Multilateralising 21 st Century Regionalism Richard Baldwin - - PowerPoint PPT Presentation

Multilateralising 21st Century Regionalism

Richard Baldwin Professor of International Economics Graduate Institute, Geneva & University of Oxford

Talk based on: Baldwin, Richard (2011). “21st Century Regionalism: Filling the gap between 21st century trade and 20th century trade rules”, CEPR Policy Insight No. 56. And http://www.oecd.org/tad/events/OECD‐gft‐2014‐multilateralising‐21st‐century‐regionalism‐baldwin‐paper.pdf

Basic ‘logic thread’ of talk:

• 20th & 21st century globalisation are different,
• So 20th & 21st century trade are different,
• So 20th & 21st century RTAs are different,
• So 20th & 21st multilateralisation are different.

Main message: ‐ Mistake to think about MR21 in same terms as MR20. ‐ More economic & legal research needed.

Multilateralising Regionalism:

20th vs 21st century

• Old idea (2007 WTO conference; 2009 CUP book).
• Basic thrust: Regionalism is here to stay (old debate

is moot), so think about how to reduce tariff discrimination from RTAs.

• Much progress: Rules of origin, rules of cumulation,

integration of bilateral RTAs.

Multilateralising regionalism

• 20th century RTAs mostly about tariff preferences.

– MR is mostly about reducing discrimination.

• Extend tariff preferences, rules of origin, rules of cumulation.
• 21st century RTAs are ALSO about deeper disciplines

that support ‘global value chains’.

– Many ‘deep’ RTA provisions are non‐discriminatory by nature, or much less obviously discriminatory.

• More like ‘biased multilateralism’ than ‘preferential’.

– Decimation technology weak: Nationality of firms, capital & services?

• This is key premise of my paper.

– Paper tries to think thru implications for policy & analysis.

Multilateralising regionalism: 20th & 21st century RTAs

GVC Revolution

G7 nations’ share of global GDP, 1820 – 2010. G7 nations’ share of global manufacturing, 1970 – 2010.

1820, 22% 1988, 67% 2010, 50%

0% 10% 20% 30% 40% 50% 60% 70% 80%

1820 1839 1858 1877 1896 1915 1934 1953 1972 1991 2010

1990, 65%

G7, 47%

3%

China, 19%

5% 6 Risers, 9%

RoW

0% 10% 20% 30% 40% 50% 60% 70% 80% 1970 1975 1980 1985 1990 1995 2000 2005 2010 World manufacturing share

Source: unstats.un.org; 6 risers = Korea, India, Indonesia, Thailand, Turkey, Poland

67% 11%

RoW

G7, 48%

10 gainers 27%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Global GDP shares, 1960‐2012

Post‐1990:

• G7 share loss goes to 10

developing nations.

• RoW see little change.

1990

China, Brazil, Mexico, Poland, India, Turkey, Russia, Korea, Indonesia, Venezuela

Low Lo- middle

Hi- Middle

1993

• 200

400 600 800 1,000 1,200 1,400 1,600 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2010

Millions under $2/day by national income class

People in poverty (under $2/day)

Post 1993

• Hi‐middle poverty plummets.

‐ 650 million fewer poor!

• Others’ poverty keeps rising.

1990

21st century regionalism Starts late 1980s, early 1990s

1989

100 200 300 400 500 600 700

1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008

Number of

• ffshoring and

supply-chain provisions in RTAs Number of RTAs

New BITs signed

1988

FDI

500 1000 1500 2000 2500 50 100 150 200 250

1959 1964 1969 1974 1979 1984 1989 1994 1999 2004

South Asia Sub- Sahara n Africa Middle East & North Africa

1994

East Asia & Pacific

5 10 15 20 25 30 35 40 45 50

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Applied tariffs, simple mean, all goods (%)

Preference margins are small

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Source: Carpenter & Lendle (2010)

Import shares by preference margins, selected nations

Above 10% or specific 5% to 10% Below 5% Partial preference No preference granted (MFN > 0) MFN zero

20th vs 21st century globalisation: 3 cascading constraints

High High High

Stage B Stage A Stage C

1st unbundling

=

Stage B Stage A

Stage C

2nd unbundling

=

Pre‐ globalised world

=

Low Low High

ICT revolution

Low High High

Steam revolution

Cost of moving:

20th century comparative advantage

• Goods = ‘bundle’ on national knowhow, labour,

capital, institutions, etc.

