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.