Free trade agreement: Is it benefical for countries?

Free trade agreement: Is it benefical for countries?

Ivy Susanti, The Jakarta Post, Jakarta

Skepticism has colored many a free trade deal -- between
Indonesia or ASEAN, of which Indonesia is a member, and other
countries such as Japan and China -- particularly in regard to
Indonesia's ability to compete with its partners.

None of the recent deals give a clear picture on whether
Indonesia will be able to increase its trade capacity with freer
trade, which is crucial if the country wishes to be a major
player instead of a follower.

But regardless of the sometimes heated discourse on the
benefits and shortcomings of bilateral and regional free trade,
the agreement itself has raised concern within the World Trade
Organization (WTO).

Bureaucrats at the WTO are of the opinion that the bilateral
or multilateral trade agreements will render WTO irrelevant. Some
are also skeptical that bilateral and regional free trade
agreements will create more problems; as such agreements do not
normally deal with dispute settlement.

Their perspectives were discussed in a recent seminar at the
WTO headquarters in Geneva. The seminar was organized by the
Friedrich-Ebert-Stiftung, a German non-governmental organization
which promotes social democracy.

Free trade zones and customs union are accommodated in the
GATT (General Agreement on Tariffs and Trade) Article XXIV,
updated in 1994. The WTO encourages free trade because it lowers
trade barriers, thus promoting trade and increasing growth. But
the organization has warned that it must be achieved in a gradual
manner, through what it calls "progressive liberalization".

Since the WTO creation on Jan. 1, 1995, to December 2002, some
250 Regional Trading Agreements (RTAs) have been added to the
GATT/WTO, of which 130 were made after January 1995. By the end
of 2005, WTO estimated that the total number of RTAs in force may
reach 300.

Despite the fast growth, the outgoing WTO chief Supachai
Panitchpakdi has warned countries with poor human resources in
the least developed countries, against moving too fast to ink
free trade deals.

"There's nothing in our rules that forbids countries from
settling for an FTA, so they can go on and do it if they see fit.
They are within their rights to do this because they have certain
targets to meet and I certainly can't blame them.

"But of course, the counterparts will have to work quite
carefully and methodically in the efforts that they can put into
this process... which probably would take a lot of your
resources. I am talking about a resource-scarce country; the
human resources, which is quite scarce in poor countries," said
Supachai, the only east Asian to lead the WTO.

As of April 23, 2004, the WTO consisted of 147 governments as
members.

Peter Thompson, Minister at the Permanent Mission of the
European Union to the WTO, said that human resource scarcity
prevents a country from participating in multilateral trade
negotiations, because it puts all the energy on negotiating the
free trade with specific countries. Other problems, he said, was
how free the trade would be.

"If you don't have a completely free trade agreement, get a
semi-organized agreement, which could lead to the distortion, not
generation, in trade. This is a bad thing."

The underlying affect of all these problems is "the weakening
of the WTO certainly is not in the interest of the developing
countries. In many cases, developing countries can win their
claims against the developed countries, like the EU," said
Thompson.

There are also some limitations in bilateral or regional trade
arrangements.

Rolf Adlung, Counselor at the WTO's Trade and Services
Division said bilateral free trade agreements could not
accommodate a country's domestic market, for non-economic reasons
such as security.

The U.S., for example, did not open its industry that
facilitates the movement of people, such as the air and maritime
transportation sectors, in its bilateral agreements with
countries like Singapore and Chile.

Adlung said dispute settlements had not been sufficiently
addressed in a bilateral free trade agreement. "Who guarantees
dispute settlement in a bilateral agreement? It's politically
easier to do that in the WTO."

Moreover, he also said that bilateral free trade arrangements
could not be able to enforce trade facilitation -- or the process
to simplify and harmonize cross-border trade procedures (import
and export procedures, transportation formalities, payments,
insurance and other financial arrangements).

After all, the WTO views regional trade agreements as a
supporting feature of the multilateral trading system. In its
publication Understanding WTO, the organization said negotiating
on rules and commitments would be more intensive if done
bilaterally or if they involved a certain number of countries. It
said that issues like services, intellectual property,
environmental standards, investment and competition policies were
raised in regional negotiation meetings and later developed into
agreements or topics discussed in the WTO.

But again, an FTA should take some time to develop. At the end
of the day, it is the country participating in such bilateral or
regional free trade agreements, such as Indonesia, to decide
whether it really can benefit from this trading system.