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Background: Multilateralism

Background: Multilateralism. GATT signed in 1947, aiming “reduction in tariffs and other international trade barriers” (23 members ) Post- war “ free trade ” regime was multilateralism Uruguay Round : 1986-1994 (123 members )

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Background: Multilateralism

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  1. Background: Multilateralism • GATT signed in 1947, aiming“reduction in tariffs and other international trade barriers” (23 members) • Post-war “freetrade” regimewasmultilateralism • Uruguay Round: 1986-1994 (123 members) Subjectcovered: Tariffs, NTBs, rules, services (GATS), intellectual property (TRIPS), dispute settlement, textiles, agriculture, creation of WTO. • 1995 – foundation of the WTO: milestoneforworldtradepolicy

  2. Doha Round • 4th Ministerial Conference of WTO • Started in Nov. 2001 in Doha, Qatar. • Doha Development Agenda (DDA): “a more open and equitable trading system would bring more peace to the world”. • Set to be concluded in Nov 2006

  3. Cancunmeeting, 2003 • Argentina • Bolivia • Brazil • Chile • China • Cuba • Ecuador • Egypt • Guatemala • India • Indonesia • Mexico • Nigeria • Pakistan • Paraguay • Peru • Philippines • South Africa • Tanzania • Thailand • Uruguay • Venezuela • Main areas: agriculture, industrial goods, trade in services, updated customs codes G-20 emerged No agreement on farm subsidies and market access 3 of the Singapore issues (investment protection, competition policy, transparency in government procurement and trade facilitation) dropped down. No agreement in Cancun

  4. Genevameeting, 2006 No agreement on farm subsidies and import taxes. on July 28, 2006, P. Lamy formally announced the indefinite suspension of the talks. Lamy (WTO): “[The suspension] is a bit like in basketball, a time-out during which the teams talk to their trainers before coming back on to the court.” Mandelson (EU): “The US have been asking too much from others in exchange for doing too little themselves.” “we have missed the last exit on the motorway.” Schwab (US): “We are deeply disappointed that the EU failed to exhibit similar restraint and hope this will not jeopardize the few chances we have left to save the Doha Round” Nath (India): “The round is not dead. I would say that it is definitely between intensive care and the crematorium” “We are examining economic co-operation agreements with the EU. We are looking at co-operation agreements with Japan.”

  5. Background: Regionalism/Bilateralism Viner (1950): tradecreationandtradediversion Bhagwati (1993): waves of regionalism FirstWave of Regionalism: • EEC in 1957 (Benelux, France, Italy, W.Germany) • EFTA in 1960 (UK, Denmark, Norway, Sweden, Austria, Switzerland, Portugal) • LAFTA in 1960 (Argentina, Brazil, Chile, Mexico, Paraguay, Peru, Uruguay) • CACM in 1960 (Guatemala, El Salvador, Honduras, Nicaragua) • ASEAN in 1967 (Indonesia, Malaysia, Philippines, Singapore, Thailand) • CARIFTAin 1965-1968 (Caribbeanstates) • CAN in 1969 (Bolivia, Chile, Colombia, Ecuador, Peru)

  6. USA strongly opposedregionalism and loyal to multilateralism insisted that FTAs would undermine the multilateral free trade regime rejecting proposals for a NAFTA EUROPE EEC and EFTA until 1980s, regionalism was mainly a ‘European’ concept Bhagwati (1993), “the first wave of regionalism that took place in the 1960s failed to spread because the US supported a multilateral approach.”

  7. Secondwave of regionalism Afterthefailure of the GATT Ministerialmeeting in Nov 1982, US changedposition. TradeAct of 1974 • FastTrack (TradePromotionAuthority) • Article 301 “US would attempt trade liberalization of a greater degree than GATT withcountries which had the same intent.” US-Israel FTA, 1985 US-Canada FTA, 1988 MERCOSUR, 1991 (Arg-Bra: 1985) NAFTA, 1992 (in effect 1994) EFTA – Israel, Turkey, Romania, Bulgaria EC – Romania, Bulgaria, Turkey EU AssociationagreementswithCEECs

