For example, the auto industries of several nations are perceived as a prime industry sector and even a symbol of the national economy. Not only industrial nations, like the US and Japan, but developing countries, such as China and India, actively nurture and promote their automobile manufacturers. If the projections of a trade agreement study showed that it would harm this prize industry, it is unlikely that any nation would sign it.
My study, presented at the APEC Study Center Consortium Conference in Jakarta, Indonesia, late last month, said that different trade initiatives toward the goal of a free-trade area in the Asia-Pacific are likely to create various winners and losers in each economy and in each of their industrial sectors. The study investigated the results from three trade formations: the 12 TPP economies, the 16 RCEP economies and the 21 APEC economies. It also examined the possible repercussions of these three scenarios on different industrial sectors among APEC member economies by using a computable general equilibrium (CGE) model.
The study drew widespread attention and interest from the audience. Its conclusion found three things:
First, a state’s increased economic welfare attributed to access to a trade agreement does not imply that each sector within that state will equally benefit. Based on the rationale of international division of labor and comparative advantage, the agreement is likely to give more impetus to originally competitive sectors, while further limiting vulnerable sectors. Therefore, policymakers should thoroughly calculate the pros and cons to maximize the positive effects and minimize the consequences.
Second, the choice of which agreement to join is important. Different trade routes pose dissimilar challenges. For instance, simulated results suggest that Japan’s automobile industry may gain more by becoming a TPP member rather than by joining the RCEP. In other words, if a state carefully calculates before jumping into an arrangement, it may discover it prefers one route over another based on its assessments of industrial interests.
If the decisionmakers do not make a thorough assessment, they may mistakenly allow their vulnerable sectors to encounter intense competition too early. However, if the state chooses wisely, it can effectively leverage its competitive industries to expand their market shares. So selection and timing are crucial strategic decisions that must be made.
Third, because there are both positive and negative repercussions, it is vital for each state to consider carefully whether its winners from the deal are suited to a national strategy for economic development, and whether it is willing to bear the political and economic consequences of the adverse effects. Free trade does not provide a guarantee of economic growth and prosperity, neither does it prescribe a magical dose of industrial competitiveness. Without cautious assessments, the negative impacts could turn a state’s sanguine expectations into a long-lasting nightmare.
The ongoing controversies and opposition to the cross-strait service trade agreement demonstrate the importance of prudent decisionmaking, especially when the outcomes are expected to have long-term repercussions on domestic interests and create winners and losers among the nation’s industries.