Transcript MULTILATERALISM vs BILATERALISM?: THE CASE OF EU …

Background: Multilateralism
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GATT signed in 1947, aiming “reduction in tariffs
and other international trade barriers” (23 members)
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Post-war “free trade” regime was multilateralism
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Uruguay Round: 1986-1994 (123 members)
Subject covered: Tariffs, NTBs, rules, services
(GATS), intellectual property (TRIPS), dispute
settlement, textiles, agriculture, creation of WTO.
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1995 – foundation of the WTO: milestone for world
trade policy
Doha Round
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4th Ministerial Conference of WTO
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Started in Nov. 2001 in Doha, Qatar.
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Doha Development Agenda (DDA): “a more open
and equitable trading system would bring more
peace to the world”.
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Set to be concluded in Nov 2006
Cancun meeting, 2003
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Main areas: agriculture, industrial goods,
trade in services, updated customs codes
G-20 emerged
No agreement on farm subsidies and market
access
3 of the Singapore issues (investment protection,
competition policy, transparency in
government procurement and trade
facilitation) dropped down.
No agreement in Cancun
Argentina
Bolivia
Brazil
Chile
China
Cuba
Ecuador
Egypt
Guatemala
India
Indonesia
Mexico
Nigeria
Pakistan
Paraguay
Peru
Philippines
South Africa
Tanzania
Thailand
Uruguay
Venezuela
Geneva meeting, 2006
No agreement on farm subsidies and import taxes.
on July 28, 2006, P. Lamy formally announced the indefinite
suspension of the talks.
Lamy (WTO): “[The suspension] is a bit like in basketball, a time-out
during which the teams talk to their trainers before coming back
on to the court.”
Mandelson (EU): “The US have been asking too much from others
in exchange for doing too little themselves.”
“we have missed the last exit on the motorway.”
Schwab (US): “We are deeply disappointed that the EU failed to
exhibit similar restraint and hope this will not jeopardize the few
chances we have left to save the Doha Round”
Nath (India): “The round is not dead. I would say that it is definitely
between intensive care and the crematorium”
“We are examining economic co-operation agreements with the
EU. We are looking at co-operation agreements with Japan.”
Background: Regionalism/Bilateralism
Viner (1950): trade creation and trade diversion
Bhagwati (1993): waves of regionalism
First Wave of Regionalism:
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EEC in 1957 (Benelux, France, Italy, W.Germany)
EFTA in 1960 (UK, Denmark, Norway, Sweden, Austria,
Switzerland, Portugal)
LAFTA in 1960 (Argentina, Brazil, Chile, Mexico,
Paraguay, Peru, Uruguay)
CACM in 1960 (Guatemala, El Salvador, Honduras,
Nicaragua)
ASEAN in 1967 (Indonesia, Malaysia, Philippines,
Singapore, Thailand)
CARIFTA in 1965-1968 (Caribbean states)
CAN in 1969 (Bolivia, Chile, Colombia, Ecuador, Peru)
USA
strongly opposed regionalism and loyal to multilateralism
insisted that FTAs would undermine the multilateral free
trade regime
rejecting proposals for a NAFTA
EUROPE
EEC and EFTA
until 1980s, regionalism was mainly a ‘European’ concept
Bhagwati (1993), “the first wave of regionalism that took
place in the 1960s failed to spread because the US
supported a multilateral approach.”
Second wave of regionalism
After the failure of the GATT Ministerial meeting in Nov 1982, US
changed position.
Trade Act of 1974
 Fast Track (Trade Promotion Authority)
 Article 301
“US would attempt trade liberalization of a greater degree than GATT
with countries which had the same intent.”
US-Israel FTA, 1985
US-Canada FTA, 1988
MERCOSUR, 1991 (Arg-Bra: 1985)
NAFTA, 1992 (in effect 1994)
EFTA – Israel, Turkey, Romania, Bulgaria
EC – Romania, Bulgaria, Turkey
EU Association agreements with CEECs
After mid-1990s: EU and US back to multilateralism
Fast Track expired in 1994.
Uruguay Round completed in 1994. WTO in 1995.
US out of regionalism game, back to its original position of
multilateralism.
