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Multilateralising 21st Century Regionalism
Richard Baldwin Professor of International Economics
Graduate Institute, Geneva University of Oxford
OECD Global Trade Forum, Paris 2014
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.
- A few blue-skies ideas at the end.
Multilateralising Regionalism: 20th vs 21st century
Globalisation changed
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%1
82
01
83
91
85
81
87
71
89
61
91
51
93
41
95
31
97
21
99
12
01
0
1990,
65%
G7, 47%
3%
China,
19%
5% 6 Risers,
9%
RoW
0%
10%
20%
30%
40%
50%
60%
70%
80%
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
20
10
Wo
rld
ma
nu
fact
uri
ng
sh
are
Source: unstats.un.org; 6 risers = Korea, India,
Indonesia, Thailand, Turkey, Poland
Globalisation’s 1st & 2nd unbundlings: 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:
1st unbundling:
Steam revolution & transport costs.
2nd unbundling:
ICT revolution & coordination costs.
Globalisation as 2 unbundlings
20th vs 21st century trade
Stage B
Stage A
Stage C
Goods, know-how, ideas, capital & people crossing borders
Stage
B
Stage
A
Stage
C
Stage
B
Stage
A
Stage
C
Goods crossing borders
“Trade-investment-services-IP nexus”
20th century trade:
Trade helps sell goods.
21st century trade:
Trade helps make goods.
20th vs 21st century trade
21st century trade needs different disciplines
Bay B
1) “Supply-chain disciplines”
Connecting factories
- Tariffs;
- 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.
20th century RTAs:
Mostly about tariff preferences.
21st century RTAs:
Mostly about underpinning GVCs.
20th vs 21st regionalism
• 21st century RTAs are much less discriminatory.
• Many 21st century provisions impinge on:
– Firms
– Services
– Capital
– Knowhow
• KEY: Hard to define nationality of these in modern world.
• Thus RTA provisions tend to be nondiscriminatory.
• Unilateral reform embedded in an RTA.
Lack of discrimination technology
20th century RTAs:
“Rules of origin” fairly easy to enforce.
21st century RTAs:
Rules-of-origin for firms, services, capital, and IP hard to enforce.
20th vs 21st discrimination ‘technology’
20th century RTAs:
“My market for yours”.
21st century RTAs:
“Southern reform for Northern factories”.
Different politics
Multilateralising 20th century RTAs:
• Mostly about reducing discrimination.
Multilateralising 21st century RTAs:
• Most about realising network externalities via common rules.
Multilateralisation is different
So what?
• Globalisation is different;
• Trade is different;
• RTAs are different;
• Multilateralisation is different.
Topline messages:
• Old regionalism concepts are mis-leading, or insufficient when thinking about 21st RTAs and megaregionals.
• Multilateralising 21st century regionalism is about maximising network externalities via common rules.
Questions:
1. Whose rules? - US, Japan, EU, China?
- Developing country appropriateness?
2. Which rules need multilateralisation?
What should be multilateralised?
1. Diversity of preferences.
- Favours little multilateralisation.
2. Network externalities & scale economies.
- Favours multilateralisation at higher-than-bilateral level.
Conceptual framework
Organise thinking: What to multilateralise?
Harmonization cost
Gain from common rules
Low
High
Low High
Mega-regional or global multilateralisation
Spontaneous adoption of global
rules
National rules
Non-issue
Economics research:
1. Identify RTA provisions with negative spillovers for third-nations.
2. Look for impact of common rules (i.e. network effects of RTAs).
Legal research
• How different are the deep provisions in existing RTAs?
• Can a ‘lowest common denominator’ be identified?
More research needed
• GVC role in development.
– Africa & South America vs Asia & Central Europe
• Impact of megaregionals (TPP, TTIP).
Why not hold APEC-like (but global) discussion on megaregionalism and its multilateralisation?
Why not let WTO organise this?
Global discussions: Fragmented and fraught with misunderstandings
Today trajectory:
- Complete TPP, TTIP, EU-Japan, etc.
- THEN discuss multilateralisation.
