Regional, bilateral deals seen as impeding trade

Globe and Mail, Toronto

18 January 2005

Regional, bilateral deals seen as impeding trade

A ’spaghetti bowl’ of NAFTA-like pacts impedes multilateral system: WTO report

By BARRIE McKENNA

WASHINGTON — A proliferation of NAFTA-like regional and bilateral trade deals has morphed into a confusing "spaghetti bowl" of laws that is threatening the global trading order, according to a panel of leading experts.

Far from being a stepping stone to freer trade, as proponents argue, the North American free-trade agreement and other deals have created a conflicting web of preferential arrangements that may be impeding rather than spurring trade, the authors of an 83-page report commissioned by the World Trade Organization have concluded.

"[The trend] is often undermining the multilateral system, which is very dangerous," BP PLC chairman Peter Sutherland, the report’s lead author, told reporters yesterday.

Mr. Sutherland headed an eight-person "wise men’s" panel of economists and business leaders, who were directed to explore ways to make the WTO more effective and relevant. Among the other members of the panel were U.S. economist Jagdish Bhagwati and former Brazilian Foreign Minister Celso Lafer.

The attack on one-on-one trade deals is among the key themes in the report, which also recommends more political involvement by member countries, including regular leaders’ summits, to shake up the Geneva-based organization.

The WTO’s progress on a deal to liberalize trade in agriculture products, for example, has slowed to a crawl in recent years in spite of repeated attempts to kick start talks.

In the meantime, Canada and the United States have enthusiastically struck deals of their own since a the signing of the free-trade agreement in 1988.

The United States, led by outgoing U.S. Trade Representative Robert Zoellick, has completed or begun negotiating a dozen such deals since 2001, including deals with Chile, Singapore and Australia.

Last month, Canadian International Trade Minister Jim Peterson revealed that Ottawa is poised to launch a push of its own to negotiate such one-on-one trade deals abroad. Some federal officials worry that Canada’s special relationship with the United States has been diluted by Washington’s courting of third countries.

"We have absolutely no time to waste," Mr. Peterson told The Globe and Mail recently. "With the world changing so quickly, we have to create opportunities for Canadian business anywhere those opportunities exist." Canada is in talks with South Korea and is looking at several other potential targets.

Many trade lawyers and experts said the WTO has become a victim of its own plodding move toward freer trade.

"One of the biggest reasons there’s been a proliferation of bilateral deals is because the WTO doesn’t work," Ottawa-based trade consultant Peter Clark said from China, where he’s participating in a trade mission with Prime Minister Paul Martin.

Mr. Clark said he would not be surprised if Canada and other countries eventually pursue free trade deals with China.

"Sometimes these bilateral deals are an expression of frustration with the slowness of the WTO," agreed Michael Woods, a Montreal-based trade lawyer and former federal trade official. "If the WTO is frustrated, maybe they have to look at how they manage things." Mr. Woods said that bilateral deals can be negotiated much more quickly than multilateral deals and often contain "high octane" provisions, such as inclusion of investment rules, that would be impossible within the WTO’s consensus decision-making regime.

"Canada is a country that relies on trade," Mr. Woods said. "It has to be out there in the business of liberalizing trade and increasing market access."

Gary Hufbauer, a former U.S. trade official and now a senior fellow at the Washington-based Institute for International Economics, said deals like the North American free-trade agreement have helped keep "the show going" while the WTO has dithered.

"The WTO has been slowing down for reasons of its own," he said.

He blamed consensus decision making, the elimination of all but the most politically sensitive trade barriers in developed countries and the long lifespan of trade rounds for the WTO’s problems.

The WTO-commissioned report also includes a vigorous defence of the WTO and freer trade, which it argued still offers the best way out of poverty for the developing world. It also offered a vigorous defence of the WTO’s dispute settlement system.

The report, commissioned by WTO director-general Supachai Panitchpakdi, is not binding.

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