Transcript Presentation

Dr. JiangYu Wang
Associate Professor
School of Law
The Chinese University of Hong Kong
19 March 2007
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Trade creation or trade diversion?
Building block or stumbling block?
WTO consistency?
Trade realism
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Important question, and a topic of heated
debate
The debate has provided little practical
guidance for policy-making in the real world
A recent IMF staff paper suggests that Asian
FTAs have not led to trade diversion.
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Second-best choice
Scale economy and competition
More attractive to FDI
Political and geopolitics benefits
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The need for WTO Compliance
 In theory, yes
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Is there anything to be complied with?
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MFN
GATT Art. XXIV
GATS Art. V
The Enabling Clause
CU and FTA
“Substantially-all-trade” (SAT) requirement (XXIV:8)
“Not-on-the-whole-higher” (NWH) requirement
(XXIV:5)
 Interim agreement: “shall include a plan and
schedule for the formation of such [RTA] within a
reasonable period of time”.
 Subject: “duties and other restrictive regulations of
commerce [ORRC].”
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What is SAT?
 Quantitative approach
 Qualitative approach
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What is the scope of list of ORRC?
 No agreed definition
 No method to implement
 Question: overall or product-by-product, country-by-
country?
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The GATT/WTO Members have never reached
consensus on anything
The rule: “promptly notify” to enable Members to
“make such reports and recommendations to
contracting parties.”
 Time, definitions, interpretations, etc.
 Anyway, no need for GATT/WTO approval according
to common understanding; GATT/WTO can make
recommendations and reports
 The Committee on Regional Trade Agreement
(CRTA)
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The “Contracting Parties of GATT” have never
made an agreed set of recommendations to
any RTA
RTAs operated at large
CRTA has not completed the review of any
RTA
Differential and more favourable treatment reciprocity and fuller
participation of developing countries:
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Following negotiations within the framework of the Multilateral Trade
Negotiations, the CONTRACTING PARTIES decide as follows:
1.
Notwithstanding the provisions of Article I of the General Agreement,
contracting parties may accord differential and more favourable treatment to
developing countries(1), without according such treatment to other contracting
parties.
2.
The provisions of paragraph 1 apply to the following(2):
……
c)
Regional or global arrangements entered into amongst less-developed
contracting parties for the mutual reduction or elimination of tariffs and, in
accordance with criteria or conditions which may be prescribed by the
CONTRACTING PARTIES, for the mutual reduction or elimination of non-tariff
measures, on products imported from one another;
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Politics
Started with the GATT review of Treaty of
Rome
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Is there a need to comply with WTO rules?
Experience shows that no RTA is not
compatible with GATT/WTO
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National security and regional stability as a
legitimate goal in international trade relations
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In the absence of positive multilateral rules, nations are
free to pursue many goals
Almost all RTAs are political in nature
Importance of politically-driven RTAs in East Asia: Trade
and Peace – interdependence promote peace
The East Asia case: colonized history, diverse culture,
fragmented ideology grouping, border disputes,
mistrusts, etc.
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Trade within the Asian region is far from reaching its potential,
and policies that facilitate integration and more efficient
regional trade accelerate growth and expand its basis,
especially for lower-income Asia.
Tariff barriers are only part of the challenge to further economic
integration and trade expansion in the region…. A deeper and
more inclusive Asian Free Trade Area can achieve for its
members larger benefits than that would arise from global
trade liberalization along [WTO] lines.
The economies of the [ASEAN] have the most to gain (in
domestic terms) from Asian economic integration, provided
that this happens I a relatively uniform way.
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China’s leading role
 China becomes the major market for many Asian
economies
 China’s rise as the major factor in shaping the new
division of labor (production-sharing network)
Deeper production-sharing practices within the [East Asia]
region have contributed substantially to the rise of
intraregional trade flows. In particular, China’s emergence as
a major production site for labor-intensive stages of
production and assembly has exerted a huge impact on such
flows, both within Asia and between Asian and the rest of
the world. Goods that were previously processed and
exported by other Asian countries are now finalized in China
for export. This phenomenon explains, in large part, the
increasing bilateral trade imbalances between China and its
major trading partners; China has recorded growing trade
surpluses with North America and Europe, while widening its
trade deficit with the rest of Asia (UNCTAD 2004, P. 46).
