International Herald Tribune

News Analysis: Regional trade pacts rise to the fore

By Tom Wright, The New York Times

26 July 2006

GENEVA. Two weeks ago, members of the World Trade Organization agreed on rules that would make it easier to track bilateral and regional trade deals. Negotiators were concerned that the proliferation of such deals would detract from efforts, already faltering, to reach a global trade pact.

Now those regional deals have moved to the forefront after the collapse for the foreseeable future of global talks that began five years ago in Doha, Qatar.

"Europe cannot refrain from addressing bilateral and regional priorities," the European Union’s trade commissioner, Peter Mandelson, said Tuesday. "We need to focus on new economic opportunities in Asia."

India’s commerce minister, Kamal Nath, said his government would be signing an agreement with Japan and was talking to the European Union. "India will pursue economic engagements on a bilateral basis with other countries and regional groupings," Nath said.

Politicians are not yet willing to pronounce the multilateral talks dead, largely because the potential economic gains from a global agreement would outstrip the effects of regional deals that include only a few countries. But given the stalemate in the global talks, regional agreements are likely to become a more important motor of trade liberalization in years ahead, said Guido Glania, director of international trade at the Federation of German Industries.

"Since the Doha Round is more or less dead," he said, "that means regional deals are the centerpiece of the new trade policy strategy."

The problem, economists say, is that while regional deals can help expand trade in the absence of a global agreement, they are also likely to create varying or overlapping rules, and sharper tensions between those involved in the agreement and those left out. Moreover, the poorest nations, in areas like sub- Saharan Africa, which were supposed to benefit most from the latest round of global talks, are likely to lose out, because they have the least to offer.

"The cost of failure in the Doha talks is that trade could become more regional, discriminatory, and there will be more conflicts," said Jean-Pierre Lehmann, founder of the Evian Group, a free-trade advocacy organization in Switzerland.

Trade deals between two or more actors are nothing new. The World Trade Organization estimates that there are 200 such accords, accounting for about half of the total value of global trade.

The European Union, which started its internal free market in the early 1990s, now comprises 25 nations. The North American Free Trade Agreement, which embraces the United States, Canada and Mexico, took effect in 1994. And other areas, like Southeast Asia, have also formed free-trade zones.

The United States has been especially active in seeking two-sided deals, recently signing agreements with booming economies like Singapore and Chile.

In Washington, the U.S. trade representative, Susan Schwab, said she will travel this summer and fall to try to revive the global trade talks. "We’re not giving up," she said Tuesday, shortly after returning from Geneva.

Schwab said that if the outlines of a favorable deal emerged this year or next, the administration might ask Congress to extend the authority under which President George W. Bush can conclude an agreement and submit it for an up-or-down vote in Congress. That authority expires June 30.

The trade office also plans to try to reach more bilateral deals. Recently Congress approved a deal with Oman. Schwab’s office said the 26 bilateral deals that had been negotiated since 2001 or were still being negotiated would together constitute the United States’ third-largest export market.

A spokesman said the countries with which the United States has two-way deals, including Canada, Mexico and Israel, account for 14 percent of the world’s economy.

Schwab said Asia would be a prime target for trade deals. Countries like China and India, with fast-growing economies and a large middle class, are seen as especially lucrative markets for Western companies that manufacture goods or provide banking and insurance services. Schwab said she would be able to discuss such deals next month at a meeting of Southeast Asian economic ministers in Malaysia.

Asian countries are also moving to sign agreements among themselves. China, Japan and South Korea are discussing a regional free-trade area with Southeast Asia, although a pact is likely to take years. India recently concluded a deal with Singapore and is talking with other Southeast Asian countries. But in a sign of how tricky even those deals can be to nail down, Malaysia’s trade minister, Rafidah Aziz, said Tuesday that those talks were being suspended because India had asked that 850 goods - accounting for 30 percent of Southeast Asia’s exports to India - be left out of the agreement, news agencies reported.

U.S. and South Korean officials canceled the final day of five-day talks this month on a bilateral deal in a dispute over Seoul’s new drug-pricing system. Those talks are to resume in September.

Still, the more limited agreements are generally less prone to political disputes than global ones and offer a way to keep trade liberalization on track. It is also easier to fine-tune regional agreements to make them easier for politicians to sell to a domestic audience afraid of job losses.

During the negotiations for the Central America Free Trade Agreement, U.S. negotiators added a clause to require that pants imported from Central America include U.S.-made pockets and linings, for example. By comparison, the Doha talks aimed to reduce tariffs across the board with less room to write in country-specific restrictions.

The agreement reached at the WTO this month on reporting bilateral deals was an attempt to force members to be more transparent. "This is an important step towards ensuring that regional trade agreements become building blocks, not stumbling blocks, to world trade," the WTO director general, Pascal Lamy, said at the time.

While the global talks aim to draw up a unified code of trade rules, bilateral pacts could lead to what economists term a "spaghetti bowl" of rules and regulations - and more trade disputes.

Saritha Rai contributed reporting from Bangalore, India, and Steven R. Weisman from Washington.