REGIONALISM, FREE TRADE AGREEMENTS AND THE WTO Jakarta, 5-7 September 2017 Alexandre Larouche-Maltais Senior Trade & Investment Expert Conference Board of Canada Partner: Project Executed by:
Outline: Regionalism, free trade agreements (FTAs) and the WTO Regionalism in the world • Historical developments • Distinguishing trade agreements Part 1 • Canada’s current negotiations Debates – pros and cons of FTAs • Creating or diverting trade? Part 2 • Keeping attention away from the multilateral negotiations? • Forgetting developing countries? Legal aspects • Internal conditions Part 3 • External conditions • Transparency
PART 1 REGIONALISM IN THE WORLD Historical developments Distinguishing trade agreements Canada’s current negotiations
Historical developments: Three “waves” of regionalism (1) Europe's push for (3) New continental participants, Mid-1980s integration larger initiatives and 1990s Late 1950s (2) US’ 2000s and 1960s momentum behind regionalism Source: WTO, World Trade report 2011
Historical developments: Three “waves” of regionalism European Activism (1) Europe's • 1951: European Coal and Steel Community push for • (3) New 1957: European Economic Community (EEC) vs European Free Trade Association (EFTA) continental participants, • Complex network of preferential, but non- Mid-1980s integration larger initiatives reciprocal trade arrangements with past colonies and 1990s Late 1950s (2) US’ 2000s Pressure for progress at the multilateral level and 1960s momentum • 1960: launch of the Dillon Round behind • 1964-67: Kennedy Round regionalism GATT tariff cutting and membership enlargement Source: WTO, World Trade report 2011
Historical developments: Three “waves” of regionalism (1) Europe's Deepening European integration push for (3) New US’ new trade policy continental participants, • 1980s: Europe’s “single Mid-1980s integration larger initiatives market” program for and 1990s • Ongoing concerns dismantling remaining about the EC's physical, technical and expansion & delays in tax barriers launching and then • 1993: EEC became the advancing the Uruguay European Community Round negotiations Late 1950s (EC) • 1985: FTA with Israel (2) US’ 2000s • New cluster of bilateral and 1960s • 1988: FTA with Canada momentum PTAs with Central and • 1994: NAFTA Eastern European behind countries (future EU regionalism members) Source: WTO, World Trade report 2011
Historical developments: Three “waves” of regionalism (1) Europe's New players push for (3) New • “Developed - developed”, “developing - developing”, continental participants, and “developed - developing” alliances Mid-1980s integration new initiatives and 1990s Late 1950s (2) US’ 2000s and 1960s New initiatives momentum • Bilateral, plurilateral and cross-regional initiatives behind • Focused on WTO-plus type issues, e.g. services, regionalism capital flows, standards, IP, regulatory systems, etc. Source: WTO, World Trade report 2011
Distinguishing Trade Agreements Multilateral Preferential Trade Bilateral Agreements Arrangements (PTAs) Trade Agreements (BTAs) Preferential World Trade Free Trade Trade Organization Customs Agreements (WTO) Agreements Unions (CUs) (FTAs) Regional Trade Plurilateral Agreements Agreements (RTAs)
Distinguishing Trade Agreements Multilateral agreements refer to mandatory treaties to which all WTO members must be parties. Multilateral Agreements E.g. GATT, Agreement on Agriculture, SPS, TBT, TRIMs, Anti-Dumping, SCM, Safeguards, Trade Facilitation, etc. World Trade These agreements are implemented in Organization the framework of the WTO (WTO) Plurilateral agreements refer to optional treaties to Plurilateral which only certain WTO members are parties. Agreements E.g. Civil Aircraft & Revised GPA
Distinguishing Trade Agreements GATT Art. XXIV:4 - The contracting parties recognize the desirability of increasing freedom of trade by the development, through voluntary agreements, of closer integration between World Trade Preferential the economies of the countries parties to Trade Organization such agreement. (WTO) Agreements They include free trade agreements (FTAs) and customs unions (CUs), bilateral and regional agreements These agreements are negotiated outside the framework of the WTO
