The increasing prominence of bilateral free trade agreements across Asia could lead to a fragmentation of international trade and hinder the participation of the international private sector, leading experts warned on Monday.
The trend also puts into doubt the future significance of the World Trade Organisation on the international stage, they said. Changing international trade regulations will require deep changes at the institutions that have traditionally been at the forefront of those areas.
Bilateral trade agreements have increasingly becoming the norm in Asia, as the slow pace of multilateral agreements under the WTO pushes nations to hammer out their own deals, said Jin Liqun, president of the Asian Infrastructure Investment Bank.
“The fact that [bilateral agreements are increasing] is a reality check for the WTO,” added Pierre Amilhat, director for Asia, Central Asia, the Middle East, Gulf and Pacific for the European Commission’s directorate general for International Cooperation and Development.
“It doesn’t mean either that it should disappear,” he added. “At the end of the day, there are advantages to having a global institution and global rules, if only because globalisation will develop if everybody benefits from it. And there are all those countries that can only benefit from in the context of a global institution.”
INFRASTRUCTURE GAP
Stephen Groff, vice president for operations at the ADB, said that such a plethora of different FTAs could have the effect of “dampening” interest from the global private sector in the region.
But Amilhat argued that that multiplicity could — and probably will have to — be addressed at a global level in the future.
“At one point, when the... spaghetti bowl of [free trade agreements] has developed to a certain size, maybe we should, as an international community, ...take stock and see if all this leads to a number of rules worth becoming absolutely global rules,” Amilhat said.
He suggested that the development of another body that picked out “the best” elements of various FTAs for use in a global regulatory framework.
Similarly, multilateral development banks would need to innovate if they were to have any hope of bridging Asia’s enormous infrastructure gap.
The infrastructure funding gap in Asia is so large — some $8tr by 2020 — that the current model of multilateral development banks will not be nearly enough to fill it, meaning new approaches may have to be considered.
Norbert Kloppenburg, board member at KfW Development Bank, emphasised the need to develop local capital markets and the financing of projects in local currencies.