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MULTILATERAL TRADING SYSTEM AND THE NEW GENERATION FREE TRADE AGREEMENTS International Conference by IKV and TEPAV-MUTS. Dr. M. Sait AKMAN November 26, 2012 Istanbul. EU in world trade and the trading system. The EU is the largest trading entity in the world: In manufactured goods

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Dr. M. Sait AKMAN

November 26, 2012


eu in world trade and the trading system
EU in world trade and the trading system
  • The EU is the largest trading entity in the world:
    • In manufactured goods
    • In trade in services
    • In Foreign Direct Investment (FDI)
but its trade policy changes
But itstradepolicychanges...
  • Global developments that affected trade patterns and production networks, as well as the EU’s competitive position…
    • GATT / WTO negotiations reduced tariff protection tremendously (i.e. EU bound and applied tariffs at low levels)
    • Increasing rivalry from emerging economies (Far East Asia, BRICS so on)
    • Changing nature of global production networks (global supply chains)
two shifts in eu trade policy
Twoshifts in EU tradepolicy
  • 1. typology of actorness:
    • Actorsinvolved in tradepolicychanges in terms of theirinterests, perceptions, expectations, anddegree of involvement(YoungandPeterson, 2006)
  • 2. conduct of traderelations:
    • Interms of behaviouralrepositioningfromdefensivetooffensiveoutlook.
    • Interms of thevenue of traderelations(venuechange)

in ordertosatisfybroaderandchangingobjectives…

Thesetwoshiftsare not totallyindependent of eachother, but areactuallyintertwined.

two shifts in eu trade policy1
Twoshifts in EU tradepolicy
  • Traditionalconceptualisation of tradepolicylargelyconfinedtoexchage of goods in manufacturing, andagriculturetosomeextent, withutmostattentiondevotedto ‘bordermeasures’…
  • Tradepolicylargelyneglectedissues in trade in services, andtrade-relatedbusinesspractices…
  • In time, Europeanbusinesswasdiversifiedtofocus on a proactivepolicyapproachembodyingfurther market accessabroad, dealingwith not onlytariffs, but domesticregulatoryissues (Outward-oriented)
two shifts in eu trade policy2
Twoshifts in EU tradepolicy
  • Not allactorsfavoured market accessand market-openingregulations; northeysupportedthe idea of liberalisation(Inward-oriented)
  • Amongthemare:
    • 1. senileindustrieslosingtheircompetitivestructures

(older-type of actors)

    • 2. globalisation-bushers: whofeltinsecureaboutunpredictableimplications of global markets (i.e.)
      • EnvironmentalNGO’s (shrimp-turtlecase)
      • Consumerorganisations (beefhormones)
      • Publichealthconcerns (GMOs)
a common vision of actors for an expanded and activist policy approach
A common vision of actors for an expanded and activist policy approach

… reflecting efforts by the EU to manage globalisation so that ‘it happens on European terms, with trading partners conforming to Europe’s ways and standards’ (Jacoby and Menuier, 2010)

expanding trade policy agenda
  • Trade, Growth, and World Affairs communication:

in order to keep its competitive edge to achieve its overall objectives of smart, inclusive, and sustainable growth, ‘trade policy must broaden its scope’…

policy expansion to serve eu 2020 objectives
Policy expansion to serve EU 2020 objectives
  • ‘It is clear that the most important contribution to the EU 2020 objectives would stem from non-tariff issues, notably in behind-the-border trade initiatives, such as regulatory issues, non-tariff barriers, intellectual property rights, government procurement, trade and environment, to name but a few.......’ (L. Cernat, European Commission’s Chief trade economist, in VoxEU, 2012).
expanding scope trade in services
Expandingscope (trade in services)
  • The EU-27 is theworld’slargesttrader in serviceswhileitsshare 26.6 % in 2009, bringing a positivetradebalance of about 109 billiondollars.
  • 18 EU memberstatesrankedamongthe top 40 exporters of services.
  • The EU enteredinto a complexstructure of negotiations in services :
    • WTO (Doha Roundbased on GATS)
    • bilateralagreements (i.e. FTAs)
    • plurilateraldeal(InternationalServicesAgreememnt).
eu performs well in services exports
EU performswell in servicesexports
  • EU needsliberalisation in ‘trade in services’

