21st Century Regionalism: Filling the gap between 21st century trade
and 20th century trade rules
Richard BaldwinGraduate Institute, Geneva
WTO Geneva, 3 November 2010
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Pre‐Industrial Revolution
2
Consumption & production
bundledspatially
Production
&
Consumption transportation⇒
Very little trade
Transportation “glue”
Transportation revolution (steam power)
3
“Freight rates and productivity gains in British tramp shipping 1869–1950” (2004) Saif I. Shah and Williamson
1st Unbundling
1st wave (1850‐1914)
2nd wave (1950‐now)
1st unbundling: Production clustering within nations
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Production Bay B
Production Bay A
Production Bay C
Manufacturing requires continual two‐way flows among “production bays” of:Things,People,Information,Investment in training, machines, processes.
Coordination “glue”
20th trade & trade governance
• International commerce = goods crossing borders.• Trade disciplines required = fairly simple (GATT 1947):
– Tariffs & other border measures – MFN;– Subsidies & unfair competition – AD/CDV;– Taxes & regulation of goods – National treatment;– etc.
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Bay BBay A
Bay C
Bay BBay A
Bay C
ICT revolution• ICT revolution melts the coordination glue:
Telecommunication cheaper, universal.
Computing & information storage becomes cheap.
Information management software.
Increased modularisation of manufacturing
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21st century trade & governance• 21st century trade needs deeper disciplines.
• Recognition & early efforts (1986):– EU’s Single Market Programme
• Goal: flows across border just as flows within borders.
– US‐Canada FTA• Deepen disciplines to include investment & services.
– Uruguay Round • TRIPs, TRIMs & Services.
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ICT revolution acceleratesMoore’s law & Gilder’s law at work: In 2001 more information could be sent over a single cable in a second than was sent over the entire internet in a month in 1997.
Cost of information processing (cents per instruction per second)
Optical Fiber Transmission (cents per Mbit/km)
0
1E+09
2E+09
3E+09
4E+09
5E+09
6E+09
0
100
200
300
400
500
600
700
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
Mobile and fixed-line telephone subscribers per employee
Mobile and fixed-line telephone subscribers
Internet Hosts
1
10
100
1,000
10,000
100,000
1,000,000
10,000,000
100,000,000
1,000,000,000
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
1983
1995
North‐South production unbundling
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Example #1: HP Server “Made in Singapore,”
Example #2: Hard Disc Drive “Made in Thailand”
North‐South trade governance gap• Need for new disciplines North‐South.
• WTO is otherwise occupied.
⇒ Governance gap.
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Filling North‐South governance vacuum• Explosion of BITs 1990s.
• North‐South deep RTAs– US (NAFTA‐like), Japan (EPAs), EU (Association Agreements).
• Unilateral tariff liberalisation.
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Filling North‐South governance vacuum
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02468
101214161820
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Philippine
Thailand
Korea
Malaysia
China
Indonesia
Singapore
1989
1995
• Unilateral tariff liberalisation facilitates 21st c. trade especially:
• By developing nations
• In parts & components.
• 21st regionalism not about tariff preferences.
Possible preference margins are low• Much trade has zero MFN applied tariffs (no preference); share growing
fast everywhere.• Other average tariffs are low (except sensitive products; often excluded
from RTAs),• Big inter‐regional have positive MFN tariffs but are not covered by RTAs
(yet).
17 0 20 40 60 80 100
CEMAC GCC
UEMOA Andean Community
ECOWAS CARICOM
MERCOSUR CEFTA
COMESA EAC
SADC NAFTA
SACU CACM
ASEAN EU27 EU15 EFTA
Zero MFN tariff (% Total Imports)
0 2 4 6 8 10 12 14 16
CEMAC COMESA
EAC ECOWAS
UEMOA CARICOM
SADC SACU
MERCOSUR Andean Community
CEFTA ASEAN CACM
NAFTA GCC
EU27 EFTA
MFN applied tariff (trade weighted average)
Death of preferences
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Big PMs only on narrow fraction of exports.
US, Canada & Mexico are exceptions.
