Free and global bilateral trade

Free and global bilateral trade

Dietmar Jost Dietmar Jost Consulting, dietmar-jost@jost-consulting.com

On Second Thought'

   The European Union and South Korea on Oct. 6 signed a bilateral free trade agreement. The FTA is expected to enter into force July 1, provided the European Parliament has approved and South Korea has ratified the agreement by then.
   EU-South Korea negotiations started in May 2007, shortly after the United States had concluded its negotiations with Korea on the KORUS FTA (which after three years still has not been ratified by either country).
   The EU-Korea FTA would be the first of its kind between two major trading nations not sharing common borders. The EU and Canada are also in negotiations for a similar free trade agreement, which indicates a trend towards more bilateral trade agreements between major highly industrialized trading partners as a consequence of the World Trade Organization's lack of progress in concluding negotiations on the Doha Round and a trade facilitation agreement.
   The number of free trade agreements has grown steadily since the early 1990s and is of increasing concern to trade and industry that must employ an army of trade specialists to manage and analyze the differing trade rules embodied by these bilateral agreements for their global sourcing strategies.
   The WTO keeps a record of all FTAs, as governments have to notify the WTO about the development and conclusion of an FTA. As of July 31, about 371 regional trade agreements (RTAs for goods and services have been notified to the WTO. RTAs relate to FTAs and Customs unions, according to the WTO. Of these 371 RTAs, 193 agreements are in force ' with FTAs accounting for 90 percent and Customs unions for 10 percent. The overall number of RTAs in force is likely to go up by the many RTAs under negotiations or awaiting ratification, such as the EU-Korea and the Korea-U.S. agreements.
   Until recently, bilateral free trade agreements were either regional in scope, with members sharing common borders (the North American Free Trade Agreement and European Free Trade Agreement are examples), or non-reciprocal in nature as part of overseas development aid policies. Increasingly ' and the EU-Korea FTA is a good example ' free trade agreements are going far beyond the traditional lowering of import duties into very complex economic partnership agreements, also addressing areas such as sanitary and phytosanitary standards, technical standards, and customs and trade facilitation aspects.
   In the chapters on customs and trade facilitation, the parties of the FTA make reciprocal commitments to implement international standards such as those of the World Customs Organization (e.g. revised Kyoto Convention, SAFE Framework of Standards to facilitate and secure global trade, the WCO Data Model and others) in order to reduce the cost of trading between the participating economies.
   The increasing number of FTAs is potentially a threat to the successful conclusion of the multilateral negotiations of the WTO's Doha Round or Trade Facilitation Agreement. The WTO, however, is of the view that many of the major concerns or distortions (in trade) could not be addressed through bilateral or regional agreements, such as agricultural subsidies, or disciplines in antidumping, which suggests that despite the number of FTAs a multilateral agreement is indispensable.
   But even without a multilateral trade agreement, the WTO has already identified a role for itself. Harsha V. Singh, WTO's deputy director general, stated at a Sept. 16 session of the Trade and Development Board of the United Nations Conference on Trade and Development (UNCTAD) that there will be a greater need to 'multilateralize' the diverse (bilateral) agreements by making strong efforts towards harmonizing the rules of the trading system.
   The question is whether WTO negotiations still have a chance of conclusion in light of the growing number of bilateral free trade agreements. On one hand one could argue that WTO members such as the EU and the United States, by negotiating more and more bilateral agreements, have given up on the idea of a multilateral agreement.
   On the other hand one could also speculate that, for example in the case of the EU, the expansion of bilateral trade agreements is meant to strengthen the negotiating position at the WTO. The more agreements that have been concluded based on the same or similar text, the more supporters the EU will have for its corresponding text proposals for a WTO agreement.
   If understood as a way to bring movement into the WTO discussions for a non-discretionary free trade agreement, then the governmental efforts of concluding bilateral agreements could be justified.
   However, in the meantime globally operating businesses have to shoulder the burden of implementing a maze of hundreds of bilateral trade agreements adding more cost rather than facilitate international trade.
   Dietmar Jost's contribution this month marks his final On Second Thought column. Jost will be replaced in 2011 by Tom Nightingale of Con-way Freight, whose first contribution will be in the March issue. Beth Peterson and Thomas Timlen will continue to contribute to On Second Thought in 2011.