AGREEMENTS AND THE WTO Jakarta, 5-7 September 2017 Alexandre - - PowerPoint PPT Presentation

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REGIONALISM, FREE TRADE AGREEMENTS AND THE WTO

Jakarta, 5-7 September 2017 Alexandre Larouche-Maltais Senior Trade & Investment Expert Conference Board of Canada

Outline: Regionalism, free trade agreements (FTAs) and the WTO

• Historical developments
• Distinguishing trade agreements
• Canada’s current negotiations

Regionalism in the world

• Creating or diverting trade?
• Keeping attention away from the multilateral negotiations?
• Forgetting developing countries?

Debates – pros and cons of FTAs

• Internal conditions
• External conditions
• Transparency

Legal aspects

Part 1 Part 2 Part 3

PART 1 REGIONALISM IN THE WORLD

Historical developments Distinguishing trade agreements Canada’s current negotiations

Historical developments: Three “waves” of regionalism

(1) Europe's push for continental integration (2) US’ momentum behind regionalism (3) New participants, larger initiatives

Source: WTO, World Trade report 2011

Late 1950s and 1960s Mid-1980s and 1990s 2000s

Historical developments: Three “waves” of regionalism

(1) Europe's push for continental integration (2) US’ momentum behind regionalism (3) New participants, larger initiatives

Source: WTO, World Trade report 2011

Late 1950s and 1960s Mid-1980s and 1990s 2000s

European Activism

• 1951: European Coal and Steel Community
• 1957: European Economic Community (EEC) vs

European Free Trade Association (EFTA)

• Complex network of preferential, but non-

reciprocal trade arrangements with past colonies Pressure for progress at the multilateral level

• 1960: launch of the Dillon Round
• 1964-67: Kennedy Round

GATT tariff cutting and membership enlargement

Historical developments: Three “waves” of regionalism

(1) Europe's push for continental integration (2) US’ momentum behind regionalism (3) New participants, larger initiatives

Source: WTO, World Trade report 2011

Late 1950s and 1960s Mid-1980s and 1990s 2000s

Deepening European integration

• 1980s: Europe’s “single

market” program for dismantling remaining physical, technical and tax barriers

• 1993: EEC became the

European Community (EC)

• New cluster of bilateral

PTAs with Central and Eastern European countries (future EU members) US’ new trade policy

• Ongoing concerns

about the EC's expansion & delays in launching and then advancing the Uruguay Round negotiations

• 1985: FTA with Israel
• 1988: FTA with Canada
• 1994: NAFTA

Historical developments: Three “waves” of regionalism

(1) Europe's push for continental integration (2) US’ momentum behind regionalism (3) New participants, new initiatives

Source: WTO, World Trade report 2011

Late 1950s and 1960s Mid-1980s and 1990s 2000s

New players

• “Developed-developed”, “developing-developing”,

and “developed-developing” alliances New initiatives

• Bilateral, plurilateral and cross-regional initiatives
• Focused on WTO-plus type issues, e.g. services,

capital flows, standards, IP, regulatory systems, etc.

Distinguishing Trade Agreements

Customs Unions (CUs) Free Trade Agreements (FTAs) Bilateral Trade Agreements (BTAs) Regional Trade Agreements (RTAs) Preferential Trade Arrangements (PTAs)

Preferential Trade Agreements

Plurilateral Agreements Multilateral Agreements

World Trade Organization (WTO)

Distinguishing Trade Agreements

Plurilateral Agreements Multilateral Agreements

World Trade Organization (WTO) Multilateral agreements refer to mandatory treaties to which all WTO members must be parties. E.g. GATT, Agreement on Agriculture, SPS, TBT, TRIMs, Anti-Dumping, SCM, Safeguards, Trade Facilitation, etc. Plurilateral agreements refer to optional treaties to which only certain WTO members are parties. E.g. Civil Aircraft & Revised GPA These agreements are implemented in the framework of the WTO

Distinguishing Trade Agreements

Preferential Trade Agreements World Trade Organization (WTO)

GATT Art. XXIV:4 - The contracting parties recognize the desirability

• f

increasing freedom

• f

trade by the development, through voluntary agreements, of closer integration between the economies of the countries parties to such agreement. They include free trade agreements (FTAs) and customs unions (CUs), bilateral and regional agreements

