Trade Policy Dialogue on the Multiple Dimensions of Market Access and Development Regional Trade Liberalization as a Complement to Multilateral Liberalization? Carlos A.
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Trade Policy Dialogue on the Multiple Dimensions of Market Access and Development Regional Trade Liberalization as a Complement to Multilateral Liberalization? Carlos A. Primo Braga Senior Adviser World Bank OECD Global Forum on Trade Mexico City, 23-24 October 2006 Planning ahead Trade, Regionalism and Development: Key Messages Regional trade agreements (RTAs) are proliferating and now cover one third of world trade, but their liberalizing effect has often been modest. RTAs can create trade and bring many other benefits for development …but results are not automatic and depend critically on design and implementation. RTAs have systemic consequences that adversely affect excluded countries, requiring international attention. Regional Trade Agreements are proliferating… Annual number 30 Total in force 300 25 250 20 200 Cumulative in force 15 150 New agreements annually 10 100 5 50 0 0 1958 1969 1976 1984 1989 1994 1999 2004 …and now potentially cover more than one-third of global trade South-South RTAs predominate in number, but not in trade covered Number of RTAs Percent of World Trade Covered 35 250 30 200 25 SouthSouth 150 SouthSouth 20 15 100 US US 10 50 5 European Union 0 1990 1996 European Union 0 2002 1990 1996 2002 Why this proliferation? High-income countries, such as US and EU Grant trade access to support foreign policy goals, including development Slow progress on multilateral agenda: “competitive liberalization” Access to services markets, protection of intellectual property, and rules for investment Developing countries Secure access to markets, especially large markets Lock in reforms to promote domestic agenda More FDI Among neighbors, lowering trade cost at border Framework for regional cooperation …but RTAs provide less new market access than it might appear Share of trade covered (%), 2003 35 30 25 20 15 10 5 0 Including all trade Excluding 0% MFN Excluding <3% MFN …and regional agreements are a relatively small driver of trade reform Decomposing tariff reductions in response to multilateral, regional and own initiatives Av. Tariffs, 1983 and 2003 30 Decomposing 20% pt. decline Regional Agreements 10% 29.9 25 20 Multilateral Agreements 25% 15 9.3 10 Autonomous Liberalization 65% 5 0 1983 Source: Martin and Ng, 2004 2003 Assessing effects of RTAs on members: two ways 1 Prospective – general equilibrium models Most agreements projected to create more trade than they divert Projected gains less than multilateral Excluded countries almost always lose Market access is a key determinant on net benefits 2 Retrospective – econometric, gravity model Different studies – different results Meta analysis suggest that half of agreements have been net trade diverting Effects on members: Do RTAs create – or divert -trade? Estimated exponential impact on trade -4 SACU NAFTA -2 0 2 4 6 8 10 Overall exports Overall imports EC CACM Intra-regional trade ECOWAS GCC AFTA ANDEAN CEMAC Mercosur SADC SAPTA CIS EAC WAEMU COMESA Note: The bars show the magnitude of the dummy variables capturing respectively the extent to which intraregional trade, overall imports and overall exports differ from the “normal” levels predicted by the gravity model on the basis of economic size, proximity and relevant institutional and historical variables, such as a common language. Agreements with high external tariffs risk trade diversion NAFTA AFTA SADC EAC MERCOSUR COMESA ECOWAS SAFTA 0 5 10 15 20 Average weighted tariffs Note: Tariffs are import-weighted at the country level to arrive at PTA averages Source: UN TRAINS, accessed through WITS 25 Lower external tariffs are associated with greater regional integration Average external tariffs 25 SAS 20 MNA SSA 15 LAC 10 ECA EAP 5 0 0 5 10 15 20 Intra-regional trade/GDP 25 30 RTAs go far beyond trade Customs Intellectual Dispute Standards Transport cooperation Services Property Investment Settlement Labor Competition US-Jordan No No Yes Yes Yes Yes Yes Yes No US-Chile Yes No Yes Yes Yes Yes Yes Yes Yes US-Singapore Yes No Yes Yes Yes Yes Yes Yes Yes US-Australia Yes No Yes Yes Yes Yes Yes Yes Yes US-CAFTA Yes No Yes Yes Yes Yes Yes Yes No US-Morocco Yes No Yes Yes Yes Yes Yes Yes No NAFTA Yes No Yes Yes Yes Yes Yes Yes Yes Yes Yes U.S.-Led E.U.-Led EU-South Africa EU-Mexico Yes Yes Yes Yes Yes Yes Yes No Yes EU-Chile Yes Yes Yes Yes Yes Yes Yes No Yes MERCOSUR No No Yes Yes No Yes Yes No Yes Andean Community No No Yes Yes No Yes Yes No Yes CARICOM Yes Yes Yes Yes No Yes Yes Yes Yes AFTA Yes Yes Yes Yes No Yes No No No Yes Yes Yes No Yes Yes Yes Yes Yes No Yes Yes Yes Yes Japan-Singapore Yes No Yes Yes Yes Yes Yes Yes Yes Canada-Chile No No Yes Yes No Yes Yes Yes Yes Chile-Mexico Yes Yes Yes Yes Yes Yes Yes Yes South-South SADC COMESA Other Let’s consider: trade faciliation, services, investment, intellectual property rights and temporary movement of labor Delays at border drives up trading costs Trade/GDP RTAs can provide framework for mutual efforts to reduce costs Single customs document 250 Malaysia 200 Slovenia Slovakia 150 Harmonize driving & 100 weight regulations Computerize both sides of the border Malawi Kyrgyzstan Ethiopia 50 Uganda 0 0 5 10 15 20 Days through customs, imports Potential of RTAs to reduce border costs not yet realized 25 Services liberalization deepest in N-S agreements… US and EU (less systematically) agreements establish National treatment MFN treatment for members Nonrestrictive rules of origin of investor Pre-establishment access subject to negative lists (US) or positive lists (EU) Upside potential great because risks of losses through diversion minimal. …but achievements in additional liberalization subject to question South-south gone much less far Investment accords provide for new access and new investor protections… Potential benefits include greater FDI flows because… Liberalized market access increased payoff to trade integration, reduced risk premium enhanced credibility of investment climate Reduced international policy spillovers Rent shifting via TRIMs, etc. However, market access more important than investor protections as no evidence that protections significantly increase FDI flows to developing countries… RTAs that create large ex-post market results and, provided good investment climate, do attract more FDI. A 10% increase in post-FTA market size is associated with a 0.5 percent increase in FDI in the host country. Intellectual property rights figure prominently in N-S RTAs, particularly US FTAs US FTAs contain TRIPS Plus provisions that provide greater IPR protection. Brings generics under market and data exclusivity arrangements No analysis of economic consequences prior to signing Open questions: Will FTAs foreclose use of Doha flexibilities on TRIPS for generics? Will stronger IPRs contribute to more FDI and high tech trade? Are TRIPS Plus measures appropriate to all countries? Conclusion: Development consequences of investment and IPR rules depend heavily on market access these rules leverage Labor services are area of potential Types of labor services treatment Full labor mobility (EFTA, ANZCERTA) Access for certain groups (NAFTA, Japan-Singapore FTA) Mode-4 type access (ASEAN, EU-Mexico) No provisions (APEC, COMESA) Patterns include: Limited mobility Skilled labor only: mainly intra-corporate In conclusion…not much movement Ironically, areas with least progress – services and labor – have greatest development potential… while areas with most progress – e.g., IPR – are those with more uncertain development consequences Perceptions of risk and opportunities vary… Both North-South and South-South accords can be improved… Some sweeping generalization… North-South Strengths Compatibility among economies Services liberalization Move to international standards Weaknesses Restrictive rules of origin Exemptions, esp. agriculture Inappropriate rules No or limited movement of workers Index of ROO Restrictiveness 6 5 4 3 2 1 0 NAFTA EU-Mexico EU-Chile Estevadeordal, 2004 SADC ChileCACM AFTA COMESA ECOWAS Both North-South and South-South accords can be improved… Some sweeping generalization… North-South Strengths Compatibility among economies/large markets Services liberalization Move to international standards Weaknesses Restrictive rules of origin Exemptions, esp. agriculture Inappropriate rules No movement of workers South- South Strengths Focus on trade Nonrestrictive rules of origin Adjacency permit trade facilitation Weaknesses Small markets/Higher external barriers Exemptions Minimal services No movement of workers Design are crucial to achieving objectives •Design Large Low ex-post market external tariff barriers Nonrestrictive rules of origin Wide product coverage with minimal exemptions Liberalization Facilitating trade at borders Appropriate rules •Implementation: agreements of services Avoiding paper ….Open regionalism Overlapping African agreements… AMU Nile River Basin COMESA ECCAS IGAD CEMAC Somalia Sao Tomé & Principe Algeria Libya Morocco Mauritania Tunisia ECOWAS Conseil de L’Entente Ghana Nigeria Egypt Cameroon Central African Rep. Gabon Equat. Guinea Rep.Congo Chad Cape Verde Gambia Djibouti Ethiopia Eritrea Sudan Burundi* Rwanda* DR Congo Benin Togo Cote d’Ivoire Guinea-Bissau Liberia Sierra Leaone Niger Burkina Faso Mali Senegal EAC Guinea Tanzania* Malawi* Zambia* Zimbabwe* SACU WAEMU Mano River Union Kenya* Uganda* Angola CLISS AMU: Arab Maghreb Union CBI: Cross Border Initiative CEMAC: Economic & Monetary Community of Central Africa CILSS: Permanent Interstate Committee on Drought Control in the Sahel COMESA: Common Market for Eastern and Southern Africa EAC: East African Cooperation ECOWAS: Economic Community of Western African Studies IGAD: Inter-Governmental Authority for Government IOC: Indian Ocean Commission SACU: Southern African Customs Union SADC: Southern African Development Community WAEMU: West African Economic & Monetary Union South Africa Botswana Lesotho Mozambique SADC Mauritius* Syechelles* Comoros* Madagascar* Namibia* Swaziland* Reunion *CBI IOC Systemic issues…uneven and discriminatory access Preferences hurt excluded countries Hub and spokes put weaker countries at disadvantage Multiple arrangements burden customs Disincentives to engage in multilateral liberalization Av. Number of PTAs per country, 2002/3 8 7 6 5 4 3 2 1 0 E. Asia & Europe & Latin Middle Pacific C. Asia America & East & N. Caribbean Africa S. Asia SubSaharan Africa Policy implications… International community through the WTO Get Doha done Concentrate on transparency/Article XXIV High income countries have systemic responsibility Widen coverage in FTAs (i.e. agriculture) Move toward conformity in rules of origin, and make less restrictive Promote rules tailored to local capacities Developing countries should adopt a 3 part strategy, using each instrument to its most appropriate objective Unilateral: driving competitiveness Multilateral: seeking broad market access Regional: deep market access and institutional reforms (customs, ports, trade-related standards) The importance of being prepared… [email protected] Source: World Bank (2005) Global Economic Prospects Thank you !