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India as a trader is much less significant
But India’s demonstrated potential is
unlimited
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Both become fanatics of regional and
bilateral trade agreements
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Hub-and-spoke bilateralism
Pan-Asian FTA
Sub-regional integration in East and South
Asia respectively, linked up by FTAs
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Summary:
 China gains the most from bilateralism based on a
China-hub
 China gains least from an Asian Free Trade Area
A Japan-Korea FTA produces relatively weak benefits for the two participating
economies (0.3 percent of GDP for Korea and close to zero effect for Japan). The
widespread negative effects on nonparticipants are negligible when expressed as a
percentage of initial GDP, reaching 0.1 percent of GDP only in the case of Vietnam.
 Including China in the proposed arrangement significantly improves the welfare
outcome for Korea and Japan, to 0.7 percent and 0.1 percent of GDP, respectively.
In China’s case, however, the welfare gain is negligible …. With the inclusion of
China in the FTA, the negative effects on nonmembers start to appear significant,
particularly for Taiwan, China, and for the ASEAN economies, which compete
directly with China in many markets.
 The negative welfare effects on the ASEAN economies are converted into positive
effects … if the proposal is expanded into an ASEAN+3 FTA, comprising the 10
ASEAN economies plus China, Japan, and Korea. Proportionately to GDP, the
ASEAN economies and Korea are the biggest gainers from this arrangement,
although for Korea there is only a marginal improvement in the welfare outcome
relative to the outcome from the China-Japan-Korea FTA. In comparison with the
latter arrangement, Japan enjoys a slightly larger welfare gain, although as a
percentage of GDP, the gain is still small….[T]he welfare effect on China is
negligible, although very slightly inferior to that from the China-Japan-Korea FTA.
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Gilbert, Scollay and Bora (2004)
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Better positioned in South Asia (although not
to be the largest gainer the SAFTA)
Economic gains are not the determining factor
 Multiple objectives of regionalism
▪ Regional politics and stability
▪ Strengthen domestic policy reform
▪ Increasing multilateral bargaining power
▪ Securing market access
▪ Forming strategic linkages
Although countries are not required to
practice altruism in international trade, big
trading powers are expected to factor not
only their national interest, but also regional
and global interest, into their policy-making.
1. Hub-and-spokes bilateralism is stumbling blocks to
the multilateral trading system, in which both China
and India have significant interest.
2. Bilateral FTAs cause systemic problem of “spaghetti
bowl”.
3. An integrated Asian market strengthen the
negotiating position of China, India, and other Asian
countries in the multilateral and bilateral talks (with
U.S. and EU in particular).
4. The political objectives are important and necessary.
Otherwise?
1. The routes for Asian economic integration:
East Asian FTA + South Asia FTA + others =
Asian free trade
2.
A China-India FTA to link up the two subregions
footnote: China-India FTA is strongly
supported by Arvind Panagaria, a long time
opponent to regionalism.
3. China and India should lead Asia to practice
open regionalism (with Asian identity)
- does not mean “open membership”
- defined as “external liberalization by trade
blocks”
- “the degree of liberalization on imports
from nonmembers need not be as high as
that from member countries”
4. Deeper integration?
- Investment
- Services
- Other areas
5. Develop Asian “common guidelines” or “best
practice” for RTAs
- WTO consistent
- Deeper integration
- Liberal, or at least nonrestrictive, rules of origin
- Clear and simply codes on technical barriers
- Harmonization of regulatory standards not
necessary
- Dispute settlement to promote legalism
6. In short, rebuilding global free trade by
turning spaghetti bowls into building blocks