Bilateral trade pacts likely to increase, but analysts warn of `noodle bowl' effect

The breakdown of the WTO talks is likely to encourage the further proliferation of bilateral free trade pacts in Asia that have raised concerns about a "noodle bowl" of overlapping rules, analysts said.

East Asian nations have already been rushing to negotiate individual agreements to remove barriers to trade, apparently on the expectation that the 149-nation WTO talks would flounder, they said.

WTO Pascal Lamy's decision to recommend an indefinite suspension in the long-faltering Doha round negotiations is therefore expected to lead to the further rise of bilateralism in Asia and around the globe.

"The prospect of an intensification of bilateral free trade deals is very real if the Doha round finally does break down," said Peter Drysdale, a professor at the Australian National University in Canberra.

East Asian nations' trade with North America and Europe, particularly in finished goods, has been growing even faster than intra-regional commerce, which is largely in intermediate goods and components, he said.

"So a retreat to negotiation of more narrow bilateral arrangements is not good news for the East Asian economies and the hope is that if the round does stall, it won't be put on hold permanently," Drysdale said.

The Asian Development Bank has already warned that the mushrooming of bilateral free trade agreements (FTAs) risks creating an "Asian noodle bowl" of overlapping rules that could actually make life harder for companies.

"Most Asian governments were prepared for the [failure] of the WTO talks," said Martin Schulz, an economist at the Fujitsu Research Institute.

"This is why the FTA talks [in Asia] have been in full swing over the last couple of years," he added.

Japan particular has been pushing for more FTAs around the world to secure access to raw materials and markets for its exports, and has already signed deals with Malaysia, Mexico and Singapore.

It has also struck basic accords with Thailand and the Philippines and launched negotiations with South Korea, Indonesia, six Gulf kingdoms, Chile and ASEAN as a whole.

"Japan will continue actively pursuing FTA accords with as many countries as possible," a trade ministry official said on Tuesday.

"But the importance of the WTO talks remains unchanged. Bilateral and multilateral talks are just like a pair of wheels. We will try to expand talks on FTAs and the WTO equally," said the official, who declined to be named.

South Korea for its part has held FTA talks with the US but the negotiations have stalled.

The breakdown in the WTO Doha round could also encourage the development of an East Asian free trade pact but diplomatic frictions between the region's economic powerhouses will make a deal difficult, analysts said.

ASEAN by 2015 to abolish tariffs under a regional free-trade deal.

"But ASEAN is rather insignificant -- that's the problem," Schulz said.

"What they need is an FTA of ASEAN-Plus-Three with China, [South] Korea and Japan in the group [but] since Korea, China and Japan are not talking at a high level any more, there has not been any progress in this area," he said.

ASEAN negotiating FTAs with China, Japan and South Korea, hoping this will become a catalyst for a wider East Asian free trade zone -- potentially the biggest in the world.

However, relations between Japan and its Asian neighbors have reached a low ebb largely because of Prime Minister Junichiro Koizumi's controversial visits to a Tokyo shrine honoring war dead including some infamous war criminals.

The EU has also expressed a desire to strike an FTA with ASEAN.