Distinguishing Trade Agreements Preferential World Trade Free Trade Trade Organization Customs Agreements (WTO) Agreements Unions (CUs) (FTAs)
Distinguishing Trade Agreements A free trade area is a grouping of countries within which tariffs and non-tariff trade barriers between the members are generally abolished but with no common trade policy toward non-members. E.g. Canada-Chile FTA Preferential Free Trade Trade Customs Agreements Agreements Unions (CUs) (FTAs) Customs unions are arrangements in which the parties agree (1) to allow free trade on products within the CU, and (2) to a common external tariff (CET) with respect to imports from the rest of the world. E.g. European Union Source: OECD Glossary of Statistical Terms
Distinguishing Trade Agreements Bilateral Trade Agreements (BTAs) Preferential World Trade Trade Organization (WTO) Agreements Regional Trade Agreements (RTAs)
Distinguishing Trade Agreements Bilateral trade agreements are treaties concluded Bilateral between only two countries. E.g. Canada-Korea Free Trade Trade Agreement (CKFTA), Japan-Indonesia Economic Agreements (BTAs) Partnership Agreement (EPA) Preferential Trade Agreements Regional trade agreements are treaties that are Regional concluded between more than two countries. E.g. Trade ASEAN Free Trade Area (AFTA), North American Free Agreements (RTAs) Trade Agreement (NAFTA)
Distinguishing Trade Agreements Any bilateral CUs? Any bilateral FTAs? Bilateral Trade Agreements (BTAs) Preferential Free Trade Trade Customs Agreements Agreements Unions (CUs) (FTAs) Regional Trade Agreements (RTAs) Any regional CUs? Any regional FTAs?
Distinguishing Trade Agreements Preferential Trade Arrangements (PTAs) Preferential World Trade Trade Organization (WTO) Agreements PTAs in the WTO are “unilateral trade preferences.” Source: WTO, “Regional trade agreements and preferential trade arrangements”
Distinguishing Trade Agreements Preferential Trade Arrangements (PTAs) World Trade Organization GSP-Canada: Beneficiaries (WTO) E.g. the Generalized System of Preferences (GSP) schemes – programs by developed countries granting preferential tariffs to imports from developing countries. Source: WTO, “Glossary”
Distinguishing Trade Agreements Preferential Trade Arrangements (PTAs) Preferential World Trade Trade Organization (WTO) Agreements Non-reciprocal preferential schemes other than GSP, e.g.: • EU’s Trade preferences for Pakistan (2012) • Australia’s and N - Z’s South Pacific Regional Trade and Economic Cooperation Agreement (1981)
Canada’s Network of FTAs As of 1 August 2017, Canada’s trading relationships are regulated by 11 FTAs providing Canada with On 21 September 2017, the CETA will preferential partially enter into force, increasing market access to Canada’s market access to the 15 countries. European Union and its 28 members.
Indonesia’s Network of FTAs As of 1 August 2017, Indonesia’s trading relationships are regulated by 9 FTAs providing Indonesia with preferential market access to 21 countries, mainly in Asia.
Canada’s Current Negotiations Bilateral initiatives Regional/Plurilateral initiatives India • Group of 23 like- minded WTO Japan TiSA members to further liberalize Singapore Canada trade in services Caribbean Community • Signed by 12 Asian and American Dominican Republic countries in Feb TPP 2016; USA Guatemala, Nicaragua withdrew in Jan and El Salvador 2017 Morocco
PART 2 DEBATES – PROS AND CONS OF FTAS Creating or diverting trade? Keeping attention away from the multilateral negotiations? Forgetting developing countries?
Creating or diverting trade? Trade creation Trade diversion • “Trade creation occurs when the • “Trade diversion occurs when the reduction of internal barriers leads reduction of internal barriers, while private persons to import from leaving in place external barriers, a supplier that is a lower cost leads private persons to import from a RIA (region of international producer than domestic supplier .” trade) rather than a lower cost non-RIA producer .” This situation would lead to an increase in consumer surplus and However, recent economic studies economic welfare. tend to show that this situation is not always overall negative. Example 2 Example 1 Source: Trachman , “International Trade: Regionalism,” 2007
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