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The challenges of the multilateral system 2014. Profs. Vera Thorstensen, Emerson Marçal, Lucas Ferraz. Analysis of the Trading System. Multilateral Rules WTO (DSB), IMF, World Bank, OECD, UNCTAD, FAO, WIPO. Themes. Preferential Rules Regional, Bilateral and Non reciprocal Agreements. - PowerPoint PPT Presentation
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THE CHALLENGES OF THE
MULTILATERAL SYSTEM
2014
Profs. Vera Thorstensen, Emerson Marçal, Lucas Ferraz
Analysis of the Trading System
2
Brazil
National RulesEU, USA, China, India,
South Africa…
Preferential RulesRegional, Bilateral and Non reciprocal Agreements
Multilateral RulesWTO (DSB), IMF, World Bank, OECD, UNCTAD, FAO, WIPO
Themes
Challenges
Multiplication of PTAs
Logic of Global Value Chains
Currency Wars
3
1 - PTAs
Types: RTAs, Bilateral, Non-reciprocal
Scope: goods + services + IP + Inv + Comp + CC
Issues: WTO in + WTO plus + WTO extra
Mega-PTAs: US + EU China+Korea+Japan
4
Number of PTAs5
Source: WTO, 2012
MEGA
Agreements on rules not tariffs TBT + SPS Services + Int. Prop. (WTO +++) Investment + Competition + Environment
(WTO extra) Regulatory coherence Disputes x DSB 65% of trade WTO ???
6
Impacts on WTO
- New WTO plus and WTO extra rules - WTO consistence - DSB x Mega PTAs dispute mecanism - Role of WTO ? Proposals:. Reinforce Committee on Regional Arrangements
. Discuss Mega in each of WTO Committees
. Bring new cases to DSB
. Should outsiders propose a new agenda to WTO ?
7
2 - Transnationals and GVCs
Importance of trade among them (60%)
Strong representation inside national governments
Strong representation in the international arena
Faceless organizations
8
Fora for negotiations
Nationals Preferential agreements Plurilaterals
9
States Universe X Transnationals Universe
10
Transnationals’ Logic
• Trade in tasks(value chains)
• No Tariffs, No Ad, No CVM, No Saf., No Pref. RO
• Investment, competition, IP , Services
• Harmonized standards (TBT/SPS)
• ARBITRATION
States’ Logic
• Trade in goods
• Tariffs, Quotas
• AD, CVM, Safeguards
• RO
• Subsidies
• DISPUTE SETTLEMENT
Impacts of GVC on WTO / outsiders - Old trade instruments: tariffs, AD, CVM, RO ? - New WTO trade instruments: comp, inv, env,
clime? - Are Mega creating a dual WTO? - Will Mega create a fragmented DSB system ?
- How far are outsiders involved in VAC? - Should oursiders have a new agenda in WTO ?
11
3 - Currency Wars
Number of countries with misalignments
Persistance and magnitude of misalignments
Where to judge exchange violations?
