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Transcript of The WTO and preferential trade agreements: From co-existence to coherence Discussion by Emanuel...
The WTO and preferential trade agreements:
From co-existence to coherence
Discussion by Emanuel Ornelas
World Trade Report 2011
Jaime de Melo’s “Remarks at the WTO Report Launch 2010”
“I congratulate the WTO for this selection, a welcome report after so many
reports by international organizations on Regionalism and the Multilateral Trading System or on Trade and Agriculture, topics for which it is difficult to add much information from one report to the next.”
The World Trade Report 2011
An insightful survey of what we know about PTAs
But also much more:
What does the WTR 2011 have?
Information/data Very thorough mapping of current state
and of evolution over time of PTAs (much improved and updated)
PTA X-ray: “what is inside” PTAs (new!) Diagnosis of how much trade is
preferential (new!) And of how often preferences are used
(new!) Emphasis on the institutional setting
What does the WTR 2011 have? (cont.)
Analysis Lucid overview of motives for engaging in PTAs
and the consequences of PTAs Economic, political, etc.
Insightful overview of relationship between PTAs and multilateralism
Building blocs? Stumbling blocs? “New regionalism” is different (new!)
Out: market access In: production networks
Ideas on how to multilateralize regionalism
Production networksvs.
market access
What is the Report’s view?
Scientific method of … counting: “market access”: 47 “production network”: 119
132 if “supply chain” is included 145 if “offshoring” is included
Fresh view is very welcome But can we dismiss the “traditional view” this
quickly?
In PTA formation, are market access motivations really “out”?
WTR: yes MFN tariffs are already very low on
average Preferential margins very small Products with high MFN rates often left
out in PTAs Not much trade is preferential anyway
Qualifications
Average trade-weighted MFN tariff in 2009 is just 4% Low figure driven to a significant degree
by EU, US and Japan But most PTAs do not involve them And in any case, a small preference in
those large markets can be significant
Qualifications
Preferential margins are small when adjusted to account for the preferential access enjoyed by others Relevant counterfactual is not situation
where nobody has preferences, but situation where others have but I do not
And even when preferential margins are small, they are very likely to be used
For the EU and the US, around 90% of utilization rate
Qualifications
Products with high MFN rates often excluded in PTAs Not surprisingly, given what we know
from political-economy analyses of PTAs
Still:
WTR: “2/3 of tariff lines with
MFN>15% have not been reduced
in PTAs”
Alternative view: 1/3 of tariff lines with MFN>15%
have been reduced in PTAs
And figures consider that
there is exclusion if product is not
liberalized in first year of PTA
Qualifications
Not much trade is preferential Trade between PTA members: US$537b
(1990) US$4 trillion (2008) In shares?
Qualifications
Not much trade is preferential Trade between PTA members: US$537b (1990)
US$4 trillion (2008) In shares?
But how much trade is really preferential? Key distinctions:
With/without intra-EU With/without MFN-free trade
(50% of world trade is already free!)
WTR: “surprisingly low
share of preferential trade”
Alternative view: significant share of preferential
trade
“just 16%”
close to 2/3 of all taxable trade
Qualifications
Not much trade is preferential Trade between PTA members: US$537b (1990)
US$4 trillion (2008) In shares?
But how much trade is really preferential? Key distinctions:
With/without intra-EU With/without MFN-free trade
(50% of world trade is already free!)
Perhaps more important is to know the potential for future discriminatory market access in PTAs
BRICs
Qualifications
Applied tariffs ≠ bound tariffs WTR 2009 (on ‘trade policy
commitments and contingent protection’): “in most of the developing world, 70–90% of the tariffs could be raised by at least 15 percentage points”
PTAs provide certainty of improved market access.
Qualifications
Survey of Government Reports discussed in the WTR 2011: According to governments, “PTAs are
predominantly about securing preferential market access and attracting investment”
In PTA formation, are market access motivations really “out”?
From the wealth of information put together in the WTR 2011: not really Much of global trade is preferential Yet there is also scope for significant
more preferential trade Preferences seem to matter even when
preferential margins are small Preferences can be especially important
when “there is water” in the (MFN) tariff
In PTA formation, are production network motivations really “in”?
WTR: yes Market access is no longer that important, so
there must be something else Actual PTAs involve much more than tariff
reduction (“deep integration”) Those behind-the-border measures affect the
desirability of production networks Production networks seem to be particularly
important drivers of recently formed PTAs
Qualifications
Share of within-PTA trade relative to world trade very similar for parts & components and for other goods
Analysis of content of PTAs in WTR11 “All of the 96 agreements contain
provisions relating to industrial and agricultural tariffs.”
How about “WTO-X” provisions?
Qualifications
Non-tariff provisions also have potentially large market access effects Ex.: recognition & harmonization of
standards used only by PTA members; service licenses exclusive to PTA partners
Potentially discriminatory, can lead to significant trade creation/trade diversion
Qualifications
Are PTAs signed to reduce AD activity among members? Prusa & Teh (2010): yes Another situation where “traditional”
analysis applies very well
Qualifications
Competition policies in PTAs are likely to be non-discriminatory (and welcome) Yes, but PTAs also have investment
provisions Firms from PTA partners tend to have
more favourable FDI conditions, and therefore also benefit more from the competition measures
Qualifications
Antràs & Staiger (2011) provide some theoretical foundation: ‘New externality’ due to prices being
determined through bilateral bargaining, as often in production networks, rather than through market clearing
Negotiations aimed at exchanging market access no longer sufficient
But it is not clear how “deep agreements” could fix that problem
Qualifications Orefice & Rocha (forthcoming) provide some
econometrics support PTAs trade in parts & components among partners ↑ by
35% on average More non-tariff provisions more trade in parts & components More trade in parts & components relative to total trade
deeper PTAs Econometrics specification needs some further
clarification In any case, additional effect of a provision is small
1 extra provision ↑ of 2 extra percentage points in trade in parts & components
Effect of trade in parts on depth of PTA is very small Quadrupling share of trade in parts & components number
of non-tariff provisions increases on average by one Would effects on other types of goods be very different?
More non-tariff provisions are probably associated with deeper tariff cuts in most sectors
Qualifications
Some case study evidence for relationship between PTAs and production networks: ASEAN and Costa Rica ASEAN: “most of the reduction in trade costs
occurred before 2002” But this is also the period where most of the
preferences were implemented
Look also at Chile PTA champion: participates in 26 PTAs 87% of Chilean exports are in primary products
(of which mining is almost ¾)
Singapore is probably best candidate to study effects of deep integration
More generally
For behind-the-border policies that are non-discriminatory, why do countries need PTAs?
Are those policies and tariffs complementary?
Market access and production network motivations are not unrelated
Yi (2003): with production networks, because of multiple border crossings effect on trade flows of even small tariff reductions can be very large
Ornelas & Turner (2008): with relationship-specific investments and lock-in effects, typical in production networks, effect on trade flows of even small tariff reductions can be very large
Neither paper is about PTAs, but extension is immediate: with production networks, trade creation/trade diversion effects may be much bigger than usual
Market access through preferences and gains through production networks are not independent, but complementary motives for PTA formation.
Overall evaluation
Very innovative view on PTAs Insightful introduction to the topic for students,
academics and practitioners alike Best available, by far
Sets the agenda for “what is next” in the PTA literature New data and new analysis will set the tone in
future research on the topic Hopefully it will also influence future WTO
negotiations on PTA rules and design
Congratulations on an excellent piece of work!