trade policy dialogue on the multiple dimensions of market access and development regional trade...
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Trade Policy Dialogue on the Multiple Trade Policy Dialogue on the Multiple
Dimensions of Market Access and Dimensions of Market Access and DevelopmentDevelopment
Regional Trade Liberalization as a Regional Trade Liberalization as a Complement to Multilateral Complement to Multilateral
Liberalization?Liberalization?
Carlos A. Primo Braga
Senior Adviser
World Bank
OECD Global Forum on Trade
Mexico City, 23-24 October 2006
Planning ahead
Regional trade agreements (RTAs) are Regional trade agreements (RTAs) are proliferating and now cover one third of proliferating and now cover one third of world trade, but their liberalizing effect world trade, but their liberalizing effect has often been modest.has often been modest.
RTAs can create trade and bring many RTAs can create trade and bring many other benefits for development …but other benefits for development …but results are not automatic and depend results are not automatic and depend critically on design and critically on design and implementation. implementation.
RTAs have systemic consequences that RTAs have systemic consequences that adversely affect excluded countries, adversely affect excluded countries, requiring international attention.requiring international attention.
Trade, Regionalism and Development:Trade, Regionalism and Development:Key MessagesKey Messages
Regional Trade Agreements are proliferating… Regional Trade Agreements are proliferating…
……and now potentially cover more than one-third of global and now potentially cover more than one-third of global trade trade
0
5
10
15
20
25
30
1958 1969 1976 1984 1989 1994 1999 2004
0
50
100
150
200
250
300
New agreements annuallyNew agreements annually
Annual numberAnnual number Total in force Total in force
Cumulative in forceCumulative in force
0
5
10
15
20
25
30
35
1990 1996 2002
0
50
100
150
200
250
1990 1996 2002
South-South RTAs predominate in South-South RTAs predominate in number, but not in trade coverednumber, but not in trade covered
South-South-SouthSouth
European European UnionUnion
USUS
South-South
European European UnionUnion
Percent of World Trade CoveredPercent of World Trade CoveredNumber of RTAsNumber of RTAs
USUS
Why this proliferation? Why this proliferation?
High-income countries, such as US and EUHigh-income countries, such as US and EU
Grant trade access to support foreign policy goals, including Grant trade access to support foreign policy goals, including developmentdevelopment
Slow progress on multilateral agenda: “competitive Slow progress on multilateral agenda: “competitive liberalization” liberalization”
Access to services markets, protection of intellectual property, Access to services markets, protection of intellectual property, and rules for investmentand rules for investment
Developing countriesDeveloping countries Secure access to markets, especially large marketsSecure access to markets, especially large markets Lock in reforms to promote domestic agendaLock in reforms to promote domestic agenda More FDIMore FDI Among neighbors, lowering trade cost at borderAmong neighbors, lowering trade cost at border Framework for regional cooperationFramework for regional cooperation
0
5
10
15
20
25
30
35
Including all trade Excluding 0% MFN Excluding <3% MFN
……but RTAs provide less new market but RTAs provide less new market access than it might appearaccess than it might appear
Share of trade covered (%), 2003Share of trade covered (%), 2003
……and regional agreements are a relatively small and regional agreements are a relatively small driver of trade reformdriver of trade reform
Multilateral Agreements
25%
Regional Agreements
10%
Autonomous Liberalization
65%
Decomposing 20% pt. declineDecomposing 20% pt. decline
Source: Martin and Ng, 2004
0
5
10
15
20
25
30
1983 2003
Av. Tariffs, 1983 and 2003Av. Tariffs, 1983 and 2003
29.9
9.3
Decomposing tariff reductions in response to multilateral, regional and own initiatives Decomposing tariff reductions in response to multilateral, regional and own initiatives
Assessing effects of RTAs on members: two Assessing effects of RTAs on members: two waysways
1 Prospective – general equilibrium models1 Prospective – general equilibrium models Most agreements projected to create more trade Most agreements projected to create more trade
than they divertthan they divert Projected gains less than multilateralProjected gains less than multilateral Excluded countries almost always loseExcluded countries almost always lose Market access is a key determinant on net benefitsMarket access is a key determinant on net benefits
2 Retrospective – econometric, gravity model2 Retrospective – econometric, gravity model Different studies – different resultsDifferent studies – different results Meta analysis suggest that half of agreements Meta analysis suggest that half of agreements
have been net trade divertinghave been net trade diverting
COMESA
WAEMU
EAC
CIS
SAPTA
SADC
Mercosur
CEMAC
ANDEAN
AFTA
GCC
ECOWAS
CACM
EC
NAFTA
SACU
-4 -2 0 2 4 6 8 10
Estimated exponential impact on trade
Intra-regional trade
Overall exportsOverall imports
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.
