Bilateral trade agreements come in handy

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: The recent flurry of bilateral and regional trade agreements bring the issue of multilateral versus bilateral trade agreements to the forefront in a fundamentally shifting global economy. Some of the recently concluded agreements are Japan-Thailand and US-South Korea free trade agreements (FTAs). Japan has shown an interest in FTA with the US in response to the US-South Korea agreement. There are 220-odd such agreements in existence today and it is expected to scale up to 400 by the turn of this decade.

Meanwhile, let us step back to understand the role played by such agreements in fostering freer global trade in a globalising world. With the establishment of Global Agreement on Trade and Tariffs (GATT) after World War II, the multilateral approach was the preferred mode of trade liberalisation. The World Trade Organisation (WTO) was brought into existence on January 1, 1995, after GATT to fix the anomaly resulting from special treatment allowed under GATT for its member nations to subsidise agriculture, domestic production and export, and limit market access.

This practice ultimately resulted in a decrease in commodity food price, distortion in global agriculture trade and frustration from non-subsidised agriculture exporting nations. One of the noble objectives of WTO was to eradicate this trade distortion, and improve food price and thereby improve the welfare of farmers.

The Uruguay Round launched during 1986-94 (most of WTO’s work comes from there and the earlier GATT) touched issues ranging from agriculture, IPR, technical barriers and trade. Since, the agreement on agriculture was just an interim agreement while the final goal was full liberalisation, it was agreed that negotiations would resume in 1999. Eventually, new negotiations were launched by the organisation under the Doha Development Agenda in 2001.

One of the thorniest issues dividing the developed and the developing world is the issue of agriculture subsidy even though its share of the world trade is less than 8%. Due to the deadlock in negotiations, the discussion was brought to a halt in July 2006—until the recent meeting of the US, EU, Brazil and India in Potsdam, Germany in June 2007. However, post that meet, the discussions have halted again. Discussions may only resume after the US presidential election next year.