Sun, Mar 10, 2013 - Page 8 News List

Thinking strategically about FTAs

By Eric Chiou 邱奕宏

As outlined in the US’ national economic strategy, boosting exports and creating high-quality jobs are two of the primary goals in revitalizing its economy.

The Obama administration has worked assiduously to use the TPP talks as a wedge to dismantle trade barriers hindering US products’ penetration into overseas markets, while also attempting to take advantage of agenda-setting and rule-making to embed a new set of regulations favorable for US corporations to maintain their comparative advantages to compete with foreign firms in the global market.

All preceding endeavors are eventually converged on, reinvigorating the US economy and consolidating US supremacy in the world order.

By the same token, if one examines the latest FTA development from a strategic perspective, it is apparent that an FTA implies at least four aspects of significance externally.

First, it signifies the competition of trading blocs between the West and the East.

The Trans-Pacific Partnership and the Transatlantic Trade and Investment Policy can be regarded as a US proactive move to revitalize the economic momentum of the existing global triumvirate — the US, the EU and Japan — by employing FTA frameworks to reconnect and reinforce economic links between the three to compete with emerging Asian trading blocs, such as the Regional Comprehensive Economic Partnership led by ASEAN and the trilateral FTA talks composed of China, Japan and South Korea.

Moreover, these latest FTA initiatives also signify a contest between two incompatible approaches in terms of treaty-making. The contrast between the rigorousness of “high-standard” TPP and the “flexibility” of the Regional Comprehensive Economic Partnership with regard to treaty compliance is going to generate diverging effects on the global trade regime in the foreseeable future.

Third, the prospective outcomes of emerging trading blocs are likely to trigger significant shifts in existing industrial agglomerations and therefore lead to dramatic changes in global supply chains.

Due to the effects of trade diversion and trade creation generated by FTA, firms in the members of new trading blocs tend to maximize their economic welfare at the expense of non-member countries by relocating their manufacturing facilities to member countries for lowering production cost.

As global production chains gradually change in respond to the realignment of trading blocs, global trading networks will be adjusted as well. The final outcomes of this transformation in the global production networks may significantly rewrite the current landscape of economic relations among states.

Finally, launching FTA negotiations also represents a strategic move to offer an olive branch to a feasible political and economically.

Although an FTA is essentially an economic treaty, its completion cannot be sustained without political will and domestic support.

As two or more countries decide to conduct FTA negotiations, they also send a clear signal of intent to jointly pursue economic benefits by peaceful means, rather than military force. Hence, it is much easier for like-minded countries in the same alliance to form a trading bloc, rather than countries from opposing political camps to successfully conclude trade treaties.

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