The Economist
Progress towards free global trade must not be side-tracked by bilateral or regional trade agreements
MORE than one path can lead to a world of free trade. That is the claim coming out of the recent summits of the Asia-Pacific Economic Co-operation forum and the Association of South-East Asian Nations. Australia, Japan, Mexico and other countries are also pursuing alternatives to multilateral liberalisation because, they say, progress in talks through the World Trade Organisation (WTO) is too slow. Even China, which is hoping to join the WTO soon, is looking at regionalism. Yet, although it is possible to reconcile regionalism in trade with progress towards free global trade, it also carries two big dangers: that it could slow or even derail multilateral liberalisation, and that it could leave out many of the world's poorest countries.
The rhetoric coming out of Asia sounds reasonable enough. Most of the countries involved continue to pay lip service to the notion of a new round of global trade talks in the coming year, but they are not holding their breath. Stalemates between America, Europe and their smaller trading partners have been holding up plans for a new round. If these differences persist, it is better, so the argument goes, to make progress towards freer trade outside the WTO's multilateral setting than not to make any progress at all.
A similar argument is heard with other recent trading alliances, such as Mexico's new agreement with the European Free Trade Association or Singapore's bilateral deal with New Zealand. These arrangements allow trade partners to break down barriers between them without having to wait for the WTO. The partnerships are certainly in the self-interest of the countries involved. Yet the world may not always gain; trade can certainly be created, but it could also be diverted away from lower-cost producers outside the alliances.
This trade-creation-versus-diversion trade-off suggests that regional or bilateral trade deals need to be looked at critically. But there is another, perhaps even bigger question: whether a regional approach might in the long run turn out to be a better way of liberalising world trade. Will liberalisation occur more quickly if it is pursued within and then between blocks, or if it takes place among all countries in the WTO?
Present practice mixes these approaches: there is fast-track liberalisation within blocks such as the EU, NAFTA, Mercosur and their followers, with multilateral progress also taking place at the WTO, but lagging well behind. It is even possible that, over time, deals between trade blocks could become the preferred form of trade negotiation. Rich countries still see worthwhile prizes to be gained from smaller countries in the WTO, so those deals may yet happen. But the big traders might then lose interest, preferring to concentrate on their most important markets-each others'.
Keeping the Geneva show on the road
In the multilateral system, progress towards free trade is slow because every country has a veto and fashioning trade-offs takes time. In a regionalised world, progress could be quicker, both within and between blocks. But irreconcilable differences could crop up under either approach. Worse, if countries focus more on regional or bilateral deals, they may start to feel that working through the WTO is simply not worth the candle. A free multilateral system might end up being replaced by one of several free-trade blocks, which may or may not trade more or less freely with each other.
That risks doing great harm to the world economy. And it also risks excluding poor countries that lack the clout to join any of the regional trade blocks themselves. Perhaps the big traders can be persuaded to let these countries ride on their coat-tails, by completing the process of opening their markets fully to the world's poorest countries. But the broader point is that countries that are constructing regional or bilateral trade blocks must ensure that they do not conflict with efforts towards multilateral liberalisation at the WTO-or they will be the first to suffer.:
