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Dr. M. Sait AKMAN November 26, 2012 Istanbul

MULTILATERAL TRADING SYSTEM AND THE NEW GENERATION FREE TRADE AGREEMENTS International Conference by IKV and TEPAV-MUTS. Dr. M. Sait AKMAN November 26, 2012 Istanbul. EU in world trade and the trading system. The EU is the largest trading entity in the world: In manufactured goods

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Dr. M. Sait AKMAN November 26, 2012 Istanbul

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  1. MULTILATERAL TRADING SYSTEM ANDTHE NEW GENERATION FREE TRADE AGREEMENTSInternationalConferencebyIKV and TEPAV-MUTS Dr. M. Sait AKMAN November 26, 2012 Istanbul

  2. EU in world trade and the trading system • The EU is the largest trading entity in the world: • In manufactured goods • In trade in services • In Foreign Direct Investment (FDI)

  3. But itstradepolicychanges... • Global developments that affected trade patterns and production networks, as well as the EU’s competitive position… • GATT / WTO negotiations reduced tariff protection tremendously (i.e. EU bound and applied tariffs at low levels) • Increasing rivalry from emerging economies (Far East Asia, BRICS so on) • Changing nature of global production networks (global supply chains)

  4. Twoshifts in EU tradepolicy • 1. typology of actorness: • Actorsinvolved in tradepolicychanges in terms of theirinterests, perceptions, expectations, anddegree of involvement(YoungandPeterson, 2006) • 2. conduct of traderelations: • Interms of behaviouralrepositioningfromdefensivetooffensiveoutlook. • Interms of thevenue of traderelations(venuechange) in ordertosatisfybroaderandchangingobjectives… Thesetwoshiftsare not totallyindependent of eachother, but areactuallyintertwined.

  5. Twoshifts in EU tradepolicy • Traditionalconceptualisation of tradepolicylargelyconfinedtoexchage of goods in manufacturing, andagriculturetosomeextent, withutmostattentiondevotedto ‘bordermeasures’… • Tradepolicylargelyneglectedissues in trade in services, andtrade-relatedbusinesspractices… • In time, Europeanbusinesswasdiversifiedtofocus on a proactivepolicyapproachembodyingfurther market accessabroad, dealingwith not onlytariffs, but domesticregulatoryissues (Outward-oriented)

  6. Twoshifts in EU tradepolicy • Not allactorsfavoured market accessand market-openingregulations; northeysupportedthe idea of liberalisation(Inward-oriented) • Amongthemare: • 1. senileindustrieslosingtheircompetitivestructures (older-type of actors) • 2. globalisation-bushers: whofeltinsecureaboutunpredictableimplications of global markets (i.e.) • EnvironmentalNGO’s (shrimp-turtlecase) • Consumerorganisations (beefhormones) • Publichealthconcerns (GMOs)

  7. Actors: mercantilist in nature

  8. A common vision of actors for an expanded and activist policy approach … reflecting efforts by the EU to manage globalisation so that ‘it happens on European terms, with trading partners conforming to Europe’s ways and standards’ (Jacoby and Menuier, 2010)

  9. Expandingtradepolicyagenda… • Trade, Growth, and World Affairs communication: in order to keep its competitive edge to achieve its overall objectives of smart, inclusive, and sustainable growth, ‘trade policy must broaden its scope’…

  10. Policy expansion to serve EU 2020 objectives • ‘It is clear that the most important contribution to the EU 2020 objectives would stem from non-tariff issues, notably in behind-the-border trade initiatives, such as regulatory issues, non-tariff barriers, intellectual property rights, government procurement, trade and environment, to name but a few.......’ (L. Cernat, European Commission’s Chief trade economist, in VoxEU, 2012).

  11. Expandingscope (trade in services) • The EU-27 is theworld’slargesttrader in serviceswhileitsshare 26.6 % in 2009, bringing a positivetradebalance of about 109 billiondollars. • 18 EU memberstatesrankedamongthe top 40 exporters of services. • The EU enteredinto a complexstructure of negotiations in services : • WTO (Doha Roundbased on GATS) • bilateralagreements (i.e. FTAs) • plurilateraldeal(InternationalServicesAgreememnt).

  12. EU performswell in servicesexports • EU needsliberalisation in ‘trade in services’ Source: M.R. Madsen DG Trade, EuropeanCompetitivenessand EU TradePolicy

  13. Expandingscope (Singaporeissues)

  14. LisbonTreatyandtradeagenda: Art. 207 of TFEU • Competence of the Union in trade and trade-related areas increase extending into issues: • Trade in services • Trade-related intellectual property rights • Foreign direct investment

  15. Regulatory influence • An expanded (deep) agendabroughtforwardtheneedfor a regulatorymechanismin conductingrelationswiththepartners: • tradingpartnersof the EU toharmonisetheirlawsandprocedures, if not toadoptcommondisciplineswiththeEU’sdomesticrules… • toensurethatexternalchallengesbroughtaboutbyglobalisationhave as littlenegative, disruptiveeffectuponEuropeancitizensas possible…

  16. Regulatory influence

  17. Conduct of relations

  18. Conduct of relations

  19. Differentterms, changingconcerns, switchedvenues 19

  20. Global Europe on FTAs (p.8) • a series of FTAsportraying as thenewmechanism of theEU’stradestrategyforbothregulatorytopicsandfurtherliberalisation of trade… • Global Europe 2006, emphasised: • ‘freetradeagreements (FTAs), ifapproachedwithcare, can build on WTO andotherinternationalrulesbygoingfurtherandfaster in promotingopennessandintegration, bytacklingissueswhichare not readyformultilateraldiscussion… • Manykeyissues, includinginvestment, publicprocurement, competition, otherregulatoryissuesand IPR enforcement, whichremainoutsidethe WTO at this time can be addressedthroughFTAs’.

