Monday, May 23, 2005

A dangerous mix of politics and trade

Very short, sweet and succient article on why multilateralism is good and (by implication) unilateral and bilateral trade deals are not so good. And how, furthermore, China's retaliation unilaterally and the US and EU refusal to put their new tariffs under WTO rules is going to backfire on all of them.

The only real argument I can add to this is simple math. Assume that you want to create trade deals between three countries using only bilateral deals. You would require a total of 3 bilateral deals to create 1 multilateral web. Bump it up to four nations and it becomes a web of 6 separate deals. With five nations, it becomes a web of 10. With six it becomes 15.

Now, considering that we lived through one long torturous long procedure to get one Free Trade Agreement (FTA) with America (and mind you being Singapore, we don't threaten any big lobbies like agriculture or steel or cars...or even bras come to think of it) i.e. all the way from Clinton's 2nd term, that's a lot of man hours lost! Not to mention the wastage when ONE multilateral deal can be cut at the WTO, or more accurate if nations would simply operate with WTO rules and arbitration mechanisms.

The irony of the WTO is that maybe the reason why no one likes it is because it is TOO 'democratic'. Or more accurately, since EVERY nation has a veto, it's one huge large unwieldy oligarchy. And considering that the entire Doha round seems to be dead in the water, the big trading powers are not going to waste their time going around attempting to appease the Developing World led by Brazil. The painful truth is that both sides have their points. Brazil led nations are right in demanding for an end to unfair tariffs and subsidies (particularly in argiculture) being levied and used by 1st World nations. Bush has his corn, the EU has CAP (massively wasteful, read the White Paper for a laugh)

However, they still remains within this group a terrible suspicion of free trade and in particular skepticism about the liberalising investment (note: this does not refer to hot money which 'caused' the AEC but more long term ones). This so-called Singapore Issues were shot out of the water even before it came to anything. I suspect that this has more to do with politics than it does with economics (I hope). The traditional presumption is that tariffs and protection are good either in and of themselves or as a bargaining chip. So if the G20 give up on Investment then they have no leverage over agriculture.

But the problem is, similar to that of the EU and US. By effectively bypasting and undermining the WTO they really is no system left and everyone 'loses' (whether direct losses or indirect forgone gains).

*The author is still hoping for his environment/economics debate*



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