• National economies only connected via competition

in goods markets.

Stage B Stage A Stage C Stage B Stage A Stage C

Goods crossing borders

Stage B Stage A Stage C

1) Supply‐chain linkages: Cross‐border flows

• f goods, know‐how, ideas, capital &

people. 2) Doing business abroad: Application of tangible & intangible assets in developing nations.

21st century comparative advantage

• Goods = mixture of national knowhow, labour,

capital, institutions, etc. (e.g. hi‐tech + low wages).

• National economies connected via much richer

flows: knowhow, goods, services, people, capital, etc.

Why it matters

• OLD: Study national performance looking at national

factors.

– ‘Team Japan’ versus ‘Team Germany’ Regress growth/exports/etc on national right‐hand side variables.

• NEW: Study national performance looking at regional

and national factors.

– ‘Factory Asia’ versus ‘Factory North America’ Regress growth/exports/etc on national & regional right‐ hand side variables and/or allow interactions depending upon supply‐chain exposure.

21st century trade needs different disciplines “Trade‐investment‐services‐IP nexus”

Bay B

1) “Supply-chain disciplines” Necessary trade & service links Connecting factories

• Trade policy barriers;
• Transportation services;
• Business mobility;
• Communication services.

2) “Offshoring disciplines” Doing business abroad

• International investment;
• Application of home’s technology abroad;
• Local availability of business services.

• Supply‐chain and offshoring disciplines work best

when packaged together.

• 21st century RTAs are a convenient package.

– Hi‐tech firms like the package; – Developing nations want to join GVCs.

• “Deep RTAs” = 21st century RTAs is solution.
• WTO stuck on Doha, so 21st century regionalism:

1. Explosion of BITs 1990s. 2. Deep RTAs. 3. Unilateral liberalisation in developing nations.

21st century regionalism:

Disciplines as a package

What are 21st century RTA provisions?

Examples of supply‐chain disciplines in RTAs

• 1. Customs

cooperation. Provision of information; publication on the Internet of new laws and regulations; training

• 2. Beyond WTO

GATS liberalisation. Liberalisation of trade in services

• 3. FTA industrial.

Tariff liberalization on industrial goods; elimination of non‐ tariff measures

• 4. Visa disciplines.

Business visa, etc.

21st century RTA provisions:

Offshoring & Supply‐Chain Disciplines

Source: From WTO database on RTA provisions. My classification of provisions.

21st century RTA provisions: Supply‐Chain & Offshoring Disciplines Examples of offshoring disciplines in RTAs

• 1. TRIMs

Provisions concerning requirements for local content and export performance of FDI

• 2. GATS

Liberalisation of trade in services

• 3. TRIPs

Harmonisation of standards; enforcement; national treatment, most‐favoured nation treatment

• 4. Competition Policy

Measures to proscribe anticompetitive business conduct; harmonisation of competition laws; establishment or maintenance of an independent competition authority

• 5. IPR

Accession to international treaties not referenced in the TRIPs Agreement

• 6. Investment

Information exchange; Development of legal frameworks; Harmonisation & simplification of procedures; National treatment; dispute settlement

• 7. Capital movement

Liberalisation of capital movement; prohibition of new restrictions

• 8. Approximation of

laws Application of EC legislation in national legislation

• Supply‐chain disciplines assure rapid movement of

goods, ideas, people and capital.

• Goal of developing nation is to fosters supply‐chain

industrialisation.

• Discrimination is not usually useful.
• Discrimination is difficult to determine for:

– Services, capital, firms, communication.

• Liberalisation often embedded in host nation

regulations whose justification excludes discrimination.

