff cut announcement.

In fact, the only firm prospect is a three-way deal being negotiated with relatively small trading partners Singapore and Chile.

But, Kim said, even members of sub-regional and bilateral agreements - including large members - miss out because the most efficient producer of a product might be excluded. That was likely, he said, for the United States in its deal with Australia because New Zealand was a more efficient producer than Australia of some agricultural products.

So American consumers would miss out.

There were exceptions: open agreements, such as New Zealand had with Australia and Singapore.

So if there are to be more sub-regional and bilateral agreements, Kim would like to see them kept within the WTO rules so they limit the resultant trade distortion.

An alternative is to revive the flagging Apec process, under which developed countries are supposed to move to zero tariffs by 2010 but show no sign of doing so. Kim says Pecc, as the only non-government organisation which has observer status, must make its pro-free-trade view known. And he is looking to New Zealand to give a lead.

Kim's approach resonates with some commentators across the Tasman, where the Government is reportedly set to conclude a bilateral deal with the United States within months.

The highly respected veteran trade analyst Ross Garnaut wrote in the Australian Financial Review on September 26 that the free trade agreements (FTAs) were not an alternative to multilateral liberalisation. Among the reasons: * Agreements under negotiation either avoid partners that would be associated with high levels of trade or exclude sectors that would involve high levels of trade creation.

* They change economies in ways that discourage participants from pursuing multilateral liberalisation.

* Unattractive countries (poor countries, New Zealand) will be excluded.

Kim has a second mission as head of Pecc: to prod Asian countries to improve their financial systems by developing a scorecard of banking reforms. He also wants bond issues so Asian firms can borrow long-term in local currencies.

Kim warns that if Asian countries' currencies rise against the United States dollar before their financial systems are reformed, that could push them into the sort of long deflation Japan has been suffering.

Financial reforms might also reverse the flow of Asian funds into the United States.

Logically, the flow should be the other way.