Trade Policy Dialogue on the Multiple Dimensions of Market Access and Development Regional Trade Liberalization as a Complement to Multilateral Liberalization?

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…

[email protected]

Source:World Bank (2005) Global Economic

Prospects

Thank you !