First, there is clear a pursuit of speed and flexibility. The predominance of Free Trade Areas rather than (more complex) Customs Unions, and of bilaterals rather than plurilaterals is testimony to this. Second, there is nevertheless a concern to conclude agreements that are ambitious in both the scope of issues (if not always products) covered and in the sharing of liberalisation commitments among the Parties. Third, there appears to be a relative decline in the goal of regional integration. Indeed, the proliferation of cross-regional bilateral agreements is weakening regional integration and diluting intra-regional trade patterns.

The result is a consolidation of a hub-and-spokes system, whereby a small, though growing, number of hubs (not least those centred in Washington and Brussels) exchange preferential treatment with a diverse range of countries, which are likely to discriminate against one another. The conclusion of Economic Partnership Agreements (EPAs) between the European Union and certain African states is a case in point. One of the main declared aims of the EPAs was to promote regional integration and thus development in sub-Saharan Africa, but in reality, individual EPAs have been negotiated with selected countries in southern and West Africa, complicating regional integration in Africa rather than promoting it. Regional coherence within ASEAN too is challenged by the forces of bilateralism.

From its inception in 1967, the Association of South East Asian Nations (ASEAN)  embodied the goal of strength through regional coherence. Founded, at least in part, on a shared perception of the threat posed by China, ASEAN in 1992 agreed to form a free trade area (AFTA), to promote trade amongst the members, to compensate for the lack of progress then evident in the Uruguay Round and to create negotiating leverage in APEC. In the course of the 1990s, the six ASEAN members (Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand) were joined progressively by the Mekong 4 – Cambodia, Laos, Myanmar and Vietnam. In what might appear to be a dynamic progression towards ever more comprehensive regional cooperation, links are being fostered between ASEAN and its large northern neighbours, China, Japan and Korea (ASEAN plus 3).

But in reality the trade relationship amongst these Asian countries is highly fragmented.

• – AFTA itself is a permutation of separate bilateral preferential agreements amongst the members, with complex rules of origin such that only some 10 percent of intra-ASEAN trade receives preferential access. In this respect, AFTA differs from the European Free Trade Association, which is not a matrix of bilateral deals but rather a duty-free pool, and which has to date been a successful ‘anti-spoke’ strategy of European nations that would otherwise have become spokes to the EU’s hub.
• – The China-AFTA PTAs follows the AFTA model, with each ASEAN government signing a bilateral trade agreement with China. And although the Japanese government has expressed the hope that the Japan-AFTA agreement (signed in March 2008) will be more than just a compendium of the individual bilateral agreements between the ASEAN states and Japan, this is by no means guaranteed. China and Japan are emerging as ‘hubs’ to the ASEAN ‘spokes’ Moreover, given the rivalries between China, Japan and Korea, the political impediments to more cohesive trade diplomacy in Asia are formidable.
• – Lack of Asian cohesion is compounded by the fact that many of the players in ASEAN have concluded, or are negotiating, important bilateral agreements with third country ‘hubs’ beyond Asia, such as the planned or operational bilateral agreements between the United States and Malaysia, Singapore and Thailand. At the same time, some ASEAN members, such as Singapore, have become global hubs themselves as a result of their own complex web of bilateral agreements.

In short, ASEAN, which might be regarded as the embodiment of strong regional cooperation based on shared economic and strategic interests, has highly fractured trade relations, both within itself and in its trade relations with the rest of the world.

As countries struggle to recover from the ‘Crash of 2008’ and cope with the political economy of trade liberalisation’s concentrated losses and dispersed gains, the appeal of bilateral PTAs will grow, given the opportunities they present to: hand pick partners and avoid liberalising sensitive sectors; avoid most-favoured-nation commitments and free-riding; secure reciprocity from partners; and address a perceived race to the bottom in environment and labour standards.

But such agreements are nevertheless weakening the fabric of regional cooperation. And because of the discrimination inherent in preferential bilateral arrangements, as well as the opportunities for welfare-reducing carve-outs of difficult sectors – amply demonstrated by the exclusions of agriculture in the Japan-ASEAN bilaterals, they are a clear second best to broader liberalisation conducted on a multilateral basis. Bilateral PTAs can never be an alternative to multilateral efforts, however laborious such efforts might be, and it is a dangerous illusion to think that they can.

Charting a way forward will call for three things: sustained efforts at multilateral trade liberalisation, perhaps by abandoning the Single Undertaking and seeking progress where progress can be made; improved monitoring of preferential trade agreements; and, most fundamentally, a change of mindset among trade officials, and economic policy makers more broadly, that would view market opening as a tool of growth rather than as a concession paid to others. Only in this way could it become possible to agree that preferences granted to regional and bilateral partners would at some threshold point be multilateralised on an MFN basis.

But with preferential deals driven by political-strategic as well as by economic motivations, multilateralising benefits will never be easy. And so the uneasy co-existence of the preferential and the multilateral is set to continue.

This article is drawn from Kenneth Heydon and Stephen Woolcock, ‘The Rise of Bilateralism: Comparing American, European and Asian Approaches to Preferential Trade Agreements’ (United Nations University Press, 2009).

 

Ken Heydon is a Visiting Fellow at the London School of Economics