News Analysis: Collapse of global trade talks

Posted in Other | 26-Jul-06 | Author: Tom Wright| Source: International Herald Tribune

EU Trade Commissioner Peter Mandelson gestures during a press confence at the World Trade Organisation (WTO) Headquarters after a ministerial meeting in Geneva.
GENEVA Two weeks ago, members of the World Trade Organization agreed to a set of rules that would make it easier to track two-way and regional trade deals. The fear was that their proliferation would take attention away from efforts, already faltering, to reach a global pact on trade liberalization.

On Tuesday, a day after those global talks were shelved for the foreseeable future, interest in regional deals moved from the sidelines to the forefront.

"Europe cannot refrain from addressing bilateral and regional priorities," said Peter Mandelson, the European Union trade commissioner. "We need to focus on new economic opportunities in Asia."

India's commerce minister, Kamal Nath, said that his government was in the process of signing an agreement with Japan and was also in discussions with the EU. "India will pursue economic engagements on a bilateral basis with other countries and regional groupings," Nath said.

Politicians are not willing to pronounce the multilateral talks dead, largely because the potential economic gains from a global agreement would outstrip the effects of regional deals that include only a few countries. But given the stalemate in WTO talks started in Doha, Qatar, in 2001, regional agreements are likely to become a more important motor of trade liberalization in years ahead, further sidelining the WTO, said Guido Glania, director of international trade at the Federation of German Industries.

"Since the Doha Round is more or less dead," he said, "that means regional deals are the centerpiece of the new trade policy strategy."

The problem, economists say, is that while such deals can help expand trade in the absence of a global agreement, they also are likely to create varying or overlapping rules - and to raise tensions between the ins and the outs. Moreover, the poorest countries in areas like sub-Saharan Africa, which were supposed to benefit the most from the so-called Doha Development Round of global talks, are likely to lose out, because they have the least to offer.

"The cost of failure in the Doha talks is that trade could become more regional, discriminatory, and there will be more conflicts," said Jean-Pierre Lehmann, founder of Evian Group, a free-trade advocacy organization in Switzerland.

Two-way and regional trade deals are nothing new. The World Trade Organization estimates that there are around 200 such accords, accounting for about half of the total value of global trade.

The European Union, which started its internal free market in the early 1990s, now comprises 25 nations. The North American Free Trade Agreement between the United States, Canada and Mexico came into effect in 1994. And other areas, like Southeast Asia, have also formed free-trade zones.

The United States has been especially proactive in seeking two-way openings, signing agreements with booming economies like Singapore and Chile.

Susan Schwab, the U.S. trade representative, said Monday after the collapse of the Doha talks that Washington would continue to push regional agreements, and she singled out Asia as an area of interest, as Mandelson did on Tuesday. Countries like China and India, with fast-growing economies and large middle-class populations, are seen as especially lucrative markets for Western exporters of manufactured goods and companies that provide banking and insurance services.

Schwab said she would have a chance to discuss such deals at a meeting of Southeast Asian economic ministers in Malaysia next month, which she will attend as an observer.

Asian countries are also moving to sign agreements among themselves. China, Japan and South Korea are involved in talks for a regional free-trade area with Southeast Asia, although this is likely to take years to conclude.

India recently concluded a deal with Singapore and is in negotiations with other Southeast Asian countries. But in a sign of how tricky even those deals can be to nail down, Malaysia's trade minister, Rafidah Aziz, said Tuesday that those talks were being suspended as India had asked that 850 goods - accounting for 30 percent of Southeast Asia's exports to India - be left out of the agreement, news agencies reported.

U.S. and South Korean officials canceled the final day of five-day talks this month on a bilateral deal in a dispute over Seoul's new drug-pricing system. Those talks are to resume in September.

Still regional agreements are generally less prone to political disputes and offer a way to keep trade liberalization on track. It is also easier to fine-tune regional agreements to make them easier for politicians to sell to a domestic audience afraid of job losses. During the negotiations for the Central America Free Trade Agreement, U.S. negotiators won a clause that pants imported from Central America had to include U.S.-made pockets and linings, for example. By comparison, the Doha talks aimed to reduce tariffs across the board with less room to write in country-specific restrictions.

The agreement reached at the WTO this month on reporting bilateral deals was an attempt to force members to be more transparent. "This is an important step towards ensuring that regional trade agreements become building blocks, not stumbling blocks to world trade," the WTO director general, Pascal Lamy, said at the time.

While the global talks aim to draw up a unified code of trade rules, bilateral pacts could lead to what economists term a "spaghetti bowl" of rules and regulations - and more trade disputes.

The poorest countries will almost certainly be excluded from an increase in two-way and regional deals because they have little to offer wealthy nations in return. In the Doha talks, the so- called Least-Developed Countries, many in Africa, were to get quota-free and duty-free access to sell products in wealthy markets without being asked to open their economies.

Mandelson said Tuesday that he favored pushing ahead with these development measures even without a full Doha agreement. "We should extract from the rubble a significant development package," he said.

Saritha Ray contributed reporting from New Delhi.