Video: Is Asia's free-trade paradigm at risk from slowing economic growth?

Interview of Simona Mocuta on Asia's free trade paradigm.

Interview Transcript

Do you see evidence of anti-free trade sentiment across Southeast Asia today?

Our research shows that Asia's free trade paradigm is pretty much intact. You have to keep in mind that when people talk about the end of globalization, oftentimes they tend to focus on China specifically and on a single metric-that being the ratio of China's exports to its own GDP.

So, the argument is that this ratio has declined significantly. Indeed, it peaked at about 336% of China's GDP back in 2006. Now it's just 23%, so this is the argument for the so-called end of globalization. But the reality is the reason why this number is going down is not any kind of intentional disengagement on China's part. It is, in fact, simply a measure of its own success.

China joined WTO in 2001, and that really unleashed a new wave of manufacturing success. When you look at China's exports from a different perspective, in terms of how much they account in terms of world exports, that number is now above 12%. China accounts for more of global exports than any other single economy around the world. That ratio increased about three times since 2000; so, certainly, China in not disengaging from the global economy.

That's the China story, but then even if you take a broader view globally, there are some measures that indicate that globalization still is very much with us. Absolute value of trade, dollar denominated trade, is now about 20% higher than the pre-recession peak. The world trades more based on that measure.

Similarly, the ratio of world exports to world GDP itself is now pretty much back to where it was prior to the Great Recession. So, on these measures, again, one concludes that globalization is certainly not dead.

What kind of activity are you seeing in new free trade agreements in Asia?

Indeed, we see a lot of activity in terms of new free trade agreements being signed in Asia, and I'm going to give you just two examples. One is India. And you may be surprised actually to find out that of all countries in Asia, India has the most FTAs under negotiation. Given India's tradition of protectionism, I think there's a lot about where Asia stands in terms of the free trade paradigm today.

The other example is Korea. Korea has always been a free trade country, but the pace at which it is actually engaging in the new free trade agreements is quite impressive. They signed the major ones with the US, European Union earlier in the decade, but over the last couple of years they have new agreements coming into effect with Turkey, with Canada, recently signed with New Zealand, Vietnam, and China. I mean, one after another after another. And what's also impressive is how quickly these move from the start of negotiation to the signing. So, if this is not an active region, then I don't know which one is.

What are the main reasons countries in Asia pursue free trade?

The reasons why a country would pursue free trade are often very complex, but I would point out to three, two of which are quite traditional reasons and one has emerged in more recent years.

Obviously, there is market excess. You sign a free trade agreement, you eliminate some barriers to trade, your exporters have access to new markets. So, that's obviously a big advantage.

Secondly, what we've seen in recent years, because Asia's manufacturing value chains are so fragmented and you start to see a lot of processing migrating to lower-cost destinations, free trade actually can support that process, can make that process more efficient.

And I think probably the Vietnam, Korea free trade agreements symbolize that rationale the most, because you have almost a symbiotic relationship now between Korean investors into Vietnam and the development of Vietnam's own manufacturing sector and moving up the value chain, so on.

And lastly, something that I would think China probably signifies better is this idea that you can use free trade to drive structural reforms domestically. Free trade in and of itself, it's a way of reforming your economy, but you impose increased competition, so you accelerate some of these necessary changes through free trade. So, those are all valid rationales, and I think to different degrees they play a part in every agreement that we see being signed.

Simona Mocuta is director, Asia-Pacific economics, IHS Economics