Effects on members: Do RTAs create – or divert -- Effects on members: Do RTAs create – or divert -- trade? trade?
Agreements with high external tariffs risk Agreements with high external tariffs risk trade diversiontrade diversion
0 5 10 15 20 25
SAFTA
ECOWAS
COMESA
MERCOSUR
EAC
SADC
AFTA
NAFTA
Note: Tariffs are import-weighted at the country level to arrive at PTA averagesSource: UN TRAINS, accessed through WITS
Average weighted tariffs
Lower external tariffs are associated with Lower external tariffs are associated with greater regional integrationgreater regional integration
0
5
10
15
20
25
0 5 10 15 20 25 30
Intra-regional trade/GDP
MNAMNASASSAS
SSASSA
LACLAC
ECAECA EAPEAP
Average external tariffs Average external tariffs
Standards Transport
Customs
cooperation Services
Intellectual
Property Investment
Dispute
Settlement Labor Competition
U.S.-Led
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
E.U.-Led
EU-South Africa Yes Yes
EU-Mexico Yes Yes Yes Yes Yes Yes Yes No Yes
EU-Chile Yes Yes Yes Yes Yes Yes Yes No Yes
South-South
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
SADC Yes Yes Yes No Yes
COMESA Yes Yes Yes Yes No Yes Yes Yes Yes
Other
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
RTAs go far beyond tradeRTAs go far beyond trade
Let’s consider: trade faciliation, services, investment, intellectual property Let’s consider: trade faciliation, services, investment, intellectual property rights and temporary movement of laborrights and temporary movement of labor
Delays at border drives up trading costsDelays at border drives up trading costs
RTAs can provide RTAs can provide framework for mutual framework for mutual efforts to reduce costsefforts to reduce costs
Single customs Single customs documentdocument
Harmonize driving & Harmonize driving & weight regulationsweight regulations
Computerize Computerize both both sides of the bordersides of the border
Trade/GDPTrade/GDP
Potential of RTAs to reduce border costs not yet realizedPotential of RTAs to reduce border costs not yet realized
0
50
100
150
200
250
0 5 10 15 20 25
Days through customs, imports
Trade/GDPTrade/GDP
MalaysiaMalaysia
EthiopiaEthiopia
MalawiMalawi
UgandaUganda
KyrgyzstanKyrgyzstan
SloveniaSlovenia
SlovakiaSlovakia
Services liberalization deepest in N-S Services liberalization deepest in N-S agreements…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 Investment accords provide for new access and new investor protections…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 Intellectual property rights figure prominently in N-S RTAs, particularly US FTAsin 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 Conclusion: Development consequences of investment and IPR rules depend heavily on market investment and IPR rules depend heavily on market access these rules leverageaccess these rules leverage
Labor services are area of potential 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 Ironically, areas with least progress – services and labor – have greatest development potential… while labor – have greatest development potential… while areas with most progress – e.g., IPR – are those with areas with most progress – e.g., IPR – are those with more uncertain development consequences more uncertain development consequences
Perceptions of risk and opportunities vary…
Both North-South and South-South Both North-South and South-South accords can be improved…accords can be improved…
StrengthsStrengths Compatibility among Compatibility among
economieseconomies Services liberalizationServices liberalization Move to international Move to international
standardsstandards WeaknessesWeaknesses
Restrictive rules of Restrictive rules of origin origin
Exemptions, esp. Exemptions, esp. agricultureagriculture
Inappropriate rulesInappropriate rules No or limited movement No or limited movement
of workersof workers
North-SouthNorth-South
Some sweeping generalization…Some sweeping generalization…
0
1
2
3
4
5
6
NAFTA EU-Mexico EU-Chile SADC Chile-CACM
AFTA COMESA ECOWAS
Index of ROO RestrictivenessIndex of ROO Restrictiveness
Estevadeordal, 2004Estevadeordal, 2004
StrengthsStrengths Compatibility among Compatibility among
economies/large economies/large marketsmarkets
Services liberalizationServices liberalization Move to international Move to international
