Bilateral Free-Trade Agreements (FTAs) and World Trade Organization (WTO)

Failure of the Doha Round of free-trade talks

The Doha Round of free-trade talks languished during the first years of the twenty-first century.

This was primarily because of the reluctance of rich countries to lower barriers to trade on agricultural goods, bowing to their farmers' insistence on having protected markets.

These policies, however, ended up destroying the possibility for farmers from poor countries to increase agricultural exports and earn the income they needed to survive.

Another cause for the failure of the Doha Round was the growing reluctance of developing-world countries to open their markets to manufactured goods in order to protect inefficient local industries.

Bilateral Free-Trade Agreements (FTAs)

In the end, most countries decided to start small, by signing bilateral free-trade agreements (FTAs), which are easier to negotiate and easier to sell to isolationist electorates because 

• the benefits are more tangible and 
• domestic businesses don't necessarily have to give up their subsidies.

World Trade Organization (WTO)

Once FTAs are in place, some sort of mechanism is needed to ensure that countries respect the promises they have made.  

Commissions were set up to monitor bilateral trade.  

A worldwide trade watchdog, the World Trade Organization (WTO) resolves disputes in an organized forum based in Geneva, Switzerland.  

The role of WTO is actually quite limited.  

• The WTO was never meant to be more than a global round table where disputing parties could meet to air their grievances and try to resolve trade disputes.
• All WTO decisions are made by consensus, with the member nations working together to decide which countries are allowed to impose sanctions.  
• The WTO has no power to force a country to do anything against its own national interests.  
• Its real power lies in permitting countries that have suffered from trade barriers that exceed those authorized by existing trade agreements to erect barriers of their own, usually in the form of tariffs.

China calls for more Asian clout in global economy

October 5, 2010 - 7:03AM

The surging economies of Asia should be granted more power in the traditionally Western-dominated global financial institutions, Chinese Premier Wen Jiabao said on Monday at the opening of the Euro-Asian summit.

The start of the two-day 48-nation meeting, set amid the high security and gilded opulence at the Belgian royal palace, underscored the Asian nations’ demands for a rebalancing of international financial structures as they lead the world out of recession.

Premier Wen stressed that Asian leaders expect Europe to relinquish some seats at the International Monetary Fund (IMF), the international lender charged with helping nations that get into currency and financial crises.

‘‘We need to improve the decision-making process and mechanisms of the international financial institutions, increase the representation and voice of developing countries, encourage wider participation,’’ Wen told the other leaders.

‘‘We must explore ways to establish a more effective global economic governance system.’’

The Chinese premier and some other Asian leaders made it clear that Asia would start making its robust economic growth count on the global stage.

Cambodian President Hun Sen stressed the Asian economies should be recognised for leading the global economic recovery.

While demand in the EU (European Union) and US economies was once the driver of growth, it is in decline compared to demand growth in Asia.Even Germany, the economic giant of the European Union, paid tribute.

‘‘We have to thank the Asian upswing for the positive economic development,’’ German Chancellor Angela Merkel said.

Because of the swing in economic momentum, the battle for seats at the IMF has become a symbolic battle ground.

Last week, the 27-nation EU said it could give up some of its power base at the IMF to emerging countries, a concession that could cost it two seats on the governing board and the right to have a European heading the Washington DC organisation, which hands out billions of US dollars around the world.

At the moment, EU countries occupy nine of the 24 seats.

‘‘The fact that Europeans show us the flexibility and willingness to negotiate is important,’’ said Rhee Chang-yong, a South Korean delegate.

‘‘For us, the IMF quota reform is very symbolic and very important,’’ he said.

South Korea will organise the Group of 20 (G20) meeting of the world’s major economies next month and expects to have an agreement then.

The leaders of 48 nations face potential clashes on market restrictions and trade surpluses.

On Wednesday, there will also be bilateral EU summits with China and South Korea.

Overall, the nations from the two continents represent about half the world’s economic output and 60 per cent of global trade.

But, instead of Europe driving the summits, the emergence of China as a new trading juggernaut has somewhat turned the tables at the biennial meetings.

Last week, the IMF said that Asian and Latin American economies were doing well but prospects for some European countries, including Greece, remain uncertain.

On Wednesday, the EU leaders and South Korean President Lee Myung-bak will sign a free trade pact that will slash billions of dollars in industrial and agricultural duties, despite some nations’ worries that Europe’s auto industry could be hurt by a flood of cheaper cars.

The deal - the first such pact between the EU and an Asian trading partner - will begin on July 1, 2011.

