China and Switzerland signed a bilateral free trade agreement on Friday, marking the first such agreement between China and a Western country. Trade flows between the two countries currently account for about $26 billion a year, mostly in watches, medicines, textiles, and dairy products.
Although the agreement must still be ratified by the Swiss parliament, the official signing ceremony took place during Chinese Preimier Li Keqiant’s visit to Switzerland last week. Li said that, “This free-trade deal is the first between China and a continental European economy, and the first with one of the 20 leading economies of the globe…This has huge meaning for global free-trade.”
The new agreement adds fuel to the discussion about the relative importance of multilateral versus bilateral trade agreements. When the World Trade Organization came into being in 1995, there was much celebration of its role in reducing global trade barriers. Now, almost 20 years later, the organization seems stuck in the past. It’s been unable to make progress on key issues like agricultural subsidies, and has not successfully concluded a round to talks since it was established…this despite promises to do so in Seattle (1999), Doha (2001), Cancún (2003), Geneva (2004), Paris (2005), Potsdam (2007), and so on. In the wake of its failure, countries seem more inclined to pursue regional and bilateral trade agreements instead.
The advantage of multilateral agreements is that they encourage the establishment of a more equal playing field and generally achieve a wider scope of liberalization. But they are difficult to successfully conclude, as the track record of the WTO suggests. Bilateral agreements, by contrast, permit countries to reach agreements and make progress on liberalizing international trade. But they are not without their critics.
In a 2011 speech celebrating the conclusion of the Korea-US Free Trade Agreement (KORUS), Secretary of State Hillary Clinton observed that, http://www.state.gov/secretary/rm/2011/07/169012.htm
“there is now a danger of creating a hodgepodge of inconsistent and partial bilateral agreements which may lower tariffs, but which also create new inefficiencies and dizzying complexities. A small electronics shop, for example, in the Philippines might import alarm clocks from China under one free trade agreement, calculators from Malaysia under another, and so on—each with its own obscure rules and mountains of paperwork—until it no longer even makes sense to take advantage of the trade agreements at all.”
Interestingly, Clinton called in the speech not for a return to the World Trade Organization or global negotiations, but to regional agreements like the Trans-Pacific Partnership.
More radical critiques of bilateral trade deals focus on the potential inequality between negotiating partners. According to its critics, the US Trade and Development Act (previously known as the African Growth and Opportunities Act, AGOA) was essentially a series of bilateral agreements between the United States and a number of developing countries across Africa that forced African countries to agree to develop stricter intellectual property systems than would otherwise have been required under the WTO agreement—and to refrain from criticizing US foreign policy—in exchange for lower tariffs on textile exports to the United States. By wielding its bilateral muscle, the United States was able to garner greater concessions from its trading partners than it might have been able to in a multilateral negotiation.
But as a result of the (ongoing) failure of the WTO, it seems likely that such bilateral and regional agreements are the wave of the future.
What do you think? Are multilateral trade agreements preferable to bilateral agreements? Take the poll or leave a comment below and let us know what you think.