Regional Trade Blocs Are In; Global Group Draws Yawns
If the world trading system collapses, the end may come not with a bang but with the pitter-patter of officials' feet, as developing and developed nations alike discover the joys of regional trading arrangements.
Though the world economy is globalizing, its trade rules are regionalizing.
From the European Union to South America's Mercosur, from the Asia-Pacific Economic Cooperation (APEC) group to the North American Free Trade Agreement (NAFTA), small trading blocs are moving ahead. Meanwhile, the 120-nation World Trade Organization (WTO) looks tired. After eight global agreements to lower trade barriers since World War II, few nations seem ready to push for another.
The contrast stood out in two recent gatherings in this island city-state.
In late February, more than 600 of Singapore's leading citizens packed a hotel ballroom to listen to French President Jacques Chirac. On his way to the first Asia-Europe Meeting in Bangkok, he called on the two continents to rediscover one another. Key Asian and European nations are embarking on a series of twice yearly meetings.
Last week, however, the response was lukewarm to a conference focusing on WTO, despite the long list of luminaries that showed up. By the second day, the giant meeting room in the Shangri-La Hotel was half empty. Speaker after speaker lamented the lack of a strategic vision for the WTO and praised the merits of RTAs - the new international trade-speak for regional trade areas.
Even WTO chief Renato Ruggiero seemed to agree. Where the global body is perhaps lacking, he said, is in showing a level of ambition at least equivalent to that of the major regional systems.
Mr. Ruggiero says 100 RTAs have notified the WTO of their existence. All present members of the WTO are part of at least one regional group, he adds. What was once an exception is now a rule. Ruggiero would like to see the a WTO round of negotiations corral the RTAs to work on gradual convergence on shared rules and principles.
Of 80 RTAs in a recent survey, only six met basic WTO rules against setting restrictions on nonmembers, says Jae Yoon Park, South Korea's trade minister. Only two offer full reciprocity to nonmembers, and that only in principle.
RTA fans, such as Singapore Prime Minister Goh Chok Tong, counter that they are catalysts for change. Mr. Goh warns that unless the WTO keeps up with the pace set by the RTAs, it risks becoming marginalized and irrelevant to the business community.
Brazil Foreign Minister Luiz Felipe Lampreia, adds that Mercosur, a trade bloc that unites Brazil, Argentina, Uruguay, and Paraguay, will help to spur more competitive global trade.
BUT the building-block argument has one key flaw: The explosion of RTAs reflects no overarching pattern. The groups range from the rules-based European Union and NAFTA to the Pacific's APEC grouping, which is based on a nebulous principle called concerted unilateralism. The term implies that any targets set by APEC are purely voluntary.
Moreover, RTAs reflect the biases of their members. Some RTAs are almost certain to resist a push by the US to lead the WTO into areas that interfere with domestic policy, such as Washington's recent drive to put corrupt practices, competition policy, investment rules, and labor on the agenda.
In one scenario, RTAs might declare that their own rules took precedence over any new WTO convention, thus effectively spelling WTO's demise. More likely, a boredom factor will set in at the global level, as regional arrangements take up leaders' time and interest.
At last week's conference, C. Fred Bergsten, director of the Institute for International Economics in Washington, proposed that WTO set a target for global free trade by 2010. The response? Yawns, and a polite rejoinder from Ruggiero that setting a target date would be premature. Bold gestures, at least for now, seem to be left to smaller actors.