Manipulators (IMF Art IV) x Frustrators (GATT Art XV)
12
HOW TO ESTIMATE MISALIGNMENTS
PPP
Equilibrium rate to current account balance (flow)
Equilibrium rate to net foreign asstes (stocks)
13
Exchange rate – Big Mac 1/ 2014
14
IMF - Estimates Exchange Rate Misalignments (7/2014) Pilot External
Sector Report15
PIIE - FEER – Misalignments – Cline-Williamson (10/2013)
16
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
Arge
ntina
Aust
ralia
Braz
il
Cana
da
Chile
Chin
a
Colo
mbi
a
Czec
h Re
publ
ic
Euro
Are
a
Hong
Kon
g
Hung
ary
Indi
a
Indo
nesia
Israe
l
Japa
n
Kore
a
Mal
aysia
Mex
ico
New
Zea
land
Nor
way
Phili
ppin
es
Pola
nd
Russ
ia
Saud
i Ara
bia
Sing
apor
e
Sout
h Af
rica
Swed
en
Switz
erla
nd
Taiw
an
Thai
land
Turk
ey
Unite
d Ki
ngdo
m
Unite
d St
ates
Vene
zuel
a
Misalignment from FEER - Cline & Williamson
May-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 May-13 Oct-13
FGV - China: real exchange rate, fundamentals and exchange rate misalignments (annually) 2013
17
Sources: Misalignment estimates – Observatory on Exchange Rate - EESP/FGV (2013)
FGV - US: real exchange rate, fundamentals and exchange rate misalignments (annually)
201318
Source: Observatory on Exchange Rate - EESP/FGV (2013)
FGV - Brazil: real exchange rate, fundamentals and exchange rate misalignments (annually) - 04/2014
19
Taxa de câmbio real Fundamentos
1980 1985 1990 1995 2000 2005 2010
75
100
125
150
175Taxa de câmbio real Fundamentos
Desalinhamento cambial
1980 1985 1990 1995 2000 2005 2010
-0.25
0.00
0.25
Desalinhamento cambial
FGV - BRAZIL: Misalignments – different methods
20
NFA, BS, TOT NFA, BS Models' Average
NFA,TOT NFA
1980 1985 1990 1995 2000 2005 2010
-30
-20
-10
0
10
20
30
40
50NFA, BS, TOT NFA, BS Models' Average
NFA,TOT NFA
FGV - Argentina: real exchange rate, fundamentals and exchange rate misalignments (annually) - 7/ 2013
21
FGV – Misalignments 2013Source: Observatory on Exchange Rate
22
“Tariffication” of exchange rate misalignments
To exam the impact of exchange rate misalignments on trade, one possibility is to transform a misaligment into a tariff and then to adjust the import tariff of each country, through a “tariffication” exercise.
An overvalued exchange rate has the effect of reducing or nullifying the import tariffs of the overvalued country, creating an incentive to imports from third countries.
An undervalued exchange rate, on the other hand, will give an incentive to exports from the undervalued country. A country’s undervalued currency will have the effect of increasing its import tariffs, sometimes above the bound levels at the WTO.
The equation used to “tarifficate” the effects of exchange rate misalignments is presented in the next slide
Tariffication of Exchange Rates
24
Simulations regarding the effects of exchange rate misalignments on selected
Tariff Profiles
Using the “tariffication methodology”, one can represent the effects of exchange rate misalignments on a country Tariff Profile.
The Tariff Profile is comprised of bound tariffs and applied tariffs Bound tariffs are the tariffs negotiated at the WTO as the maximum
permitted level of an import tariff. Applied tariffs are the import tariffs actually applied by a country and
notified to the WTO After applying the “tariffication methodology” the results are adjusted
bound and applied tariffs that represent the actual level of protection of a given country.
In the following slides we present the simulations for Brazil, US and EU Tariff Profiles, considering the effects of the exchange rate misalignments of selected countries.
