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Apec admits dangers of bilateral deals

Financial Times, London, November 18 2005

Apec admits dangers of bilateral deals

By Victor Mallet and Anna Fifield in Busan, South Korea

Criticised by business leaders and alarmed by the possible failure of next month’s world trade talks in Hong Kong, Asia-Pacific governments are acknowledging for the first time the dangers of the tangled "spaghetti bowl" of bilateral trade deals they have spawned in the past few years.

"We’re hearing from our business community that with all these different FTAs [free trade agreements] in the region, it’s getting hard for them to do business," said a senior trade negotiator attending this week’s annual meeting of the Asia-Pacific Economic Co-operation forum (Apec).

Apec members repeatedly affirm their support for multilateral trade liberalisation through the World Trade Organisation (WTO), but have enthusiastically negotiated more than 50 discriminatory regional and bilateral deals - nearly a third of the world’s total. Even now, the US and South Korea are poised to launch negotiations for a bilateral trade agreement.

Such deals often exclude "sensitive" products and are sometimes seen as having symbolic political value rather than commercial benefits.

"Especially for small- and medium-sized businesses, it’s complicated and more expensive to be part of free trade arrangements with a huge quantity of bilateral and regional FTAs," Sergio Garcia de Alba Zepeda, Mexican economy minister, said in an interview yesterday.

"That’s one of the reasons we need to push the process of multilateral negotiations through the WTO," he said.

Apec ministers acknowledged the need for change this week when they adopted a new "road map" that not only supports the multilateral trading system but calls for bilateral and regional trade arrangements to be "high-quality, transparent and broadly consistent in their rules".

Trade officials at the Apec meeting said this was a tacit admission that some existing FTAs were of poor quality.

Businesses have become more vocal in their criticisms of the many differing rules of origin for importers, pointing out that modern, high-speed global supply chains can suffer from complicated trade deals between governments.

Michael Ducker, executive vice-president at FedEx, said harmonised rules made for lower and more predictable costs. "You can’t do that if you have all sorts of different rules that apply to different countries," he said.

However, like many trade negotiators from Apec’s 21 member economies, Mr Ducker believes now that the FTA genie is already "out of the jar", the most important task is to ensure future deals are compatible with the WTO and contribute to wider liberalisation.

"If you don’t see fast progress in multilateral negotiations you don’t have any option - you have to go ahead with the bilaterals," said Mr Garcia de Alba Zepeda. "In the end we can’t be a spectator, watching opportunities pass."

One Asian trade minister pointed out the flaws in this dual approach. "They want to have their cake and eat it at the same time," he said.

For business leaders such as Victor Fung, the spread of bilateralism remains a threat to the development of international supply chains.

"Bilateralism distorts flows of goods, throws up barriers, creates friction, reduces flexibility and raises prices," he wrote in the FT recently.

 source: Financial Times