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Sceptics fear political ties that bind free trade

Financial Express (Bangladesh)


Sceptics fear political ties that bind free trade

Alan Beaftie from London and Andrew Bounds from Brussels


PERHAPS the best explanation of why bilateral trade agreements are so popular comes from Pascal Lamy, who was the predecessor to Peter Mandelson as Europe’s trade commissioner.

Mr Lamy, now director-general of the World Trade Organisation (WTO), is fond of saying: "Politicians tell you that when they sign a bilateral agreement with a pal, they get on TV. When they are the 149th minister around the table at the WTO, they don’t get on TV."

Certainly, most trade economists and experts think such deals have more to do with political posturing and promoting special interests than with actually liberalising trade.

July’s suspension of the multilateral "Doha" round of WTO talks has given the EU the signal aggressively to pursue bilateral and regional deals - the centrepiece of the external competitiveness strategy Mr Mandelson proposed recently.

He promised a "hardnosed" attitude to opening foreign markets to EU exports. "I make no apology for championing European companies," the British commissioner said. "Doha first does not mean Doha alone."

Bilateral trade deals are known as "free-trade agreements" (FTAs), to the annoyance of many trade economists who say that they do more to distort and divert trade than increase it.

The EU has sought to protect its multilateral credentials by emphasising that bilaterals will be addressing subjects outside Doha. These include the need to ensure that domestic regulations on investment, competition and public procurement do not put foreign companies at a disadvantage. Such measures, known as the "Singapore issues" after the ministerial conference where they were proposed, were thrown out of Doha at the behest of developing countries, who saw them as an infringement on their sovereignty.

Europe’s vocal and influential community of non-governmental organisations (NGOs) fiercely opposes the re-emergence of the Singapore issues. Celine Charveriat from Oxfam said recently: "It seems the wolf has taken off its sheep’s clothing. This is an extremely aggressive agenda."

Ricardo Melendez directs the International Centre for Trade and Sustainable Development, an independent think-tank. He argues that while developing countries raise fewer objections to rules on foreign investment in bilaterals than they in the Doha round, they do not seem to get the higher foreign investment they are seeking after signing them.

Free-trade sceptics argue that the EU will face an uphill task in making any deal deep and broad enough significantly to affect actual trade. Razeen Sally, a trade academic who heads the European Centre for International Political Economy, a new think-tank, says that experience is not encouraging. "Any FTA that the EU signs with the big boys, such as India and China, is likely to be quick and dirty and fairly trade-light," he said.

He adds that India’s existing deals (which include arrangements with Sri Lanka and Thailand) are "narrow and shallow", excluding many goods industries from cuts in protective tariffs.

Mr Mandelson’s ambitions in east Asia are similarly challenging. For example, the US bilateral talks with Malaysia and Thailand, two of the region’s bigger trading nations, have struggled to overcome deep-seated opposition. Malaysia is extremely reluctant to relax its rules limiting foreign ownership of banks and Thailand objects strenuously to US demands to stiffen its protection of intellectual property rights for pharmaceutical companies.

"The EU tends to be less aggressive than the US on demanding services liberalisation but it will still encounter similar problems in Thailand and Malaysia to those that the US has," Mr Sally said.

And attempts to sign deals with entire regional trading areas often founder, or sink to the lowest common denominator, because of different trading interests and internal political divisions.

The EU has already seen the foundering of talks with Mercosur, the Latin American trade grouping that includes Brazil and Argentina, since they were launched six years ago.

The recent entry to Mercosur of Venezuela - led by Hugo Chavez, a vituperative critic of the brand of globalisation driven by rich countries - is unlikely to help.

Another EU target, the Association of South-East Asian Nations (Asean), which has pretensions to become a full-blown regional free trade area, contains economies ranging from Singapore, one of the richest nations on earth, to Burma, a deeply impoverished country run by a military junta.

And the EU’s member states themselves have sharply contrasting interests, particularly in manufacturing, which may stop it offering deep cuts in its own import tariff protection.

Mr Mandelson’s plan to tighten up "anti-dumping" rules, making it harder for European companies to demand protection against cheap imports, will not be adopted without a fight,

"Many people inside the trade department are more pro-anti-dumping than Mandelson," said one EU diplomat. "The plans in this review will not wind up as radical as he thinks."

If the sceptics are right, that may turn out to be the conclusion across the board for the trade strategy to which Mr Mandelson wants the EU to devote more time and attention.

 source: Financial Express