CHINA - Impacts of Exchange Rates on China Tariff Profile
China devaluation 15% 2013
0,00%
10,00%
20,00%
30,00%
40,00%
50,00%
60,00%
1 - 4 - 7 - 10 - 13 - 16 - 19 - 22 - 25 - 28 - 31 - 34 - 37 - 40 - 43 - 46 - 49 - 52 - 55 - 58 - 61 - 64 - 67 - 70 - 73 - 76 - 79 - 82 - 85 - 88 - 91 - 94 - 97 -
China Tariffs x Adjusted Tariffs - Effects of China Exchange Rate Devaluation Simple averages at HS 2 digits
Applied Tariffs (simple average)
Adjusted Applied Tariffs: China - 14%
Bound Tariffs (simple average)
Cereals Sugar
Wool
MeatFootwear
Vehicles
Musical instruments
FurskinsClothing
Tobacco
CHINA - Impacts of Exchange Rates on China Tariff Profile
Ch-Brazil, Ch-Germany, Ch-US, Ch-Brazil in 2013 Bilateral Misalignments
0%
20%
40%
60%
80%
100%
120%
1 - 4 - 7 - 10 - 13 - 16 - 19 - 22 - 25 - 28 - 31 - 34 - 37 - 40 - 43 - 46 - 49 - 52 - 55 - 58 - 61 - 64 - 67 - 70 - 73 - 76 - 79 - 82 - 85 - 88 - 91 - 94 - 97 -
China Tariffs x Adjusted Tariffs - Effects of Selected Countries Exchange Rate Deviations Simple averages at HS 2 digits
Adjusted Applied Tariffs - effect of CH + BR deviations - 54%
Adjusted Applied Tariffs - effect of CH + BR (06/12) deviations: 29%
Adjusted Applied Tariffs - effect of GER + CH deviations: 12,5%
Adjusted Applied Tariffs - effect of CH + USA deviations: 7%
Bound Tariffs (simple average)
Applied Tariffs (simple average)
Brazilian exporter (2011)
American exporter
German exporter
Brazilian exporter (06/12)
US - Impacts of Exchange Rates on US Tariff ProfileUS devaluation in 2013 ( - 5%)
141%
158%
146%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
0%
5%
10%
15%
20%
25%
30%
1 - 4 - 7 - 10 - 13 - 16 - 19 - 22 - 25 - 28 - 31 - 34 - 37 - 40 - 43 - 46 - 49 - 52 - 55 - 58 - 61 - 64 - 67 - 70 - 73 - 76 - 79 - 82 - 85 - 88 - 91 - 94 - 97 -
US Applied Tariffs x Adjusted Tariffs - Effects of US Exchange Rate Devaluation Simple averages at HS 2 digits
Adjusted applied tariffs: USA - 7%Bound tariffs
Applied tariffs
Dairy
Tobacco
vegetables
Leather
Clothing
Footwear
Locomotive
Impacts of Exchange Rates on US Tariff Profile
US-Brazil US-Spain US-China and US-Brazil in Bilateral Misalignments (2013)
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
1 - 4 - 7 - 10 - 13 - 16 - 19 - 22 - 25 - 28 - 31 - 34 - 37 - 40 - 43 - 46 - 49 - 52 - 55 - 58 - 61 - 64 - 67 - 70 - 73 - 76 - 79 - 82 - 85 - 88 - 91 - 94 - 97 -
USA Applied Tariffs x Adjusted Tariffs - Effects of Selected Countries Deviations (Article I)Simple averages at HS 2 digits
Adjusted applied tariffs - effect of USA + BR: 47%
Adjusted applied tariffs - effect of USA + BR: 22% (06/2012)
Adjusted applied tariffs - effect of USA + SPAIN: 13,8%
Bound tariffs
Applied tariffs
Adjusted applied tariffs - effect of USA + CH: 7%
Brazilian exporter(2011)
Brazilian exporter (06/2012)
Spanish exporter
Chinese exporter
30
Impacts of Exchange Rates on EU Tariff Profile
Brazil US China 2013
-20%
0%
20%
40%
60%
80%
100%
120%
1 - 4 - 7 - 10 - 13 - 16 - 19 - 22 - 25 - 28 - 31 - 34 - 37 - 40 - 43 - 46 - 49 - 52 - 55 - 58 - 61 - 64 - 67 - 70 - 73 - 76 - 79 - 82 - 85 - 88 - 91 - 94 - 97 -
EU Market - Effects of Selected Countries Deviations (Article I) Simple averages at HS 2 digits - Exchange rate misalignments for 2011-12
Adjusted Applied Tariffs -Exchange Rate Overvaluation BR - 40%
Adjusted Applied Tariffs -Exchange Rate Overvaluation BR - 15% (06/2012)
Bound Tariffs
Applied Tariffs
Adjusted Applied Tariffs -Exchange Rate Devaluation USA - 7%
