Download The debate over deeper integration.

ITF 225 /EC1400
FUTURE OF TRADE
POLICY
Professor Robert Lawrence
September 24, 2015
Outline
1. Where do we stand?
2. The debate over deeper integration.
3. Impasse at Doha
4. The proliferation of regional agreements
5. Towards the future: Three challenges.
Over Time…Integration has Increased on
Many Fronts
• Policies
• Lower tariffs.
• Deeper international trade agreements.
• Liberalization of investment.
• Technological change
•
•
Reduced transportation costs (jets, containerization).
Costless and instant communication (internet).
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World Average Applied Tariffs: Falling.
Source: World Bank
Indeed some now claim: The World is Flat.
Bestsellers
• “The World is Flat”
• “Borderless World”
• “The End of Geography”
• “Has Globalization gone too far?”
But have distance and borders
really become less important?
But Borders Do Still Matter!
Taking account of size and distance British Columbia trades far
more with Ontario than it does with Texas.
2.5
2.1
Billions
2
1.5
Ontario, Canada
1.4
Texas
1
0.5
0.155
Predicted BC exports
to Texas without a
border
0
British Columbia's exports to: Source: McCallum (1995) AER
And the world is not flat
There are big hills separating even the liberalized countries—
prices are not equalized
Mean percentage difference in
producer price
60
50
40
30
20
10
0
Source: Bradford and Lawrence, 2004
Canada-USA
Germany-USA
UK-USA
Japan-USA
Why do borders matter?
• Tariffs and quotas.
• Customs.
• Regulations / Taxes
• Permits.
• Currencies
• Legal systems.
• Language.
• Media/Information markets.
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More integration – or preserving
differences?
• These facts suggest that there are additional benefits from
“deeper integration.”
• However, we need to distinguish between differences that
exist for different reasons:
• Some differences in standards are protectionist: should be
eliminated.
• Some differences are equivalent. Can use either and have mutual
recognition.
• Some differences are valuable in their own right and should be
preserved.
Outline
1. Where do we stand?
2. The debate over deeper integration.
3.The impasse at Doha
4.The proliferation of regional Agreements
5. Towards the future
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Companies want to reduce the costs of
operating global supply chains:
• Common standards
• Investor protection.
• Regulatory coherence.
• Intellectual property
protection.
• Efficient customs.
• Reliable contract
enforcement.
• Rules for e-commerce
• Fair competition limits on
state-owned enterprises
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And many in Advanced countries want
higher social standards in trade agreements
• President Obama Defends the TPP
• https://vimeo.com/132727614
• (NO PASSWORD)
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And some developing countries are willing to
supply deeper integration
• New strategies: import
substitution versus export-led
• Attracting Foreign Direct
Investment (FDI)
• Trade policy and domestic
reforms.
• Credibility and lock-in
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But others resist these demands for deeper
integration
• History of previous globalizations
• Desire for autonomy in policy space.
• Belief in state-led strategies, infant industry policies
• Some differences are obstacles but some are valuable in
their own right!
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And some of them are too big to ignore
Rise of China &
India…
..and also Brazil,
Mexico, Indonesia,
Turkey, Nigeria
The WTO: No consensus for going
deeper at Ministerial Meetings
• Marrakech (1994): Labor standards rejected as issue
• Seattle (1999): Many complain about implementation
challenges of Uruguay Round: too complicated and
expensive for poor countries
• Cancun (2003): No consensus on competition policy,
investment and transparency in government
procurement. Dropped from Doha Round Agenda.
• Need to end Doha Round now used by some to prevent
WTO introducing new issues.
Outline
1. Where do we stand?
2. Controversies over deeper integration.
3. Impasse at Doha
4. The proliferation of regional agreements
5. Towards the future: Three challenges.
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Doha: 2001 Views
• Developed countries have done
well under globalization
• Trading system must prioritize
developing country interests
• Big problem: farm subsidies hurt
farmers in poor countries
• China, a newly acceding member,
does not need to do more
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Doha Round: an ambitious agenda
• A single undertaking.
• Reduce barriers and subsidies in agriculture
• Reduce remaining tariff peaks in developed countries
• Further reduce services barriers
• Provide “Aid for Trade” and help trade facilitation
• Perhaps add new issues. (at Cancun in 2003)
• Investment
• Competition policy
• Transparency in government procurement
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Doha Round
• Some progress on formulas and approaches (called
modalities) but not real agreements.
• Almost every deadline missed.
• Investment, Competition Policies and Transparency in
Government Procurement dropped from Cancun Agenda.
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Conditions have changed:
no big agreement seems possible
• In 2001, developing countries needed support
• China was a newly acceding member that needed time to adjust
• Many developing countries had experienced two decades of slow growth
• But as of 2015, many are thriving
• China is the world’s largest exporting nation
• Many developing countries have had a decade of unprecedented growth
• Developed countries have prioritized concessions
• Market-opening concessions from large emerging economies
• But many developing countries unwilling to Make Them.
• To the US, the bargain on the table looks small and uncertain
(Schwab 2011)
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Bound Versus Applied Rates: Water,
Water Everywhere!
Bound
European Union
United States of America
Canada
Japan
Korea, Republic of
Australia
Singapore
Brazil
China
India
Indonesia
Mexico
Nigeria
MFN applied
5.2
3.5
6.8
4.7
5.5
3.4
4.2
4.9
16.6
10.0
9.9
13.3
2.7
0.2
31.4
10.0
48.6
37.1
36.2
118.3
13.5
9.9
13.5
6.9
7.9
11.7
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With approaches (modalities) agreed in 2008:
developing countries: no change in applied rates in
agriculture!