Lack of discrimination technology for deep RTA provisions

Which deep RTA provisionsm matter? Revealed preference evidence from US RTAs (share with given provision)

0% 80%

AD Customs CVM Export Taxes FTA Agriculture FTA Industrial GATS Public Procurement SPS State Aid STE TBT TRIMs TRIPs Agriculture Anti-Corruption Approximation of… Audio Visual Civil Protection Competition Policy Consumer Protection Cultural Cooperation Data Protection Economic Policy Dialogue Education and Training Energy Environmental Laws Financial Assistance Health Human Rights Illegal Immigration Illicit Drugs Industrial Cooperation Information Society Innovation Policies Investment IPR Labour Market Regulation Mining Money Laundering Movement of Capital Nuclear Safety Political Dialogue Public Administration Regional Cooperation Research and Technology SME Social Matters Statistics Taxation Terrorism Visa and Asylum

US LE frq US AC frq

Provision in WTO 1.0 but deeper commitments in the RTAs Provision not in WTO 1.0 (maybe in WTO 2.0) Mentioned Legally enforceable

Source: WTO database on RTA provisions

Japan’s RTAs in WTO Database

0% 80%

AD Customs CVM Export Taxes FTA Agriculture FTA Industrial GATS Public Procurement SPS State Aid STE TBT TRIMs TRIPs Agriculture Anti-Corruption Approximation of… Audio Visual Civil Protection Competition Policy Consumer Protection Cultural Cooperation Data Protection Economic Policy… Education and Training Energy Environmental Laws Financial Assistance Health Human Rights Illegal Immigration Illicit Drugs Industrial Cooperation Information Society Innovation Policies Investment IPR Labour Market… Mining Money Laundering Movement of Capital Nuclear Safety Political Dialogue Public Administration Regional Cooperation Research and Technology SME Social Matters Statistics Taxation Terrorism Visa and Asylum

Japan (legally enforceable) Japan (mentioned)

Visa IPR Movement

• f capital

Investment

RTAs: US, Japan, EU & RoW

0% 80% AD Customs CVM Export Taxes FTA Agriculture FTA Industrial GATS Public Procurement SPS State Aid STE TBT TRIMs TRIPs Agriculture Anti-Corruption Approximation of… Audio Visual Civil Protection Competition Policy Consumer Protection Cultural Cooperation Data Protection Economic Policy… Education and Training Energy Environmental Laws Financial Assistance Health Human Rights Illegal Immigration Illicit Drugs Industrial Cooperation Information Society Innovation Policies Investment IPR Labour Market… Mining Money Laundering Movement of Capital Nuclear Safety Political Dialogue Public Administration Regional Cooperation Research and… SME Social Matters Statistics Taxation Terrorism Visa and Asylum US AC frq US LE frq 0% 80% AD Customs CVM Export Taxes FTA Agriculture FTA Industrial GATS Public Procurement SPS State Aid STE TBT TRIMs TRIPs Agriculture Anti-Corruption Approximation of… Audio Visual Civil Protection Competition Policy Consumer Protection Cultural Cooperation Data Protection Economic Policy… Education and Training Energy Environmental Laws Financial Assistance Health Human Rights Illegal Immigration Illicit Drugs Industrial Cooperation Information Society Innovation Policies Investment IPR Labour Market… Mining Money Laundering Movement of Capital Nuclear Safety Political Dialogue Public Administration Regional Cooperation Research and… SME Social Matters Statistics Taxation Terrorism Visa and Asylum Jpn AC frq Jpn LE frq 0% 80% AD Customs CVM Export Taxes FTA Agriculture FTA Industrial GATS Public Procurement SPS State Aid STE TBT TRIMs TRIPs Agriculture Anti-Corruption Approximation of… Audio Visual Civil Protection Competition Policy Consumer Protection Cultural Cooperation Data Protection Economic Policy… Education and Training Energy Environmental Laws Financial Assistance Health Human Rights Illegal Immigration Illicit Drugs Industrial Cooperation Information Society Innovation Policies Investment IPR Labour Market… Mining Money Laundering Movement of Capital Nuclear Safety Political Dialogue Public Administration Regional Cooperation Research and… SME Social Matters Statistics Taxation Terrorism Visa and Asylum EU AC frq EU LE frq 0% 80% AD Customs CVM Export Taxes FTA Agriculture FTA Industrial GATS Public Procurement SPS State Aid STE TBT TRIMs TRIPs Agriculture Anti-Corruption Approximation of… Audio Visual Civil Protection Competition Policy Consumer Protection Cultural Cooperation Data Protection Economic Policy… Education and Training Energy Environmental Laws Financial Assistance Health Human Rights Illegal Immigration Illicit Drugs Industrial Cooperation Information Society Innovation Policies Investment IPR Labour Market… Mining Money Laundering Movement of Capital Nuclear Safety Political Dialogue Public Administration Regional Cooperation Research and… SME Social Matters Statistics Taxation Terrorism Visa and Asylum RoW AC frq RoW LE frq

