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Multilateralising 21st Century Regionalism
Richard BaldwinProfessor of International Economics
Graduate Institute, Geneva & University of Oxford
Talk based on:
Baldwin, Richard (2011). “21st Century Regionalism: Filling the gap between 21st century trade and 20th century trade rules”, CEPR Policy Insight No. 56.
Andhttp://www.oecd.org/tad/events/OECD‐gft‐2014‐multilateralising‐21st‐century‐regionalism‐baldwin‐paper.pdf
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.
‐ More economic & legal research needed.
Multilateralising Regionalism: 20th vs 21st century
• Old idea (2007 WTO conference; 2009 CUP book).• Basic thrust: Regionalism is here to stay (old debate is moot), so think about how to reduce tariff discrimination from RTAs.
• Much progress: Rules of origin, rules of cumulation, integration of bilateral RTAs.
Multilateralising regionalism
• 20th century RTAs mostly about tariff preferences.– MR is mostly about reducing discrimination.
• Extend tariff preferences, rules of origin, rules of cumulation.
• 21st century RTAs are ALSO about deeper disciplines that support ‘global value chains’. – Many ‘deep’ RTA provisions are non‐discriminatory by nature, or much less obviously discriminatory.
• More like ‘biased multilateralism’ than ‘preferential’.
– Decimation technology weak: Nationality of firms, capital & services?
• This is key premise of my paper.– Paper tries to think thru implications for policy & analysis.
Multilateralising regionalism: 20th & 21st century RTAs
GVC Revolution
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%18
2018
3918
5818
7718
9619
1519
3419
5319
7219
9120
10
1990, 65%
G7, 47%
3%
China, 19%
5% 6 Risers, 9%
RoW
0%
10%
20%
30%
40%
50%
60%
70%
80%
1970
1975
1980
1985
1990
1995
2000
2005
2010
Wor
ld m
anuf
actu
ring
shar
eSource: unstats.un.org; 6 risers = Korea, India,
Indonesia, Thailand, Turkey, Poland
67%
11%
RoW
G7, 48%
10 gainers
27%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Global GDP shares, 1960‐2012
Post‐1990:• G7 share loss goes to 10
developing nations.• RoW see little change.
1990China, Brazil, Mexico, Poland, India, Turkey, Russia, Korea, Indonesia, Venezuela
Low
Lo-middle
Hi-Middle
1993
- 200 400 600 800
1,000 1,200 1,400 1,600
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2010
Millions under $2/day by national income class
People in poverty (under $2/day)
Post 1993• Hi‐middle poverty plummets.
‐ 650 million fewer poor!• Others’ poverty keeps rising.
1990
21st century regionalismStarts late 1980s, early 1990s
19890
100
200
300
400
500
600
700
1958
1963
1968
1973
1978
1983
1988
1993
1998
2003
2008
Number ofoffshoring andsupply-chainprovisions in RTAs
Number of RTAs
New BITs
signed
1988
FDI
0
500
1000
1500
2000
2500
0
50
100
150
200
250
1959
1964
1969
1974
1979
1984
1989
1994
1999
2004
South Asia
Sub-Sahara
n Africa
Middle East & North Africa 1994
East Asia & Pacific
0
5
10
15
20
25
30
35
40
45
50
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Applied tariffs, simple mean, all goods (%)
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% orspecific
5% to 10%
Below 5%
Partial preference
No preferencegranted (MFN > 0)
MFN zero
20th vs 21st century globalisation:3 cascading constraints
High HighHigh
Stage BStage A
Stage C
1stunbundling=
Stage B
Stage A Stage C
2ndunbundling=
Pre‐globalised world
=
Low LowHigh
ICT revolution
LowHigh High
Steam revolution
Cost of moving:
20th century comparative advantage
• Goods = ‘bundle’ on national knowhow, labour, capital, institutions, etc.
• National economies only connected via competition in goods markets.
StageB
StageA
StageC
StageB
StageA
StageC
Goods crossing borders
Stage B
Stage A
Stage C
1) Supply‐chain linkages: Cross‐border flows of goods, know‐how, ideas, capital & people.
2) Doing business abroad: Application of tangible & intangible assets in developing nations.
21st century comparative advantage
• Goods = mixture of national knowhow, labour, capital, institutions, etc. (e.g. hi‐tech + low wages).
• National economies connected via much richer flows: knowhow, goods, services, people, capital, etc.
Why it matters
• OLD: Study national performance looking at nationalfactors.– ‘Team Japan’ versus ‘Team Germany’Regress growth/exports/etc on national right‐hand side variables.
• NEW: Study national performance looking at regionaland national factors.– ‘Factory Asia’ versus ‘Factory North America’Regress growth/exports/etc on national & regional right‐hand side variables and/or allow interactions depending upon supply‐chain exposure.
21st century trade needs different disciplines“Trade‐investment‐services‐IP nexus”
Bay B
1) “Supply-chain disciplines”Necessary trade & service linksConnecting factories- Trade policy barriers;- 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.
• Supply‐chain and offshoring disciplines work best when packaged together.
• 21st century RTAs are a convenient package.– Hi‐tech firms like the package;– Developing nations want to join GVCs.
