The Politics of International Economic Relations : Session 10 8 January 2007

1. The Politics of International Economic Relations: Session 108 January 2007

2. Seven key challenges for the WTO II: New Bilateralism, new Regionalism: threat to Multilateralism? • Trade within (discriminatory) regional agreements in 2000: 43% of total world trade (more than 50% today)

3. RTAs notified to the GATT/WTO (1948-2003) in force and non-notified RTAs

4. Definition • Definitional Problems • Regionalism: intergovernmental collaboration between at least two states • Political, economic, cultural Regionalism • Geographical proximity (physical) vs. functional regions (security, trade flows) vs. identity (culture)

5. Definition • Regional trade agreements (RTAs) • Bilateralism • Regionalism • Inter-Regionalism • Preferential Trade Agreements (PTAs)

6. Types of regional economic arrangement • Bilateral Agreements (Bilateral Investment Agreements, Mutual Recognition Agreements, PTA) • Free Trade Area (e.g. EFTA, NAFTA) • Customs Union (common external tariff, e.g. Mercosur, Southern African Customs Union (SACU)) • Common Market (proposed: Economic Community of West African States (ECOWAS), Gulf Cooperation Council (GCC), ASEAN Economic Community (AEC)) • Economic and Monetary Union (e.g. EU)

7. On Regionalism (Ravenhill 2005)

8. Europe Source: WTO, Crawford and Fiorentino, 2005

9. Americas Source: WTO, Crawford and Fiorentino, 2005

10. Asia-Pacific Source: WTO, Crawford and Fiorentino, 2005

11. Africa Source: WTO, Crawford and Fiorentino, 2005

12. Cross-regional RTAs Source: WTO, Crawford and Fiorentino, 2005

13. What to explain (Political) Regionalism: • EU integration literature (neofunctionalism vs. intergovernmentalism), processes and goals • Export to other regions (e.g. Mercosur) Preferential Trade Agreements • Realism (security ties, rewards, protectionism, maximising wealth, HST) • Liberalism (regulatory competition for FDI, domino effects, competitive liberalization), • Marxism (Centre-Periphery, hub and spoke) • Social Constructivism (Ideas and identities)

14. What to explain • What drives new (Economic) Regionalism? • What is new about new Regionalism? • How does it affect Multilateralism (Unilateralism)?

15. Economic Debate Trade Diversion vs. Trade Creation • Example FTA (Mexico-US) Effects on Mexico-Singapore (Ravenhill 121, Box 5.2) • Trade creation (Mexico-biased and more purchase?) • Effects of trade diversion • Customer gains (depends on producer, wholesaler, retailer) • Lower Tariffs (Role of tariffs as a source of revenues in developing countries) • Welfare loss Indonesia • Tariffs distort allocation of resources (unilateral liberalization, WTO liberalization)

16. Political Motivations (Drivers) Political goals: • Improvement of inter-state relations/security concerns within a region (e.g. EC, ASEAN (communist threat)) • The New Security Agenda (e.g. NAFTA) • Regionalism as a bargaining tool (with trading partners and TNCs) • Import-substitution policies and leverage to negotiate with TNCs (Andean Pact) (Raoul Prebisch) • Supply and demand for (Regional aid project, e.g. EPAs) • Leverage for negotiations (CARICOM), pressuring the EU (APEC) • Constant struggle for having a strong BATNA (EU-US)

17. Political Motivations • Regionalism as a mechanism to lock-in reforms (and time-inconsistency problem) • Mexico and NAFTA • EU enlargement • Signaling to investors • Regionalism to satisfy domestic political constituencies • Regionalism as an elitist idea (exporting the EU model) • Ease of negotiating and implementing agreements • Increasing number of actors increase transaction costs (negotiations and compliance) • Asymmetry of power • Bureaucratic capacities

18. Economic Motivations Regionalism over Multilateralism • Protection of sectors that would not survive in global competition (yet might hinder further multilateral integration) • Opportunities for deeper integration Regionalism over unilateralism and status quo • Larger markets (economies of scale, training camp) • Increased FDI (regional hubs)

19. New Regionalism Changed context • End of the Cold War • Global interdependence and neo-liberal ideas in OECD countries (and GEMs) • Signaling openness, market access • Frustration with WTO/GATT • Bandwagoning and Balancing • Change of US, Japanese and EU attitudes

20. Regionalism and the WTO • RTAs are the most important exception that the WTO permits against the principle of non-discrimination • Trade within discriminatory regional agreements in 2000: 43% of total world trade (more than 50% today) • Art XXIV GATT • Art V GATS • Committee on RTAs

21. Regionalism and the WTO Three conditions: 1) Coverage: GATT (substantially all trade), GATS (substantial sectoral coverage) 2) Duties and regulations not higher then ex ante 3) Transparency • duties and other restrictive regulations of commerce are removed on substantiallyall intraregional trade within reasonable period of time • duties and other regulations of commerce are not higher or more restrictive after the formation of the CU/FTA than before • the formation of the CU/FTA is notified to the WTO, surveillance and monitoring Enabling Clause

22. New Regionalism • Drivers: usually a mixture of motives • Regionalism and WTO: « brinkmanship », Stepping stone or stumbling block? • European, American, Asian and African type of Regionalism?