US Japan EU All others

80%

Source: Baldwin (2012), “WTO 2.0”, CEPR Policy Insight

Only beyond WTO measures

0% 50% 100% Agriculture Anti-Corruption Approximation of Legislation Audio Visual Civil Protection Competition Policy Consumer Protection Cultural Cooperation Data Protection Economic Policy Dialogue Education and Training Energy Environmental Laws Financial Assistance Health Human Rights Illegal Immigration Illicit Drugs Industrial Cooperation Information Society Innovation Policies Investment IPR Labour Market Regulation Mining Money Laundering Movement of Capital Nuclear Safety Political Dialogue Public Administration Regional Cooperation Research and Technology SME Social Matters Statistics Taxation Terrorism Visa and Asylum RoW legally enforceable EU legally enforceable Japan legally enforceable US legally enforceable

Visa IPR Movement of capital Competition policy Investment

Reverse trade diversion?!

• 100% -50%

0% 50% 100% 150% 200% 250% 300% 350% 400% CARICOM COMESA SADC CEFTA CER WAEMU Andean EFTA CIS ECOWAS PATCRA Euro-Meds CEMAC GCC CACM SAFTA EEC NAFTA AFTA Mercosur

Estimated extra trade due to RTA

Trade diversion (extra-RTA imports) Trade creation (Intra-RTA)

Figure 13: Recent estimates of trade creation and trade diversion.

Source: Acharya et al. (2011).

• Impact of various RTA provisions on trade in goods,

services & investment?

– Use WTO database on provisions. – Use WIOD or TiVa database on intermediates trade. – Use foreign affiliates sales or employment to measure investment effects.

• Identify RTA provisions with negative spillovers for

third‐nations.

• Look for network effects of RTAs.

More research needed

• Traditional view:

– Vinerian economics & simple political economy.

• 21st regionalism:

– Vinerian analysis insufficient / irrelevant. – Regulation‐economics, not tax‐economics.

• Fiscal federalism.
• NB: Basic political economy different:

– “Factories for reform” not “exchange of market access”

Summary: 20th v 21st century regionalism

RTAs = tariff preferences RTAs = disciplines underpin 2nd unbundling

• 20th century RTAs mostly about tariff preferences.

– MR is mostly about reducing discrimination.

• Extend tariff preferences, rules of origin, rules of cumulation.
• 21st century RTAs are ALSO about deeper disciplines

that support ‘global value chains’.

– Many ‘deep’ RTA provisions are non‐discriminatory by nature, or much less obviously discriminatory.

Multilateralising regionalism: 20th & 21st century RTAs

NB: ‐ MR20 = reduce discrimination; ‐ MR21 = realise network externalities. Key trade‐offs determining optimal level of harmonisation & multilateralisation.

• 1. Diversity of preferences.

‐ Favours little multilateralisation

• 2. Network externalities & scale economies.

‐ Favours multilateralisation at higher‐than‐bilateral level.

Proposed conceptual framework

Levels of multilateralisation

Harmonization cost Gain from common rules Low High Low High but mostly regional High and global Unilateral adoption

• f regional rules

Mega‐regional or global multilateralisation Unilateral adoption

• f global rules

Hub & spoke regionalism National rules Non‐issue

• Smart, young, flexible minds needed to find

conceptual equivalent of ‘trade creation & diversion’ for supply‐chain disciplines.

• NB: This could also be an update to the old Bagwell‐

Staiger ToT approach to trade agreements.

– ToT only works directly for tariffs (I think). – Regulatory convergence, competition policy, capital flows, business mobility, IPR don’t seem to fit neatly.

Some ideas (need help)

• HS analogy.
• WTO best‐practice guidelines for RTAs.

– North‐North, North‐South, South‐South.

• Agree minimum principles as in GATS

– Investment disciplines. – Infrastructure service openness. – Deeper IPR disciplines.

Multi‐tier multilateralisation

• How different are the deep provisions in existing

RTAs?

• Can a ‘lowest common denominator’ be identified?

Legal research agenda

• Investment rules.
• Customs cooperation

– WTO Trade facilitation package would be good start.

Where to start?

END

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