Source: M.R. Madsen DG Trade, EuropeanCompetitivenessand EU TradePolicy

lisbon treaty and trade agenda art 207 of tfeu
LisbonTreatyandtradeagenda: Art. 207 of TFEU
  • Competence of the Union in trade and trade-related areas increase extending into issues:
    • Trade in services
    • Trade-related intellectual property rights
    • Foreign direct investment
regulatory influence
Regulatory influence
  • An expanded (deep) agendabroughtforwardtheneedfor a regulatorymechanismin conductingrelationswiththepartners:
    • tradingpartnersof the EU toharmonisetheirlawsandprocedures, if not toadoptcommondisciplineswiththeEU’sdomesticrules…
    • toensurethatexternalchallengesbroughtaboutbyglobalisationhave as littlenegative, disruptiveeffectuponEuropeancitizensas possible…
global europe on ftas p 8
Global Europe on FTAs (p.8)
  • a series of FTAsportraying as thenewmechanism of theEU’stradestrategyforbothregulatorytopicsandfurtherliberalisation of trade…
  • Global Europe 2006, emphasised:
    • ‘freetradeagreements (FTAs), ifapproachedwithcare, can build on WTO andotherinternationalrulesbygoingfurtherandfaster in promotingopennessandintegration, bytacklingissueswhichare not readyformultilateraldiscussion…
    • Manykeyissues, includinginvestment, publicprocurement, competition, otherregulatoryissuesand IPR enforcement, whichremainoutsidethe WTO at this time can be addressedthroughFTAs’.
potential costs of failure in doha round bouet and laborde 2010
Potentialcosts of failure in Doha Round** BouetandLaborde, 2010

Effects of finalizing the DDA negotiations

Total cost the DDA failure

Potential effects of not reaching an agreement

potential costs of failure in doha round
Potential costs of failure in Doha Round

Up to Max: All tariffs, except preferencescovered by bilateral-regionals treaties, are moved to their maximum level reached over the last 13 years. Bound tariffs are still capped by the UR commitments.

Exports:+$363 Bn

Welfare: +$59 Bn

Exports:-$1,171 Bn

Welfare: -$193 Bn

Exports:-$808 Bn

Welfare: -$134 Bn

eu ftas strategy
EU FTAsstrategy
  • FTA strategymustcomplement WTO, ratherthanactingalone.
  • Theymust becommerciallydriven
  • FTA is a tradepolicyinstrumenttocorrecttradedistortions, not market failures (aretheypropervenuesformost WTO- issues?)
  • Selection of FTA partners:
    • Somedeep/comprehensiveagreemensarewithcommerciallysmallerpartners (i.e. Armenia, Georgia, Peru…)
    • SomedeepFTAswithlargerpartnersincludenon-commercialissues
  • Legal enforceabilitymust be high
impact on turkey 1
Impact on Turkey (1)
  • ‘Trade re-orientation’ effect:
  • This effect could occur when an excluded country (Turkey) already benefits from zero-tariff access to the EU market (via CU), and the new preferential partners (S. Korea, India, Mexico, ASEAN, Mercosur, S. Africa, so on) matches this access through recent agreements (i.e. FTAs). Some ‘deep’ and ‘comprehensive’ deals even goes further than the coverage of Turkey’s CU.
erosion of preferences
Erosion of preferences
  • TurkeyrepresentstheEU’sseventhlargetstrading partner.
  • The EU tohaveFTAswithalmostallcountriesrankingfrom 8th to 18th as itsmajorimportpartners (including South Korea, India, Brazil, Malaysia, Canada, S. Africa…)
  • Most of thesecountriesalsosellto EU thegoodsthatTurkeyalsoexportsheavilysuch as:
    • SITC 7 (machineryand transport equipment;
    • SITC 8 (miscellaneousmanufacturedarticles);
    • SITC 6 (manufacturedgoodsclassifiedchieflybymaterial);
    • SITC 0 (foodandliveanimals).
ceec impact
CEEC impact

Commodityoverlap in theexportsto EU-15 between CEEC andothers (exportsimilarityindex) Finger-Kreininexportindex…

Thegreaterthesimilarity/overlap, thelargerthepotentialfortradediversionand ‘preferenceerosion’…

A potentialfortradediversionexists, andmuchoverlaptakesplace in textile/clothing, agricultureandelectronics

overlap of exports to eu market tr vs eu s fta partners
Overlap of exportsto EU market TR vs. EU’s FTA partners
  • Finger-Kreinin Export Similarity Index (FK Index)
    • ‘Trade re-orientation’ effect

(i.e. Korean car industry (shares 7% of EU car market);

Indian textiles to replace TR exports to EU-27 market)

impact on turkey 2
Impact on Turkey (2)
  • FTA-partner products that enter into free circulation in the EU can be re-exported to Turkish market.
  • FTA partner Turkey


  • In practice Turkey will liberalise its imports while these countries shall have the possibility to continue with their current measures (i.e. tariffs) on Turkish exports without any need for a reciprocal liberalisation.
  • TR bound and applied rates are lower compared to the EU’s FTA-partners.
bound vs applied tariffs asia
Bound vs. Applied tariffs - Asia

AVG binding “overhang”

Source: WTO Secretariat based onCTS for bound and IDB and UNCTAD for the MFN applied tariffs.

bound vs applied tariffs latin america
Bound vs. Applied tariffs: Latin America

AVG binding “overhang”

Source: WTO Secretariat based onCTS for bound and IDB and UNCTAD for the MFN applied tariffs.

impact on turkey 3
Impact on Turkey (3)
  • Too much energy is diverted from WTO into FTAs, making the trade regime more complex and difficult to manage, given the limited resources available.
thank you
Thank you.

To contact:

Dr. M. Sait AKMAN