Source: Carnegie

Selfish interests

by John Fei, Administrator, China Program

Reprinted with permission from the South China Morning Post, November 6, 2003

The collapse of negotiations at the World Trade Organisation's ministerial meeting in Cancun ushered in a blame game where partisans from developed and developing countries accused each other for its failure. Instead of assuming the leadership mantle and canvassing countries to re-energise the WTO, key American leaders further politicised and destabilised the multilateral trading system by threatening to negotiate bilateral trade accords only with countries deemed "pleasing" to the US government.

While it may be tempting for the world's richest country to "go it alone", such action is woefully short-sighted because it could inspire trading blocs to compete with America. An ascendant, China-led trading group in Asia is a case in point.

Throughout the years, the US has pushed for a multilateral, rules-based trading system by helping to create the WTO and its precursor, the General Agreement on Tariffs and Trade. This was done with the underlying belief that fostering free trade on a worldwide basis maximises the economic benefits flowing to the US. While bilateral and regional trading blocs may play an important role, they were seen as supplements to, not substitutes for, multilateralism. Trade negotiations were also driven by economic principles more than political gamesmanship.

Recently, Washington has embarked on what US Trade Representative Robert Zoellick terms "competitive liberalisation", challenging other countries to compete for a limited number of bilateral free-trade agreements.

After Cancun, Mr Zoellick ratcheted up this "competitive liberalisation" rhetoric by admonishing the group of WTO members - known as the G21 - that had united to challenge the developed countries. He pointedly reminded the G21 that several nations had already clamoured to negotiate bilateral free-trade agreements with Washington, suggesting that America has many suitors and is playing hard to get.

Mr Zoellick's statement reflects a growing attitude among many in the US government that Washington can use its political and economic clout to negotiate trade deals on its own terms, and that other countries will behave as sycophants. Seeing that the Cancun debacle may have dealt a serious blow to the WTO, America seems intent on accelerating free-trade negotiations with select countries.

While "competitive liberalisation" may spur the global community to refocus on the current WTO Doha round, America's confrontational posture seems more likely to quicken the fragmentation of the already-hobbled multilateral trading system that it helped found. It will not only strengthen existing regional trading blocs, but may facilitate the creation of new ones. An acrimonious stance will also embolden these blocs to pursue trade policies not particularly solicitous to those of the United States. The European Union is already a prominent economic powerhouse. Recent events pertaining to China and the 10-country Association of Southeast Asian Nations suggest the emergence of a second, powerful group.

Although often dismissed as a group unable to do more than talk, Asean reached a turning point in its potential prowess and enlargement at its ninth summit, in Indonesia. China, Asia's second largest economy, played a key role by strengthening its relationship with Asean.

China allayed members' fears of its irredentist ambitions in the South China Sea by becoming the first major non-Asean country to accede to the Treaty of Amity and Co-operation. China also signed a Declaration on Strategic Partnership for Peace and Prosperity, advocating further Sino-Asean co-operation and committing both parties to accelerate talks on establishing an Asean-China free-trade agreement by 2010.

Asean-plus-China has a long way to go to become a tightly-knit trading bloc. However, China's economic dynamism and active engagement will further engender a powerful economic grouping. It would not be surprising if the warnings embodied in Mr Zoellick's comments embolden Asean and China to unite as a counterbalance to the US.

While Mr Zoellick and the 21 members of the Asia-Pacific Economic Co-operation forum, held two weeks ago, called for a revival of the Doha round, America's commitment to mobilising the WTO was diluted by its overwhelming emphasis on security issues.

Policymakers in Washington could still ensure that emerging trade blocs will co-operate with America by renewing efforts to liberalise trade within the World Trade Organisation. Otherwise, America may wind up on the receiving end of "competitive liberalisation", and find no more suitors knocking on the US trade representative's door.