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BILATERALISM AND REGIONALISM IN THE AFTERMATH OF CANCUN:
RE-ESTABLISHING THE PRIMACY OF MULTILATERALISM

INTRODUCTORY REMARKS AND PRESENTATION OF A SYNTHESIS
NOTE BASED ON REGIONAL PAPERS PREPARED BY
THE REGIONAL COMMISSION
BY
MR. KIM HAK-SU
UNDER-SECRETARY-GENERAL OF THE UNITED NATIONS
AND THE EXECUTIVE SECRETARY OF THE ECONOMIC AND SOCIAL
COMMISSION FOR ASIA AND THE PACIFIC

Mr. Chairman, Excellencies, distinguished participants, ladies and gentlemen,

It is with great pleasure that I greet you all at this Round Table of Executive Secretaries of the United Nations regional commissions to discuss the important topic of "Bilateralism and Regionalism in the Aftermath of Cancún: Re-establishing the Primacy of Multilateralism". The collapse of Cancún followed by an explosion of RTAs has certainly made this topic timely. Not only is it timely, it is crucial. With geo-political relations in flux and rapid developments taking place in each of our regions, new patterns are emerging that are fundamentally changing trading relationships.

Excellencies,

For the purpose of the meeting, each regional commission prepared a paper highlighting perspectives from its own region. These regional perspectives will be presented in more detail by each regional commission at a later stage. Based on the regional papers, ESCAP, in close consultation with the other regional commissions, prepared a synthesis paper highlighting the similarities and differences in perspectives and experiences among the various regions of the world with respect to the topic. I will now present to you five key messages, based on my interpretation of the common concerns and similarities among our regions.

First, RTAs and BTAs have mushroomed in the damp and dark post-Cancún environment.

While the greatest concentration of RTAs is in the Euro-Mediterranean region, more recently, the fastest proliferation has been in the Asian and Pacific region. While RTAs in Europe and Africa, and to some extent in Latin America are of the customs union type, with a common external tariff and various degrees of monetary, fiscal and regulatory policy harmonization among members, in Asia and the Pacific the FTA format has prevailed. Furthermore, in this region, preferential trade agreements, based on a positive list approach are often a precursor to FTAs. World-wide there are close to 300 RTAs notified to WTO. However, there may be many more which have not yet been notified to the WTO. Some may not have notified as the countries involved are not WTO members. There are various reasons why RTAs have proliferated at such a vast rate. First, they are an obvious manifestation of the globalization process, and an attempt by countries to maximize benefits from the globalization process. Secondly, they seem to be a response to the slow progress in the multilateral trade negotiations, of late, the breakdown of talks in Cancún last year looming prominently. In this context, it is interesting to note that some RTAs, particularly those involving a developed country, often contain commitments that go beyond WTO, encompassing areas that tend to be rather controversial and difficult to agree on in the multilateral trade negotiations. Thirdly, RTAs appear for some countries to be a defensive strategy to ensure that their market access is maintained in countries that have already signed RTAs with other third countries. And fourthly, RTAs are often formed on the basis of political and security considerations.

Second, these mushrooms are bigger, wider and deeper.

Traditionally, RTAs were confined geographically to non-intersecting subregions.  This is no longer true. There has been a marked increase in trans-continental RTAs that cut across traditional RTAs while at the regional level, RTAs also appear to be consolidating. Quite often, the level of integration in new RTAs has also increased in terms of scope and depth. The most advanced is the European Union and its east-ward expansion but others like the Free Trade Area of the Americas and the African Union are also evolving. In Asia and the Pacific, the ASEAN + China FTA and possible ASEAN+3 link-up (including, China, Japan and the Republic of Korea) may herald a trend towards a pan-Asian RTA, possibly even including the Pacific through linkages between ASEAN and the Closer Economic Relations Agreement between Australia and New Zealand or through bilateral linkages such as the United States-Singapore, Republic of Korea-Chile, India-Mercosur to mention but a few.

Third, are the mushrooms feeding or poisoning the multilateral trading system: a vexing question indeed.