A better way:
- Study/discuss multilateralisation
- WHILE negotiating TPP, TTIP, etc.
Invert the order
Trade changed
US-
EU25
1986
Intra-
Asean
Japan-
Asean
US-
China
0%
10%
20%
30%
40%
50%
60%
19
62
19
67
19
72
19
77
19
82
19
87
19
92
19
97
20
02
20
07
20
12
Index of intra-industry trade
What is new? North-South production sharing,
mostly in machinery sectors
21st century regionalism Starts late 1980s, early 1990s
1989
0
100
200
300
400
500
600
700
19
58
19
63
19
68
19
73
19
78
19
83
19
88
19
93
19
98
20
03
20
08
Number of
offshoring and
supply-chain
provisions in RTAs
Number of RTAs
New
BITs
signed
1988
FDI
0
500
1000
1500
2000
2500
0
50
100
150
200
250
19
59
19
64
19
69
19
74
19
79
19
84
19
89
1994
1999
20
04
South
Asia
Sub-
Sahara
n
Africa
Middle
East &
North
Africa 1994
East
Asia &
Pacific0
5
10
15
20
25
30
35
40
45
50
19
88
19
90
19
92
1994
19
96
19
98
20
00
20
02
20
04
20
06
20
08
Applied tariffs, simple mean,
all goods (%)
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
Which Deep RTA provisionsmmatter? Revealed preference evidence from US RTAs (share with given provision)
0% 80%
ADCustoms
CVMExport Taxes
FTA AgricultureFTA Industrial
GATSPublic Procurement
SPSState Aid
STETBT
TRIMsTRIPs
AgricultureAnti-Corruption
Approximation of…Audio Visual
Civil ProtectionCompetition Policy
Consumer ProtectionCultural Cooperation
Data ProtectionEconomic Policy Dialogue
Education and TrainingEnergy
Environmental LawsFinancial Assistance
HealthHuman Rights
Illegal ImmigrationIllicit Drugs
Industrial CooperationInformation SocietyInnovation Policies
InvestmentIPR
Labour Market RegulationMining
Money LaunderingMovement of Capital
Nuclear SafetyPolitical Dialogue
Public AdministrationRegional Cooperation
Research and TechnologySME
Social MattersStatisticsTaxation
TerrorismVisa 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)
Not legally enforceable
Legally enforceable
Source: WTO database on RTA provisions
Japan’s RTAs in WTO
Database
0% 80%
ADCustoms
CVMExport Taxes
FTA AgricultureFTA Industrial
GATSPublic Procurement
SPSState Aid
STETBT
TRIMsTRIPs
AgricultureAnti-Corruption
Approximation of…Audio Visual
Civil ProtectionCompetition Policy
Consumer ProtectionCultural Cooperation
Data ProtectionEconomic Policy…
Education and TrainingEnergy
Environmental LawsFinancial Assistance
HealthHuman Rights
Illegal ImmigrationIllicit Drugs
Industrial CooperationInformation SocietyInnovation Policies
InvestmentIPR
Labour Market…Mining
Money LaunderingMovement of Capital
Nuclear SafetyPolitical Dialogue
Public AdministrationRegional Cooperation
Research and TechnologySME
Social MattersStatisticsTaxation
TerrorismVisa and Asylum
Japan (legally
enforceable)Japan
(mentioned)
Visa
IPR
Movement of capital
Investment
RTAs: US, Japan, EU & RoW
0%
80%
AD
Cust
om
sC
VM
Ex
po
rt T
axes
FT
A A
gri
cult
ure
FT
A I
ndu
stri
alG
AT
SP
ub
lic
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men
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PS
Sta
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TE
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sT
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0%
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tist
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erro
rism
Vis
a an
d A
sylu
m
RoW ACfrq
RoW LEfrq
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
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
Reverse trade diversion?!
-100% -50% 0% 50% 100% 150% 200% 250% 300% 350% 400%
CARICOMCOMESA
SADCCEFTA
CERWAEMU
AndeanEFTA
CISECOWASPATCRA
Euro-MedsCEMAC
GCCCACMSAFTA
EECNAFTA
AFTAMercosur
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).