The fact of the matter is that nearly all scholars of
international economics today are fiercely sceptical, even hostile
to such agreements. By contrast, politicians everywhere have
succumbed to a mania that originated in Europe but is now eagerly
promoted by Robert Zoellick, the US trade representative, with Asia
- the last holdout - now joining in.
We are witnessing possibly the biggest divide between economists
and politicians in the postwar period. Unfortunately, the economists
are right. The politicians' lemming-like rush into bilateral
agreements poses a deadly threat to the multilateral trading system.
There are three reasons.
First, bilateral trade deals are undermining an essential
principle of the World Trade Organisation: that the lowest tariff
applicable to one member must be extended to all members (the most
favoured nation status rule). While it is true that the architects
of the WTO/General Agreement on Tariffs and Trade exempted free
trade areas from the MFN rule, they surely did not foresee that a
proliferation of agreements would fragment the trading system. By
the end of last year, 250 FTAs had been notified to the WTO. If
those currently under negotiation are concluded, that number will
approach 300. The result is a "spaghetti bowl" of rules, arbitrary
definitions of which product comes from where and a multiplicity of
tariffs depending on source.
Second, if the Europeans started this fad, the Americans are now
pursuing it with zeal, exploiting their hegemonic power and the lure
of preferential access to a multi-billion dollar market. Unlike
Brussels, Washington has adopted bilateral FTAs to advance the
agendas of domestic lobbies, agendas that are not related to trade.
The US is using one-on-one agreements with small countries as models
for other multilateral trade agreements, hawking them around the
world as the ideal way to further trade liberalisation.
Third, America's tactic is weakening the power of poor countries
in multilateral trade negotiations. Bilateral deals fragment the
coalitions of developing countries, as each abandons its legitimate
objections to the inclusion of extraneous issues in trade treaties.
Having abandoned these objections in a bilateral deal with the US,
how can those countries pursue them in WTO negotiations?
The process of trade liberalisation is becoming a sham, the
ultimate objective being the capture, reshaping and distortion of
the WTO in the image of American lobbying interests.
The protection of intellectual property provides a good example
of US tactics. Washington has used both inducements and punishments
to secure its interests. During negotiations over the North America
Free Trade Agreement, Mexico was told that the price of a deal was
acceptance of intellectual property protection provisions.
It was a price Mexico was prepared to pay. But the US has also
demanded that other countries accept similar provisions or face
retaliatory tariffs. Subsequently, during the Uruguay round of trade
liberalisation, the US was able to insert the trade-related
intellectual property regime (TRIPs) into the WTO, even though no
intellectual case had ever been made that TRIPs, which is about
royalty collection and not trade, should be included.
Mexico also had to accept provisions on environmental and labour
standards annexed to the Nafta treaty. But such standards were put
right at the centre of the free trade agreement with Jordan, drafted
in the last days of the Clinton administration. And with the Bush
administration currently negotiating an agreement with Central
America, Democrats are under pressure from the labour and
environmental lobbies to demand not just the enforcement of local
standards but higher standards altogether.
In the free trade agreements with Chile and Singapore, the US
Treasury insisted on inserting a ban on the use of capital controls,
even though the International Monetary Fund has finally come round
to the view that they might, on occasion, be justified. Chile and
Singapore finally gave in, agreeing to a dispute settlement and
compensation mechanism in case the controls were used. Washington
has created another precedent.
Thanks to the myopic and self-serving policies of the world's
only superpower, bilateral free trade agreements are damaging the
global trading system. They are undermining the most favoured nation
rule ensuring equal treatment in the WTO. Bilateral deals have
become a vehicle for introducing extraneous issues into the WTO for
the benefit of narrow US domestic interests. They are thereby
distorting the role of the WTO. Charles Kindelberger, the great
international economist who died last week, looking back at the 19th
and 20th centuries, developed the notion of the "altruistic hegemon"
that delivered the public good of a multilateral trading system.
Today, we have a "selfish hegemon" precisely delivering the
The writers are respectively university professor at Columbia
University and professor of economics at the University of