Post on 17-Feb-2016
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Theory of Economic IntegrationRegionalism and WTO
Product-market integration in a neoclassical world, introduction
Katarzyna Śledziewska
Outline Preferential Trade Agreements and the
Multilateral Trade System Significance of RTAs Product-market integration in a neoclassical
world, introduction
WTO rulesThe GATT recognised the importance and value of economic
integration between countries
Regionalism - the most significant exception to WTO’s principal of non-discrimination
Three sets of rules in the WTO permit the creation of RTAs:1. Article XXIV of the GATT 2. the “Enabling Clause3. Article V of the General Agreement on Trade in Services
(GATS)
WTO rules
Article XXIV of the GATT lays down conditions for the establishment and
operation of free trade agreements and customs unions covering trade in goods
Paragraph 4 „the purpose of a customs union or of a free-trade area
should be to facilitate trade between the constituent territories and not to raise barriers to the trade of other contracting parties with such territories”
WTO rules Article XXIV of the GATT
Paragraph 8 „duties and other restrictive regulations of commerce are
eliminated with respect to substantially all the trade between the constituent territories of the union”
„substantially the same duties and other regulations of commerce are applied by each of the members of the union to the trade of territories not included in the union”
WTO rules Article XXIV of the GATT
Paragraph 8„substantially all the trade” It is commonly accepted that
agriculture is excluded (EFTA) or only included selectively (EU with Mediterrean coutries
WTO rules Article XXIV of the GATT
Paragraph 5 „the duties and other regulations of commerce (…) shall
not on the whole be higher or more restrictive than the general incidence of the duties and regulations of commerce applicable in the constituent territories prior to the formation of such union or the adoption of such interim agreement”
Interim agreements are also possible, provided they lead to a FTA (CU) within a „reasonable” time
WTO rules the “Enabling Clause”,
formally the 1979 Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of developing Countries,
permits regional agreements among developing countries on trade in goods
de facto unlimited discretion to coclude incomplete preferential agreements or any kind of FTAs
WTO rules Article V of the General Agreement on Trade in
Services (GATS) establishes conditions that permit liberalization of trade
in services among regional partners
Notifications of RTAs in force to GATT/WTO
Accessions New RTAs Grand total
GATT Art. XXIV (FTA) 2 148 150
GATT Art. XXIV (CU) 6 8 14
Enabling Clause 1 26 27
GATS Art. V 3 72 75
Grand total 12 254 266Source: http://rtais.wto.org/UI/PublicMaintainRTAHome.aspx
Notifications of RTAs in force to GATT/WTO
Enabling clause
GATS Art. V
GATT Art. XXIV
Grand total
Customs Union 6 8 14
Customs Union - Accession 0 6 6
Economic Integration Agreement 72 72
Economic Integration Agreement - Accession 3 3
Free Trade Agreement 9 148 157
Free Trade Agreement - Accession 0 2 2
Preferential Trade Agreement 11 11
Preferential Trade Agreement - Accession 1 1
Grand total 27 75 164 266
Outline Preferential Trade Agreements and the
Multilateral Trade System Significance of RTAs
Significance Integration:
Has affected most of the countries in the world Has become an unavoidable and powerful element in
most national and international economic policy decisions
Economic integration securing access to a wider market and reinforcing
growth However – past experience
Negative in certain developing-country groups
Significance The number of regional trade agreements (RTAs) has grown
rapidly since WTO came into existence in 1995 The most significant exception to WTO’s principal of non-
discrimination More than 50 percent of world trade is conducted within these
preferential trade arrangements
RTAs in force by date of entry into force
Establishment of WTO
0
50
100
150
200
250
Significance Number of RTAs
1990 - 27 1995 - 60 2000 - 102 2005 – 186 2009 - 266
“Regionalism is in fashion. It seems that every month brings news of yet another agreement among a group of countries, or between one group and another, to strength their economic links, particularly by removing barriers to trade and investment among themselves”. Frankel (1997)
0
50
100
150
200
250
Percentage of main RTAs in world’s exports
-
10,0
20,0
30,0
40,0
50,0
60,0
70,0
80,0
90,0
100,0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
MERCOSUR
ECO
EFTA
CIS
GCC
ASEAN
APTA
NAFTA
EU
Significance The vast majority of WTO members are:
party to one or more regional trade agreements party to twenty or more (some)
Examples http://rtais.wto.org/UI/PublicMaintainRTAHome.aspx
Preferential Trade Agreements and the Multilateral Trade System One of the most frequently asked questions is
whether these regional groups help or hinder the WTO’s multilateral trading system the multilateral system may be fracturing into
discriminatory regional blocs regional agreements will go beyond what was achieved
in the Uruguay Round and instead become building blocks for further global liberalization and WTO rules in new areas
Multi or regional? Considerable uncertainty regarding the future and the
relevance of the multilateral trading system Problems embodied in obvious, serious and repeated troubles of
multilateral trade liberalisation negotiations (Seattle, Cancun, Doha)
„Clean and lean” multilateral trading system and rules difficult to develop between developed and developing countries
RTAs – create and maintain a complex labyrinth of international trading roles and relations seem more easy to develop than multilateral trade system
General agreement about the advantages, value and importance of a multilateral approach to international trade
Differences in opinion regarding international trade liberalisation arrangements
Negative effects of integration Integration hurts third countries through trade diversion Simple multilateral trade rules (tariffs, rules of origin) are
replaced by a complex and overlapping labyrinth or „spaghetti bowl” of various rules specific to each group
There are regional industry-specific lobbies that demand and receive various types of protection in order to shift rents and distort location of production These lobbies resist further trade liberalisation
Resources, time and energy are shifted from multilateral towards regional issues
Negative effects of integration There are administrative, operational and multiple enforcement
costs that increase transaction and overall trade costs Strong and exclusive trading blocs may exploit their monopoly
power and improve their own terms of trade; they may clash and provoke ‘trade wars’
Deeper integration may introduce protection in previously unprotected business areas
Major players in multilateral trade liberalisation negotiations, the US and especially the EU, are bound to specific trade liberalisation agreements (CAP)
Regional trade arrangements may slow down and postpone progress on the multilateral plane as there are gainers form the existence of deals that discriminate in trade who may not welcome the arrival of a new multilateral deal
Why wider or deeper integration since the mid-1980s Deeping and widening of integration in the EU and North America Integration between developed countries such as the United
States and Canada, and a developing ones (Mexico) Economic transition in the formerly centrally planned economies
in central and eastern Europe and the 2004 EU entry of eight of these countries, then of two
A change in economic policies in the developing countries towards more outward-looking and liberal models
Change of structure of production (move towards knowledge-based goods and services and operations of transnational corporations)
Changing character of protectionism Weaking confidence in the multilateral trading system since 1995