Free trade blocs block WTO's function

The eruption of free trade blocs undermines the new World Trade Organization. Johanna Son of Inter Press Service reports.

MANILA (IPS): The world's economic map is fast being redrawn into a maze of overlapping free trade areas. But is this the wave of the future of a stumbling block to an era of genuinely freer trade?

After the 18-member Asia Pacific Economic Cooperation (APEC) agreed in November to achieve free trade by 2020, the United States led 35 Western hemisphere governments in creating by the year 2025 the world's largest free trade area from Alaska to Argentina.

Germany, excluded from APEC, recently proposed the Trans- Atlantic Free Trade Area (TAFTA) to link Europe with the United States. Washington is working to expand the North American Free Trade Area to Chile and South America, and has floated the idea of reaching across the Pacific to South Korea and Singapore.

Not to be outdone, Australia pushed for another grouping of Indian Ocean Rim nations at a meeting in Perth this month.

Even as it is embroiled in a trade dispute with co-APEC member Japan, Washington wants to see APEC develop into a free trade area when its leaders meet again in Osaka this November.

Advocates of regionalism welcome this trend, but others want a moratorium on new trade blocs.

Leading U.S. economist Jagdish Bhagwati says too many trade blocs will damage global multilateral trade liberalization, and urges outward-looking Asia to help put the brakes on the spread of more trading blocs.

"We're stepping out in all directions and when you do that, you get tripped up," Bhagwati, professor of economics and political science in New York's Columbia University, warned in an interview with IPS.

He said the "spaghetti bowl" of free trade areas, many of which do not aim for further integration as common markets, are unnecessary since the World Trade Organization (WTO) has been "jumpstarted" and is functioning.

More free trade areas mean that terms of trade depend on which country one trades with, creating a jumble of regulations that weakens economies' commitment to multilateralism. "Is this the kind of world we want even with the WTO around?" he asked.

Bhagwati is especially worried about APEC's vision for a free trade by the year 2020, by which the region is expected to cover 57 percent of world trade and urges Asia to speak up for multilateralism.

"This epidemic (of preferential trading arrangements) is ready to devour APEC and to continue to decimate the importance and effectiveness of the WTO's guiding principle of non-discrimination," he said.

At an Asian Development Bank conference in the Philippine capital last month, Bhagwati urged Asia and Japan to resist U.S. maneuvering and to "play a useful role at APEC by opposing it being turned into another free trade area".

He argued that Asia has a potential leadership role in world trade policy by drawing on a record of two-decade economic growth achieved by opening markets and trading with the world at large. "The great beauty of this region is that it has always looked to the world as its market," he pointed out.

The WTO itself is grappling with rising regionalism. World trade chief Renato Ruggiero frowns on more free trade areas, and wants states to focus instead on multilateralism.

Bhagwati says APEC would be better off coordinating investment policies and positions on issues before the WTO, such as attempts by developed nations to link labor and environmental standards to market access.

This is closer to APEC's vision as spelled out by Southeast Asian countries years ago, before Washington took active interest in it.

There is time to influence APEC's course toward a free trade area. While APEC set free trade by 2010 by developed countries and by 2020 for developing ones, its leaders did not spell out the plan's mechanics.

They were also unable to agree on whether it would offer lower tariff rates to all countries or only preferentially to fellow members, which would make APEC discriminate against non-members.

Japan, this year's APEC chair, is being pulled by members in different directions.

Malaysia wants APEC to stick to its original concept as a consultative forum, and stressed in Indonesia last year that the 2020 goal was no means legally binding.

But Australian Prime Minister Paul Keating wants to ensure that moves toward liberalization are not wrecked by issues like the U.S.-Japan dispute. Some analysts doubt chances for cooperative trade liberalization in APEC when the United States and Japan are at each other's throats.

Sandra Kristoff, U.S. coordinator for APEC, says Washington expects the Osaka summit to issue an action agenda for free trade.

A draft action plan that Japan circulated ahead of Osaka proposes that members draw up plans for liberalizing trade and investment and accelerate their Uruguay Round commitments. For the moment, the draft's general principles say APEC-style free trade will be non-discriminatory.

U.S. interest in regional links with Asia rose in the 1980s, when world trade talks were stalled and its trade differences with Europe raged. A new world trade accord has now been hammered out after seven years, but the United States has become "addicted" to free trade areas, Bhagwati points out.

He says Washington now views free trade as a geopolitical tool to penetrate Asian markets.

In fact, Washington used its APEC chairmanship in 1993 to push the idea of a free trade zone. Much of the impetus of driving APEC toward free trade comes from Washington, and many Asians view U.S. bullishness on APEC as an attempt to get a share of their pie.

Bhagwati advises Asian nations, many of which view the role of the United States in APEC as a way to keep U.S. presence and business in the region, to avoid getting caught in this power play.

The unilateral U.S. decision to impose 100 percent tariffs on Japanese luxury cars by June 28 if Tokyo does not open its market for cars ought to prove to Asia that the United States is not really committed to multilateralism since it did not try to resolve the matter through WTO channels.

Instead of giving in to infatuation with free trade blocs, Bhagwati says Asia and the world would do well to use their economic energies to seek a new round of world talks to address their trade worries.

He adds: "Let's take all these sentiments and combine them into a multilateral system in which nobody is left out."