  8. After mid-1990s: EU and US back to multilateralism Fast Track expired in 1994. Uruguay Round completed in 1994. WTO in 1995. US out of regionalism game, back to its original position of multilateralism. EU began to give priority to the multilateralism ofthe WTO In 1999, P. Lamy appointed as the Commissioner for Trade EU trade policy: “pursuing all existing mandates for regional negotiations with vigour and fairness, but not to begin any new negotiations” • EU did not want to take any initiative that might detract from the completion of the DDA; • EU had a ‘deep integration’ approach in FTAs and these agreements were complex and time-consuming to negotiate • Bilateral agreements create a ‘spaghetti bowl’

  9. Disturbances to the EU’s Multilateralist position • Bush restored Fast Track in 2002 US started FTA negotiations with several countries incl. Chile, Singapore, Australia and Morocco • Cancun in 2003 Drop-down of Singapore issues Inconclusive negotiations Lamy (2004): “our arguments in favour of a better regulated multilateral world have been less effective. (...) I don’t believe the WTO can or should remain the sole island of governance in a sea of unregulated globalisation” Mandelson instead of Lamy in 2004

  10. WTO (2004): the principle of non-discrimination characterized by the MFN clause ceased to be the rule of international trading system the spaghetti bowl of customs unions, common markets, regional and bilateral free trade areas, preferences and an endless assortment of miscellaneous trade deals has almost reached the point where MFN treatment is exceptional treatment. • Finally: July 2006, suspension of the DDA

  11. “Global Europe”:New TradePolicy of the EU • Strategy Paper in Oct 2006 • EU to pursue bilateral FTAs with major economies in order to secure the market access and competitiveness of European companies in important markets “rejection of protectionism at home, accompanied by activism in creating open markets and fair conditions for trade abroad”

  12. “Global Europe”:New TradePolicy of the EU • Remove tariffs and NTBs • Solve behind-the-border issues • the highest possible degree of trade, investment, and services liberalization • ban on export taxes and quantitative import restrictions. • regulatory convergence, NTBs and stronger provisions on IPRs and competition. • incorporating new cooperative provisions in areas relating to labour standards and environmental protection

  13. Economic criteria for new FTA partners: market potential and the level of protection against EU export interests • ASEAN*, Korea* and Mercosur**:Prior FTA partners • India***, Russia and GCC**: countries of direct interest • China: a country of special attention because of the opportunities and the risks it presents • EnhancedTransatlantictrade “there will be no European retreat from multilateralism and the EU remains committed to the WTO” Negotiationsstarted in *: May 2006, **: revived, ***: June 2006 Korea: signed 2009, provisionally in power since July 2011 Colombia, Peru: signedMarch 2011

  14. FTAs all over the world: • CHINA »ASEAN, Chile, Hong Kong, Macao, N. Zealand, Pakistan, Singapore negotiating with: Australia, GCC, Iceland, Peru, S. Africa planning: Korea, India, Norway • JAPAN »Singapore, Mexico, Malaysia, Chile, Thailand, Philippines, Brunei, Indonesia, Switzerland negotiating with: ASEAN, GCC, Korea, Vietnam, India, Australia, • MEXICO • CHILE • GCC • TURKEY »Israel, Macedonia, Croatia, Bosnia,Morocco, Palestine,Tunisia, Syria, Georgia, Albania, Egypt negotiating with:, Jordan, Lebanon, GCC, Faroe Islands planning: Algeria, S. Africa, Mexico, Chile, Mercosur and 36 African countries • “NEW REGIONALISM” Third Wave of Regionalism

  15. Old Regionalism vs New Regionalism

  16. Motives Behind the EU’s Free Trade Agreements Two main motives: • foreign policy and security: neighborhood policy • commercial interests (more dominant): limiting or neutralizing potential trade diversionary effects which result from FTAs concluded between important trading partners and a third country. (e.g. EU–Mexico FTA)

  17. Evidence for potential gains from EU- Korea FTA • Kim and Lee (2004): a gravity equation analysis to estimate the trade potential capability of Korea and the EU-15. • EU-Korea trade is under-traded • Kim (2005): an FTA with Korea would be desirable for the EU because; • the structural EU trade deficit since the 1990s is usually attributed to the problems EU companies and products encounter while entering and operating in the Korean market. These problems create barriers to trade as the Korean rules for both products and services differ from those of the EU. • as Korea is one of the most dynamic emerging markets in East Asia, the EU finds it much beneficial to build an economic basis in Korea, where an FTA would effectuate the role.

