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BANGKOK: What is a bane for the WTO looks like turning into a boon for airlines and hoteliers.
Negotiators will be racking up the air miles for years to come as they criss-cross the globe to complete a raft of regional and one-on-one market-opening deals which have sprouted like mushrooms since the collapse of World Trade Organization talks last month in the Mexican resort of Cancun.
To their supporters, bilateral and regional free trade agreements (FTAs) help shore up the multilateral trading system by spurring laggards to tear down barriers or suffer slower growth in trade and incomes than more open economies.
“Our experience is that all three tracks or roads to opening up markets are valued and not opposed to each other,” Mexican President Vicente Fox said on Monday at a two-day summit of the Asia-Pacific Economic Cooperation (APEC) forum.
To their detractors, however, FTAs are a second-best solution that create what Columbia University professor Jagdish Bhagwati calls a “spaghetti bowl” of conflicting rules which distort trade flows at the expense of a single set of WTO-policed regulations.
Detaching officials and lawyers to negotiate FTAs also leaves less time and energy to devote to WTO talks, critics say.
But perhaps the biggest objection to two-way deals is that poor states are likely to be left in the cold. That would make them two-time losers because it is they which stand to benefit most from new global rules to lower barriers to their exports.
“It’s all very cosy for OECD members and big emerging developing countries to indulge in FTAs, but those who are left behind will suffer because the impetus for a new WTO round will diminish,” said Darby Higgs, deputy director of the Australian APEC Study Centre at Monash University in Melbourne.
If Australia, for example, succeeds in prising open markets for its farm exports through bilateral talks, Canberra might have less of an incentive to put its shoulder to the WTO wheel.
The dizzying array of deals which have advanced or have been launched in Bangkok in the run-up to APEC illustrates the point that rich or fast-growing countries make the most attractive free trade partners: Thailand-Australia, Thailand-United States; United States-Australia; South Korea-Japan; Japan-Mexico.
PRISONERS’ DILEMMA: For poorer countries, this trend poses what Christopher Stevens of the Institute of Developing Studies at Sussex University in Britain calls a prisoners’ dilemma.
If they all stick together and refuse to negotiate special deals, none will be worse off. But if some break ranks, the others will have to follow suit or watch competitors gain preferential access to key markets.
Then again, negotiating individually with a powerhouse like the United States would put poor states at a huge disadvantage.
“The US will be able to pick them off one by one and they’ll end up getting no more than they would have got from the WTO, but they will have paid a much higher price for it,” Stevens said.
The prisoners’ dilemma is not just an academic hypothesis.
Some of the Group of 21 developing countries which banded together in Cancun to face down rich states are under fierce pressure from the United States, dangling the carrot of preferential free trade talks, to break ranks.
A clutch of Latin American nations has already defected from the group and Bush agreed to FTA talks with Thailand only after Bangkok assured Washington it saw the G21 as a temporary alliance and did not back a confrontational approach to the WTO talks.
It also helped that Thailand has been a staunch ally of the US ‘war on terror’.
“For Thailand, it is a trade-off between greater access to the US market and its willingness to give more support to the war against terrorism,” said Somphob Manarangsan, an economics professor at Bangkok’s Chulalongkorn University.
Still, Somphob said an FTA would yield huge benefits for Thailand, which sends 20 per cent of its exports to the United States. Labour-intensive goods like garments, electronics and textiles particularly would stand to benefit, he said.
The challenge for policymakers, then, is to reap the economic benefits of FTAs while ensuring they do not create new political divisions that could further set back the WTO — a cornerstone of a multilateral order that economists credit with explosive growth in trade and incomes since World War Two.
A proliferation of FTAs could be chaotic, admitted Singapore Prime Minister Goh Chok Tong. But if they were bolted together into a regional arrangement, multilateralism would be the winner.
“FTAs in a sense serve as a pressure point or a fast track of the WTO process,” he said.—Reuters
