Transcript Are free trade agreements discriminative?

Theory of Economic
Integration
Regionalism and WTO
Product-market integration in a neoclassical world,
introduction
Katarzyna Śledziewska
Outline

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Preferential Trade Agreements and the Multilateral Trade System
Significance of RTAs
Product-market integration in a neoclassical world, introduction
WTO rules
The GATT recognised the importance and value of economic integration
between countries
Regionalism - the most significant exception to WTO’s principal of nondiscrimination
Three sets of rules in the WTO permit the creation of RTAs:
1.
Article XXIV of the GATT
2.
the “Enabling Clause
3.
Article V of the General Agreement on Trade in Services (GATS)
WTO rules
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Article XXIV of the GATT
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lays down conditions for the establishment and operation of free trade
agreements and customs unions covering trade in goods
Paragraph 4
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„the purpose of a customs union or of a free-trade area should be to
facilitate trade between the constituent territories and not to raise barriers
to the trade of other contracting parties with such territories”
WTO rules
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Article XXIV of the GATT
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Paragraph 8
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„duties and other restrictive regulations of commerce are eliminated with
respect to substantially all the trade between the constituent territories of
the union”
„substantially the same duties and other regulations of commerce are
applied by each of the members of the union to the trade of territories not
included in the union”
WTO rules
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Article XXIV of the GATT
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Paragraph 8
„substantially all the trade”
 It is commonly accepted that
 agriculture is excluded (EFTA)
 or only included selectively (EU with Mediterrean coutries
WTO rules
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Article XXIV of the GATT
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Paragraph 5
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„the duties and other regulations of commerce (…) shall not on the whole
be higher or more restrictive than the general incidence of the duties and
regulations of commerce applicable in the constituent territories prior to the
formation of such union or the adoption of such interim agreement”
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Interim agreements are also possible, provided they lead to a FTA (CU)
within a „reasonable” time
WTO rules
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the “Enabling Clause”,
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formally the 1979 Decision on Differential and More Favourable
Treatment, Reciprocity and Fuller Participation of developing
Countries,
permits regional agreements among developing countries on trade in
goods
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de facto unlimited discretion to coclude incomplete preferential agreements
or any kind of FTAs
WTO rules
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Article V of the General Agreement on Trade in Services
(GATS)
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establishes conditions that permit liberalization of trade in services
among regional partners
Notifications of RTAs in force to
GATT/WTO
Accessions
New RTAs
Grand total
GATT Art. XXIV (FTA)
2
148
150
GATT Art. XXIV (CU)
6
8
14
Enabling Clause
1
26
27
GATS Art. V
3
72
75
Grand total
12
254
266
Source: http://rtais.wto.org/UI/PublicMaintainRTAHome.aspx
Notifications of RTAs in force to
Enabling
GATS Art.
GATT/WTO
clause
V
GATT Art.
XXIV
Grand
total
Customs Union
6
8
14
Customs Union - Accession
0
6
6
Economic Integration Agreement
Economic Integration Agreement Accession
72
72
3
3
Free Trade Agreement
9
148
157
Free Trade Agreement - Accession
0
2
2
Preferential Trade Agreement
Preferential Trade Agreement Accession
Grand total
11
11
1
1
27
75
164
266
Outline
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Preferential Trade Agreements and the Multilateral Trade System
Significance of RTAs
Significance
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Integration:
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Economic integration
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Has affected most of the countries in the world
Has become an unavoidable and powerful element in most national and
international economic policy decisions
securing access to a wider market and reinforcing growth
However – past experience
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Negative in certain developing-country groups
Significance
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The number of regional trade agreements (RTAs) has grown rapidly since WTO came
into existence in 1995
The most significant exception to WTO’s principal of non-discrimination
More than 50 percent of world trade is conducted within these preferential trade
arrangements
RTAs in force by date of entry into force
250
200
150
Establishment of WTO
100
50
19
48
19
52
19
56
19
60
19
64
19
68
19
72
19
76
19
80
19
84
19
88
19
92
19
96
20
00
20
04
20
08
0
Significance
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Number of RTAs
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1990 - 27
1995 - 60
2000 - 102
2005 – 186
2009 - 266
250
200
150
100
50
19
48
19
52
19
56
19
60
19
64
19
68
19
72
19
76
19
80
19
84
19
88
19
92
19
96
20
00
20
04
20
08
0
“Regionalism is in fashion. It seems that every month brings news of yet
another agreement among a group of countries, or between one group and
another, to strength their economic links, particularly by removing barriers to
trade and investment among themselves”. Frankel (1997)
Percentage of main RTAs in world’s exports
100,0
90,0
80,0
70,0
MERCOSUR
ECO
EFTA
60,0
50,0
40,0
CIS
GCC
ASEAN
APTA
30,0
20,0
10,0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
NAFTA
EU
Significance
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The vast majority of WTO members are:
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party to one or more regional trade agreements
party to twenty or more (some)
Examples
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http://rtais.wto.org/UI/PublicMaintainRTAHome.aspx
Preferential Trade Agreements and the Multilateral
Trade System
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One of the most frequently asked questions is whether these
regional groups help or hinder the WTO’s multilateral
trading system
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the multilateral system may be fracturing into discriminatory regional
blocs
regional agreements will go beyond what was achieved in the Uruguay
Round and instead become building blocks for further global
liberalization and WTO rules in new areas
Multi or regional?
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Considerable uncertainty regarding the future and the relevance of the
multilateral trading system
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„Clean and lean” multilateral trading system and rules difficult to develop
between developed and developing countries
RTAs – create and maintain a complex labyrinth of international trading roles
and relations
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Problems embodied in obvious, serious and repeated troubles of multilateral trade
liberalisation negotiations (Seattle, Cancun, Doha)
seem more easy to develop than multilateral trade system
General agreement about the advantages, value and importance of a
multilateral approach to international trade
Differences in opinion regarding international trade liberalisation
arrangements
Negative effects of integration
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Integration hurts third countries through trade diversion
Simple multilateral trade rules (tariffs, rules of origin) are replaced by a
complex and overlapping labyrinth or „spaghetti bowl” of various rules
specific to each group
There are regional industry-specific lobbies that demand and receive various
types of protection in order to shift rents and distort location of production
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These lobbies resist further trade liberalisation
Resources, time and energy are shifted from multilateral towards regional
issues
Negative effects of integration
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There are administrative, operational and multiple enforcement costs that
increase transaction and overall trade costs
Strong and exclusive trading blocs may exploit their monopoly power and
improve their own terms of trade; they may clash and provoke ‘trade wars’
Deeper integration may introduce protection in previously unprotected
business areas
Major players in multilateral trade liberalisation negotiations, the US and
especially the EU, are bound to specific trade liberalisation agreements (CAP)
Regional trade arrangements may slow down and postpone progress on the
multilateral plane as there are gainers form the existence of deals that
discriminate in trade who may not welcome the arrival of a new multilateral
deal
Why wider or deeper integration since the
mid-1980s
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Deeping and widening of integration in the EU and North America
Integration between developed countries such as the United States and
Canada, and a developing ones (Mexico)
Economic transition in the formerly centrally planned economies in central
and eastern Europe and the 2004 EU entry of eight of these countries, then
of two
A change in economic policies in the developing countries towards more
outward-looking and liberal models
Change of structure of production (move towards knowledge-based goods
and services and operations of transnational corporations)
Changing character of protectionism
Weaking confidence in the multilateral trading system since 1995