  18. Evidence for potential gains from EU- Korea FTA • Quantitative Study: Economic Impact of a Potential FTA between the EU and South Korea, Copenhagen Economics and J. F. François, March 2007 http://trade.ec.europa.eu/doclib/docs/2007/may/tradoc_134707.pdf Qualitative Study: A Qualitative Analysis of a Potential Free Trade Agreement between the European Union and South Korea, Centre for European Policy Studies and Korea Institute for International Economic Policy (Guerin, Edwards, Glania, Kim, Lee, Matthes and Tekce), November 2007 • CGE analysis shows that Korea-EU FTA would have substantial improvements in GDP, income, trade and welfare of both parties.

  19. Evidence for potential gains from EU- Korea FTA • liberalisation of trade in manufactures between the EU and Korea is more important than that in agriculture. However, services liberalisation is far more important still.Without a services liberalisation the gains for EU will be insignificant. • the main growth area in Korea’s economy and exports as a result of FTA with the EU is motor vehicles, while some business services are replaced by imports from the EU. • the trade surplus of EU is expected surge especially in services trade. EU will enjoy a trade surplus with Korea in the majority of sectors except in automobiles and parts and textiles

  20. Evidence for potential gains from EU- ASEAN FTA: • Moeller (2007): two long term and farreaching benefits: • an FTA will please them both in Asian integration; • an FTA will enhance their ability to tackle nonconventional and common threats to stability and security • Botezatu (2007): • there is a huge development gap between ASEAN’s rich and poor members, financial aid from the EU and hence a bilateral agreement is considered an opportunity that should not be missed. • In terms of trade relations, the strong commercial links between these two blocs confirm the necessity. The EU was ASEAN’s third largest trading partner as of 2007. Similarly, ASEAN is of crucial economic importance for the EU. • Cooperation on environmental issues such as the Kyoto Protocol and dialogue on migration are also common aspirations of the two trade partners.

  21. Evidence for potential gains from EU- India FTA: • Polaski et al. (2008):using simulation techniques; • all macroeconomic indicators of the EU, such as private consumption, government consumption, investment consumption, import demand, export supply and total domestic production, display significant increases. • For instance, export supply appears to increase by 1.35 billion dollars corresponding to a 0.05 % change, whereas import demand is found to increase by 3.21 billion dollars which corresponds to a 0.11% rise. Similarly, total domestic production is expected to increase by 0.05% as a result of the simulations.

  22. FTAs of the USA • Before 2002: three FTAs (with Canada, Israel and Mexico) • After 2002: Australia, Bahrain, Chile, CAFTA,Jordan, Oman, Morocco, Singapore and Peru. • In ratification process: (started before the expiration of the Fast Track) Colombia, S. Korea, Malaysia, Thailand, Panama

  23. FTAs of the USA • FTA partner selection criteria of the US: • impact on domestic US politics • economic objectives • level of commitment of the partner country to trade reform • foreign policy considerations

  24. CONCLUDING REMARKS • The EU has adopted itself to evaluate the best strategy with its potential partners in order to deepen integration, expand its share in world exports, incorporate dialogue on universal issues such as migration and environment and promote good governance and development cooperation. • The shift of the trade policy focus of the EU from multilateralism to bilateralism raised concerns about the future of the WTO. Although the strategy paper of the new trade policy clearly expressed that there will be no European retreat from multilateralism and the EU is still loyal to WTO principles, the question still remains: will it be feasible (or even necessary) to revive the DDA after concluding several FTAs? • As major trade partners achieve their goals in increasing bilateral trade by removing the trade barriers, the marginal gains from the results of multilateral negotiations diminish. Currently, it seems that multilateralism is losing its ground against bilateralism. The hopes for agreeing on multilateral free trade based on common WTO rules seem to be fading away, but this does not mean that ‘free trade’ is weakening; bilateralism and FTAs became the new tools of globalization and free trade.

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