Background: MultilateralismBackground: Multilateralism GATT signed in 1947, aiming GATT signed in 1947, aiming “reduction in tariffs “reduction in tariffs

and other international trade barriers”and other international trade barriers” (23 members) (23 members)

Post-war “free trade” regime was Post-war “free trade” regime was multilateralismmultilateralism

Uruguay Round: 1986-1994 (123 members)Uruguay Round: 1986-1994 (123 members)Subject covered: Subject covered: Tariffs, Tariffs, NTBsNTBs, rules, services, rules, services (GATS)(GATS), intellectual property, intellectual property (TRIPS) (TRIPS), dispute , dispute settlement, textiles, agriculture, creation of WTOsettlement, textiles, agriculture, creation of WTO..

1995 – foundation of the WTO: milestone for world 1995 – foundation of the WTO: milestone for world trade policytrade policy

4th Ministerial Conference of WTO

Started in Nov. 2001 in Doha, Qatar.

Doha Development Agenda (DDA): “a more open and equitable trading system would bring more peace to the world”.

Set to be concluded in Nov 2006

Doha RoundDoha Round

Cancun meeting, 2003Cancun meeting, 2003

Main areas: agriculture, industrial goods, trade in services, updated customs codes

G-20 emergedNo agreement on farm subsidies and market

access3 of the Singapore issues (investment

protection, competition policy, transparency in government procurement and trade facilitation) dropped down.

No agreement in Cancun

Argentina Bolivia Brazil Chile China Cuba Ecuador Egypt Guatemala India Indonesia Mexico Nigeria Pakistan Paraguay Peru Philippines South Africa Tanzania Thailand Uruguay Venezuela

No agreement on farm subsidies and import taxes.on July 28, 2006, P. Lamy formally announced the indefinite suspension of the talks.

Lamy (WTO): “[The suspension] is a bit like in basketball, a time-out during which the teams talk to their trainers before coming back on to the court.”

Mandelson (EU): “The US have been asking too much from others in exchange for doing too little themselves.”“we have missed the last exit on the motorway.”

Schwab (US): “We are deeply disappointed that the EU failed to exhibit similar restraint and hope this will not jeopardize the few chances we have left to save the Doha Round”

Nath (India): “The round is not dead. I would say that it is definitely between intensive care and the crematorium”“We are examining economic co-operation agreements with the EU. We are looking at co-operation agreements with Japan.”

Geneva meeting, 2006Geneva meeting, 2006

Background: Regionalism/BilateralismBackground: Regionalism/Bilateralism

Viner (1950): trade creation and trade diversionBhagwati (1993): waves of regionalism

First Wave of Regionalism:First Wave of Regionalism: EECEEC in 1957 (Benelux, France, Italy, W.Germany) EFTAEFTA in 1960 (UK, Denmark, Norway, Sweden, Austria,

Switzerland, Portugal) LAFTALAFTA in 1960 (Argentina, Brazil, Chile, Mexico,

Paraguay, Peru, Uruguay) CACMCACM in 1960 (Guatemala, El Salvador, Honduras,

Nicaragua) ASEANASEAN in 1967 (Indonesia, Malaysia, Philippines,

Singapore, Thailand) CARIFTACARIFTA in 1965-1968 (Caribbean states) CANCAN in 1969 (Bolivia, Chile, Colombia, Ecuador, Peru)

USAstrongly opposed regionalism and loyal to multilateralisminsisted that FTAs would undermine the multilateral free trade regimerejecting proposals for a NAFTA

EUROPE

EEC and EFTAuntil 1980s, regionalism was mainly a ‘European’ concept

Bhagwati (1993), “the first wave of regionalism that took place in the 1960s failed to spread because the US supported a multilateral approach.”

Second wave of regionalism Second wave of regionalism

After the failure of the GATT Ministerial meeting in Nov 1982, US changed position.

Trade Act of 1974 Fast Track (Trade Promotion Authority) Article 301

“US would attempt trade liberalization of a greater degree than GATT with countries which had the same intent.”

US-Israel FTA, 1985US-Israel FTA, 1985US-Canada FTA, 1988US-Canada FTA, 1988MERCOSUR, 1991 (Arg-Bra: 1985)MERCOSUR, 1991 (Arg-Bra: 1985)NAFTA, 1992 (in effect 1994)NAFTA, 1992 (in effect 1994)EFTA – Israel, Turkey, Romania, BulgariaEFTA – Israel, Turkey, Romania, BulgariaEC – Romania, Bulgaria, TurkeyEC – Romania, Bulgaria, TurkeyEU Association agreements with CEECsEU Association agreements with CEECs

After mid-1990s: EU and US back to multilateralismAfter mid-1990s: EU and US back to multilateralismFast Track expired in 1994.Uruguay Round completed in 1994. WTO in 1995.US out of regionalism game, back to its original position of

multilateralism.

