International Herald Tribune
FTA is not the way
Tuesday, April 3, 2007

HONG KONG: The U.S.-South Korea Free Trade Agreement may bring some short-term benefits to both countries.

But it is a sorry commentary on the future of the World Trade Organization-based global trading system that has been led by the United States for 60 years and of which South Korea has been a principal beneficiary.

It is unlikely that either country would have bothered with this deal in the face of significant domestic political opposition, particularly in Korea, had they believed there was a realistic chance now that the Doha Round of trade negotiations would have a positive outcome.

The United States wanted to get a signature on at least one significant free-trade agreement before the imminent expiration of presidential fast-track negotiating authority and to ensure that China did not have pole position in FTAs in East Asia.

South Korea wanted an inside track into the U.S. market on the assumption that Doha was dead and also that it needed some extra defense in expectation that the United States was taking aim at East Asia, notably China, as cause of its huge trade imbalance. A U.S. deal would also strengthen Korea's hand in the approaching talks with the European Union.

The agreement just signed actually falls far short of the likes of the North American Free Trade Agreement or even the U.S. deals with Australia and Singapore.

Rice remains excluded, much to the chagrin of Asian rice exporters, and South Korea has been given ages to eliminate other agricultural tariffs such as that on beef. In return, however, Washington hopes to get sufficient preference in this market - and to keep out rival suppliers - to sell the deal to its farming lobby. The agreement also says little about services, a U.S. strength and its chief focus in many a bilateral negotiation.

On a horse-trading basis, South Korea would seem to have gotten the better of this deal. But that is not how it will be seen by many politicians and much of the public in Korea, which has long been accustomed to believe that Koreans have an absolute right to sell their cars, computers and ships around the world while providing their high-cost farmers with levels of subsidy that make even the EU's farm payments seem mean. Thus the deal could face even more problems passing into law in Korea than in the United States.

The major problem with this pact, however, is that it exists at all. It is not like Nafta, which provides a regional framework for an overall reduction in trade barriers. The U.S.-South Korean agreement is essentially a defensive deal for both parties, an attempt to award themselves some mutual preferences to the exclusion of other trading partners.

Worse, it makes the global reform of farm trade - an issue that dominates the concerns of developing countries - less likely than ever.

With the United States neutralized, South Korea can now do a deal with Brussels happy in the knowledge that the European Union is content to let the Koreans (and Japanese) carry on with their huge subsidies.

Details apart, the proliferation of bilateral FTAs is contrary to the letter as well as the spirit of the WTO, the first principle of which is supposed to be non-discrimination.

Multiple FTAs set up a bewildering network of rules of origin, tariff levels and quotas - the "spaghetti/noodle bowl" effect. These may not matter to politicians and bureaucrats who negotiate trade, but they do to the businesses that actually conduct trade and organize global manufacturing systems.

The South Korea-U.S. deal can only spur more such bilateral agreements. The EU, which long had a moratorium on them, is back in the race. East Asia has a multitude of deals under discussion.

In theory, these deals might add up to freer trade, but in practice multilateral agreements - preferably global ones - are the only ones that deliver it. East Asia's remarkable trade growth owes almost nothing to free trade agreements and almost everything to global arrangements.

The world would be better off without the South Korea-U.S. pact. Yet now that it is signed, rejection by either legislature would be a victory not for global trade, but for the farm lobbies of the rich world, be they Asian, American or European.