FTA process will take time

China and the US should take the first steps along what is likely to prove a long and arduous path as soon as possible

The international financial crisis has changed the global economic pattern considerably, with multi-polarization now the most significant trend. Countries are striving to expand international trade in the hope of achieving a win-win outcome by establishing Free Trade Agreements or conducting closer economic and strategic cooperation. China and the United States are no exception.

Despite the frictions and disputes between them, trade and investments between the world's two largest economies have been increasing continuously and at a substantial rate over the past decades. In order to reduce unnecessary misunderstandings and promote a healthier trade relationship between them, perhaps it is time for China and the US to initiate talks on establishing an FTA.

Compared to ten years ago, China is now better prepared to initiate talks with the US on establishing an FTA, and accelerating the implementation of the FTA is an important part of its further opening-up policy. Furthermore, it is one of the strategic tasks of the 12th Five-Year Plan (2011-15).

China and the US have great complementarities in economic development, resources and industrial structure, which have already brought significant benefits to them over the past years, establishing an FTA would allow them to exploit their comparative advantages to the full. During the past decade, US exports to China have grown by 468 percent, while its exports to other countries have only grown by 55 percent. In the future, the complementarities between the two nations will continue and thus establishing a China-US FTA will vigorously promote trade development between the two nations.

It is estimated that if China and the US had already established an FTA and hence reduced their tariffs by 10 percent China's economic growth rate would have increased by 3.93 percent in 2011 while the US' economic growth rate would have increased by 0.45 percent.

Of course, the global economy would also benefit from an FTA between China and the US as it would greatly facilitate and liberalize global trade and investment, and send the world market a strong message of confidence.

However, there are difficulties that need to be overcome.

For the US political considerations often come before economic considerations. After the international financial crisis, the rising of China's comprehensive national strength has become of great concern to the US. As a result, it tends to see China as a rival, rather than a partner. Under such circumstances, the US will not be keen on entering into FTA negotiations.

On the other hand, China has a lot of preparation to do. Judging from the FTA negotiations that the US has undertaken with other countries, we can see that the fields involved have been enlarged dramatically, to include such issues as labor, the environment, intellectual property rights protection. The standards in those fields will be further raised in the future. If the US agrees to negotiate an FTA with China, it may demand even higher requirements, which China might find difficult to satisfy. This will put China under enormous pressure during the negotiations.

Nonetheless, despite these difficulties the countries should try to keep moving ahead. Even when nizations such as think tanks from the two sides could take the initiative to engage in discussions on the pros and cons of a possible China-US FTA. When the time is right, they can bring in government officials from both sides for further negotiations, and gradually an agreement will be reached.

The US-China Strategic and Economic Dialogue can be used to accelerate the process. The Strategic and Economic Dialogue, which is committed to issues such as promoting China-US trade and investment, financial supervision, consumption and savings rates adjustment, should include discussions on establishing a China-US FTA. This will definitely be of great help in speeding up the process.

No one needs to lose in establishing a China-US FTA, as it is a win-win outcome and will promote sustainable and healthy trade relations. Of course it will take some time before an agreement can be reached, but we have to get it started. The sooner the better!

The author is secretary-general of the China Center for International Economic Exchanges.

(China Daily 04/05/2012 page8)