standardsstandards WeaknessesWeaknesses
Restrictive rules of Restrictive rules of origin origin
Exemptions, esp. Exemptions, esp. agricultureagriculture
Inappropriate rulesInappropriate rules No movement of No movement of
workersworkers
North-SouthNorth-South South- South South- South
StrengthsStrengths Focus on tradeFocus on trade Nonrestrictive rules Nonrestrictive rules
of originof origin Adjacency permit Adjacency permit
trade facilitationtrade facilitation
Some sweeping generalization…Some sweeping generalization…
WeaknessesWeaknesses
Small markets/Higher Small markets/Higher external barriersexternal barriersExemptionsExemptionsMinimal servicesMinimal servicesNo movement of workersNo movement of workers
Both North-South and South-South Both North-South and South-South accords can be improved…accords can be improved…
•DesignDesign
Large ex-post marketLarge ex-post market
Low external tariff barriers Low external tariff barriers
Nonrestrictive rules of originNonrestrictive rules of origin
Wide product coverage with minimal Wide product coverage with minimal exemptions exemptions
Liberalization of servicesLiberalization of services
Facilitating trade at bordersFacilitating trade at borders
Appropriate rulesAppropriate rules
•Implementation: Avoiding paper Implementation: Avoiding paper agreementsagreements
Design are crucial to achieving objectivesDesign are crucial to achieving objectives
…….Open regionalism.Open regionalism
AlgeriaLibyaMorocco MauritaniaTunisia
AMU
GhanaNigeria Cape Verde
Gambia
ECOWAS
Benin NigerTogo Burkina FasoCote d’Ivoire
Conseil de L’Entente
Guinea-Bissau Mali Senegal
WAEMU
Liberia Sierra Leaone Guinea
Mano River Union
CLISS
CameroonCentral African Rep.GabonEquat. GuineaRep.Congo
Chad
Sao Tomé & Principe
ECCAS
CEMAC
Angola
Burundi*Rwanda*
Egypt
DR Congo
DjiboutiEthiopiaEritreaSudan
Kenya*Uganda*
Somalia
Tanzania*
EAC
South AfricaBotswanaLesotho
Namibia*Swaziland*
Mozambique
SACU
Malawi*Zambia*Zimbabwe*
Mauritius*Syechelles*
Comoros*Madagascar*
Reunion
IOC
*CBI
SADC
COMESA Nile River BasinIGAD
AMU: Arab Maghreb UnionCBI: Cross Border InitiativeCEMAC: Economic & Monetary Community of Central AfricaCILSS: Permanent Interstate Committee on Drought Control in the SahelCOMESA: Common Market for Eastern and Southern AfricaEAC: East African CooperationECOWAS: Economic Community of Western African StudiesIGAD: Inter-Governmental Authority for GovernmentIOC: Indian Ocean CommissionSACU: Southern African Customs UnionSADC: Southern African Development CommunityWAEMU: West African Economic & Monetary Union
Overlapping African agreements…Overlapping African agreements…
Systemic issues…uneven and Systemic issues…uneven and discriminatory accessdiscriminatory access Preferences hurt excluded countries
Multiple arrangements burden customs Disincentives to engage in multilateral liberalization
0
1
2
3
4
5
6
7
8
E. Asia &Pacific
Europe &C. Asia
LatinAmerica &Caribbean
MiddleEast & N.
Africa
S. Asia Sub-SaharanAfrica
Av. Number of PTAs per country, 2002/3
Hub and spokes put weaker countries at disadvantage
International community through the WTOInternational community through the WTO Get Doha doneGet Doha done Concentrate on transparency/Article XXIVConcentrate on transparency/Article XXIV
High income countries have systemic responsibilityHigh income countries have systemic responsibility Widen coverage in FTAs (i.e. agriculture)Widen coverage in FTAs (i.e. agriculture) Move toward conformity in rules of origin, and make less restrictiveMove toward conformity in rules of origin, and make less restrictive Promote rules tailored to local capacitiesPromote rules tailored to local capacities
Developing countries should adopt a 3 part strategy, using each Developing countries should adopt a 3 part strategy, using each instrument to its most appropriate objectiveinstrument to its most appropriate objective Unilateral: driving competitivenessUnilateral: driving competitiveness Multilateral: seeking broad market access Multilateral: seeking broad market access Regional: deep market access and institutional reforms Regional: deep market access and institutional reforms
(customs, ports, trade-related standards)(customs, ports, trade-related standards)
Policy implications…Policy implications…
The importance of being prepared…
