Transcript Trade, Regionalism and Development

Global Economic Prospects, 2005:
Trade, Regionalism and Development
Uri Dadush and Richard Newfarmer
World Bank
December, 2004
Global Outlook

Developing countries experience record growth in
2004, but will face less favorable macro
conditions as the world economy slows in 2005
by around 1 percentage point.

Downside risks could slow the global economy
further.

Many developing countries are well placed to
absorb the slowdown and the risks, but poor oil
importers and indebted middle-income countries
are vulnerable.
Growth is projected to slow
Forecast
Real GDP, percent change
6
Developing countries
5
4
3
2
1
0
81
9
1
82
83
84
85
86
87
88
89 990
1
91
92
93
94
95
96
97
98
99 000
2
1
2
3
4
05
0
2
6
Developing economies remain above trend
Real GDP, percent change
6
Developing countries
5
4
Early
1980s
debt
crisis
3
2
East Asia
financial crisis
1
2001 Global
downturn
1990s recession
Transition countries
0
81
9
1
82
83
84
85
86
87
88
89 990
1
91
92
93
94
95
96
97
98
99 000
2
1
2
3
4
05
0
2
6
Strong performance of developing countries
Real GDP per capita, percent growth
Average growth 2003-2004
12
10
8
6
4
2
0
-6
-4
-2
-2
0
2
4
6
8
10
12
Average growth 1990-1999
-4
-6
Low Income
Middle Income
High Income
Risks remain

Developed-world debt and US current account
deficit might trigger financial tensions, including
higher interest rates and weakening dollar.

Oil prices could rise further, instead of the
moderation foreseen in the baseline

A hard landing in China is still a possibility
Poor oil importers are immediately hit by high oil
prices
Deviation from baseline in first year, per cent of GDP, with $10 higher oil price
Low income net oil importers
High income countries
0
0
-0.1
-0.1
-0.2
-0.2
-0.3
-0.3
-0.4
-0.4
-0.5
-0.5
-0.6
-0.6
-0.7
-0.7
Domestic
Demand
Current
Account
Balance
Impact of 200 basis point rise in long rates
Deviation from baseline, percent of GDP
2006
2007
2008
0
-0.2
-0.4
-0.6
-0.8
-1
-1.2
-1.4
Middle-income countries
Highly indebted middle-income countries
Trade, Regionalism and Development:
Key Messages



Regional trade agreements (RTAs) are
proliferating and now cover one third of world
trade, but their liberalizing effect has often been
modest.
RTAs can create trade and bring many other
benefits for development …but results are not
automatic and depend critically on design and
implementation.
RTAs have systemic consequences that adversely
affect excluded countries, requiring international
attention.
Regional Trade Agreements are proliferating…
Number of RTAs
Percent of World Trade Covered
35
250
30
200
25
SouthSouth
150
SouthSouth
20
15
100
US
US
10
50
5
European
Union
0
1990
1996
European
Union
0
2002
1990
1996
2002
…but RTAs provide less new market
access than it might appear
Share of trade covered (%), 2003
35
30
25
20
15
10
5
0
Including all trade
Excluding 0% MFN
Excluding <3% MFN
…and in developing countries regional
agreements are a relatively small driver of trade
reform
Av. Tariffs in Developing Countries
30
29.9
Share of tariff reductions
Regional
Agreements
10%
25
20
Multilateral
Agreements
25%
15
9.3
10
Autonomous
Liberalization
65%
5
0
1983
Source: Martin and Ng, 2004
2003
Drivers of autonomous liberalization




Move to a market economy
Exhaustion of import-substitution strategy
Desire to use import competition to drive
productivity and technological development
Changing mindsets/New Leadership
….the prior decision to integrate has been the
key driver of all forms of liberalization and
trade agreements play a secondary role.
Multilateral process essential.. but not
sufficient