EU began to give priority to the multilateralism of the WTOIn 1999, P. Lamy appointed as the Commissioner for Trade

EU trade policyEU trade policy: “pursuing all existing mandates for regional negotiations with vigour and fairness, but not to begin any new negotiations”

EU did not want to take any initiative that might detract from the completion of the DDA;

EU had a ‘deep integration’ approach in FTAs and these agreements were complex and time-consuming to negotiate

Bilateral agreements create a ‘spaghetti bowl’spaghetti bowl’

Disturbances to the EU’s Multilateralist position Bush restored Fast Track in 2002

US started FTA negotiations with several countries incl. Chile, Singapore, Australia and Morocco

Cancun in 2003Drop-down of Singapore issues

Inconclusive negotiations

Lamy (2004): “our arguments in favour of a better regulated multilateral world have been less effective. (...) I don’t believe the WTO can or should remain the sole island of governance in a sea of unregulated globalisation”

Mandelson instead of Lamy in 2004

WTO (2004): the principle of non-discrimination characterized by the

MFN clause ceased to be the rule of international trading system

the spaghetti bowl of customs unions, common markets, regional and bilateral free trade areas, preferences and an endless assortment of miscellaneous trade deals has almost reached the point where MFN treatment is exceptional treatment.

Finally: July 2006, suspension of the DDA

““Global Europe”:Global Europe”:New Trade Policy of the EUNew Trade Policy of the EU

Strategy Paper in Oct 2006 EU to pursue bilateral FTAs with major

economies in order to secure the market access and competitiveness of European companies in important markets

“rejection of protectionism at home, accompanied by activism in creating open markets and fair conditions for trade abroad”

Remove tariffs and NTBs Remove tariffs and NTBs Solve behind-the-border issuesSolve behind-the-border issues

the highest possible degree of trade, investment, and services liberalization

ban on export taxes and quantitative import restrictions. regulatory convergence, NTBs and stronger provisions on

IPRs and competition. incorporating new cooperative provisions in areas relating

to labour standards and environmental protection

““Global Europe”:Global Europe”:New Trade Policy of the EUNew Trade Policy of the EU

Economic criteria for new FTA partners: market potential and the level of protection against EU export interests

ASEANASEAN**, Korea, Korea** and Mercosur and Mercosur****: Prior FTA partners IndiaIndia******, Russia and G, Russia and GCC**CC**: countries of direct interest ChinaChina: a country of special attention because of the opportunities

and the risks it presents Enhanced TransatlanticTransatlantic trade

“there will be no European retreat from multilateralism and the EU remains committed to the WTO”

Negotiations started in *: May 2006, **: revived, ***: June 2006

Korea: signed 2009, provisionally in power since July 2011

Colombia, Peru: signed March 2011

FTAs all over the world: CHINA » ASEAN, Chile, Hong Kong, Macao, N. Zealand, Pakistan,

Singapore

negotiating with: Australia, GCC, Iceland, Peru, S. Africaplanning: Korea, India, Norway

JAPAN » Singapore, Mexico, Malaysia, Chile, Thailand, Philippines, Brunei, Indonesia, Switzerland

negotiating with: ASEAN, GCC, Korea, Vietnam, India, Australia,

MEXICO CHILE GCC TURKEY » Israel, Macedonia, Croatia, Bosnia, Morocco, Palestine,

Tunisia, Syria, Georgia, Albania, Egypt negotiating with:, Jordan, Lebanon, GCC, Faroe Islandsplanning: Algeria, S. Africa, Mexico, Chile, Mercosur and 36

African countries ““NEW REGIONALISM” Third Wave of RegionalismNEW REGIONALISM” Third Wave of Regionalism

Old Regionalism vs New Old Regionalism vs New RegionalismRegionalismLimited to Regions

EFTA, NAFTA, MERCOSUR

Not restricted to geographical proximity

EFTA-Korea, US-Morocco

Only trade liberalisation “Deep integration”

Standards, SPS, services, IPR, competition

Shallow in coverage, broad in membership

Deep coverage, small number of members (mostly bilateral)

Motives Behind the EU’s Free Trade Agreements

Two main motives:

foreign policy and security: neighborhood policy

commercial interests (more dominant): limiting or neutralizing potential trade diversionary effects which result from FTAs concluded between important trading partners and a third country. (e.g. EU–Mexico FTA)

