Ministry for Foreign Affairs Sweden Does free trade have a future? Challenges in the multilateral...

Ministry for Foreign Affairs Sweden

Does free trade have a future? Challenges in the multilateral trading system

Anders AhnlidDirector General for Trade

Swedish Ministry for Foreign Affairs


Outline• Long term changes and present challenges

– The golden era of the multilateral system…– …followed by the “great trade collapse”– The present trade policy dilemma

• Procedural and substantive challenges in the WTO Doha-round– From chaos in Seattle 1999 to a workable process in Geneva

2008 – Traditional vs. “new” trade policy issues

• Bilateral and regional free trade agreements– “Noodle bowl”…– …or “birds nest”

• Does free trade have a future?


0

5

10

15

20

25

30Export BNP

Källa: WTO, International Trade Statistics 2006

Utveckling i världshandel och BNP 1950-2005, volym

Long term benefits: 1950-1995 the golden era of the multilateral trading system?

• One of the most successful areas of multilateral co-operation

• Long period of successful trade liberalization from 1947

• Eight trade rounds• From 40 to 4 % industrial

tariffs • Unprecedented increase in

trade• From GATT and US hegemony…• …via joint EU-US leadership

and establishment of WTO…• …to a multipolar structure• Have we seen the end of this

era?


Share of world trade as proxy of power in the world trading system 2008

USA11%

EU38%

China9%

Japan5%

Others37%

1990

USA12%

EU44%

China2%

Japan8%

Others34%

Source: WTO, 2010


Global production in 1990 and 2015, GDP

Source:www.worldmapper.org


Short term challenges: “The great recession” and “the great trade collapse”

• Dramatic decline in trade• -30 % in four months• Followed by strong upturn• Trade crucial for recovery• WTO has stood the test…• …no protectionist flood • Measures taken cover 0,5

% of world trade• But danger not over!

-25-20-15-10-505

10152025

Förändring över motsvarandemånad föregående år (%)

Global export growth Jan 2008-Feb 2010


The current trade policy dilemma• A robust and liberal world trade

regime is a “core interest” for Sweden and more needed than ever…

• …yet it seems more difficult than ever to move forward and make progress multilaterally

• Why? And what can be done about it?


Bumpy road to the launch of the Doha-round

• Debate on globalization after the launch of WTO in 1995

• US no longer hegemon• EU sought to provide

leadership…• …proposed new WTO

round…• …that the US and emerging

economies first resisted• Impasse in Seattle 1999• Launch of Doha-round in

autumn 2001 after the atrocities of 9/11


The Doha Development Agenda 2001-• Launch in Doha, Qatar, 2001...• …where China also joined the WTO• Intended duration: 4 years• Mostly failed ministerial

conferences:– Cancun 2003Cancun 2003– Geneva 2004Geneva 2004– Hong Kong 2005– Geneva 2006 and 2008

• Stalemate since 2008 – but talks came close to breakthrough

• “The July/Lamy Package” – a substantial deal on the table

• 80-90 percent of round done• Boost global economy by at least

USD 150 billion per year


Procedural challenges in the WTO Doha-round (1)

• Failures 2001-2006 partly due to shaky and heavily criticized negotiating process

• The Cancun 2003 ministerial ended in chaos…

• …under Mexican chair and weak WTO DG Supachai

• From comprehensive agenda…

• …to ‘market access round’• Re-launch in Geneva 2004…• …Hong-Kong 2005 ministerial

partly successful…• …agricultural G-20 cemented

primacy of agriculture


Procedural challenges in the WTO Doha-round (2)

• Geneva 2008 renewed sense of urgency

• Real interest by all to move forward• 10 day negotiating marathon• Chair of Trade Negotiating

Committee WTO DG Lamy found a negotiating structure that worked

• Very close to deal but…• …the US pulled out in eleventh hour• All other participants willing to go

ahead• Unprecedented in GATT/WTO

history…• …still, WTO has not been able to

adjust to the new structure of power


Procedural challenges in the WTO Doha-round (3) Negotiating structure in Geneva 2008

• 153 member states• Transparency regarding all meetings• G-7 key informal body (EU, US, Japan, Australia, China, India

and Brazil)• ‘Green room’ with 20-30 participating ministers• Consultations and anchoring in regional and functional

groups • 26 groups (ACP, APEC, Cairns, Mercosur, G-90, LDC, G-10, G-

11, G-20, NAMA-11, EU and more…)• NGOs and parliamentarians informed in parallel • Informal anchoring for heads of delegation and formal

anchoring in the Trade Negotiation Committee • Worked without major criticism in Geneva – not the

negotiating structure that led to failure


Substantive challenges in the Doha-round (1)– traditional vs. non-traditional ‘trade issues’