There appears to be a consensus in all regions that a universal, open, transparent, predictable, non-discriminatory, rules-based multilateral trading system provides the best way to achieve development objectives through trade liberalization.  However, as multilateralism slows, the multiple agreements of varying sorts and commitments that are mushrooming, are increasing the costs of administering and implementing these agreements. Complicated rules of origin in particular have been singled out as having a costly effect on the business sector. In many cases, preferences may remain unutilized due to the opaqueness and uncertainty of the rules determining origin. It is also well known that RTAs have the potential of diverting trade away from the most efficient global suppliers. Whether these negative effects are more than compensated by the trade that is created is not clear. The empirical evidence is inconclusive in some cases, or contradictory in other cases.  Not all is poison however.  Many RTAs clearly have contributed to the principles and objectives of the multilateral trading system, particularly those that have been the widest in scope and deepest in integration and liberalization commitments. Those that have been driven by a strong business sector interest and that have full political commitment also appear to be more successful. In this context, it has been observed that a customs union would be preferable to a free trade agreement as the need for rules of origin is obviated and the risk of trade diversion is minimized.  So, food or poison, RTAs are a reality that cannot be ignored.

Therefore, fourthly, let the sun shine:  swing the momentum back towards the DDA and bring the multilateral negotiations back on track.

Currently, there is hope. Optimism prevails as the negotiations have regained a new momentum. Fresh initiatives in the form of concrete proposals have been put forward, and a positive mood seems to prevail among negotiators.  There is simply too much at stake for the negotiations to fail. And the DDA can only be successful if the concerns of developing countries across the world are duly taken into account. In this regard, all developing regions in the world share common concerns about strengthening the development dimension of the multilateral trading system.  At the same time each region, and individual countries in each region have particular interests on specific issues. Perhaps nowhere is this more apparent than in the ESCAP region in the agricultural sector: it counts among its developed member both highly efficient agricultural exporters as well as highly protected members where agriculture is a costly but politically very sensitive sector. Likewise, in developing countries this dual nature emerges with highly efficient agribusiness coexisting with subsistence farming that absorbs as much as fourth-fifths of the population.  All developing countries across the regions are united in the view that a reduction or elimination of agricultural subsidies, particularly export subsidies, is at the core of achieving a tangible outcome to the Doha Development Agenda. Implementation issues, including devising more precise, effective and operation special and differential provisions and the dismantling of tariff barriers related to tariff peaks and escalation in products of export interest to developing countries feature prominently as common concerns. Liberalization of services, although not at the center of negotiations at the moment, is expected to gather momentum in the latter part of the Round. Given the complexities inherent in forging agreement by consensus among 147 members of the WTO, increasingly there are calls for "policy space" to allow developing countries to implement trade policies as an integral part of their development strategies.

Fifthly, in the face of these developments, what can the regional commissions do?

The relationship between regionalism and bilateralism on the one hand and multilateralism on the other is complicated and often not well-understood. The regional commissions have an important role to play as regional offices of the United Nations working for economic and social development, to fully analyse RTAs and their implications not only for the multilateral trading system but for overall trade and investment growth and economic development in each region. It has been suggested that common formats could be developed for RTAs and BTAs to ensure that they provide hood for the multilateral trading system and not poison. In this context, the regional commissions could work together through the implementation of one or two interregional projects.  For instance, one project could make an inventory and comparative analysis of world-wide RTAs and include activities to analyse and advance cross-continental RTAs. Another interregional project could focus on the identification of issues of common concern in the Doha Development Agenda which would assist in the formation of cross-regional and issue-based groups, such as the G-20. Other multilateral and regional stakeholders such as the WTO, UNCTAD, the Bretton Woods institutions and the regional development banks, among others, could be involved in such efforts. Lastly, in our technical assistance activities, we should pay due attention to the supply-side capacity constraints many developing countries continue to face and which undermine their ability to take full advantage of improved market access under multilateral, regional and bilateral trade liberalization scenarios.

It is my hope that this Round Table will shed some additional light on the range of issues involved and that we will be able to define modalities and areas for continued and concerted assistance to developing countries in this area in this regard.

Thank you, Mr. Chairman.