EU began to give priority to the multilateralism of the WTO
In 1999, P. Lamy appointed as the Commissioner for Trade
EU trade policy: “pursuing all existing mandates for regional
negotiations with vigour and fairness, but not to begin any new
negotiations”
 EU did not want to take any initiative that might detract from the
completion of the DDA;
 EU had a ‘deep integration’ approach in FTAs and these
agreements were complex and time-consuming to negotiate
 Bilateral agreements create a ‘spaghetti bowl’
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Disturbances to the EU’s Multilateralist
position
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Bush restored Fast Track in 2002
US started FTA negotiations with several countries incl.
Chile, Singapore, Australia and Morocco
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Cancun in 2003
Drop-down of Singapore issues
Inconclusive negotiations
Lamy (2004): “our arguments in favour of a better regulated
multilateral world have been less effective. (...) I don’t
believe the WTO can or should remain the sole island of
governance in a sea of unregulated globalisation”
Mandelson instead of Lamy in 2004
WTO (2004):
the principle of non-discrimination characterized by the
MFN clause ceased to be the rule of international trading
system
the spaghetti bowl of customs unions, common markets,
regional and bilateral free trade areas, preferences and
an endless assortment of miscellaneous trade deals has
almost reached the point where MFN treatment is
exceptional treatment.
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Finally: July 2006, suspension of the DDA
“Global Europe”:
New Trade Policy of the EU
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Strategy Paper in Oct 2006
EU to pursue bilateral FTAs with major
economies in order to secure the market access
and competitiveness of European companies in
important markets
“rejection of protectionism at home,
accompanied by activism in creating open
markets and fair conditions for trade abroad”
“Global Europe”:
New Trade Policy of the EU
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Remove tariffs and NTBs
Solve behind-the-border issues
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the highest possible degree of trade, investment, and
services liberalization
ban on export taxes and quantitative import restrictions.
regulatory convergence, NTBs and stronger provisions on
IPRs and competition.
incorporating new cooperative provisions in areas relating
to labour standards and environmental protection
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Economic criteria for new FTA partners: market potential and
the level of protection against EU export interests
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ASEAN*, Korea* and Mercosur**: Prior FTA partners
India***, Russia and GCC**: countries of direct interest
China: a country of special attention because of the opportunities
and the risks it presents
Enhanced Transatlantic trade
“there will be no European retreat from multilateralism
and the EU remains committed to the WTO”
Negotiations started in *: May 2006, **: revived, ***: June 2006
Korea: signed 2009, provisionally in power since July 2011
Colombia, Peru: signed March 2011
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FTAs all over the world:
 CHINA » ASEAN, Chile, Hong Kong, Macao, N. Zealand, Pakistan,
Singapore
negotiating with: Australia, GCC, Iceland, Peru, S. Africa
planning: Korea, India, Norway
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JAPAN » Singapore, Mexico, Malaysia, Chile, Thailand, Philippines,
Brunei, Indonesia, Switzerland
negotiating with: ASEAN, GCC, Korea, Vietnam, India, Australia,
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MEXICO
CHILE
GCC
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TURKEY » Israel, Macedonia, Croatia, Bosnia, Morocco, Palestine,
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Tunisia, Syria, Georgia, Albania, Egypt
negotiating with:, Jordan, Lebanon, GCC, Faroe Islands
planning: Algeria, S. Africa, Mexico, Chile, Mercosur and 36 African
countries
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“NEW REGIONALISM” Third Wave of Regionalism
Old Regionalism vs New Regionalism
Limited to Regions
EFTA, NAFTA,
MERCOSUR
Not restricted to
geographical proximity
EFTA-Korea, US-Morocco
Only trade liberalisation
“Deep integration”
Standards, SPS, services,
IPR, competition
Shallow in coverage,
broad in membership
Deep coverage, small
number of members
(mostly bilateral)
Motives Behind the EU’s Free Trade
Agreements
Two main motives:
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foreign policy and security: neighborhood
policy
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commercial interests (more dominant): limiting
or neutralizing potential trade diversionary
effects which result from FTAs concluded
between important trading partners and a third
country. (e.g. EU–Mexico FTA)
Evidence for potential gains from EUKorea FTA
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Kim and Lee (2004): a gravity equation analysis to estimate the
trade potential capability of Korea and the EU-15.