The two dimensions of contemporarytrade policy making

Autarchy Free trade

High interference of tradepolicy in other policy areas

Low interference of tradepolicy in other policy areas


Substantive challenges in the Doha-round (2)

• The EU initially sought ‘a comprehensive round’• The DDA work-programme contained ‘Singapore-issues’:

– Investment– Competition– Transparency in government procurement– Trade facilitation

• Only trade facilitation survived Cancun and Geneva 2004…

• …that turned DDA into a ‘market access round’ as proposed by the US and the emerging economies

• Trade issues relating to environment moved to back burner

• ‘July package’ or ‘Lamy package’ from 2008 almost made it…

• …all but the US in favour of the package


Substantive challenges in the Doha Round (3)Meaningful “July-package” on the tableNon-Agricultural Market Access

• Developed countries to bind tariffs at an average below 3 %, no tariff above 8 %

• Acceptance of formula by emerging markets major breakthrough. Bound tariffs lowered to an average of 11-12 %

• New market access – India’s applied tariff lowered by 10 %, China’s by 26 %

• In addition: sectoral deals and progress on Non-Tariff Barriers

Agriculture

• Elimination of export subsidies 2013• The US and EU to lower Overall Trade-

Distorting Support by 70-80 percent• Developed Countries should on

average lower tariffs by 54 percent• The EU to reduce its tariffs on

average by 60 percent

Services

• Growing but still neglected area

• 20-25 percent of world trade• “Signaling” of meaningful

offers, including telecoms, financial services, distribution and professional services

• Movement of individual service providers key

Other topics

• Progress on trade facilitation (2-15 percent of transaction costs)

• Anti-dumping?• Trade and environment, incl.

free trade for environmental goods and services

• Aid for Trade


Still hope for Doha?

• No substantive progress since 2008• Technical work going on in Geneva• The “great recession” makes result more

needed than ever…• …largely budget neutral and non-

inflationary stimulus of 150 billion USD within reach

• G-20 has so far not managed to push Doha…• …new opportunity in South Korea in

November


What is needed to break the deadlock?

• G 5, consisting of the US, the EU, China, India and Brazil, largely holds the key

• New roles for all major participants under the new structure of economic power


The EU – from follower to leader?

• Commission EU negotiator• Lead driver for the Doha-round

and…• …for the first time not blamed for

problems• Enlargement from 15-27 members • Responsible position during crisis• The Lisbon treaty creates new

internal institutional balance• Increased power for the

Commission…• …and for the European Parliament


US no longer committed leader

• Took the lead in all previous trade round…

• …but reluctant DDA participant from the beginning

• What is on the table not enough for Congress, business and labor

• Need more from emerging economies

• Obama-administration so far defensive on trade

• New window of opportunity 2011 after up-coming mid-term elections?


Role of the emerging economies

• G-20 (agricultural developing countries) key to negotiating dynamics

• Demanded “re-balancing of unfair system”…

• …but still ”not responsible stakeholders”

• China reluctant to move beyond commitments taken upon accession 2001

• India and Brazil feel threatened by competition from China

• Accept bindings but unwilling to offer new market access

• Willing to move to satisfy the US?


Other participants likely to follow• Cairns group of agricultural exporters

largely satisfied with the “July package”• G-10 of agricultural protectionists still

defend protection, but will have to come along

• South Africa raise particular issues• Least-developed countries not asked to

contribute much and support package• Cuba, Venezuela and Bolivia likely to

seek to spoil but can hardly bloc final deal


Need to move beyond Doha that addresses “old issues” but leaves crucial new topics untouched

• Investment• Competition• Transparency in Public Procurement

(China’s accession to WTO agreement important)

• Regulatory issues, international standards• Environment and climate change• Need for modernization of WTO rules…• …if not, loss of business support and

interest


Trade and climate change

• Link between climate and trade regimes challenging• Quest for border-tax adjustment to tackle difference

between countries with strong and weak climate commitments

• Possibly legal under WTO…• …but difficult to manage, and risk for protectionist

capture• Need to make sure climate related regulations and

standards not used for protectionist purposes• Liberalization of climate-friendly goods and services


Trade and development

• Doha Development Agenda• Questioned by many…• …but important development gains possible• Aid for Trade – comprehensive co-operation

between donors and international development institutions– Increase capacity of developing countries to trade

and integrate in the global economy…– …and ease the costs of adjustment


Window of opportunity 2011?• Need for real and strong G-20 signal• No elections in the US may make it

possible to move in Washington• Too much political capital invested in

the negotiations for it to fail and the world economy needs the deal

• No guarantee for success• Do bilateral and regional Free Trade

Agreements provide a viable alternative?