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Recent Agreements
• Bali WTO Agreement approved in
December 2013: main
achievement trade facilitation to
improve operation of customs
• Information Technology
Agreement reached by 54 WTO
members in July 2015,
eliminating tariffs on 201 IT
products representing 7% of
global trade
• Hope for Nairobi Ministerial
Conference in December 2015?
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Outline
1. Where do we stand.
2. The debate over deeper integration.
3. The dilemma’s of Doha.
4. Regionalism: Is it the answer?
5. Can the WTO be revitalized?
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Coalitions of the Willing: Outside the WTO
• Plurilaterals: Trade in Services Agreement (TISA)
• Currently being negotiated with 51 participants, representing 70%
of world trade in services
• Last major services agreement, GATS, was in 1995
• Bilaterals
&
• Mega-regionals: TPP, TTIP, RCEP, Pacific Alliance
• Many with deeper agendas
Number of preferential trade agreements (PTAs)
has exploded in past 2 decades
According to the WTO, there are over 300 Regional
Trade Agreements in force at present
Regional agreements are becoming more complex, as
indicated by the increase in average number of RTA
partners per agreement over time.
Source: Caroline Freund and Emanuel Ornelas, “Regional Trade Agreements,” World Bank Working Policy Research Working Paper 5314, May
2010, p. 59.
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Proposed Mega-Regional Arrangements
• Regional Comprehensive Economic Partnership (RCEP) is an
initiative to link the ten ASEAN member states and the group’s Free
Trade Agreement partners, Australia, China, India, Japan, South Korea
and New Zealand.
• Trans-Pacific Partnership (TPP) is a trade agreement under negotiation
between Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia,
Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam.
• Trans-Atlantic Trade and Investment Partnership (TTIP) is a trade
agreement under negotiation between the United States and the
European Union.
• Pacific Alliance: Latin American trade bloc, current member states are
Chile, Columbia, Mexico, and Peru. Costa Rica began the process of
joining in February 2014.
TPP: Extensive Coverage
Goes Deeper than agreements in ASEAN on Many Issues
Source: Petri at al.
Outline
1. Where do we stand?
2. Controversies over deeper integration.
3. Impasse at Doha
4. The proliferation of regional agreements
5. Towards the future: Big Questions
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Big Questions
• What to do about revitalizing the WTO?
• Can regional arrangements become building blocks for
integration?
• Who will lead the global trading system?
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1) WTO losing centrality
IMPASSE
FLOURISHING
Multilateral negotiations stalled; vocal
opposition to global rules
Number of Regional Trade Agreements
has increased dramatically
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SOLUTION?: End Doha and move towards a
Variable Geometry for a more inclusive WTO
Competition
Investment
Core
Agreements
Labor rules
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Example: Investment
• What happens if some countries want to
decrease barriers to international investment,
Competition
but others don’t?
Investment
• Are we better off if those countries form a
separate regional agreement?
Core
Agreements
• Or
are we better off if they negotiate the
agreement at the WTO with all the other
members – but only they choose to participate in
it?
Labor rules
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WTO as a “club of clubs”?
• “Plurilateral” agreement protocol was added after WTO
established
• All members negotiate agreements, but participation is voluntary
• Allows members choice to have deeper integration under the
WTO
• Preserves policy space for members not yet ready to participate
• One way to revitalize the WTO as the center of the global
trading system
2) Three Scenarios with mega-regionals
•
Building Blocks. The strategy works to create a reinvigorated
system.
•
Stumbling Blocks. Creates a fragmented system because some
cannot join
•
Crumbling Blocks. Agreements either fail to be concluded or are
rejected when they are
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Building Blocks?
Mega-regionals:
•
Facilitate trade and investment for insiders
•
Generate positive spillovers for outsiders.
•
E.g. harmonized standards, more efficient customs, more
transparent regulatory systems reduce costs for both members
and non-members.
•
Eliminating barriers within sectors in mega-regionals facilitates
sectoral agreements at the WTO.
•
Innovations within regionals set precedents
= a process of competitive liberalization
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Stumbling Blocks?
• System fragmented into standard-setters and standard-
takers.
• Standards set at levels that present non-tariff barriers
to outsiders.
•
•
•
Restrictive rules of origin
Insiders given preferential treatment
Rules on issues like labor, environment, human rights exclude
many participants.
= Frictions, tensions. Gradual erosion of WTO as center
of system.
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Crumbling Blocks?
• Parties are unable to complete negotiations: mega-
regionals difficult, Doha stalled.
• Agreements are often concluded but then rejected by US
Congress and other Parliaments.
Result:
• Deep disenchantment with trading system.
• Failure at both multilateral and regional level.
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3) Leadership challenge
• Leadership in the new global system must come from both the advanced
and major emerging economies – particularly China
• How can China reconcile its desire to lead the global effort to maintain an
open and free trading system with its need to promote its domestic
development?
Chinese market is
fairly open
But measures to promote development
increase friction with trading partners
• Tariffs average 10% • Undervalued currencey
• Hospitable to
• Subsidies (e.g. energy)
foreign investment
• Strategic use of state-owned enterprises
• Some investment restrictions
• Technology transfer requirements
• Frequent infringements of intellectual
property rights
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The Question?
• Are we witnessing the end of US (and EU) leadership –
and the emergence of a multipolar system that has weak
leadership and eventually deglobalizes and fragments?
• Or, are we witnessing the beginning of a new more
effective multilateral system that can be more inclusive,
and provides alternative and differentiated ways for
countries to integrate with the rest of the world?