Do free trade agreements undermine the Doha Round?
FREE Trade Agreements are being concluded among many countries. In South Asia, India and Sri Lanka concluded a FTA, while India proposed to conclude a similar deal with Bangladesh. Bangladesh reportedly replied that it would consider the proposal once the implementation of South Asia Free Trade Agreement (SAFTA) took place.
Are they really free trade agreements?
FTAs are not "free trade agreements" at all because so many commodities are taken out of the list. They may be called, at best, preferential agreement. They deal with some sectors of trade and are against Rule 24 of the GATT's Charter. That rule allows for regional and bilateral trade agreements as long as they cover substantially all trade among the parties. But these FTAs have a long negative list that does not fall under FTA.
East Asia has led the way in the recent proliferation of free trade agreements. India and Asean (a group of 10 nations) concluded FTA in Singapore recently, in which Indian Commerce Minister Kamal Nath played an active role.
The Telegraph in Kolkata reported that the commerce minister "persuaded Asean that India would not have to cut duties at all on 489 items and only partially on 606." Yet the agreement is called "Free Trade Agreement." The devil is in the details. The Asean-Indian FTA will take effect from January next year. At the same time, Asean also agreed to establish FTA with Australia and New Zealand.
Washington has concluded FTAs with Singapore, Australia, Chile and a group of Central American countries. It also negotiated the North American Agreement in the 1990s. Currently, the most prominent effort is its still-to-be ratified agreement with South Korea. There are a number of others at various stages, including ongoing US talks with Malaysia, Thailand and Peru, as well as early stage discussions with Indonesia.
Statistics show that roughly 400 FTAs have been concluded and were notified to the World Trade Organisation (WTO).
Although the ministerial level meeting of the Doha Round collapsed in Geneva last month, another try to keep it alive will be made this September. But the prospects are not bright, and academics and observers have regularly warned that FTAs, which are, in fact, preferential trade rather than free trade agreements, are both a cause and a consequence of the breakdown of the WTO system.
Why did the Doha Round collapse last month?
There are many reasons for the breakdown of the talks. Many analysts blame France in Europe and the election year in America.
Moreover, recession has hit many major economies of Europe. The time was not appropriate for a successful outcome because of the current economic slowdown environment. Every country became alert about what it surrendered and what it got in return.
While India's commerce minister has been successful in concluding this important agreement with Asean, many observers say that his role in the Doha Round ministerial talks in Geneva had been questioned in many capitals. Along with Brazil, India insisted that a successful Doha Round would require severe European Union and US cuts, both in their agricultural subsidies and their farm-import restrictions. But some allege that Brazil and India were not ready to provide access to the manufactured goods of European Union and the US to their markets.
Certainly, many believe that the European and American domestic factors seemed to be the main cause of the stalled Doha Round as they could not accede to the demands of Brazil and India during the current economic environment.
The demands from Brazil and India posed hurdles to Washington and Brussels, and EU Trade Commissioner Mendelson (from Britain) was sharply criticised, especially in France, when he ultimately agreed to significant changes in EU agricultural policies.
Likewise, in the US, where trade representative Susan Schwab needed to consult very closely with the Congressional leaders, the Congress was not prepared to listen to her as the law-makers were heavily influenced by America's always-powerful farm lobbies, especially in the election year.
Diminished role of the US
Observers say none of this could have happened had the US retained its moral and political weight in the global economy and in world affairs generally.
Former US Treasury secretary and Harvard President, Lawrence Summers, recently reminded us that "much of the momentum in the global economy is coming from countries … pursuing economic strategies directed towards wealth accumulation and building up geopolitical strength rather than improving living standards for their populations."
America under the Bush administration has been distracted by wars in Iraq and Afghanistan and, accordingly, it has not paid adequate attention to its vital interests, in the Asia-Pacific region. That is why Japan, China, now India, Asean and Australia have each looked to their "own" interests.
Those are the implications and warning signs that emanated from the Asean-India FTA, that the global trade system has fallen under the radar and now nobody is interested in concluding a deal under WTO, although it is the best system available for all countries.
There is another dimension to be noted, and it is the perception about WTO. WTO is perceived to be looking after the interests of multinational corporations in exploiting the resources of developing countries as the rules of WTO are believed to have been framed by these multinational corporations. Furthermore, Japan, US and European countries largely control the activities of WTO.
The institution is undemocratic and lacks transparency. Poorer countries and LDCs find it difficult to get their views on board. It is the big and middle-income countries that play a hard ball game during the negotiations within the WTO.
Observers say that to restore confidence in WTO, a new set of transparent rules in consultation with all countries -- rich and poor -- need to be formulated. Until then, FTAs would continue undermining the Doha Round under WTO.
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