Should Canada be concerned that, “ASEAN and China have already finalized the framework for a free trade pact, which is slated to be fully operational in 2010”?
Canadian economy is known to be one of the well developed economies amongst the major nations of the world. With mature services and supporting manufacturing sectors, besides a vast pool of natural resources Canadian economy witnessed phenomenal growth during the last decade. Canada is having friendly relations with developed economies like US, UK, Germany etc. as well as with the developing nations in general and the emerging economies like India and China in particular. The recent development is therefore to be analyzed in this context. While, growing trade pacts between ASEAN and China augurs well for the growth of the market potential in these economies, it also mean scope for planned cooperation between Canada and this region. It also needs to be emphasized here that the recessionary trends emanating from US also provided a flip to strengthening the regional markets.
It is worth stating here that framework agreements mainly signify broader understanding on issues. But a lot of work is still required for it to become a reality. The two billion market nations in the Asian subcontinent India and China differ on a range of issues, like border disputes, nuclear armament, issues concerning military assistance to Pakistan, and of course the Tibet issue. Therefore, it will be too early to see a cohesive grand alliance in immediate near future. The existing geo-political equations are bound to play key role for many more years. Therefore Canada must not be unduly concerned with the free trade fact being finalized in the ASEAN region. In any case, emergence of another strong market will help the movement of goods and services from the world as a whole, thanks to the globalization regime. Therefore it will help in providing stability and strength to the overall global economy.
As this Asian Trading bloc takes form, what initiatives, if any, should our political and business leaders undertake?
With the formation of the Asian Trading bloc, Canadian political and business leaders must initiate sincere efforts to become a reliable partner of the bloc nations. As of now Canada has friendly relations with almost all of the countries part of this trade group, which is bound to make things easier for the country. The key initiatives which can be taken by Canadian leaders are:
- Analyze the balance of trade with different partner nations of the bloc, so that appropriate efforts can be made to strengthen or repair the ties
- A mutually cooperative visit in each other’s countries provides more warmth to the relations. Therefore, such visits can be planned accordingly.
- Trade bodies and chambers of commerce prove quite helpful in ascertaining the opportunities in potential markets. Therefore, such partnerships should also be worked out.
- Some of the nations in the ASEAN region are not very well developed as far as infrastructure setup is concerned. Therefore, Canadian government can also undertake such cooperative projects to earn goodwill amongst the potential markets.
- Strengthening social and cultural ties also help in making inroads into the hearts of the people. The political leadership should also make efforts to undertake cultural exchange projects with active involvement of business leaders, as sponsors.
What could be the impact of Finance Minister P. Chidambaram’s comment for both an Asian bond market where Asian nations could invest a significant portion of their burgeoning forex reserves and an Asian monetary fund? We will cover some of these issues in subsequent chapters, but for discussion purposes here, consider whether Asia is moving towards monetary union. What would it mean to Canada as a recipient of FDI and our capital markets?
India is one of the fastest emerging economies in the world. In fact during the recent recession, India and China are the two countries which are able to successfully scrape through the shocks being felt in some other parts like US, Germany, UK, or Canada. The growth of Indian economy even during the slowdown period was able to register a GDP growth of 7.9 percent for the second quarter during the year 2009-10. India was able to register such robust growth because it has a formidable domestic market. The statements by the Indian Finance Minister are to be seen in this context. The efforts towards an Asian bond market and an Asian monetary fund are bound to have significant impact on the investments in the bonds of markets like US. If an Asian monetary fund indeed becomes a reality, it will prove to be a tough competitor for the existing market leaders. Though such decisions are yet to see light of the day, yet such announcement has the potential to have an impact on the local market. Some of the impacts could be:
- The neighboring economies will be watchful in making long term investments abroad, as they might be watching for better bargain in the immediate neighborhood for investing their forex reserves.
- Multinational companies will be able to exercise more leverage while planning capital requirements for new ventures in the Asian economies, as the bond market will be fine-tuned with an eye on local factors.
- In a market driven economy, competition helps the consumer, therefore, a competitive bond market in the Asian subcontinent will bring better bargain for investors.
Do you see a merit in establishing an Asian monetary fund?
It was in the year 1997, when Japan first proposed setting up an Asian Monetary Fund (Rajan, 2000). While it was welcomed by some Asian economies, there were some, which expressed reservations about the success of such a venture. But the suggestion was forcefully opposed by some of the leading Asian economies like China together with US and G-7, as it was felt that this might lead to undermining the existing role of IMF (Bergsten, 1998). But, the debate has once again picked up momentum as the issue is being raised time and again at many forums, particularly in the Asian subcontinent. The setting up of AMF appears a welcome step because:
- It would help in providing strength to some of the least developed Asian economies of the world.
- If the present trends are an indication, then the Asian subcontinent will be the happening place in times to come, in terms of market related activities.
- With a number of MNCs and IT companies lined up for investment in the Asian region in general and India and China in particular, the AMF is bound to get comprehensive support from the MNCs as well.
- With the kind of creative accounting taking place in many organizations across the world, it would be wise move to have a strong standby financial institution, just in case something unhealthy is detected with the existing financial institutions.
References
Bergsten, C. Fred (1998). Reviving the ‘Asian Monetary Fund’. Peterson Institute of International Economics. Web.
GoI (2009). ‘Mid Year Review’. Government of India, Ministry of Finance. Web.
Rajan, Ramkishen S. (2000). ‘Examining the Case for an Asian Monetary Fund’. CIES Working Paper No. 2.Web.