Bilateral deals will impede trade in east Asia | FT

......In contrast to Europe and North America, east Asia's economic integration through trade owes little to concerted government policy, treaties or institutions. It has been powered largely by America's - and more recently China's - insatiable hunger for imports and by corporate investment in the trans-regional production chains that feed it.

......some 40 bilateral trade deals have been mooted in the name of strengthening economic ties within and beyond east Asia.......such deals have a poor record of promoting liberalisation, generating only about a tenth of developing countries' tariff cuts in the past two decades.

......most bilateral agreements concluded in east Asia to date involve either economies such as Singapore that are already largely open or partners that face few conflicts over "sensitive" sectors, such as agriculture.

But even deals that lower few barriers can affect markets. They typically contain complex restrictions that swell bureaucracy, add costs and disrupt trade. Erecting such obstacles between economies so closely linked by just-in-time supply chains would be economic folly.

If east Asia is serious about deepening its economic integration, it needs to act much more boldly. It requires, first, a coherent and credible plan for genuinely freeing trade across the region and the decisive leadership to implement it. Here, China's role will be crucial.

......Beijing's ultimate intentions are still unclear. Does it really want to create a unified regional market that is open to the world? Or is its main aim to gain diplomatic influence by doling out selective concessions to individual trade partners, creating a dependency relationship in which they would be mere spokes in an economic wheel controlled by China at its hub?

The second requirement is to transform east Asia's model of integration, currently aligned mainly along a vertical axis. The region resembles a giant conveyor belt, carrying components, sub-assemblies and capital equipment to factories in China. However, intra-regional trade in finished products and services remains limited.

If it is to grow, Asian countries need to create more vigorous and competitive domestic markets and stronger consumer demand. Doing so would have the great additional benefit of making their economies more resilient and less vulnerable to external shocks.

Achieving that goal will take a judicious combination of macroeconomic policy measures and structural reforms. Purposeful and well-managed trade liberalisation can make an important contribution. Piecemeal and half-hearted deals, conceived more as diplomatic trophies than as serious attempts to open markets, would be worse than nothing at all.

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