Asia-Pacific trade rebounds to pre-crisis levels; Untapped potential in intraregional trade and climate-smart goods, says ESCAP

Export recovery has led Asia and the Pacific out of the 2009 global economic and financial crisis, allowing the region to emerge as an important stabilizing force and engine of world economic growth, a new United Nations report released here today said.

According to the Asia-Pacific Trade and Investment Report 2011: Post-crisis Trade and Investment Opportunities published by the UN Economic and Social Commission for Asia and the Pacific (ESCAP), trade in the region has returned to pre-crisis levels while foreign direct investment flows to selected parts of the region, in particular East Asia, have also fully recovered.

However, it will be challenging for Asian economies to maintain current levels of export growth unless they develop new markets within the region. At the same time, while the region is at the forefront of attracting foreign direct investment, 75 percent of these go to just five economies – China; Hong Kong, China; India; Russian Federation; and Singapore.

ESCAP estimates show that the spectacular export growth recovery in Asia-Pacific developing economies in 2010, estimated at 17.3 percent, after negative growth of nearly 8 percent a year earlier, will stabilize to 9 percent in 2011.

India is projected to record the highest export growth of 11.3 percent in 2011, followed by Republic of Korea (11 percent), China (10.8 percent), Thailand (10.0 percent), Indonesia (9.9 percent) and Malaysia (7.9 percent).

Developed economies are still the major destination for the region’s exports, but with the European Union, Japan and the United States facing an economic slowdown, Asia-Pacific countries must rely more on intraregional trade which can also make the region more resilient to external shocks.

“Opportunities for export expansion will depend largely on the growth of intraregional demand and the ability of various developing countries of the region to restructure and diversify their exports to meet that demand,” says UN Under-Secretary-General and ESCAP Executive Secretary Dr. Noeleen Heyzer.

Indeed, trade within the Asia-Pacific region has been growing faster than its trade with the rest of the world and already accounts for more than 50 percent of all exports, according to ESCAP.

Asia-Pacific accounts for bulk of “murky” protectionism

However, the report cautions that Asia-Pacific exports face a clear and present risk of protectionism in the current economic climate. It notes a comprehensive use of behind-the-border measures, which tend to be less tightly regulated by World Trade Organization (WTO) rules. Such measures accounted for almost 80 percent of total protectionist measures at the beginning of the economic crisis and had stabilised to about 40 percent in the third quarter of 2010.

Trade policies in the Asia-Pacific region tend to be less transparent than in the rest of the world. More than 50 percent of protection measures used by the region in the first quarter of 2011 are classified as “murky protectionism”, according to the report. For example, several countries in the region combined “green” clauses with other harmful policies that have no climate or environmental purpose.

Asia-Pacific countries must take lead in exports of climate-smart goods and technologies

ESCAP also identifies new regional trade and investment opportunities in climate-smart goods and technologies (CSGTs). “As the region will have to come to terms with the expected effects of climate change, there is a collective imperative to increase regional trade and investment in these goods,” ESCAP chief Dr. Heyzer noted.

According to the report, the need for additional annual regional investments worth US$600 billion till 2050, to reduce greenhouse gas emissions to desired levels, provides business opportunities to develop and export new goods and services, especially in the areas of water, energy and resource efficiency. China is expected to account for more than 50 percent of this additional investment, followed by India with 17 percent.

Several Asian economies including China, Japan and the Republic of Korea have already taken the lead in the development and use of CSGTs. Others could follow and integrate with regional climate-smart value chains. Governments must play a key role by providing a supporting policy environment and sizeable investments.

Trade facilitation crucial to capturing opportunities

According to the report, at least 90 percent of global trade costs are currently related to non-tariff barriers. These barriers are higher for trading within the region than for trading with economies outside the region. For example, the costs of trade between the Association of Southeast Asian Nations (ASEAN) and East and Northeast Asia are still nearly 30 percent higher on average than the costs of trade between ASEAN and North American Free Trade Agreement (NAFTA) countries or the European Union.

“The cost of red tape in terms of administrative and procedural barriers to trade runs up to US$300 billion annually for the developing Asia-Pacific region,” says ESCAP Trade and Investment Division Chief Dr. Ravi Ratnayake. The report recommends urgent implementation of comprehensive trade facilitation programmes within the region.

Need to consolidate regional trade agreements

The Asia-Pacific region accounts for more than half of all trade agreements coming into effect every year around the world. Overlapping trade agreements and related rules of origin impose additional export costs that range from 3 percent of export values in developed countries and 8 percent or higher in developing countries.

Noting that only 38 percent of the region’s exports go to economies with which regional trade agreements (RTAs) are in force, the report highlights that further rationalization and consolidation of RTAs, and the resulting simplification of rules of origin, can trigger more trade among Asia-Pacific countries.

For more information please visit: http://www.unescap.org/tid/ti_report2011/home.asp
or http://www.unescap.org/tid/tiweek2011.asp