ADB REPORT WARNS AGAINST TRADE BILATERALISM IN ASIA
As multilateral trade negotiations remain deadlocked at the WTO, the Asian Development Bank (ADB) has issued a new report warning that the proliferation of bilateral accords among Asia’s emerging economies could hinder growth in the region. The ADB’s latest ‘Annual Development Outlook,’ released on 6 April, drew attention to the costs to traders of complying with each agreement’s distinct set of rules of origin, and urged Asian countries to focus on regional and multilateral processes instead.
The set of overlapping and intertwined rules arising from the ever-increasing number of customs unions, common markets, regional and bilateral free trade areas, trade preference schemes, and other trade pacts has often been characterised as a "spaghetti bowl" (see BRIDGES Weekly, 19 January 2005). Referring to the situation in Asia as a growing "noodle bowl," the authors of the ADB report wondered how to mitigate essentially contradictory rules within it. The authors warned that the increased number of bilateral agreements in the region and beyond foster "closed reciprocity" instead of a more advantageous "open regionalism."
Larger economies like China receive disproportionate gains in bilateral trade deals, the report found. These "hubs" are thought to isolate smaller trading partners, the "spokes." Different sets of rules of origin between countries can be difficult, costly, and risky for businesses to administer, and generally marginalise poorer countries, it said. The complexity of the "hub and spoke system" means that there is little hope for harmonising the various bilateral rules into a set of regional rules of origin. The authors argued that regional and multilateral agreements generate greater and more equitable gains for those involved.
The report concluded that the challenge would be to minimise inconsistencies and frictions among multilateral, regional, and bilateral agreements, warning that diverting attention from the fragile multilateral trade system would, over the long term, likely have negative effects for everyone involved.
To access this section of the ADB’s report, see http://www.adb.org/Documents/books/ado/2006/documents/ado2006-part3.pdf.
ICTSD reporting; "ADB attacks bilateral trade deals," FINANCIAL TIMES, 6 April 2006.