Must FTAs Be Vehicles For Discrimination?

1. Must FTAs Be Vehicles For Discrimination? Presentation at University of Sussex, 22 May 2008 Simon J. Evenett www.evenett.com

2. Contents of this presentation • Reflecting on the question: Must FTAs be vehicles for discrimination? • Relationship to "multilateralising regionalism." • New information on certain classes of FTA non-tariff provisions. • Some hard yet-to-be answered questions.

3. Must FTAs be vehicles for discrimination? • Intellectual significance--given Viner's classic analysis. • Practical significance today: • For our understanding of what is a "free trade agreement". • For the welfare and policy options available to FTA parties. • For the welfare and policy options available to third parties and "the system." • The answer to the question: NO. So what? • Given historical precedents. No claims about novelty per se. • Logic and Effects?

4. Relationship to "Multilateralising Regionalism" • Initial contribution was Baldwin (2006). Work followed by others including Baldwin, Evenett, and Low (2008). • From our joint paper: "The notion of multilateralising preferential agreements can be defined with more or less precision. The fundamental idea is obvious—a process of multilateralisation occurs when existing preferential arrangements are extended in a non-discriminatory manner to additional parties." Hmmm. • Examples given in Baldwin (2006): • Information Technology Agreement (ITA) in 1995. • Rules of origin (PECS in 1997). • Baldwin's explanation: Spaghetti bowls and production unbundling.

5. Relationship to "Multilateralising Regionalism" • Baldwin, Evenett, and Low (2008) examined whether comparable examples could be found in trade rules that did not relate to what is traditionally referred to as "trade in goods”; some call these rules "behind the border." • Plus BEL (2008) were interested in the generality of the Baldwin (2006) logic. • Examined text of FTA provisions from nearly 100 agreements in government procurement, competition law and policy, investment performance, and trade remedies, and drew on secondary literature on services and TBT. • What we found surprised us—and has surprised some in the trade policymaking community.

6. BEL (2008) found FTA provisions where: • The parties agreed to a commitment on a MFN basis. • The parties agreed to a commitment that legally-speaking discriminates against third parties—but in fact was implemented on a MFN basis. • More parties join an agreement with preferential treatment. • The parties agreed to give each other any more favourable treatment that they grant to a third party in a subsequent FTA (so called Third Party MFN). • The parties agree not to invoke WTO rights that discriminate or may lead to discrimination against parties to the FTA. • Relationship of this taxonomy to Baldwin's ITA and PECS examples.

7. BEL (2008) also found: • Using FTAs to limit non-discrimination is not confined to any one set of FTA provisions. • Using FTAs to limit non-discrimination is not confined to any one group of FTA parties. • Using FTAs to limit non-discrimination is spreading over time—it is becoming more prevalent. • See the cool charts on the following slides! • The Spaghetti Bowl plus production unbundling argument applies in some cases but not all. Other explanations were identified—not least because the Spaghetti Bowl problem isn't always created by every type of FTA provision.

8. De Jure MFN: Spread of NAFTA performance requirements provisions in FTAs. United States Korea Chile Colombia Singapore Mexico Peru Morocco Japan Venezuela Australia Chinese Taipei Panama NAFTA agreement identical or almost identical language of provisions same NAFTA provisions with some exeptions or omissions Canada

9. Strong Third Party MFN: FTAs with provisions that automatically trigger better treatment in FTA partner procurement markets if that partner subsequently negotiates better coverage with a third party Palestine Authority Bosnia-Herzegovina Croatia Moldova Morocco Albania Macedonia Turkey Slovenia Montenegro Tunisia Bulgaria Kosovo Romania Israel

10. Weaker Third Party MFN: FTAs with provisions that trigger consultations or negotiations if a party subsequently negotiates greater procurement-related coverage with a third party Lebanon Israel Chile Tunisia EFTA Mexico EC Korea SACU Japan Singapore Australia

11. Discouraging use of exceptions to WTO principles: FTAs with Joint Committee provisions to oversee antidumping and safeguard measures 1993 - 2007 Romania EFTA Morocco Serbia andMontenegro 7. 1.2.1998 Turkey Tunisia 8. 1.01.1999 11. 1.9.2000 EFTA 10. 1.1.2000 FYR Macedonia Bulgaria 1. 1.1.1993 3. 1.01.1995 Algeria 2. 31.12.1993 Jordan 4. 1.05.1997 Lebanon EC Moldova Morocco 5. 1.7.1997 Tunisia 6. 30.10.1997 Albania 12. 1.06.2000 Bosnia and Herzegovina Kosovo 13. 1.09.2000 9. 1.01.1999 Croatia Israel EFTA EFTA agreements 1993 – 2000 agreements concluded after 2000 CEFTA

12. Adoption of common/similar rules: Spread of NAFTA Art. 1305.1 United States Colombia Honduras Chinese Taipei Venezuela Panama El Salvador Mexico Central America Bolivia Guatemala Chile EFTA Uruguay CAFTA original NAFTA agreement identical language of provisions Korea almost identical language, same provisions Nicaragua EU same content, different language Canada

13. Adoption of common/similar rules: Spread of NAFTA Art. 1305.2 United States Colombia Honduras Chinese Taipei Venezuela Panama El Salvador Mexico Central America Bolivia Guatemala Chile Korea Uruguay original NAFTA agreement Note: This pattern has not been spread in different language and same sense of provisions, which was done by Chile in the case of Art. 1305.1 identical language of provisions almost identical language, same provisions Nicaragua same content, different language Canada

14. What remains to be done • On Why? Learn what the trade negotiators understood they were doing, with whom, and what outcomes they sought. • On Why? Develop models that rationalise the signing of these provisions—from a welfare-theoretic and political economy perspective. • On Effects: Better understanding of the effects of these provisions on parties and third parties—are they as benign as they might seem? • On Systemic Effects: Examine theoretically whether the sequential adoption of these provisions by more parties does raise world welfare. (Must be some doubts here.)