  21. Trade, GrowthandWorldAffairsCOM(2010)612, p.5

  22. Potentialcosts of failure in Doha Round** BouetandLaborde, 2010 Effects of finalizing the DDA negotiations Total cost the DDA failure Potential effects of not reaching an agreement

  23. Potential costs of failure in Doha Round Up to Max: All tariffs, except preferencescovered by bilateral-regionals treaties, are moved to their maximum level reached over the last 13 years. Bound tariffs are still capped by the UR commitments. Exports:+$363 Bn Welfare: +$59 Bn Exports:-$1,171 Bn Welfare: -$193 Bn Exports:-$808 Bn Welfare: -$134 Bn

  24. EU’s FTAs

  25. MixedmotivesforEU’sFTAs(Woolcock, 2007)

  26. EU FTAsstrategy • FTA strategymustcomplement WTO, ratherthanactingalone. • Theymust becommerciallydriven • FTA is a tradepolicyinstrumenttocorrecttradedistortions, not market failures (aretheypropervenuesformost WTO- issues?) • Selection of FTA partners: • Somedeep/comprehensiveagreemensarewithcommerciallysmallerpartners (i.e. Armenia, Georgia, Peru…) • SomedeepFTAswithlargerpartnersincludenon-commercialissues • Legal enforceabilitymust be high

  27. Number of PTAs covering WTO+ provision

  28. Number of PTAs covering WTO-X provisions

  29. Number of PTAs covering WTO-X provisions

  30. Impact on Turkey (1) • ‘Trade re-orientation’ effect: • This effect could occur when an excluded country (Turkey) already benefits from zero-tariff access to the EU market (via CU), and the new preferential partners (S. Korea, India, Mexico, ASEAN, Mercosur, S. Africa, so on) matches this access through recent agreements (i.e. FTAs). Some ‘deep’ and ‘comprehensive’ deals even goes further than the coverage of Turkey’s CU.

  31. Trade re-orientation

  32. Erosion of preferences • TurkeyrepresentstheEU’sseventhlargetstrading partner. • The EU tohaveFTAswithalmostallcountriesrankingfrom 8th to 18th as itsmajorimportpartners (including South Korea, India, Brazil, Malaysia, Canada, S. Africa…) • Most of thesecountriesalsosellto EU thegoodsthatTurkeyalsoexportsheavilysuch as: • SITC 7 (machineryand transport equipment; • SITC 8 (miscellaneousmanufacturedarticles); • SITC 6 (manufacturedgoodsclassifiedchieflybymaterial); • SITC 0 (foodandliveanimals).

  33. CEEC impact Commodityoverlap in theexportsto EU-15 between CEEC andothers (exportsimilarityindex) Finger-Kreininexportindex… Thegreaterthesimilarity/overlap, thelargerthepotentialfortradediversionand ‘preferenceerosion’… A potentialfortradediversionexists, andmuchoverlaptakesplace in textile/clothing, agricultureandelectronics

  34. EU merchandise trade with TR by product (2010)

  35. Overlap of exportsto EU market TR vs. EU’s FTA partners • Finger-Kreinin Export Similarity Index (FK Index) • ‘Trade re-orientation’ effect (i.e. Korean car industry (shares 7% of EU car market); Indian textiles to replace TR exports to EU-27 market)

  36. Impact on Turkey (2) • FTA-partner products that enter into free circulation in the EU can be re-exported to Turkish market. • FTA partner Turkey EU

  37. cont. • In practice Turkey will liberalise its imports while these countries shall have the possibility to continue with their current measures (i.e. tariffs) on Turkish exports without any need for a reciprocal liberalisation. • TR bound and applied rates are lower compared to the EU’s FTA-partners.

  38. Bound vs. Applied tariffs - Asia AVG binding “overhang” Source: WTO Secretariat based onCTS for bound and IDB and UNCTAD for the MFN applied tariffs.

  39. Bound vs. Applied tariffs: Latin America AVG binding “overhang” Source: WTO Secretariat based onCTS for bound and IDB and UNCTAD for the MFN applied tariffs.

  40. Impact on Turkey (3) • Too much energy is diverted from WTO into FTAs, making the trade regime more complex and difficult to manage, given the limited resources available.

  41. Thank you. To contact: Dr. M. Sait AKMAN saitakman@marmara.edu.tr or sait.akman@tepav.org.tr

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