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Friday, 6 April, 2001, 08:31 GMT 09:31 UK
An end to multilateral trade?
President George W.Bush
President Bush will travel to Quebec to seal a free trade agreement
Negotiators from 34 American countries are in talks to create the world's biggest free-trade area.

The Free Trade Area of the Americas, could rival the EU and include countries such as Argentina in the North America Free Trade Agreement (NAFTA).

As it becomes more difficult to get multilateral trade talks off the ground - regional deals appear to be flourishing.

Fear exists that these regional deals could undermine the multilateral process, already struggling to recover from the protests in Seattle last year which forced an end to talks.

Late last year, WTO chief Mike Moore articulated fears that regional agreements may be draining energy from multilateral negotiations.

"If globalisation underscores nothing else, it is the logic of global rules for global firms operating in a global marketplace," Mike Moore said.

WTO chief Mike Moore
WTO chief Mike Moore fears the effect of regional trade deals
The advantages of free trade should in theory be that consumers can buy the best and most competitively priced products, while companies are secure in the knowledge that they have a broad market for their products.

But regional free trade pacts cut both ways - while barriers come down within them, there is concern that trade zones such as the EU will have more clout to exclude goods from countries outside their boundaries.

Some people fear that the world is dividing into a few massive trade blocs, which will eventually fight trade wars between themselves rather than promote global free trade.

Such fears seem exaggerated for now, but the growing number of trade skirmishes between the United States and Europe suggest that tensions are increasing between the world's two biggest trading blocs.

Regional sign-up

What is clear is that more and more countries are opting to sign up for regional agreements.

The 140-odd members of the World Trade Organisation ( WTO) have to notify it of any regional agreements they have signed up to.

Between 1948 and 1994, about 124 regional agreements were notified to GATT.

Since the WTO was created in 1995, another 90 agreements have been notified.

But not all these agreements have stayed the course.

Of the 214 agreements notified, about 134 agreements are thought to be currently in force.

Why regional?

The impetus for regional agreements is clear - most countries want to secure access to the markets of their biggest trading partners and these are often neighbouring countries.

The European Union (EU) is probably one of the best examples of this. These countries traded heavily among themselves, so the creation of a trade pact secured this access to each other markets, and - in theory - made it more efficient, by working to reduce anomalies in regulations between the different countries.

Some countries think they stand a better chance of being heard in regional negotiations.

It can be hard to be heard above the din of the 140-strong WTO negotiations, and having your voice heard is the start to making sure you get what you want.

US change of heart

The US may have found it easier to dominate the agenda and outcome of trade talks in the 1970s, but the growth in size of the WTO has made that more difficult.

"In the US, there is a strong opinion that multilateralism doesn't serve US interests," London School of Economics' trade expert Stephen Woolcock said.

"With 140 countries in WTO, you just come out with lowest common denominator, it is harder for the US to get what it wants."

Private sector interests in the US now appear more likely to support the bilateral approach, a move which could drain energy from multilateral talks.

The key to success of Uruguay trade round was in part the strong coalition of private sector interests favouring multilateral rounds.

Developing countries may find their interests are better represented in multilateral talks - but often at the end of the day, they just want to have a securing access to European or US markets.

"There is a belief that a regional agreement with the US or EU will help ensure a guaranteed market to that market," the LSE's trade expert Stephen Woodcock added.

On top of this, regional agreements shouldn't take as long as multilateral agreements to conclude - as indicated by Alfredo Ferrero, Peru's vice minister of integration and international trade.

He said on Thursday: "We have to deal with this here. We can't just wait for a multilateral round of the WTO."

Free trade?

But will these regional trade agreements deliver the goods for companies and consumers?

They could create advantages for inefficient regional producers.

Regional deals can spread best practice in terms of regulatory policy, improving the chances of further free trade agreements being secured.

However different regulatory approaches can emerge, distorting free trade.

For example with food, the US adopts a scientific approach, where the EU adopts a greater use of precautionary principles and say national regulators will be able to preclude sale of products until it is sure they are safe, Woolcock argues.

Regional doubters

The regional approach isn't necessarily a cure-all for those disaffected with the multilateral approach.

As regional agreements get bigger and more unwieldy, participants may find that the same problems emerge as do with multilateral agreements.

"Surely it is increasingly difficult to claim that free trade is any easier in vast regional arrangements like the FTAA or APEC than in the WTO," the organisation's chief Mike Moore argued.

"The FTAA covers all but one of the 35 countries of North, Central or South America, boasting combined market of well over half a billion people," he added.

The FTAA would be the world's largest free trade area. More than 783 million people produced more than $11.4 trillion in goods and services in 1999, generating about $2.7 trillion in cross-border trade.

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