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Must FTAs Be Vehicles For Discrimination?. Presentation at University of Sussex, 22 May 2008 Simon J. Evenett www.evenett.com. Contents of this presentation. Reflecting on the question: Must FTAs be vehicles for discrimination? Relationship to "multilateralising regionalism."

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Must ftas be vehicles for discrimination

Must FTAs Be Vehicles For Discrimination?

Presentation at University of Sussex, 22 May 2008

Simon J. Evenett

www.evenett.com


Contents of this presentation
Contents of this presentation

  • Reflecting on the question: Must FTAs be vehicles for discrimination?

  • Relationship to "multilateralising regionalism."

  • New information on certain classes of FTA non-tariff provisions.

  • Some hard yet-to-be answered questions.


Must ftas be vehicles for discrimination1
Must FTAs be vehicles for discrimination?

  • Intellectual significance--given Viner's classic analysis.

  • Practical significance today:

    • For our understanding of what is a "free trade agreement".

    • For the welfare and policy options available to FTA parties.

    • For the welfare and policy options available to third parties and "the system."

  • The answer to the question: NO. So what?

    • Given historical precedents. No claims about novelty per se.

    • Logic and Effects?


Relationship to multilateralising regionalism
Relationship to "Multilateralising Regionalism"

  • Initial contribution was Baldwin (2006). Work followed by others including Baldwin, Evenett, and Low (2008).

  • From our joint paper: "The notion of multilateralising preferential agreements can be defined with more or less precision. The fundamental idea is obvious—a process of multilateralisation occurs when existing preferential arrangements are extended in a non-discriminatory manner to additional parties." Hmmm.

  • Examples given in Baldwin (2006):

    • Information Technology Agreement (ITA) in 1995.

    • Rules of origin (PECS in 1997).

    • Baldwin's explanation: Spaghetti bowls and production unbundling.


Relationship to multilateralising regionalism1
Relationship to "Multilateralising Regionalism"

  • Baldwin, Evenett, and Low (2008) examined whether comparable examples could be found in trade rules that did not relate to what is traditionally referred to as "trade in goods”; some call these rules "behind the border."

  • Plus BEL (2008) were interested in the generality of the Baldwin (2006) logic.

  • Examined text of FTA provisions from nearly 100 agreements in government procurement, competition law and policy, investment performance, and trade remedies, and drew on secondary literature on services and TBT.

  • What we found surprised us—and has surprised some in the trade policymaking community.


Bel 2008 found fta provisions where
BEL (2008) found FTA provisions where:

  • The parties agreed to a commitment on a MFN basis.

  • The parties agreed to a commitment that legally-speaking discriminates against third parties—but in fact was implemented on a MFN basis.

  • More parties join an agreement with preferential treatment.

  • The parties agreed to give each other any more favourable treatment that they grant to a third party in a subsequent FTA (so called Third Party MFN).

  • The parties agree not to invoke WTO rights that discriminate or may lead to discrimination against parties to the FTA.

  • Relationship of this taxonomy to Baldwin's ITA and PECS examples.


Bel 2008 also found
BEL (2008) also found:

  • Using FTAs to limit non-discrimination is not confined to any one set of FTA provisions.

  • Using FTAs to limit non-discrimination is not confined to any one group of FTA parties.

  • Using FTAs to limit non-discrimination is spreading over time—it is becoming more prevalent.

    • See the cool charts on the following slides!

  • The Spaghetti Bowl plus production unbundling argument applies in some cases but not all. Other explanations were identified—not least because the Spaghetti Bowl problem isn't always created by every type of FTA provision.


Must ftas be vehicles for discrimination

De Jure MFN: Spread of NAFTA performance requirements provisions in FTAs.

United States

Korea

Chile

Colombia

Singapore

Mexico

Peru

Morocco

Japan

Venezuela

Australia

Chinese Taipei

Panama

NAFTA agreement

identical or almost identical language of provisions

same NAFTA provisions with some exeptions or omissions

Canada


Must ftas be vehicles for discrimination

Strong Third Party MFN: FT provisions in FTAs.As with provisions that automatically trigger better treatment in FTA partner procurement markets if that partner subsequently negotiates better coverage with a third party

Palestine Authority

Bosnia-Herzegovina

Croatia

Moldova

Morocco

Albania

Macedonia

Turkey

Slovenia

Montenegro

Tunisia

Bulgaria

Kosovo

Romania

Israel


Must ftas be vehicles for discrimination

Weaker Third Party MFN: FTAs with provisions that trigger consultations or negotiations if a party subsequently negotiates greater procurement-related coverage with a third party

Lebanon

Israel

Chile

Tunisia

EFTA

Mexico

EC

Korea

SACU

Japan

Singapore

Australia


Must ftas be vehicles for discrimination

Discouraging use of exceptions to WTO principles: FTAs with Joint Committee provisions to oversee antidumping and safeguard measures

1993 - 2007

Romania

EFTA

Morocco

Serbia andMontenegro

7. 1.2.1998

Turkey

Tunisia

8. 1.01.1999

11. 1.9.2000

EFTA

10. 1.1.2000

FYR Macedonia

Bulgaria

1. 1.1.1993

3. 1.01.1995

Algeria

2. 31.12.1993

Jordan

4. 1.05.1997

Lebanon

EC

Moldova

Morocco

5. 1.7.1997

Tunisia

6. 30.10.1997

Albania

12. 1.06.2000

Bosnia and Herzegovina

Kosovo

13. 1.09.2000

9. 1.01.1999

Croatia

Israel

EFTA

EFTA

agreements 1993 – 2000

agreements concluded after 2000

CEFTA


Must ftas be vehicles for discrimination

Adoption of common/similar rules: Spread of NAFTA Art. 1305.1

United States

Colombia

Honduras

Chinese

Taipei

Venezuela

Panama

El Salvador

Mexico

Central America

Bolivia

Guatemala

Chile

EFTA

Uruguay

CAFTA

original NAFTA agreement

identical language of provisions

Korea

almost identical language, same provisions

Nicaragua

EU

same content, different language

Canada


Must ftas be vehicles for discrimination

Adoption of common/similar rules: Spread of NAFTA Art. 1305.2

United States

Colombia

Honduras

Chinese

Taipei

Venezuela

Panama

El Salvador

Mexico

Central America

Bolivia

Guatemala

Chile

Korea

Uruguay

original NAFTA agreement

Note: This pattern has not been spread in different language and same sense of provisions, which was done by Chile in the case of Art. 1305.1

identical language of provisions

almost identical language, same provisions

Nicaragua

same content, different language

Canada


What remains to be done
What remains to be done 1305.2

  • On Why? Learn what the trade negotiators understood they were doing, with whom, and what outcomes they sought.

  • On Why? Develop models that rationalise the signing of these provisions—from a welfare-theoretic and political economy perspective.

  • On Effects: Better understanding of the effects of these provisions on parties and third parties—are they as benign as they might seem?

  • On Systemic Effects: Examine theoretically whether the sequential adoption of these provisions by more parties does raise world welfare. (Must be some doubts here.)