These agreements are negotiated

• utside the framework of the WTO

Distinguishing Trade Agreements

Customs Unions (CUs) Free Trade Agreements (FTAs)

Preferential Trade Agreements World Trade Organization (WTO)

Distinguishing Trade Agreements

Customs Unions (CUs) Free Trade Agreements (FTAs)

Preferential Trade Agreements A free trade area is a grouping of countries within which tariffs and non-tariff trade barriers between the members are generally abolished but with no common trade policy toward non-members. E.g. Canada-Chile FTA Customs unions are arrangements in which the parties agree (1) to allow free trade on products within the CU, and (2) to a common external tariff (CET) with respect to imports from the rest of the world. E.g. European Union

Source: OECD Glossary of Statistical Terms

Distinguishing Trade Agreements

Bilateral Trade Agreements (BTAs) Regional Trade Agreements (RTAs)

Preferential Trade Agreements World Trade Organization (WTO)

Distinguishing Trade Agreements

Bilateral Trade Agreements (BTAs) Regional Trade Agreements (RTAs)

Preferential Trade Agreements Regional trade agreements are treaties that are concluded between more than two countries. E.g. ASEAN Free Trade Area (AFTA), North American Free Trade Agreement (NAFTA) Bilateral trade agreements are treaties concluded between only two countries. E.g. Canada-Korea Free Trade Agreement (CKFTA), Japan-Indonesia Economic Partnership Agreement (EPA)

Distinguishing Trade Agreements

Customs Unions (CUs) Free Trade Agreements (FTAs) Bilateral Trade Agreements (BTAs) Regional Trade Agreements (RTAs)

Preferential Trade Agreements Any bilateral CUs? Any regional CUs? Any regional FTAs? Any bilateral FTAs?

Distinguishing Trade Agreements

Preferential Trade Agreements World Trade Organization (WTO) PTAs in the WTO are “unilateral trade preferences.”

Preferential Trade Arrangements (PTAs)

Source: WTO, “Regional trade agreements and preferential trade arrangements”

Distinguishing Trade Agreements

World Trade Organization (WTO) E.g. the Generalized System

• f Preferences (GSP)

schemes – programs by developed countries granting preferential tariffs to imports from developing countries.

Preferential Trade Arrangements (PTAs)

GSP-Canada: Beneficiaries

Source: WTO, “Glossary”

Distinguishing Trade Agreements

Preferential Trade Agreements World Trade Organization (WTO)

Preferential Trade Arrangements (PTAs)

Non-reciprocal preferential schemes other than GSP, e.g.:

• EU’s Trade preferences for Pakistan (2012)
• Australia’s and N-Z’s South Pacific

Regional Trade and Economic Cooperation Agreement (1981)

Canada’s Network of FTAs

As of 1 August 2017, Canada’s trading relationships are regulated by 11 FTAs providing Canada with preferential market access to 15 countries. On 21 September 2017, the CETA will partially enter into force, increasing Canada’s market access to the European Union and its 28 members.

Indonesia’s Network of FTAs

As of 1 August 2017, Indonesia’s trading relationships are regulated by 9 FTAs providing Indonesia with preferential market access to 21 countries, mainly in Asia.

Canada’s Current Negotiations

Bilateral initiatives

Canada

India Japan Singapore Caribbean Community Dominican Republic Guatemala, Nicaragua and El Salvador Morocco

Regional/Plurilateral initiatives

TiSA

• Group of 23 like-

minded WTO members to further liberalize trade in services TPP

• Signed by 12 Asian

and American countries in Feb 2016; USA withdrew in Jan 2017

PART 2 DEBATES – PROS AND CONS OF FTAS

Creating or diverting trade? Keeping attention away from the multilateral negotiations? Forgetting developing countries?

Creating or diverting trade?

Trade creation

• “Trade creation occurs when the

reduction of internal barriers leads private persons to import from a supplier that is a lower cost producer than domestic supplier.” This situation would lead to an increase in consumer surplus and economic welfare.

Trade diversion

• “Trade diversion occurs when the

reduction of internal barriers, while leaving in place external barriers, leads private persons to import from a RIA (region of international trade) rather than a lower cost non-RIA producer.” However, recent economic studies tend to show that this situation is not always overall negative.

