Afta Doha

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: Contemplating the failure of the Doha round of multilateral trade talks, which collapsed in Geneva in July, Peter Mandelson, trade commissioner of the European Union (EU), predicted that by the time the talks resumed, “the caravans will have moved on elsewhere.” On August 28th they trundled through Singapore. The ten members of the Association of South-East Asian Nations (ASEAN) agreed on a trade deal with India and reached a separate accord with Australia and New Zealand. Together, the agreements cover trade worth about $70 billion in 2006.

After the Geneva disappointment, some free traders find consolation in the success of bilateral and regional deals, such as those agreed on in Singapore. Since the Doha round was launched almost seven years ago, over 100 such deals have come into force, lowering tariffs for some members of the World Trade Organisation (WTO) but not others.

These preferential deals violate the principle of “most-favoured nation” (MFN), which holds that any favour offered to one member must be offered to all. But that principle now has few defenders in the world’s trade ministries. In his new book, “Termites in the Trading System”, Jagdish Bhagwati of Columbia University points out that negotiators see any deal as a “feather in your cap”. But economists know better. By playing favourites with its trading partners, a country can dupe itself into paying more for its imports. Its consumers may switch from a low-cost supplier to a more expensive one, only because the new supplier can sell its goods duty-free and the other cannot. The consumer pays less, but the Treasury is deprived of tariff revenue. Thus discriminatory trade deals do not just hurt those left out.

ASEAN, however, seems a compelling advertisement for regionalism. Its members (which include Indonesia, Malaysia, the Philippines, Thailand and Vietnam) have only 3% of the world’s land area but 11% of its coastline, which extends for 173,000 kilometres around the region’s peninsulas and archipelagos. ASEAN’s prosperity depends on trade: its ratio of exports to GDP is almost 70%.

The group’s economic geography is as spectacular as its topography. Elaborate networks of production span the region and extend to China, Japan and South Korea. Much of the region’s trade is in parts (such as car components) and tasks (such as assembly) rather than finished goods. It has become part of what Richard Baldwin, of the Graduate Institute of International Studies in Geneva, calls “Factory Asia”.