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Free trade deals can help growth - but which one?

Wednesday, 9 Oct 2013 | 5:11 AM ET
xPACIFICA | Stone | Getty Images

At this year's APEC summit in Bali, Indonesia, the question was obvious. The answer, not so.

The question: where's the growth going to come from? With the U.S. just starting to recover, Europe stabilizing but still struggling, and China slowing down, the world obviously needs more growth. With unemployment still worryingly high in the U.S. and Europe, freer trade and investment could potentially create hundreds of thousands of new jobs.

Here's where things get cloudier. Which model for freer trade could create those jobs?

Lots to be optimistic about over TPP: Pritzker
Penny Pritzker, US Commerce Secretary, says that progress has been made over the Trans-Pacific Partnership trade agreement.

The U.S. is pushing the Trans Pacific Partnership, or TPP, which excludes China. China is pushing the Regional Comprehensive Economic Partnership , or RCEP, which excludes the U.S.

Then there's the World Trade Organisation, still trying to keep the Doha round alive. And finally APEC itself.

It's not so much a question of which model is best, but rather which trade deal can get done. All trade agreements, including those as large and ambitious as these, are negotiated between governments. And politics is the art of the achievable.

(Watch now: China shines at APEC summit)

TPP appears to be the nearest to completion, with U.S. President Barack Obama's self-imposed year-end deadline. There have already been 19 rounds of talks over the last three years since TPP negotiations kicked off.

U.S Trade Representative Mike Froman said at the APEC summit that trade ministers from the 12 countries involved with the TPP will hold a 20th round in December, with the intention of reaching a deal. Whether or not that happens depends partly, maybe predominantly, on the U.S., which is driving TPP.

President Obama decided at the last minute not to attend the APEC summit, because of the crisis in Washington. And it's that crisis, which is hurting TPP progress.

TPP is a priority for the Obama administration
Susan Schwab, Former U.S. Trade Representative tells CNBC's Cash Flow that the U.S. Government remains committed to establishing a Trans-Pacific Partnership.

So far, the TPP talks have been ongoing without what's known as ''fast track'' trade authority from Congress. And with the partisan battle going on in Washington, that approval isn't likely to come any time soon.

(Read more: Shutdown Day 9: House GOP to meet with Obama)

On top of this, it's historically been the Republicans, traditionally the party of free trade, who've pushed through this kind of legislation. It would be too big an ask, analysts say, to get enough GOP support behind TPP right now. They're much more focused on the debt ceiling and repealing Obamacare.

Meanwhile, the 12-year old Doha round of WTO talks is not so much going nowhere, as it is near death. A last-ditch ninth round, scheduled for December in Bali, hopes to get a partial deal on what's being called ''Doha lite,'' which would focus strictly on food security and reducing bureaucracy at borders.

The WTO estimates that could add about $1 trillion of fresh growth. But the WTO's recent track record of achieving deals hasn't been stellar.

What about APEC itself ? It aims to achieve the so-called ''Bogor goals'' -- free trade for developed members by 2010, and for developing members by 2020. It's behind schedule. Average tariffs have come down very sharply, but are still above 5 percent.

Which leaves China's model, RCEP. Though it would be a lower-standard trade agreement compared to TPP -- and would likely keep state-owned companies protected -- it is also more achievable.

(Read more: Is Shanghai's free trade zone really a game changer?)

Launched in late 2011, RCEP is a year younger than TPP, but already includes some 16 countries - including the 10 member nations of ASEAN, plus Japan, India, South Korea. It is of course dominated by China, which is already the biggest trading partner for all the major members of RCEP, bar India. And with RCEP, Delhi would be drawn into Beijing's sphere of economic influence too.

In other words, the short answer to the original question of where fresh global growth is going to come from, is right before our eyes. It's already happening. Hopefully, that will pressure the US to put its government house in order.

- By CNBC's Martin Soong. Follow him on Twitter: @MartinSoong

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