Source: Trachman, “International Trade: Regionalism,” 2007

Example 1 Example 2

Creating or diverting trade?

Canada-US FTA case

The CUSFTA had substantial effect on Canada-US trade:

• Over half of the $42 billion

increase in US imports from Canada between 1989-1994

• Gains due to the CUSFTA were

not at the expense of third countries

• BUT: individual circumstances

associated with FTA vary, and must be judged on its own merits

ASEAN-China case

The ASEAN-China FTA had an

• verall positive impact on trade

in goods between 1995-2010:

• 22% increase in trade in

agricultural goods

• 130% increase in manufactured

goods

• Reducing and removing tariff

barriers in ACFTA promotes total trade volume not only among intra-bloc member countries, but also between intra-bloc and extra- bloc countries.

Source: Clausing, “Trade creation and trade diversion in the Canada-US FTA, 2001 Source: Yang & Martínez-Zarzoso, “A Panel Data Analysis of Trade Creation and Trade Diversion Effects: The case

• f ASEAN-China Free Trade Area”

Keeping attention away from the multilateral negotiations?

Bringing coherence

1.

Political economy of recent FTAs go further than tariff reduction; only few countries can lead

2.

Negotiating in the WTO may not help to directly foster inward investment

3.

The nature of behind-the-border policies makes it difficult to multilateralize PTAs; they complement each other

Result of Doha failure

1.

FTAs is a second best solution: As world trade is vital, FTAs are seen as a solution to further develop world trade

2.

Impact of economic crisis started: The economic crisis forced economies to look for new markets and new economic partners and to try to boost the relations with existing partners

Source: WTO, “ World Trade Report 2011” Source: Bonciu & Moldoveanu, “The Proliferation of FTAs in the Post- Doha Round Period” 2014

Forgetting developing countries?

Far-reaching liberalization of FI, procurement, strict IP rules, high labor and environment standards Reciprocity in FTAs eliminate the S&DT Perceived risk of losing competitiveness vis-à-vis

• ther developing countries

that have entered into FTAs

Source: UNCTAD, Trade and Development Report, 2007

Forgetting developing countries?

Developing countries increasingly concluding North- South FTAs Developing countries’ share in world trade Enabling Clause

Source: WTO, World Trade Statistical Review 2016

Enabling Clause

Decision of 28 November 1979 (L/4903)

• 1. “Notwithstanding GATT Art. 1,

contracting parties may accord differential and more favourable treatment to developing countries, without according such treatment to other contracting parties.” 2.c) Regional or global arrangements entered into amongst less-developed contracting parties for the mutual reduction or elimination of tariffs and, in accordance with criteria or conditions which may be prescribed by the CONTRACTING PARTIES, for the mutual reduction or elimination of non- tariff measures, on products imported from one another;

Decision adopted in 1979 by GATT signatories to allow derogations to the MFN treatment in favor of developing countries

Forgetting developing countries?

Enabling Clause

Decision of 28 November 1979 (L/4903)

• 1. “Notwithstanding GATT Art. 1,

contracting parties may accord differential and more favourable treatment to developing countries, without according such treatment to other contracting parties.” 2.c) Regional or global arrangements entered into amongst less-developed contracting parties for the mutual reduction or elimination of tariffs and, in accordance with criteria or conditions which may be prescribed by the CONTRACTING PARTIES, for the mutual reduction or elimination of non- tariff measures, on products imported from one another;

Forgetting developing countries?

Deviation from the MFN principle (GATT Art. 1)

Special rules for developing countries entering into FTAs:

• No explicit requirement to

eliminate internal barriers

• But: no DSB jurisprudence

specifically on relationship between Art. XXIV and the Enabling Clause

PART 3 LEGAL ASPECTS OF PREFERENTIAL TRADE AGREEMENTS

Internal conditions External conditions Transparency

PTAs as Deviations from MFN

Economic exceptions

• Free trade agreements and

customs unions

• Preferential treatment for

developing countries, e.g. Enabling Clause

• Balance of payments

(GATT Art. XII)

• Assistance to economic

development (GATT Art. XVIII)

• Trade remedies

Non-economic exceptions

• GATT Art. XX:
• Public morals
• human, animal or plant life or

health

• national treasures of artistic,

historic or archaeological value

• conservation of exhaustible

natural resources

• Security
• Etc.