 EU-Korea trade is under-traded
Kim (2005): an FTA with Korea would be desirable for the EU
because;
 the structural EU trade deficit since the 1990s is usually attributed
to the problems EU companies and products encounter while
entering and operating in the Korean market. These problems
create barriers to trade as the Korean rules for both products and
services differ from those of the EU.
 as Korea is one of the most dynamic emerging markets in East
Asia, the EU finds it much beneficial to build an economic basis
in Korea, where an FTA would effectuate the role.
Evidence for potential gains from EUKorea FTA
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Quantitative Study: Economic Impact of a Potential FTA between
the EU and South Korea, Copenhagen Economics and J. F.
François, March 2007
http://trade.ec.europa.eu/doclib/docs/2007/may/tradoc_134707.pdf
Qualitative Study: A Qualitative Analysis of a Potential Free Trade
Agreement between the European Union and South Korea, Centre
for European Policy Studies and Korea Institute for International
Economic Policy (Guerin, Edwards, Glania, Kim, Lee, Matthes and
Tekce), November 2007
CGE analysis shows that Korea-EU FTA would have substantial
improvements in GDP, income, trade and welfare of both parties.
Evidence for potential gains from EUKorea FTA
liberalisation of trade in manufactures between the EU and Korea is
more important than that in agriculture. However, services
liberalisation is far more important still. Without a services
liberalisation the gains for EU will be insignificant.
the main growth area in Korea’s economy and exports as a result of
FTA with the EU is motor vehicles, while some business services
are replaced by imports from the EU.
the trade surplus of EU is expected surge especially in services
trade. EU will enjoy a trade surplus with Korea in the majority of
sectors except in automobiles and parts and textiles
Evidence for potential gains from EUASEAN FTA:
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Moeller (2007): two long term and farreaching benefits:
 an FTA will please them both in Asian integration;
 an FTA will enhance their ability to tackle nonconventional and
common threats to stability and security
Botezatu (2007):
 there is a huge development gap between ASEAN’s rich and
poor members, financial aid from the EU and hence a bilateral
agreement is considered an opportunity that should not be
missed.
 In terms of trade relations, the strong commercial links between
these two blocs confirm the necessity. The EU was ASEAN’s
third largest trading partner as of 2007. Similarly, ASEAN is of
crucial economic importance for the EU.
 Cooperation on environmental issues such as the Kyoto Protocol
and dialogue on migration are also common aspirations of the
two trade partners.
Evidence for potential gains from EUIndia FTA:
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Polaski et al. (2008): using simulation techniques;
 all macroeconomic indicators of the EU, such as
private consumption, government consumption,
investment consumption, import demand, export
supply and total domestic production, display
significant increases.
 For instance, export supply appears to increase by
1.35 billion dollars corresponding to a 0.05 % change,
whereas import demand is found to increase by 3.21
billion dollars which corresponds to a 0.11% rise.
Similarly, total domestic production is expected to
increase by 0.05% as a result of the simulations.
FTAs of the USA
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Before 2002: three FTAs (with Canada, Israel
and Mexico)
After 2002: Australia, Bahrain, Chile, CAFTA,
Jordan, Oman, Morocco, Singapore and Peru.
In ratification process: (started before the
expiration of the Fast Track) Colombia, S.
Korea, Malaysia, Thailand, Panama
FTAs of the USA
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FTA partner selection criteria of the US:
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impact on domestic US politics
economic objectives
level of commitment of the partner country to
trade reform
foreign policy considerations
CONCLUDING REMARKS
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The EU has adopted itself to evaluate the best strategy with its potential
partners in order to deepen integration, expand its share in world exports,
incorporate dialogue on universal issues such as migration and environment
and promote good governance and development cooperation.
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The shift of the trade policy focus of the EU from multilateralism to bilateralism
raised concerns about the future of the WTO. Although the strategy paper of the
new trade policy clearly expressed that there will be no European retreat from
multilateralism and the EU is still loyal to WTO principles, the question still
remains: will it be feasible (or even necessary) to revive the DDA after
concluding several FTAs?
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As major trade partners achieve their goals in increasing bilateral trade by
removing the trade barriers, the marginal gains from the results of multilateral
negotiations diminish. Currently, it seems that multilateralism is losing its ground
against bilateralism. The hopes for agreeing on multilateral free trade based on
common WTO rules seem to be fading away, but this does not mean that ‘free
trade’ is weakening; bilateralism and FTAs became the new tools of
globalization and free trade.