Japan’s Prime Minister Naoto Kan will pursue a free trade agreement in his bilateral meetings with European leaders, said Foreign Ministry spokesman Satoru Satoh.He said Japanese business was ‘‘alarmed’’ by the EU’s deal with Seoul.

Japan feels it will be at a competitive disadvantage with South Korea, which has an agreement with the EU that threatens to take a bite out of Japanese exports, particularly of cars and televisions, he said.

While Japan is anxious for an agreement as soon as possible, he said the Europeans still lack consensus among its 27 members.

Besides the economy, Japan also has an issue with China, as both continue a diplomatic row following the arrest of a Chinese fishing boat captain whose trawler collided with Japanese patrol vessels near disputed islands.

Despite the formal opening, economic discord might also surface at the summit.

Many Western nations have complained that China keeps its currency undervalued to give its exporters an unfair price advantage on international markets while at the same time China closes off its markets, keeping European businesses out.

AP


http://www.smh.com.au/business/world-business/china-calls-for-more-asian-clout-in-global-economy-20101005-164p5.html

Spectre of international trade war looms as recovery proves elusive

October 5, 2010

As world economies continue to falter, central banks are running out of options and the spectre of protectionism grows, writes Larry Elliott.

In all the comparisons between the Great Recession of the past three years and the Great Depression of the 1930s, one comforting thought for policymakers has been that there has been no return to tit-for-tat protectionism, which saw one country after another impose high tariffs to cut the dole queues.

Yet the commitment of governments this time round to keep markets open was based on the belief that recovery would be swift and sustained. If, as many now suspect, the global economy is stuck in a low-growth, high-unemployment rut, the pressures for protectionism will grow.

The former British chancellor Kenneth Clarke summed up the mood when he said in the Observer that it is hard to be ''sunnily optimistic'' about the West's economic prospects.

Despite a colossal stimulus, the recovery has been shortlived and, by historical standards, feeble. The traditional tools - cutting interest rates and spending more public money - were not enough, so have had to be supplemented by the creation of electronic money. In both the US and Britain, policymakers are canvassing the idea that more quantitative easing will be required, even though they well understand its limitations.

There is the sense of finance ministries and central banks running out of options. They cannot cut interest rates any further; there is strong resistance from both markets and voters to further fiscal stimulus, and so far quantitative easing has had a more discernible effect on asset prices than it has on the real economy.

So what is left? The answer is that countries can try to give themselves an edge by manipulating their currencies, or they can go the whole hog and put up trade barriers.

Brazil's Finance Minister, Guido Mantega, warned that an ''international currency war'' has broken out following the recent moves by Japan, South Korea and Taiwan to intervene directly in the foreign exchange markets. China has long been criticised by other nations, the US in particular, for building up massive trade surpluses by holding down the level of its currency, the renminbi.

The currencies under the most upward pressure are the yen and the euro. Why? Because the Chinese have all but pegged the renminbi to a US dollar that has been weakened by the prospect of more quantitative easing over the coming months.

But currency intervention is one thing, full-on protectionism another. The existence of the World Trade Organisation has made it more difficult to indiscriminately slap tariffs on imports. What's more, there is still a strong attachment to the concept of free trade.

The question now is whether the commitment to free trade is as deep as it seems. The round of trade liberalisation talks started in Doha almost nine years ago remain in deep freeze. Attempts to conclude the talks have run into the same problem: trade ministers talk like free traders but they act like mercantilists, seeking to extract the maximum amount of concessions for their exporters while giving away as little as possible in terms of access to their own domestic markets.

The approach taken by countries at the WTO talks also governs their thinking when it comes to steering their countries out of trouble. There are plenty of nations extolling the virtues of export-led growth, but very few keen on boosting their domestic demand so that those exports can find willing buyers.

The global imbalances between those countries running trade surpluses and those running trade deficits are almost as pronounced as they were before the crisis, and are getting wider. This is a recipe for tension, especially between Beijing and Washington.

This tension manifested itself last week when the House of Representatives passed a bill that would allow US companies to apply for duties to be put on imports from countries where the government actively weakened the currency - in other words, China.

The Senate will debate its version of the same bill after the mid-term elections next month, but it was interesting that the House bill was passed by a big majority and with considerable bipartisan support.

China responded swiftly and testily to the developments on Capitol Hill. It argued that the move would contravene WTO rules and quite deliberately tweaked its currency lower.

It is not hard to see why Beijing got the hump. It introduced the biggest fiscal stimulus (in relation to GDP) of any country and helped lift the global economy out of its trough. It can only fulfil its domestic policy goal of alleviating poverty if it can shift large numbers of people out of the fields and into the factories, and that requires a cheap currency. It has been financing the US twin deficits.