Source: Guzman & Pauwelyn, “International Trade Law” 2009

Internal Requirements

FTAs GATT Article XXIV para. 8 (b) A free-trade area shall be understood to mean a group of (…) territories in which the duties and other restrictive regulations

• f commerce (…) are

eliminated on substantially all the trade between the constituent territories in products originating in such territories. CUs GATT Article XXIV para. 8 (a)(i) A customs union shall be understood to mean the substitution of a single customs territory for two or more customs territories, so that (i) duties and

• ther restrictive regulations of

commerce (…) are eliminated with respect to substantially all the trade between the constituent territories of the union…

External Requirements

FTAs GATT Article XXIV para. 5 (b) with respect to a free-trade area (…) the duties and other regulations of commerce maintained in each of the constituent territories and applicable at the formation of such free–trade area (…) to the trade of (third) parties shall not be higher or more restrictive than the corresponding duties and other regulations of commerce existing in the same constituent territories prior to the formation

• f the free-trade area

CUs

GATT Article XXIV para. 8 (a)(ii) “…substantially the same duties and other regulations of commerce are applied by each of the members of the union to the (third parties)” GATT Article XXIV para. 5(a) “…duties and other regulations of commerce imposed at the institution of any such union (…) in respect of trade with (third) parties (…) 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

• f such union (…)

External Requirements

FTAs GATT Article XXIV para. 5 (b) with respect to a free-trade area (…) the duties and other regulations of commerce maintained in each of the constituent territories and applicable at the formation of such free–trade area (…) to the trade of (third) parties shall not be higher or more restrictive than the corresponding duties and other regulations of commerce existing in the same constituent territories prior to the formation

• f the free-trade area

CUs and FTAs GATT Article XXIV para. 5 Chapeau: Accordingly, the provisions of this Agreement shall not prevent, as between the territories of contracting parties, the formation of a customs union or of a free-trade area or the adoption of an interim agreement necessary for the formation of a customs union or

• f a free-trade area; Provided

that AB , Turkey – Textiles, (1999) “Article XXIV provides a defense for measures that are introduced upon formation of a CU that meets that requirements

• f

XXIV:5(a) and 8(a) if the formation

• f

the CU would have been prevented if the Member were not allowed to introduce the measure”

Source: Guzman & Pauwelyn, “International Trade Law” 2009

External Requirements

FTAs GATT Article XXIV para. 5 (b) with respect to a free-trade area (…) the duties and other regulations of commerce maintained in each of the constituent territories and applicable at the formation of such free–trade area (…) to the trade of (third) parties shall not be higher or more restrictive than the corresponding duties and other regulations of commerce existing in the same constituent territories prior to the formation

• f the free-trade area

CUs

GATT Article XXIV para. 8 (a)(ii) “…substantially the same duties and other regulations of commerce are applied by each of the members of the union to the (third parties)” GATT Article XXIV para. 5(a) “…duties and other regulations of commerce imposed at the institution of any such union (…) in respect of trade with (third) parties (…) 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

• f such union (…)

AB , Turkey – Textiles, (1999) “substantially the same duties”

• ffers

a limited flexibility, requiring something “closely approximating sameness.” It is not enough that the relevant trade regulations be “comparable”

Source: Guzman & Pauwelyn, “International Trade Law” 2009

Transparency

The TM clarifies existing transparency requirements as contained in the WTO provisions on FTAs such as notification, consideration by the WTO, and subsequent notification of changes and reporting.

Source: WTO E-LEARNING, Detailed Presentation of Regional Trade Agreements in the WTO

Transparency

Notable development: new responsibility of the WTO Secretariat to prepare factual presentations of all notified RTAs. The factual presentation is a detailed summary of an RTA and contains data on the trade environment of the RTA parties, a description of the RTA's regulatory features, and details of the tariff, trade and regulatory liberalization envisaged over the transition period of the RTA.

Source: WTO E-LEARNING, Detailed Presentation of Regional Trade Agreements in the WTO

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