Adjusted Applied Tariffs -Exchange Rate Devaluation China - 14%
Brazilianexporter (2011)
Brazilian exporter (06/2012)
American exporter
Chineseexporter
Brazil - Impacts of misalignments on Tariffs2012 (+20%) 2013 (+15%)
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
1 - 4 - 7 - 10 - 13 - 16 - 19 - 22 - 25 - 28 - 31 - 34 - 37 - 40 - 43 - 46 - 49 - 52 - 55 - 58 - 61 - 64 - 67 - 70 - 73 - 76 - 79 - 82 - 85 - 88 - 91 - 94 - 97 -
Brazil Tariffs x Adjusted Tariffs - Effects of Brazil Exchange Rate Overvaluation (2012) Simple averages at HS 2 digits
Bound Tariffs (simple averages)
Applied Tariffs
Adjusted Bound Tariffs -Exchange Rate Overvaluation BR + 20%
Adjusted Applied Tariffs -Exchange Rate Overvaluation BR + 20%
DairySugar Beverages
Tobacco
LeatherCotton
Clothing
SteelTools
Vehicles
31
32
Impacts of Exchange Rates on Brazil Tariff Profile
Brazil-China Brazil-US Brazil-Germany Bilateral Misalignments in 2013
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
1 - 4 - 7 - 10 - 13 - 16 - 19 - 22 - 25 - 28 - 31 - 34 - 37 - 40 - 43 - 46 - 49 - 52 - 55 - 58 - 61 - 64 - 67 - 70 - 73 - 76 - 79 - 82 - 85 - 88 - 91 - 94 - 97 -
Brazilian Market Adjusted for Multiple Exchange Rate Misalignments Simple averages at HS 2 digits
Applied Tariffs
Brazilian Producer
Adjusted Applied Tariffs -effect of BR + GER: 24%
Adjusted Applied Tariffs -effect of BR + USA: 25%
Adjusted Applied Tariffs -effect of BR + CH: 37%
Dairy
Sugar
BeveragesTobacco Leather Cotton
Clothing
SteelTools
Vehicles
Conclusions
- Countries with overvalued exchange rates (Brazil, South Africa, Australia) have their negotiated tariffs reduced or nullified.
- Countries with undervalued exchange rates (USA, China, Germany) grant subsidies to their exports and their applied tariffs surpass the bound levels agreed at the WTO.
- Substantial and persistent exchange rate misalignments significantly affect or nullify most WTO rules: tariffs, antidumping, countervailing measures, safeguards, rules of origin, regional agreements, DSB retaliations…
- Problem: WTO does not have adequate rules to address the exchange rate issue
33
IMF - manipulation (Article IV)
WTO - frustration (Article XV)
HOW TO SOLVE THE PROBLEM
General Agreement on Tariffs and Trade (GATT)
Article XV.4
Contracting parties shall not, by exchange action, frustrate* the intent of the provisions of this Agreement, nor, by trade action, the intent of the provisions of the Articles of Agreement of the International Monetary Fund.
* Ad Article XV -Paragraph 4
The word “frustrate” is intended to indicate, for example, that infringements of the letter of any Article of this Agreement by exchange action shall not be regarded as a violation of that Article if, in practice, there is no appreciable departure from the intent of the Article. Thus, a contracting party which, as part of its exchange control operated in accordance with the Articles of Agreement of the International Monetary Fund, requires payment to be received for its exports in its own currency or in the currency of one or more members of the International Monetary Fund will not thereby be deemed to contravene Article XI or Article XIII. Another example would be that of a contracting party which specifies on an import license the country from which the goods may be imported, for the purpose not of introducing any additional element of discrimination in its import licensing system but of enforcing permissible exchange controls.