Free Trade Agreements:“noodle bowl” or “birds nest”?


Bilateral free trade agreements – ‘noodle bowl’ or ‘birds nest’ (1)? • Lack of progress in the WTO has triggered avalanche

of bilateral and regional FTAs…• …462 FTAs notified to WTO, many more under

negotiation• Asia in the forefront – 54 Asian FTAs in 2009, up from

three in 2000 – an additional 78 negotiated or planned• China a more active FTA partner (Taiwan, Japan, South

Korea, ASEAN, India, New Zealand, Norway, Switzerland)

• US seek to move on South Korea and Colombia and interested in Trans-Pacific Economic Partnership

• Rapid developments in Africa and Latin America as well


Existing EU Free Trade Agreementsand ongoing FTA negotiations


The Asian “noodle bowl syndrome”


Canada

UruguayParaguay

Argentina

Brazil

Mexico

Chile

Bolivia

Ecuador

Peru

VenezuelaColombia

Panama

NicaraguaCosta Rica

El SalvadorGuatemalaHonduras

Dominican Republic

Antigua & Barbuda, Barbados,Belize, Dominica, Grenada,Guyana, Jamaica, St. Lucia, St. Kitts & Nevis,St. Vincent & the Grenadines,Suriname,Trinidad &Tobago

MERCOSUR

ACN

CARICOMCSME

CACM

Canada-CRI

CAFTA-DR(CARICOM members but not in CSME)

Chile-Cent. Amer.

NAFTA

ACE 35

ACE 36

Source: IDB.

ACE 59

ACE 59

ACE 59

ACE 58

G-3

USA

EU, EFTA

Singapore

Australia

China

Korea

Japan

EU

Brunei

TPP

Bahamas

Haiti

EU-CARIFOUM

EPA

Thailand

N.Z.

Late 2000s: Toward Convergence?

ASEAN

ASEAN+6

ASEAN+3

ARCO

PA

PA

UNASUR

The web of FTAs seen from Latin America…

Source: IDB – Regional Integration in LAC, 2010


AlgeriaLibyaMorocco MauritaniaTunisia

AMU

GhanaNigeria Cape Verde

Gambia

ECOWAS

Benin NigerTogo Burkina FasoCote d’Ivoire

Conseil de L’Entente

Guinea-Bissau Mali Senegal

WAEMU

Liberia Sierra Leaone Guinea

Mano River Union

CLISS

CameroonCentral African Rep.GabonEquat. GuineaRep.Congo

Chad

Sao Tomé & Principe

ECCAS

CEMAC

Angola

Burundi*Rwanda*

Egypt

DR Congo

DjiboutiEthiopiaEritreaSudan

Kenya*Uganda*

Somalia

Tanzania*

EAC

South AfricaBotswanaLesotho

Namibia*Swaziland*

Mozambique

SACU

Malawi*Zambia*Zimbabwe*

Mauritius*Syechelles*

Comoros*Madagascar*

Reunion

IOC

*CBI

SADC

COMESA Nile River BasinIGAD

AMU: Arab Maghreb UnionCBI: Cross Border InitiativeCEMAC: Economic & Monetary Community of Central AfricaCILSS: Permanent Interstate Committee on Drought Control in the SahelCOMESA: Common Market for Eastern and Southern AfricaEAC: East African CooperationECOWAS: Economic Community of Western African StudiesIGAD: Inter-Governmental Authority for GovernmentIOC: Indian Ocean CommissionSACU: Southern African Customs UnionSADC: Southern African Development CommunityWAEMU: West African Economic & Monetary Union

Overlapping African agreements…Overlapping African agreements…


Bilateral free trade agreements – ‘noodle bowl’ or ‘birds nest’ (2)?

• Trade creation or trade diversion?• Need to meet WTO criteria and provide zero tariffs

for ‘substantially all trade’• Too many new agreements too shallow• Multinational firms with global supply chains often

critical• Negative effects of protectionist or discretionary

rules-of-origin• FTAs possible stepping stones towards multilateral

progress?• EU and NAFTA could serve as models to follow


Delivering the goods is more than a numbers game

3


Multilateral solutions still first best – is new momentum for global free trade possible?

• Need for continued ‘trade advocacy’ and political leadership…• …in “old” developed countries as well as in emerging

economies• Link between support for liberal trade policies and well

functioning social safety nets• Possible to build new coalitions for free trade?• FTAs risk undermine support for multilateral liberalization in

WTO… • …and do not always provide an economically sound

alternative…• …but broad and deep bilateral free trade agreements could

serve as a second best complement and stepping stone towards multilateral progress


Does free trade have a future?

Yes – but not clear in what form and multilateral solutions still first best

Thank you for your attention!

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