Unsurprisingly, then, its message to the Americans was clear: ''It is not smart to get on the wrong side of your bank manager, so do not mess with us.''

What happens next depends to a great extent on whether the global economy can make it through the current soft patch.

But imagine that the next three months see the traditional policy tools becoming increasingly ineffective, that the slowdown intensifies and broadens, and that the Democrats get a pasting in the mid-term elections. In those circumstances, a trade war would be entirely feasible.

Guardian News & Media


http://www.smh.com.au/business/spectre-of-international-trade-war-looms-as-recovery-proves-elusive-20101004-164e1.html

World trade to grow 9.5%

Mar 26, 2010

'This means that trade-wise, there is light at the end of the tunnel and it's certainly a good forecast, good news for the world economy,' head of the World Trade Organisation Pascal Lamy said. -- PHOTO: REUTERS

GENEVA - WORLD trade is expected to grow 9.5 percent in 2010, after suffering its biggest collapse since World War II in 2009, the head of the World Trade Organisation Pascal Lamy said on Friday.
'Our economists are forecasting a world trade growth for 2010 of 9.5 per cent with developing countries' trade growing 11 per cent and industrialised countries' trade growing by 7.5 per cent,' the WTO director-general said.

'This means that trade-wise, there is light at the end of the tunnel and it's certainly a good forecast, good news for the world economy,' he added. World trade plunged 12 per cent in 2009 due to a 'sharp contraction in global demand' during the economic crisis.

Amid last year's slump, China overtook Germany to become the world's top exporter with some US$1.20 trillion (S$1.68 trillion) worth of merchandise exported in 2009, according to WTO data. Germany exported US$1.12 trillion of merchandise, while the world's biggest importer, the United States, was in third place with US$1.06 trillion worth of exports last year.

The WTO noted that the trade slump last year was particularly magnified by the 'product composition of the fall in demand, by the presence of global supply chains, and by the fact that the decline in trade was synchronized across countries and regions.'

Underlining the scale of the downturn, Patrick Low, chief economist at the WTO, said that the projected growth of 9.5 per cent this year would need to be repeated in 2011 in order for the global economy to recover to peak trade levels reached in 2008 before the crisis struck. The economist warned that the 2010 forecast could yet prove over-optimistic if currency and commodity prices were to show wild swings, or if the financial markets were to show other adverse developments. -- AFP

All Around the World, Trade Is Shrinking

All Around the World, Trade Is Shrinking
By FLOYD NORRIS
Published: February 27, 2009

The world trading system, whose growth was deemed an inevitable part of globalization only a year ago, is now shrinking rapidly.

Falling Exports

Japan, a country built in large part on exports, reported this week that its exports in January were worth $47.2 billion, the lowest monthly total in more than four years and down 34 percent from the same month a year ago.

Even in the global recession of the 1970s, Japanese exports never dropped that fast.

Most major European countries have not reported on January trade as yet, and the United States figures will not be out until March 13. But the rapid fall in trade has been experienced in virtually every country that has reported figures for January, as is shown in the accompanying graphs.

A year ago, businesses in many developing countries were confident that they could ride out an American recession, if need be, without major problems. Not only were other industrialized countries still growing, but the volume of trade was growing between developing countries, and there seemed to be little reason that would suffer.

Nonetheless, that is happening, perhaps because much of that trade was in items destined to be sent on to industrialized markets after further work. China’s overall exports were down 17 percent in January compared with a year ago, even though exports to Japan and the United States were off by 10 percent or less. Shipments to other Asian countries were off by much more, including a drop of 29 percent in exports to South Korea.

Chinese shipments to India were growing at an annual rate of more than 50 percent as recently as last summer. But in January, they declined by 18 percent.

The 17 percent drop for overall Chinese exports, while large, is still modest compared with the declines being felt by other developing economies. The three largest economies in South America — Argentina, Brazil and Chile — reported declines of 27 to 42 percent. Exports from Taiwan were off 46 percent, and those from Singapore fell by 41 percent.

The shrinkage of world trade may continue for some time, as recession-induced falls in demand are intensified by protectionist policies aimed at shoring up local industries. Developing countries without large foreign currency reserves may also be hurt by a drying up of credit to finance investment and trade.

China is trying to offset the impact of the world recession with a broad stimulus program aimed at increasing local demand for products. But that option is not available for many countries, which do not have large foreign currency reserves and will take in less in taxes as unemployment rises amid factory layoffs.

Floyd Norris’s blog on finance and economics is at nytimes.com/norris.

http://www.nytimes.com/2009/02/28/business/economy/28charts.html?ref=worldbusiness