WTO Rules relating trade and exchange rates
- Create a world currency
- Negotiate a fluctuation band
- Solve the conflict bilaterally
A NEW PROPOSAL
36
BOX OF SNAKESMisalignments band 23 countries
(03/14)37
-4
-3
-2
-1
0
1
2
3
4
Jan-
80
Nov
-80
Sep-
81
Jul-8
2
May
-83
Mar
-84
Jan-
85
Nov
-85
Sep-
86
Jul-8
7
May
-88
Mar
-89
Jan-
90
Nov
-90
Sep-
91
Jul-9
2
May
-93
Mar
-94
Jan-
95
Nov
-95
Sep-
96
Jul-9
7
May
-98
Mar
-99
Jan-
00
Nov
-00
Sep-
01
Jul-0
2
May
-03
Mar
-04
Jan-
05
Nov
-05
Sep-
06
Jul-0
7
May
-08
Mar
-09
Jan-
10
Nov
-10
Sep-
11
Jul-1
2
May
-13
Mar
-14
Normalized World Trade Currency PPP
United States Brazil Australia Austria Belgium Canada China
France Germany India Italy Japan South Korea Mexico
Netherlands Spain Sweden Switzerland United Kingdom Malaysia Noruega
Portugal Finlândia +- 2 S.D. +- 1 S.D.
BOX OF SNAKES FOR TTIP(03-2014)
38
-4
-3
-2
-1
0
1
2
3
4
Jan-
80
Nov
-80
Sep-
81
Jul-8
2
May
-83
Mar
-84
Jan-
85
Nov
-85
Sep-
86
Jul-8
7
May
-88
Mar
-89
Jan-
90
Nov
-90
Sep-
91
Jul-9
2
May
-93
Mar
-94
Jan-
95
Nov
-95
Sep-
96
Jul-9
7
May
-98
Mar
-99
Jan-
00
Nov
-00
Sep-
01
Jul-0
2
May
-03
Mar
-04
Jan-
05
Nov
-05
Sep-
06
Jul-0
7
May
-08
Mar
-09
Jan-
10
Nov
-10
Sep-
11
Jul-1
2
May
-13
Mar
-14
Normalized World Trade Currency PPP - Selected TTIP Countries
United States Austria Belgium France Germany
Italy Netherlands Spain Sweden Switzerland
United Kingdom Portugal Finlândia +- 2 S.D. +- 1 S.D.
BOX OF SNAKES FOR TPP(03/2014)
39
-4
-3
-2
-1
0
1
2
3
4
Jan-
80
Nov
-80
Sep-
81
Jul-8
2
May
-83
Mar
-84
Jan-
85
Nov
-85
Sep-
86
Jul-8
7
May
-88
Mar
-89
Jan-
90
Nov
-90
Sep-
91
Jul-9
2
May
-93
Mar
-94
Jan-
95
Nov
-95
Sep-
96
Jul-9
7
May
-98
Mar
-99
Jan-
00
Nov
-00
Sep-
01
Jul-0
2
May
-03
Mar
-04
Jan-
05
Nov
-05
Sep-
06
Jul-0
7
May
-08
Mar
-09
Jan-
10
Nov
-10
Sep-
11
Jul-1
2
May
-13
Mar
-14
Normalized World Trade Currency PPP - TPP Countries
United States Australia Canada Japan Singapore
Chile Mexico Malaysia +- 2 S.D. +- 1 S.D.
BOX OF SNAKES FOR EU AND BRAZIL
(03/2014)40
-4
-3
-2
-1
0
1
2
3
4
Jan-
80
Nov
-80
Sep-
81
Jul-8
2
May
-83
Mar
-84
Jan-
85
Nov
-85
Sep-
86
Jul-8
7
May
-88
Mar
-89
Jan-
90
Nov
-90
Sep-
91
Jul-9
2
May
-93
Mar
-94
Jan-
95
Nov
-95
Sep-
96
Jul-9
7
May
-98
Mar
-99
Jan-
00
Nov
-00
Sep-
01
Jul-0
2
May
-03
Mar
-04
Jan-
05
Nov
-05
Sep-
06
Jul-0
7
May
-08
Mar
-09
Jan-
10
Nov
-10
Sep-
11
Jul-1
2
May
-13
Mar
-14
Normalized World Trade Currency PPP - Selected TTIP Countries + Brazil
United States Austria Belgium FranceGermany Italy Netherlands SpainSweden Switzerland United Kingdom PortugalFinlândia Brazil +- 2 S.D. +- 1 S.D.
How to neutralize ?
In the WTO - Tariffs - Anti- subsidies- Currency safeguards- Compensation
In the PTAs - Reduction of preference
41