Patchwork of FTAs will not do

Razeen Sally, The Straits Times, Asia News Network, Singapore

World Trade Organization (WTO) members have finally established a framework for negotiations to conclude the Doha Round. This is good news. Failure would have crippled or even killed the round, and marginalised the WTO as a negotiating forum.

The Geneva deal thus restores some hope for the future of the multilateral trading system. But it is not the "historic breakthrough" advertised. Realistically, it is the midway point in the round, and a holding operation. Nothing substantial is likely to happen until early to the middle of next year, after the next United States administration settles in. The really hard choices lie ahead. Success is far from guaranteed, and the round may be wrapped up only by 2007/2008.

The new negotiating framework has whittled down the pre-Cancun agenda into one that is better focused and more realistic. The headline advance is on rich countries' agricultural subsidies. Export subsidies are to be abolished (a European Union concession), as are trade-distorting export credit and food aid programs (a U.S. concession), though a final date has yet to be fixed. Rich countries will also make substantial reductions in trade-distorting domestic farm subsidies. Cuts in subsidies and other trade barriers in cotton -- a key demand of several very poor African countries -- will be given prominence.

The second big element of the package -- another EU concession -- is agreement to drop three of the four "Singapore issues" (investment, competition, and transparency in government procurement) from negotiations, while retaining them on the back burner of the WTO work program. There is, however, agreement to launch negotiations on trade facilitation, focused on simplifying customs procedures.

All the above is very welcome. But now for the caveats. Guidelines for nitty-gritty market-access negotiations -- that is, to liberalize trade in agriculture, non-agricultural goods and services -- are vague and weak. Inevitably, tough political decisions have been postponed to next year. The blueprint for cutting agricultural tariffs is general and sketchy, and it is diluted by extra protection for "sensitive" products in rich countries and "special" products in poor countries.

Guidelines for cutting industrial tariffs are equally skeletal, with agreement still held up due to poor countries' concerns about their tariff preferences. The services negotiations have a new deadline of next May for the submission of improved offers, but this is more exhortatory than anything else.

What next? The negotiating framework will have to be filled in. Market-access negotiations will have to go beyond generalities and produce credible "formulas" -- that is, real numbers and deadlines -- preferably by the next WTO Ministerial Conference in Hong Kong in December next year. Rich countries must deliver substantial reforms of hugely damaging agricultural policies.

That means abolishing export subsidies and substantial cuts in domestic subsidies as well as tariff barriers. They should make substantial cuts in high tariffs on developing country manufactured exports such as textiles, clothing, footwear and leather goods.

In return, advanced developing countries should reduce tariffs on agricultural and industrial goods, and beef up market-access commitments in services. Other developing countries should have generous "special and differential treatment".

Least developed countries should not be expected to take on new obligations, and should have tariff and quota-free access to developed and advanced developing country markets.

Targeted aid and technical assistance should be given to help poorer and weaker developing countries adjust to eroding tariff preferences and higher food prices resulting from multilateral cuts in tariffs and subsidies.

It is possible, even probable, that all the above will fall well short of the substantial package of liberalization and strengthened rules coming out of the Uruguay Round. But that would be a lot better than nothing.

In short, a Doha Round conclusion with something to show would help preserve a non-discriminatory, rules-based multilateral trading system. That would be better than the alternative: An undisciplined, messy bilateral and regional PTA patchwork.

Without multilateral liberalization keeping pace, power relationships would trump fair and balanced rules; there would be increased transaction costs for businesses (especially through complicated rules of origin); and the poorest and weakest developing countries would be marginalised even further.

Making the tough policy choices required in the WTO depends on a clear market-access focus and workable decision-making. Both have been elusive, especially since Seattle. WTO members have been distracted by an expanding agenda with multiple and contradictory objectives, and the hyper-inflation of membership has almost crippled decision-making.

Last month's negotiating framework goes some way (though not far enough) to giving the Doha Round the market-access focus it lacked before. Restoring practical, business-like decision-making is basically a matter of inter-governmental political will and informal coalition-building, not so much one of changes to formal WTO procedures.

Finally, what are the implications for our region?

Southeast Asia depends increasingly on globalization for its livelihood and prospects. It needs a healthy multilateral trading system: A patchwork of FTAs is simply not enough. ASEAN countries must not allow FTAs to consume political attention and negotiating resources at the expense of WTO participation.

They must be fully engaged in the Doha Round -- at the center, not at the margins of decision-making.

Doha Round engagement should be part of a broader strategy to improve policy competitiveness to keep the region on the global trade-and-investment radar screen. Further unilateral liberalization and pro-competitive domestic regulatory reforms are first- order priorities, but they can be buttressed by stepped-up ASEAN integration, clean, well-focused, comprehensive FTAs with third countries, and effective WTO participation.

ASEAN countries could hardly do better than emulate China's coherent multi-track trade strategy. China's growth engine is its historic unilateral opening to the world economy, coupled with sweeping domestic reforms. This has been locked in by very strong WTO commitments -- by far the strongest of any developing country.

Since WTO accession, China has been an exemplary citizen, supporting the Doha Round and the WTO process more generally with pragmatic, nuanced, give-and-take diplomacy. It also has a credible FTA strategy for East Asia, especially in the China- ASEAN FTA framework.

Following China's example, and in close cooperation with China, the U.S. and other constructive WTO members, ASEAN countries should stay engaged in the Doha Round as part of a sensible trade-policy package -- for the sake of the region and the multilateral trading system.

The writer is a visiting senior research fellow at the Institute of South-east Asian Studies.