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RTAs: Threat or Opportunity for the WTO? - The Economist‘s View -. Dipl.-Vw. Jürgen Matthes Head International Economic Policy Department. Bilateralism – Facts and Evaluation. New Bilateralism since 2000 – Unprecedented Boom: 16 RTAs per year

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rtas threat or opportunity for the wto the economist s view

RTAs:Threat or Opportunity for the WTO?- The Economist‘s View -

Dipl.-Vw. Jürgen Matthes

Head International Economic Policy Department

bilateralism facts and evaluation
Bilateralism – Facts and Evaluation
  • New Bilateralism since 2000 – Unprecedented Boom: 16 RTAs per year
  • Now clear evidence: Stumbling Bloc for the WTO and for the Doha-Round
    • Preference Erosion
    • Less Pressure on Protectionsts when Exporters have Bilaterals as an alternative
    • Concessions may be held back for Bilaterals
  • Threat to global welfare
    • Empirical evidence: Global effects of RTAs unclear, could even be harmful
    • South-South bilaterals (vast numbers) are more trade diverting than North-South deals
    • Sand in the wheels of Globalisation and efficient Production Networks (esp. in Asia)
      • Spaghetti Bowl, Transaction Cost increase, especially due to pref. Rules of Origin

Jürgen Matthes: RTAs - Threat or Opportunity for the WTO? WTO Public Forum, September 25, 2006

evaluation 2 race for markets
Evaluation (2): Race for Markets
  • Important reason for surge in Bilaterals: Race for Markets
  • Anecdotal evidence:
    • Asia currently with the strongest activity in bilaterals (China, Japan, ASEAN etc.)
    • Competition among US and EU (Mexico, Chile – now Asia)
  • Game Theory: Bilateralism is a dominant strategy
    • No matter what the US does, for the EU an RTA with (say) India is the best choice
    • Self-reinforcing Race for Markets – largely explains Boom in Bilaterals since 2000
  • Problem: Social Dilemma
    • For individual countries Bilateralism is rational
    • For global welfare Bilateralism and the Race for Markets is likely to be detrimental
    • Stopping Bilateralism is a kind of Public Good, but government intervention not feasible

Jürgen Matthes: RTAs - Threat or Opportunity for the WTO? WTO Public Forum, September 25, 2006

renaissance of the wto
Renaissance of the WTO?
  • Failure of Bilateralism as a Catalyst for a Return to the WTO in 10 to 15 years?
    • Do we have to go “Per Aspera ad Astra”?
  • For DCs (particularly in Asia): Bilateralism will likely prove a dead-end
    • Poor DCs are left out
    • South-South RTAs with Welfare Losses due to Trade Diversion
    • Transaction costs (esp. relevant for DC-companies and in Intermediates)
    • North-South RTAs less attractive than hoped for
      • Asymmetric Power Balance – Unwanted Issues (IP, Capital controls)
      • RTAs are Positional Goods which lose value with increasing membership
  • Problem: For IC Bilateralism has fewer Disadvantages
    • Power Wielding, New Issues, Hub-and-Spoke-Structure (but Transaction Costs)
  • This could bring DCs back to the WTO – may be even sooner than later

Jürgen Matthes: RTAs - Threat or Opportunity for the WTO? WTO Public Forum, September 25, 2006

in the meantime mitigation
In the Meantime: Mitigation
  • Bilateralism is unstoppable for the moment
  • How can its detrimental effects be mitigated
    • GATT Art. 24:
      • Clearer interpretation of vague rules, e.g. „substantially all trade“
      • Additional Demand: Lower barriers to outsiders to avoid trade diversion
    • Reform of Enabling Clause: less Leeway for DC to avoid Trade Diversion
    • Harmonisation of preferential RoO would reduce transation costs
    • Templates for RTAs
      • Avoid dead-ends in new issues such as standards, investment, etc.
  • Problem: Reform unlikely, but all the more necessary

Jürgen Matthes: RTAs - Threat or Opportunity for the WTO? WTO Public Forum, September 25, 2006

rtas threat or opportunity for the wto the economist s view thank you for your attention

RTAs: Threat or Opportunity for the WTO?- The Economist‘s View –Thank you for your attention

Dipl.-Vw. Jürgen Matthes

Head International Economic Policy Department