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
zero
No preference (MFN =0, or exclusion)
21st century disciplines (Japan EPAs)
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Sing Mex Mala Phil ThaiLiberalization&promotion of investment x x x x x Harmonization of custom procedures x x x x Protection of intellectual property rights x x x x
Mutual recognition and testing x x x x Movement of natural persons x x x x Government procurement x x x Competition x x x x x Enhancement of business environment x x x x Environment Labour Exchange of information about intellectual property rights x Financial services x x x x Information technology x x x x Science and technology x x x x x Education and human resource development x x x x x Trade and investment promotion x x x x Small and medium enterprises x x x x x Transportation x Energy x x Agriculture, forestry and fishery x x x Road development x x
Source: Balboa (2008) “Negotiated Trade Liberalization in East Asia: Examining Japan’s Economic Partnership Agreement (EPA): Focusing on the Japan Philippines Economic Partnership Agreement (JPEPA)”.
Traditional regionalism v 21st regionalism• Traditional view:
– Vinerian economics & implied political economy.
• 21st regionalism:– Vinerian analysis moot (RTAs not about preferences).
– Regulation‐economics, not tax‐economics.
– Tools of discrimination often weak for BBBs.– BBBs = “Behind the Border Barriers”
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Summers: “I like all the ‘isms”
Bhagwati: “Termites in the system”
Krugman: “Is bilateralism bad?”
RTAs = tariff preferencesRTAs = tariff preferences
RTAs = disciplines underpin 2nd unbundlingRTAs = disciplines underpin 2nd unbundling
Difference without distinction?• Why we care about regionalism:
– Economic inefficiency from discrimination
– Injustice and power asymmetries
– Threats to support for multilateral liberalisation
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Traditional view economics
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Smith’s certitude = Partner gains from preference.
Viner’s ambiguity = Preference giver might lose.
Haberler’s spillover = third nations lose.
Different economics1. Frictional barrier liberalisation
– If rules‐of‐origin‐like tools available• Only Viner’s ambiguity dead.
– Without discrimination tools (many TBTs)• Haberler’s spillover also dead.
– {E’metric estimates of external trade creation}
2. Domestic entry liberalisation– Incumbents v entrants; not home vs foreign.– Discrimination very difficult.
3. Property right assurances– Ditto
4. Fiscal federalism: Centralisation not always good.
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Injustice & power asymmetries• Deep RTAs worse that shallow RTAs.
– Article 24 limits large partner's bargaining power.
– Article 5 GATS ditto (weakly) for services.
– No such WTO disciplines on BBBs• de facto = NS deep RTAs almost exclusively one‐sided on BBBs.
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Threats to WTO supportDifferent political economy
1. Basic nature of bargain– Traditional = exchange of market access.
– 21st c. = Northern factories for Southern reform.
2. Implications:– Only EU, US & Japan can do this deal (yet).
– WTO = no factories on offer.
– RTA tariff cuts multilateralisable; BBBs disciplines maybe not;
• EU, US, Japan disciplines incompatible?
3. Unilateral tariff cutting = hole in WTO fuel tank.26
Sum up• 1st unbundling:
– GATT & RTAs mainly about tariffs.
• 2nd unbundling: – 21st century regionalism mainly about BBBs
– Politics: factories for reform
• Key questions 21st c. regionalism: – Are US, EU and Japanese disciplines multilateralisable?
– Can & should some disciplines be brought under WTO?
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Sum up• Key questions 21st c. regionalism (cont’d):
– Develop WTO disciplines like Art.24/Art.5 for deeper disciplines?
• How do new trade giants (China, India, Brazil, etc.) fit in?
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Future scenarios for WTO• Plan A (WTO centricity restored):
– WTO disciplines updated to match 21st century trade.
• Plan B (WTO centricity eroded): – WTO unreformed, RTAs & BITs continue to lead.
– Drift back towards a 19th century Great Powers world?
• B.1: WTO stays vibrant with Marrakesh disciplines only; deeper disciplines outside.
• B.2: WTO credibility withers; bicycle falls over.
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