Multilateral Process potentially the source of
greatest gains in trade
The most credible forum to progress on
agriculture and the only platform for
building world trade rules
…but widely viewed as too slow, unwieldy,
and low-ambition to cater to complex
regional policy objectives.
For members: Do RTAs create trade?
…. Not automatically
Estimated exponential impact on trade
-4
SACU
NAFTA
-2
0
2
4
6
8
10
Overall exports
Overall imports
EC
CACM
Intra-regional trade
ECOWAS
GCC
AFTA
ANDEAN
CEMAC
Mercosur
SADC
SAPTA
CIS
EAC
WAEMU
COMESA
Note: The bars show the magnitude of the dummy variables capturing respectively the extent to which intraregional
trade, overall imports and overall exports differ from the “normal” levels predicted by the gravity model on the
basis of economic size, proximity and relevant institutional and historical variables, such as a common language.
Agreements with high external tariffs risk
trade diversion
NAFTA
AFTA
SADC
EAC
MERCOSUR
COMESA
ECOWAS
SAFTA
0
5
10
15
20
Average weighted tariffs
Note: Tariffs are import-weighted at the country level to arrive at PTA averages
Source: UN TRAINS, accessed through WITS
25
Design issues are crucial to achieving objectives
•Design
Large
Low
ex-post market
external tariff barriers
Nonrestrictive
rules of origin
Wide
product coverage with minimal
exemptions
Liberalization
Facilitating
trade at borders
Appropriate
rules
•Implementation:
agreements
of services
Avoiding paper
….Open regionalism
Evaluating alternatives and South Asia’s
systemic interests
Basic methodology is computer (CGE) simulations
Allows
simulation of relative price affects based upon demand and
substitution consideration
However,
outcomes are static, and do not account for productivity,
technological change, and other dynamic effects
Moreover,
simulations do not model services liberalization, trade
facilitation and lowering of other trade costs, or capture non-trade
benefits of regional cooperation
Evaluating alternatives: South Asia gains
most from a multilateral agreement
Change in South Asia’s real income in 2015 from baseline scenario
(percent)
0.5
Multilateral
0.4
0.3
SAFTA (by itself)
0.2
0.1
0.0
-0.1
-0.2
SAFTA (w/ other RTAs)
-0.3
-0.4
Note: “SAFTA by itself” assumes that other major regions do not form trading blocs that
would discriminate against South Asia. “SAFTA with other RTAs” assumes an RTA in East
Asia, the FTAA in the Americas, and a Europe plus African RTA.
Systemic issues…uneven and discriminatory
access

Preferences hurt excluded countries

Hub and spokes put weaker countries at disadvantage

Multiple arrangements burden customs
Overlapping African agreements…
AMU
Nile River Basin
COMESA
ECCAS
IGAD
CEMAC
Somalia
Sao Tomé & Principe
Algeria
Libya
Morocco Mauritania
Tunisia
ECOWAS
Conseil de
L’Entente
Ghana
Nigeria
Egypt
Cameroon
Central African Rep.
Gabon
Equat. Guinea
Rep.Congo
Chad
Cape Verde
Gambia
Djibouti
Ethiopia
Eritrea
Sudan
Burundi*
Rwanda*
DR Congo
Benin
Togo
Cote d’Ivoire
Guinea-Bissau
Liberia
Sierra Leaone
Niger
Burkina Faso
Mali
Senegal
EAC
Guinea
Tanzania*
Malawi*
Zambia*
Zimbabwe*
SACU
WAEMU
Mano River
Union
Kenya*
Uganda*
Angola
CLISS
AMU:
Arab Maghreb Union
CBI:
Cross Border Initiative
CEMAC: Economic & Monetary Community of Central Africa
CILSS:
Permanent Interstate Committee on Drought Control in the Sahel
COMESA: Common Market for Eastern and Southern Africa
EAC:
East African Cooperation
ECOWAS: Economic Community of Western African Studies
IGAD:
Inter-Governmental Authority for Government
IOC:
Indian Ocean Commission
SACU:
Southern African Customs Union
SADC:
Southern African Development Community
WAEMU: West African Economic & Monetary Union
South Africa
Botswana
Lesotho
Mozambique
SADC
Mauritius*
Syechelles*
Comoros*
Madagascar*
Namibia*
Swaziland*
Reunion
*CBI
IOC
Systemic issues…uneven and discriminatory
access

Preferences hurt excluded countries

Hub and spokes put weaker countries at disadvantage

Multiple arrangements burden customs

Disincentives to engage in multilateral liberalization
Implications for South Asia’s trade strategy…

South Asia has a special interest in strengthening the
multilateral system
Its
greatest gains are through access to world’s markets
RTA proliferation risks diminished access in other
regions
Rules-based system essential for South Asia’s trade
growth because its exports are sensitive

South Asia has an interest in WTO disciplines on RTAs
Get
Doha Agenda done:
•lowers risk of trade diversion for members
•and minimizes effects on excluded countries

A 3 pillar strategy for South Asia…
Unilateral:
driving competitiveness
Multilateral: seeking broad market access
Regional: deep market access and institutional reforms
(customs, ports, trade-related standards)
Global Economic Prospects, 2005:
Trade, Regionalism and Development
Uri Dadush and Richard Newfarmer
World Bank
December, 2004