Evidence for potential gains from EU- Korea FTA Kim and Lee (2004): a gravity equation analysis to estimate the

trade potential capability of Korea and the EU-15. EU-Korea trade is under-traded

Kim (2005): an FTA with Korea would be desirable for the EU because; the structural EU trade deficit since the 1990s is usually

attributed to the problems EU companies and products encounter while entering and operating in the Korean market. These problems create barriers to trade as the Korean rules for both products and services differ from those of the EU.

as Korea is one of the most dynamic emerging markets in East Asia, the EU finds it much beneficial to build an economic basis in Korea, where an FTA would effectuate the role.

Quantitative Study: Economic Impact of a Potential FTA between the EU and South Korea, Copenhagen Economics and J. F. François, March 2007 http://trade.ec.europa.eu/doclib/docs/2007/may/tradoc_134707.pdf

Qualitative Study: A Qualitative Analysis of a Potential Free Trade Agreement between the European Union and South Korea, Centre for European Policy Studies and Korea Institute for International Economic Policy (Guerin, Edwards, Glania, Kim, Lee, Matthes and Tekce), November 2007

CGE analysis shows that Korea-EU FTA would have substantial improvements in GDP, income, trade and welfare of both parties.

Evidence for potential gains from EU- Korea FTA

liberalisation of trade in manufactures between the EU and Korea is more important than that in agriculture. However, services liberalisation is far more important still. Without a services liberalisation the gains for EU will be insignificant.

the main growth area in Korea’s economy and exports as a result of FTA with the EU is motor vehicles, while some business services are replaced by imports from the EU.

the trade surplus of EU is expected surge especially in services trade. EU will enjoy a trade surplus with Korea in the majority of sectors except in automobiles and parts and textiles

Evidence for potential gains from EU- Korea FTA

Evidence for potential gains from EU- ASEAN FTA: Moeller (2007): two long term and farreaching benefits:

an FTA will please them both in Asian integration; an FTA will enhance their ability to tackle nonconventional and

common threats to stability and security Botezatu (2007):

there is a huge development gap between ASEAN’s rich and poor members, financial aid from the EU and hence a bilateral agreement is considered an opportunity that should not be missed.

In terms of trade relations, the strong commercial links between these two blocs confirm the necessity. The EU was ASEAN’s third largest trading partner as of 2007. Similarly, ASEAN is of crucial economic importance for the EU.

Cooperation on environmental issues such as the Kyoto Protocol and dialogue on migration are also common aspirations of the two trade partners.

Evidence for potential gains from EU- India FTA: Polaski et al. (2008): using simulation techniques;

all macroeconomic indicators of the EU, such as private consumption, government consumption, investment consumption, import demand, export supply and total domestic production, display significant increases.

For instance, export supply appears to increase by 1.35 billion dollars corresponding to a 0.05 % change, whereas import demand is found to increase by 3.21 billion dollars which corresponds to a 0.11% rise. Similarly, total domestic production is expected to increase by 0.05% as a result of the simulations.

FTAs of the USA Before 2002: three FTAs (with Canada, Israel

and Mexico) After 2002: Australia, Bahrain, Chile, CAFTA,

Jordan, Oman, Morocco, Singapore and Peru.

In ratification process: (started before the expiration of the Fast Track) Colombia, S. Korea, Malaysia, Thailand, Panama

FTA partner selection criteria of the US: impact on domestic US politics economic objectives level of commitment of the partner country to

trade reform foreign policy considerations

FTAs of the USA

CONCLUDING REMARKS

The EU has adopted itself to evaluate the best strategy with its potential partners in order to deepen integration, expand its share in world exports, incorporate dialogue on universal issues such as migration and environment and promote good governance and development cooperation.

The shift of the trade policy focus of the EU from multilateralism to bilateralism raised concerns about the future of the WTO. Although the strategy paper of the new trade policy clearly expressed that there will be no European retreat from multilateralism and the EU is still loyal to WTO principles, the question still remains: will it be feasible (or even necessary) to revive the DDA after concluding several FTAs?

As major trade partners achieve their goals in increasing bilateral trade by removing the trade barriers, the marginal gains from the results of multilateral negotiations diminish. Currently, it seems that multilateralism is losing its ground against bilateralism. The hopes for agreeing on multilateral free trade based on common WTO rules seem to be fading away, but this does not mean that ‘free trade’ is weakening; bilateralism and FTAs became the new tools of globalization and free trade.