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WTO Chief Blasts Small Pacts, Says They Hamper Global Opportunities

Wall Street Journal

WTO Chief Blasts Small Pacts, Says They Hamper Global Opportunities

By John W. Miller

21 July 2011

The World Trade Organization’s chief on Wednesday took aim at the growing number of small free-trade deals being signed among the group’s 153 member nations, saying such deals could limit opportunities with countries outside the group.

Such deals might be beneficial to the countries involved, Director-General Pascal Lamy said in a speech to trade officials in Geneva, but they might also "lock in their members to a particular regulatory regime, reducing the potential for trade to prosper with countries outside the arrangement."

As the Doha Round, an attempt at a global trade deal, has dragged on unsuccessfully, "bilateral deals have gained in appeal to impatient trade ministers," said Simon Evenett, an economist at the University of St. Gallen in Switzerland.

The criticism of the deals by Mr. Lamy, a rare assertion for the consummate diplomat, is a sign that the Geneva-based body is concerned about maintaining its legitimacy in a slumping global economy that is decisively shying away from big WTO-style trade agreements, said trade diplomats and analysts.

It was the second volley on the subject from the director of a top-ranking international institution in less than a week. On Monday, Robert Zoellick, president of the World Bank, said WTO members should "double down" on passing the Doha Round. Global trade deals, he said, "have proven effective throughout the past 60 or 70 years, so why not revive Doha?"

Messrs. Lamy and Zoellick talk every couple weeks, said a WTO official. On Monday, they went for a run together in Geneva.

A meeting of trade ministers to discuss the Doha Round has been scheduled in the lakeside Swiss city for December. It is expected, at best, to lead to a watered-down deal.

Every year, the WTO throws its intellectual muscle behind a key topic. Last year, it was raw materials. This year, the subject was smaller free-trade deals.

The Doha Round has failed, said analysts, because it is too difficult to get meaningful concessions from 153 countries at the same time. Tariffs are already low around the world, and countries are even more hesitant to change their regulations to suit trading partners.

They are more eager to do so within a small coalition of trading partners, "if, for example, they can be allowed to cut out a developing-world partner, such as China," said Mr. Evenett.

On July 1, a new bilateral free-trade deal entered into force between the European Union and South Korea. Significant chunks of that deal involve licenses and other regulatory questions, not tariffs. The U.S. also has deals in the works with South Korea and Colombia, but they have stalled in Congress. Politicians fear passing trade deals in times of high unemployment.

Even more importantly, a trade deal, or a series of agreements, among a smaller group of countries has emerged as one of the alternatives to the Doha Round. A few dozen countries, for example, already have a trade deal on government contracts.

If that happens, Mr. Lamy will have to skillfully negotiate to make sure he remains the master of ceremonies.

Trade analysts say such so-called plurilateral deals are more likely to work than a broad global pact because they involve fewer players, and because they enjoy strong support from big business. A multinational, for example, would benefit from having its entire supply chain covered by a free-trade pact in its particular sector, say, chemicals.

The 2011 World Trade Report, as it is called, found that, with tariffs coming down around the world, deals focused instead on "services, investment, intellectual property protection, and competition policy."

WTO officials say they fear that developing countries will be left out of these deals, and also that the WTO will end up with less "coherence."