Ganeshan Wignaraja - "Is Europe Pricing Itself out of Global Competition?"




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May 26, 2014
by Alex Jackson
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Ganeshan Wignaraja - "Is Europe Pricing Itself out of Global Competition?"

Ganeshan Wignaraja, Director of Research at the Asian Development Bank Institute in Tokyo, talks about Asian trade agreements, the failures of the WTO and the lack of European competitiveness Ganeshan Wignaraja chairs a panel debate during the session on trade dynamics

“Before the global economic downturn, we had a pattern of trade that was based on goods beings shipped across from country to country and being put into a box beforehand and being sent out,” says Ganeshan Wignaraja, in Salzburg for the Salzburg Global Seminar program New Dynamics in Global Trade Architecture: WTO, G20 and Regional Agreements. “We now have the beginnings of what we can call the supply chain or the value chain with goods being made in bits of Asia and then assembled in another parts of Asia, meaning there is fragmentation across geographical space.”

Wignaraja is considering the massive changes in the Asian markets in the past five years. As the director of research at the Asian Development Bank Institute in Tokyo, he is a principal economic analyst in the region. However, the vast shifts of the economic downturn have rendered Asia more fragile than in any predictions.

“What happened in the crisis was that this 'factory Asia' suffered various stresses,” he explains. 

“The first is that there was a general fall in demand for trade. A second important thing that happened were the twin disasters in Japan at Fukushima, with the tidal wave and the earthquake and the related nuclear issue. That meant that Japan got disrupted in the supply chain and it also meant the supply chain had to be much more flexible. This meant that the supply chain was much more vulnerable. There was a general downturn and then the supply chain became vulnerable to shocks.”

Shocks to the Asian trading system go beyond these natural barriers. There have been political issues in China regarding international trading models, and land disputes over Pacific islands. Within the markets, government procurement of businesses and subsidies to certain companies have caused tensions. Together, this means that trade in the region is disjointed and disrupted on several levels.

“Trade agreements are being used increasingly to bridge these trade complications - and we still lack an East Asia/South Asia agreement - but within East Asia, which is in the centre of trade in some sense in the region, there are developments in trade agreements with ASEAN, China, Japan, Korea, India, Australia and New Zealand, [which are] a way of reducing some of these barriers and using a more rules-based regional system. Countries are negotiating for the Regional Comprehensive Economic Partnership.”

As part of this partnership, Wignaraja explains, it is all about right time, right market. In order to keep a flow and movement internationally, there needs to be consideration of all active partners in equal measure, without taking developing countries for granted.

“The most successful economies have got their price, quality and delivery standards up to an international level or above. That is definitely the case in China as well as Korea in the Asian context. They have now moved into products such as engineering and automotive which are at the high end of the spectrum. Countries like Bangladesh are typically in lower end products, like textiles and garments and footwear. Typically, they’re complementary systems,” he says.

“The big countries have a responsibility to ensure trade continues to grow and the recovery continues, and they need to do that by avoiding trade barriers, avoiding protectionist measures, building structural reforms and infrastructure that connects the nooks of countries and regions.

“I personally see South Asia and East Asia being much more cooperative in the future. The challenge for countries like India is to go into East Asia, because if India leaves its neighbors behind, those countries could potentially lose out.”

Competitiveness is thus a big factor in the Asian region. While countries are developing at vastly differing rates, this makes for a very dynamic region for change. Just as certain areas become more developed, big business continues to look at other countries throughout Asia for new investment opportunities to keep running costs lower, protecting profit margins. Wignaraja carefully considers how this has become a successful factor of the Asian model, and a flagging side to business plans in Europe and elsewhere.

“Social issues and protection are important, but some parts of Europe have become too enamored by all this and forgotten about the basic issues: an environment conducive to the growing and setting up and creation of productive businesses. With the introduction of a lot of the social environment and consumer standards, I wonder whether Europe has gone overboard. With the labor laws being so important for Europe, countries with fewer laws in these areas become more competitive. Is Europe pricing itself out of global competition? Europe needs to think about this very carefully.”

This model can continue in the Asian region because the countries at the top of their respective industries can upgrade into different markets and, over time, the South Asian industries move to the middle industries thanks to new investors. Asia has adopted a much more market friendly approach that has business at the center of any kind of strategy and help business achieve price quality and delivery at global standards than is evidenced by competitors in other corners of the world.

“For the East Asian experience, they built the modern infrastructure needed for continued global innovations and you can see world class airports and railways and roads and electricity. IT and the internet are powerful in Japan and Korea. It is a big investment. They have trained to global levels. They have built world class institutions by sending people to learn abroad at huge costs.”

The vehicle by which to push trade dynamics in the Asian system is constantly changing. Agreements that once fell under the exclusive control of the World Trade Organization (WTO) are now being adopted by other systems to keep pace with market demands much more efficiently. The governance of the world trading system as far as Asia is concerned is increasingly shifted towards regional agreements which include bilateral agreements between certain countries, even with protracted misalignments.

“The TPP [Trans-Pacific Partnership] is supposed to be a modern 21st century trade agreement, dealing with high standard issues concerning regulations on trade and state owned enterprises; there are big issues concerning regulation, competition policy, and intellectual property. Now in all of these counts, China has certain issues which make it hard for it to take on these challenges. Much of Chinese industry is made up of state owned enterprises, intellectual property laws are probably still not at the level of the US and competition policy exists but because there are huge enterprises there is not a level playing field for smaller competition. Directed credit is widely practiced in China and it is directed to the state owned enterprises so this means fundamentally changing the way in which they do business and the way that accept their regulations and that is hard to see a country doing very quickly.”

Yet, Wignaraja points out that despite these differences in operation, regional trade agreements between different countries are coming into practice much faster than anything organised by the WTO. The Doha Round has taken 13 years with many different reasons being offered for the slow progress. The first is a tension between developed and developing countries of what they were going to achieve. Another set of issues concerns growing tensions between the rising powers such as China and India and the existing powers of the EU and US. As power pendulums swing, the WTO cannot effectively weigh different needs and demands. Wignaraja is reservedly pessimistic in many ways, unless the Doha Round can be put to bed once and for all.

“The credibility of the WTO is at stake at the moment. This Doha Round has taken 13 years and people have lost patience. There are plurilateral agreements which pick up a single issue and take the coalition willing to do that agreement and keep open accession so anyone can join at a later date. Examples include the Information Technology Agreement (ITA) or the Trade in Services Agreement (TISA). So the plurilaterals and the mega-regionals are taking center stage. The WTO in a sense is being left behind and I think for all the members, they need to take a hard look at what they want from an international institution and make those appropriate reforms.

“We may have to think about reforms after we have found a deal. Geneva itself has to be reformed so it plays a proper role in the system we are talking about.”

Ganeshan Wignaraja was a session speaker at the Salzburg Global Seminar session "New Dynamics in Global Trade Architecture: WTO, G20 and Regional Agreements", which was sponsored by KDI, the Korea Foundation and The Nippon Foundation. You can read interviews with a number of the other speakers and participants of the session on the webpage: