Multilateralising 21st Century Regionalism

Richard Baldwin Professor of International Economics

Graduate Institute, Geneva University of Oxford

OECD Global Trade Forum, Paris 2014

Basic ‘logic thread’ of talk:

• 20th & 21st century globalisation are different,

• So 20th & 21st century trade are different,

• So 20th & 21st century RTAs are different,

• So 20th & 21st multilateralisation are different.

Main message:

- Mistake to think about MR21 in same terms as MR20.

- A few blue-skies ideas at the end.

Multilateralising Regionalism: 20th vs 21st century

Globalisation changed

G7 nations’ share of global GDP, 1820 – 2010.

G7 nations’ share of global manufacturing, 1970 – 2010.

1820,

22%

1988,

67%

2010,

50%

0%

10%

20%

30%

40%

50%

60%

70%

80%1

82

01

83

91

85

81

87

71

89

61

91

51

93

41

95

31

97

21

99

12

01

0

1990,

65%

G7, 47%

3%

China,

19%

5% 6 Risers,

9%

RoW

0%

10%

20%

30%

40%

50%

60%

70%

80%

19

70

19

75

19

80

19

85

19

90

19

95

20

00

20

05

20

10

Wo

rld

ma

nu

fact

uri

ng

sh

are

Source: unstats.un.org; 6 risers = Korea, India,

Indonesia, Thailand, Turkey, Poland

Globalisation’s 1st & 2nd unbundlings: 3 cascading constraints

High High High

Stage B Stage A

Stage C

1st unbundling =

Stage B

Stage A Stage C

2nd unbundling =

Pre- globalised

world =

Low Low

High

ICT revolution

Low

High High

Steam revolution

Cost of moving:

1st unbundling:

Steam revolution & transport costs.

2nd unbundling:

ICT revolution & coordination costs.

Globalisation as 2 unbundlings

20th vs 21st century trade

Stage B

Stage A

Stage C

Goods, know-how, ideas, capital & people crossing borders

Stage

B

Stage

A

Stage

C

Stage

B

Stage

A

Stage

C

Goods crossing borders

“Trade-investment-services-IP nexus”

20th century trade:

Trade helps sell goods.

21st century trade:

Trade helps make goods.

20th vs 21st century trade

21st century trade needs different disciplines

Bay B

1) “Supply-chain disciplines”

Connecting factories

- Tariffs;

- Transportation services;

- Business mobility;

- Communication services.

2) “Offshoring disciplines”

Doing business abroad

- International investment;

- Application of home’s technology abroad;

- Local availability of business services.

20th century RTAs:

Mostly about tariff preferences.

21st century RTAs:

Mostly about underpinning GVCs.

20th vs 21st regionalism

Keystone difference: 20th vs 21st RTAs

Lack of discrimination technology

• 21st century RTAs are much less discriminatory.

• Many 21st century provisions impinge on:

– Firms

– Services

– Capital

– Knowhow

• KEY: Hard to define nationality of these in modern world.

• Thus RTA provisions tend to be nondiscriminatory.

• Unilateral reform embedded in an RTA.

Lack of discrimination technology

20th century RTAs:

“Rules of origin” fairly easy to enforce.

21st century RTAs:

Rules-of-origin for firms, services, capital, and IP hard to enforce.

20th vs 21st discrimination ‘technology’

20th century RTAs:

“My market for yours”.

21st century RTAs:

“Southern reform for Northern factories”.

Different politics

Multilateralising 20th century RTAs:

• Mostly about reducing discrimination.

Multilateralising 21st century RTAs:

• Most about realising network externalities via common rules.

Multilateralisation is different

So what?

• Globalisation is different;

• Trade is different;

• RTAs are different;

• Multilateralisation is different.

Topline messages:

• Old regionalism concepts are mis-leading, or insufficient when thinking about 21st RTAs and megaregionals.

• Multilateralising 21st century regionalism is about maximising network externalities via common rules.

Questions:

1. Whose rules? - US, Japan, EU, China?

- Developing country appropriateness?

2. Which rules need multilateralisation?

What should be multilateralised?

1. Diversity of preferences.

- Favours little multilateralisation.

2. Network externalities & scale economies.

- Favours multilateralisation at higher-than-bilateral level.

Conceptual framework

Organise thinking: What to multilateralise?

Harmonization cost

Gain from common rules

Low

High

Low High

Mega-regional or global multilateralisation

Spontaneous adoption of global

rules

National rules

Non-issue

Economics research:

1. Identify RTA provisions with negative spillovers for third-nations.

2. Look for impact of common rules (i.e. network effects of RTAs).

Legal research

• How different are the deep provisions in existing RTAs?

• Can a ‘lowest common denominator’ be identified?

More research needed

Blue skies ideas

• GVC role in development.

– Africa & South America vs Asia & Central Europe

• Impact of megaregionals (TPP, TTIP).

Why not hold APEC-like (but global) discussion on megaregionalism and its multilateralisation?

Why not let WTO organise this?

Global discussions: Fragmented and fraught with misunderstandings

Today trajectory:

- Complete TPP, TTIP, EU-Japan, etc.

- THEN discuss multilateralisation.

A better way:

- Study/discuss multilateralisation

- WHILE negotiating TPP, TTIP, etc.

Invert the order

END

• Thank you for listening.

Extra slides (for possible Q&A use)

Trade changed

US-

EU25

1986

Intra-

Asean

Japan-

Asean

US-

China

0%

10%

20%

30%

40%

50%

60%

19

62

19

67

19

72

19

77

19

82

19

87

19

92

19

97

20

02

20

07

20

12

Index of intra-industry trade

What is new? North-South production sharing,

mostly in machinery sectors

21st century regionalism Starts late 1980s, early 1990s

1989

0

100

200

300

400

500

600

700

19

58

19

63

19

68

19

73

19

78

19

83

19

88

19

93

19

98

20

03

20

08

Number of

offshoring and

supply-chain

provisions in RTAs

Number of RTAs

New

BITs

signed

1988

FDI

0

500

1000

1500

2000

2500

0

50

100

150

200

250

19

59

19

64

19

69

19

74

19

79

19

84

19

89

1994

1999

20

04

South

Asia

Sub-

Sahara

n

Africa

Middle

East &

North

Africa 1994

East

Asia &

Pacific0

5

10

15

20

25

30

35

40

45

50

19

88

19

90

19

92

1994

19

96

19

98

20

00

20

02

20

04

20

06

20

08

Applied tariffs, simple mean,

all goods (%)

Examples of supply-chain disciplines in RTAs 1. Customs cooperation.

Provision of information; publication on the Internet of new laws and regulations; training

2. Beyond WTO GATS liberalisation.

Liberalisation of trade in services

3. FTA industrial. Tariff liberalization on industrial goods; elimination of non-tariff measures

4. Visa disciplines. Business visa, etc.

21st century RTA provisions: Offshoring & Supply-Chain Disciplines

Source: From WTO database on RTA provisions. My classification of provisions.

21st century RTA provisions: Supply-Chain & Offshoring Disciplines

Examples of offshoring disciplines in RTAs 1. TRIMs Provisions concerning requirements for local content and

export performance of FDI 2. GATS Liberalisation of trade in services

3. TRIPs Harmonisation of standards; enforcement; national treatment, most-favoured nation treatment

4. Competition Policy Measures to proscribe anticompetitive business conduct; harmonisation of competition laws; establishment or maintenance of an independent competition authority

5. IPR Accession to international treaties not referenced in the TRIPs Agreement

6. Investment Information exchange; Development of legal frameworks; Harmonisation & simplification of procedures; National treatment; dispute settlement

7. Capital movement Liberalisation of capital movement; prohibition of new restrictions

8. Approximation of laws

Application of EC legislation in national legislation

Which Deep RTA provisionsmmatter? Revealed preference evidence from US RTAs (share with given provision)

0% 80%

ADCustoms

CVMExport Taxes

FTA AgricultureFTA Industrial

GATSPublic Procurement

SPSState Aid

STETBT

TRIMsTRIPs

AgricultureAnti-Corruption

Approximation of…Audio Visual

Civil ProtectionCompetition Policy

Consumer ProtectionCultural Cooperation

Data ProtectionEconomic Policy Dialogue

Education and TrainingEnergy

Environmental LawsFinancial Assistance

HealthHuman Rights

Illegal ImmigrationIllicit Drugs

Industrial CooperationInformation SocietyInnovation Policies

InvestmentIPR

Labour Market RegulationMining

Money LaunderingMovement of Capital

Nuclear SafetyPolitical Dialogue

Public AdministrationRegional Cooperation

Research and TechnologySME

Social MattersStatisticsTaxation

TerrorismVisa and Asylum

US LE frq

US AC frq

Provision in WTO 1.0 but deeper commitments in the RTAs

Provision not in WTO 1.0 (maybe in WTO 2.0)

Not legally enforceable

Legally enforceable

Source: WTO database on RTA provisions

Japan’s RTAs in WTO

Database

0% 80%

ADCustoms

CVMExport Taxes

FTA AgricultureFTA Industrial

GATSPublic Procurement

SPSState Aid

STETBT

TRIMsTRIPs

AgricultureAnti-Corruption

Approximation of…Audio Visual

Civil ProtectionCompetition Policy

Consumer ProtectionCultural Cooperation

Data ProtectionEconomic Policy…

Education and TrainingEnergy

Environmental LawsFinancial Assistance

HealthHuman Rights

Illegal ImmigrationIllicit Drugs

Industrial CooperationInformation SocietyInnovation Policies

InvestmentIPR

Labour Market…Mining

Money LaunderingMovement of Capital

Nuclear SafetyPolitical Dialogue

Public AdministrationRegional Cooperation

Research and TechnologySME

Social MattersStatisticsTaxation

TerrorismVisa and Asylum

Japan (legally

enforceable)Japan

(mentioned)

Visa

IPR

Movement of capital

Investment

RTAs: US, Japan, EU & RoW

0%

80%

AD

Cust

om

sC

VM

Ex

po

rt T

axes

FT

A A

gri

cult

ure

FT

A I

ndu

stri

alG

AT

SP

ub

lic

Pro

cure

men

tS

PS

Sta

te A

idS

TE

TB

TT

RIM

sT

RIP

sA

gri

cult

ure

An

ti-C

orr

up

tio

nA

pp

rox

imat

ion o

f…A

ud

io V

isu

alC

ivil

Pro

tect

ion

Com

pet

itio

n P

oli

cyC

on

sum

er P

rote

ctio

nC

ult

ura

l C

oo

per

atio

nD

ata

Pro

tect

ion

Eco

no

mic

Po

licy

…E

duca

tion

and

Tra

inin

gE

ner

gy

En

vir

on

men

tal

Law

sF

inan

cial

Ass

ista

nce

Hea

lth

Hu

man

Rig

hts

Ille

gal

Im

mig

rati

on

Illi

cit

Dru

gs

Ind

ust

rial

Co

op

erat

ion

Info

rmat

ion

So

ciet

yIn

no

vat

ion

Po

lici

esIn

ves

tmen

tIP

RL

abou

r M

ark

et…

Min

ing

Mo

ney

Lau

nd

erin

gM

ovem

ent

of

Cap

ital

Nu

clea

r S

afet

yP

oli

tica

l D

ialo

gue

Pu

bli

c A

dm

inis

trat

ion

Reg

ion

al C

oo

per

atio

nR

esea

rch a

nd

…S

ME

So

cial

Mat

ters

Sta

tist

ics

Tax

atio

nT

erro

rism

Vis

a an

d A

sylu

m

US AC frq

US LE frq

0%

80%

AD

Cust

om

sC

VM

Ex

po

rt T

axes

FT

A A

gri

cult

ure

FT

A I

ndu

stri

alG

AT

SP

ub

lic

Pro

cure

men

tS

PS

Sta

te A

idS

TE

TB

TT

RIM

sT

RIP

sA

gri

cult

ure

An

ti-C

orr

up

tio

nA

pp

rox

imat

ion o

f…A

ud

io V

isu

alC

ivil

Pro

tect

ion

Com

pet

itio

n P

oli

cyC

on

sum

er P

rote

ctio

nC

ult

ura

l C

oo

per

atio

nD

ata

Pro

tect

ion

Eco

no

mic

Po

licy

…E

duca

tion

and

Tra

inin

gE

ner

gy

En

vir

on

men

tal

Law

sF

inan

cial

Ass

ista

nce

Hea

lth

Hu

man

Rig

hts

Ille

gal

Im

mig

rati

on

Illi

cit

Dru

gs

Ind

ust

rial

Co

op

erat

ion

Info

rmat

ion

So

ciet

yIn

no

vat

ion

Po

lici

esIn

ves

tmen

tIP

RL

abou

r M

ark

et…

Min

ing

Mo

ney

Lau

nd

erin

gM

ovem

ent

of

Cap

ital

Nu

clea

r S

afet

yP

oli

tica

l D

ialo

gue

Pu

bli

c A

dm

inis

trat

ion

Reg

ion

al C

oo

per

atio

nR

esea

rch a

nd

…S

ME

So

cial

Mat

ters

Sta

tist

ics

Tax

atio

nT

erro

rism

Vis

a an

d A

sylu

m

Jpn AC frq

Jpn LE frq

0%

80%

AD

Cust

om

sC

VM

Ex

po

rt T

axes

FT

A A

gri

cult

ure

FT

A I

ndu

stri

alG

AT

SP

ub

lic

Pro

cure

men

tS

PS

Sta

te A

idS

TE

TB

TT

RIM

sT

RIP

sA

gri

cult

ure

An

ti-C

orr

up

tio

nA

pp

rox

imat

ion o

f…A

ud

io V

isu

alC

ivil

Pro

tect

ion

Com

pet

itio

n P

oli

cyC

on

sum

er P

rote

ctio

nC

ult

ura

l C

oo

per

atio

nD

ata

Pro

tect

ion

Eco

no

mic

Po

licy

…E

duca

tion

and

Tra

inin

gE

ner

gy

En

vir

on

men

tal

Law

sF

inan

cial

Ass

ista

nce

Hea

lth

Hu

man

Rig

hts

Ille

gal

Im

mig

rati

on

Illi

cit

Dru

gs

Ind

ust

rial

Co

op

erat

ion

Info

rmat

ion

So

ciet

yIn

no

vat

ion

Po

lici

esIn

ves

tmen

tIP

RL

abou

r M

ark

et…

Min

ing

Mo

ney

Lau

nd

erin

gM

ovem

ent

of

Cap

ital

Nu

clea

r S

afet

yP

oli

tica

l D

ialo

gue

Pu

bli

c A

dm

inis

trat

ion

Reg

ion

al C

oo

per

atio

nR

esea

rch a

nd

…S

ME

So

cial

Mat

ters

Sta

tist

ics

Tax

atio

nT

erro

rism

Vis

a an

d A

sylu

m

EU AC frq

EU LE frq

0%

80%

AD

Cust

om

sC

VM

Ex

po

rt T

axes

FT

A A

gri

cult

ure

FT

A I

ndu

stri

alG

AT

SP

ub

lic

Pro

cure

men

tS

PS

Sta

te A

idS

TE

TB

TT

RIM

sT

RIP

sA

gri

cult

ure

An

ti-C

orr

up

tio

nA

pp

rox

imat

ion o

f…A

ud

io V

isu

alC

ivil

Pro

tect

ion

Com

pet

itio

n P

oli

cyC

on

sum

er P

rote

ctio

nC

ult

ura

l C

oo

per

atio

nD

ata

Pro

tect

ion

Eco

no

mic

Po

licy

…E

duca

tion

and

Tra

inin

gE

ner

gy

En

vir

on

men

tal

Law

sF

inan

cial

Ass

ista

nce

Hea

lth

Hu

man

Rig

hts

Ille

gal

Im

mig

rati

on

Illi

cit

Dru

gs

Ind

ust

rial

Co

op

erat

ion

Info

rmat

ion

So

ciet

yIn

no

vat

ion

Po

lici

esIn

ves

tmen

tIP

RL

abou

r M

ark

et…

Min

ing

Mo

ney

Lau

nd

erin

gM

ovem

ent

of

Cap

ital

Nu

clea

r S

afet

yP

oli

tica

l D

ialo

gue

Pu

bli

c A

dm

inis

trat

ion

Reg

ion

al C

oo

per

atio

nR

esea

rch a

nd

…S

ME

So

cial

Mat

ters

Sta

tist

ics

Tax

atio

nT

erro

rism

Vis

a an

d A

sylu

m

RoW ACfrq

RoW LEfrq

US Japan

EU All others

80%

Source: Baldwin (2012), “WTO 2.0”, CEPR Policy Insight

Only beyond WTO measures

0% 50% 100%

Agriculture

Anti-Corruption

Approximation of Legislation

Audio Visual

Civil Protection

Competition Policy

Consumer Protection

Cultural Cooperation

Data Protection

Economic Policy Dialogue

Education and Training

Energy

Environmental Laws

Financial Assistance

Health

Human Rights

Illegal Immigration

Illicit Drugs

Industrial Cooperation

Information Society

Innovation Policies

Investment

IPR

Labour Market Regulation

Mining

Money Laundering

Movement of Capital

Nuclear Safety

Political Dialogue

Public Administration

Regional Cooperation

Research and Technology

SME

Social Matters

Statistics

Taxation

Terrorism

Visa and Asylum RoW legally

enforceable

EU legally

enforceable

Japan legally

enforceable

US legally

enforceable

Visa

IPR

Movement of capital

Competition policy

Investment

Preference margins are small

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Source: Carpenter & Lendle (2010)

Import shares by preference margins, selected nations

Above 10% or

specific

5% to 10%

Below 5%

Partial preference

No preference

granted (MFN > 0)

MFN zero

Reverse trade diversion?!

-100% -50% 0% 50% 100% 150% 200% 250% 300% 350% 400%

CARICOMCOMESA

SADCCEFTA

CERWAEMU

AndeanEFTA

CISECOWASPATCRA

Euro-MedsCEMAC

GCCCACMSAFTA

EECNAFTA

AFTAMercosur

Estimated extra trade due to RTA

Trade diversion (extra-RTA imports)

Trade creation (Intra-RTA)

Figure 13: Recent estimates of trade

creation and trade diversion. Source: Acharya et al. (2011).