Bilateral regional trade pacts falling short on delivering expanded trade

Bangkok – Politics and foreign policy goals, and not expanded trade, are too often the goals of Asia-Pacific bilateral and regional trade agreements, most of them signed since 2000, the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) says in its 2007 Survey.

The Economic and Social Survey of Asia and the Pacific 2007 said many pacts often fail to "stand up to scrutiny" and instead "fragment markets and increase trade costs, reducing trade volumes and global and national welfare."

The Survey said agreements often undermined existing global multilateral trading rules of transparency and non-discrimination, calling on policy markers to bring the trade agreements "as close as possible" to comply with the World Trade Organization (WTO).

The bilateral trade agreements (BTA) and regional trade agreements (RTA) have flourished since 2000 due to lingering uncertainties over the WTO's Doha Development Round of Trade talks that have targeted developing and newly industrializing countries.

Instead, countries in the region enthusiastically sought out bilateral and sub-regional trade pacts. The Survey shows that UNESCAP members have implemented 62 BTAs, and a further 11 regional trade agreements.

The push to such bilateral and regional agreements signed since 2000 mark "a new trend" but UNESCAP warns too often failed to "stand up to scrutiny" despite many aspiring to an eventual free trade area (FTA).

"Countries are settling for framework agreements that do not contain explicit operational details" on how to achieve the free trade area goals, the Survey said. It added many of the agreements fall short in ways to implement the pacts and on issues of non-compliance.

"Indeed, these agreements signal that free trade and trade integration are not the core issues," the Survey notes. Too often, the Survey adds, "strategic political and foreign policy objectives as the driving forces."

Civil society and academia in many countries are increasingly questioning many of the agreements, with "lopsided" talks often led by a dominant trading power able to set negotiating parameters. This often leads to outcomes favouring the larger state that often fall short in boosting general trade as well as effecting "larger developmental goals."

The Survey said these partial free trade agreements often lead to price distortion, a misallocation of resources and a diversion of trade. Such pacts, the Survey argues, "should be considered inferior agreements that do not improve welfare."

The Survey calls on policy makers, especially in smaller economies, to follow a checklist to assess the costs and benefits from agreements.

Several key questions need to be asked to ensure the trade pacts minimize costs and maximize benefits to the economy. These include assessing the importance of the pact to the country, and whether the objective is about trade and commerce or "for political and security cooperation."

Other points include whether alternatives are on offer to achieve greater trade are also looked into and if sectors of the economy will be adversely affected by the agreement.

Also close examination should take place which sectors will gain and whether adjustment costs in "losing" sectors are being considered.

Finally, attention needs to be paid to the impact on production restructuring, employment, revenue and other socio-economic welfare effects, and whether they are consistent with a country's long term development.

The trade in goods agreement needs to be comprehensive while broad coverage in services and a reasonable time frame for implementation also need to be considered. Transparency and clear rules of origin and competition policy need also to be addressed.

UNESCAP analysis shows that by consolidating bilateral and regional trade agreements into a smaller number of larger agreements under a harmonizing framework will achieve significant results.

"The future of WTO, and by implication multilateralism, is in the hands of its members," the Survey says.

As the region's oldest and most comprehensive annual review of economic and social developments, UNESCAP's Economic and Social Survey of Asia and the Pacific provides the only independent source of analysis covering all countries in this vast and diverse region, and considers both the social and economic spheres of development. The 2007 Survey, entitled "Surging Ahead in Uncertain Times," looks at the most critical issues, challenges and risks our region faces in the months ahead.

in Bangkok, Thailand, UNESCAP is the largest of the UN's five Regional Commissions in terms of membership, population served and area covered. The only inter-governmental forum covering the entire Asia-Pacific region, it aims to promote economic and social progress.∞