Managing Globalization : A new trade bandwagon - Are rich-poor pacts fair ?
International Herald Tribune
Managing Globalization : A new trade bandwagon - Are rich-poor pacts fair ?
By Daniel Altman, International Herald Tribune
8 August 2006
You might as well call it Newton’s Third Law of Trade Negotiations.
After the World Trade Organizations efforts to strike a global trade deal hit a wall last month in Geneva, negotiators bounced back with a flurry of activity on bilateral trade agreements. But are such accords, which often pair rich and poor countries, a useful substitute for global deals, or are they just a way for wealthy countries to exploit overseas markets ?
The United States has been one of the most eager negotiators of bilateral deals in recent years. For three of its recent agreements - with Chile, Jordan and Singapore - you can see what happened by looking at the numbers.
Its free trade deal with Jordan, which covers roughly 85 percent of goods, took effect at the end of 2001. Since then, Jordanian exports of goods including apparel and jewelry to the United States have increased about fivefold, and American exports to Jordan have doubled ; in fact, the United States now runs an annual goods trade deficit of about $700 million with Jordan, where it once ran surpluses.
Bilateral trade agreements with Chile and Singapore were implemented in 2004. The first deal appeared to reverse the decline in American exports to Chile, and Chilean exports to the United States almost tripled. Exports to Singapore rose substantially, too, though Singapore’s exports are only now starting to increase.
These expansions of trade usually imply greater employment in the countries involved.
"It has resulted in 55,000 new jobs, out of which about 19,000 are Jordanians," said Maher Matalka, the director of Jordan’s Economic and Commerce Bureau in Washington. "The majority are women who are doubling or tripling their household income."
But bilateral trade agreements can also have more subtle benefits, according to Felipe Larraín, a professor of economics at the Catholic University of Chile. In the Chile-United States bilateral agreement, he said, "you will see that there are protections for investments, there is solving of controversies, even solving restrictions on capital flows."
Larraín added that the agreement provided a sort of stamp of approval for investors and credit rating agencies. "Chile started the free trade agreement, and the country risk went down," he said. "Now, Chile has the lowest country risk rating in Latin America, by far."
In Singapore, the bilateral accord led to greater exports of services as well as goods. Martin Yuoon, a director of markets development at the Singapore Business Federation, said in an e-mailed response to questions that the agreement allowed Singapore to implement "the tightest intellectual property rights regime in Asia."
"This has encouraged knowledge- intensive industries to set up operations in Singapore and do business with our companies," Yuoon said.
Not everyone is ready to jump on the bandwagon, though. Last week Rodrigo de Rato, the managing director of the International Monetary Fund, warned countries against switching their efforts to bilateral deals : "Multilateral trade reform remains the best way forward, and there are potential costs from bilateral agreements in trade diversion, confusion, and demands on limited institutional capacity."
Trade diversion occurs when one country manages to steal demand from another, more efficient producer by lowering its tariffs. That may indeed be happening in Chile, Larraín said, with higher-tariff countries like neighboring Argentina losing out. But nothing, he said, was preventing others from lowering their tariffs. "Chile will have an advantage, but that’s part of the rules of the game," he said.
Still, there are some critics who consider bilateral agreements as political tools meant to reward powerful countries’ allies. Matalka noted that Jordan’s trade with the United States intensified only after the country signed a peace treaty with Israel, and was initially predicated on Qualified Industrial Zones where exporters had to use a combination of Israeli, Jordanian, Palestinian and American inputs.
A sharper criticism is that bilateral accords can be crowbars for prying open overseas markets that haven’t already been deregulated or privatized. A coalition of nongovernmental organizations has launched a Web site, bilaterals.org, to air their complaints about the major trading nations who are marshaling their officials to push for new deals.
"Developing countries don’t come into these talks with a fraction of that power, agenda or machinery," said Aziz Choudry, who represents the coalition, in an e-mailed response to questions.
"In fact, while governments such as the U.S. and the EU have a great deal of resources for trade negotiations, many countries are forced into negotiations fatigue, where a small number of under-resourced officials have to deal with a range of simultaneous trade and investment talks on a number of fronts."
Middle-income countries like Singapore, Chile and Jordan don’t seem to have suffered this way. But despite the apparent success of their agreements, Choudry also disputed the economic usefulness of the bilaterals.
"While the WTO flounders, bilateral free trade agreements are increasingly pitting more countries, and therefore producers, into more direct competition to sell the same products to the same markets," he said.
But until the World Trade Organization gets its act together, bilateral and regional agreements will be the only game in town.