• “Deep RTAs” = 21st century RTAs is solution.
• WTO stuck on Doha, so 21st century regionalism: 1. Explosion of BITs 1990s.2. Deep RTAs.3. Unilateral liberalisation in developing nations.
21st century regionalism:Disciplines as a package
What are 21st century RTA provisions?
Examples of supply‐chain disciplines in RTAs1. 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 RTAs1. TRIMs Provisions concerning requirements for local content and
export performance of FDI2. GATS Liberalisation of trade in services3. TRIPs Harmonisation of standards; enforcement; national treatment,
most‐favoured nation treatment4. 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
• Supply‐chain disciplines assure rapid movement of goods, ideas, people and capital.
• Goal of developing nation is to fosters supply‐chain industrialisation.
• Discrimination is not usually useful.• Discrimination is difficult to determine for:
– Services, capital, firms, communication.
• Liberalisation often embedded in host nation regulations whose justification excludes discrimination.
Lack of discrimination technology for deep RTA provisions
Which deep RTA provisionsmmatter?Revealed preference evidence from US RTAs (share with given provision)
0% 80%AD
CustomsCVM
Export TaxesFTA Agriculture
FTA IndustrialGATS
Public ProcurementSPS
State AidSTETBT
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 frqUS AC frq
Provision in WTO 1.0 but deeper commitments in the RTAs
Provision not in WTO 1.0 (maybe in WTO 2.0)
Mentioned
Legally enforceable
Source: WTO database on RTA provisions
Japan’s RTAs in WTO Database
0% 80%AD
CustomsCVM
Export TaxesFTA Agriculture
FTA IndustrialGATS
Public ProcurementSPS
State AidSTETBT
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
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Money LaunderingMovement of Capital
Nuclear SafetyPolitical Dialogue
Public AdministrationRegional Cooperation
Research and TechnologySME
Social MattersStatisticsTaxation
TerrorismVisa and Asylum
Japan (legallyenforceable)Japan(mentioned)
Visa
IPR
Movement of capital
Investment
RTAs: US, Japan, EU & RoW
0%
80%A
DC
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US Japan
EU All others
80%
Source: Baldwin (2012), “WTO 2.0”, CEPR Policy Insight
Only beyond WTO measures
0% 50% 100%
AgricultureAnti-Corruption
Approximation of LegislationAudio 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 RoW legally
enforceable
EU legallyenforceable
Japan legallyenforceable
US legallyenforceable
Visa
IPR
Movement of capital
Competition policy
Investment
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).
• Impact of various RTA provisions on trade in goods, services & investment?– Use WTO database on provisions.– Use WIOD or TiVa database on intermediates trade.– Use foreign affiliates sales or employment to measure investment effects.
• Identify RTA provisions with negative spillovers for third‐nations.
• Look for network effects of RTAs.
More research needed
• Traditional view:– Vinerian economics & simple political economy.
• 21st regionalism:– Vinerian analysis insufficient / irrelevant. – Regulation‐economics, not tax‐economics.
• Fiscal federalism.
• NB: Basic political economy different:– “Factories for reform” not “exchange of market access”
Summary: 20th v 21st century regionalism
RTAs = tariff preferences
RTAs = disciplines underpin 2nd unbundling
• 20th century RTAs mostly about tariff preferences.– MR is mostly about reducing discrimination.
• Extend tariff preferences, rules of origin, rules of cumulation.
• 21st century RTAs are ALSO about deeper disciplines that support ‘global value chains’. – Many ‘deep’ RTA provisions are non‐discriminatory by nature, or much less obviously discriminatory.
Multilateralising regionalism: 20th & 21st century RTAs
NB: ‐ MR20 = reduce discrimination; ‐ MR21 = realise network externalities.Key trade‐offs determining optimal level of harmonisation & multilateralisation.1. Diversity of preferences.
‐ Favours little multilateralisation
2. Network externalities & scale economies.‐ Favours multilateralisation at higher‐than‐bilateral level.
Proposed conceptual framework
Levels of multilateralisation
Harmonization cost
Gain from common rules
Low
High
Low High but mostly regional
High and global
Unilateral adoption of regional rules
Mega‐regional or global multilateralisation
Unilateral adoption of global rules
Hub & spoke regionalism
National rules
Non‐issue
• Smart, young, flexible minds needed to find conceptual equivalent of ‘trade creation & diversion’ for supply‐chain disciplines.
• NB: This could also be an update to the old Bagwell‐Staiger ToT approach to trade agreements.– ToT only works directly for tariffs (I think).– Regulatory convergence, competition policy, capital flows, business mobility, IPR don’t seem to fit neatly.
Some ideas (need help)
• HS analogy.• WTO best‐practice guidelines for RTAs.
– North‐North, North‐South, South‐South.
• Agree minimum principles as in GATS– Investment disciplines.– Infrastructure service openness.– Deeper IPR disciplines.
Multi‐tier multilateralisation
• How different are the deep provisions in existing RTAs?
• Can a ‘lowest common denominator’ be identified?
Legal research agenda
• Investment rules.• Customs cooperation
– WTO Trade facilitation package would be good start.
Where to start?
END
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