Must FTAs Be Vehicles For Discrimination

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Must FTAs Be Vehicles For Discrimination?

• Presentation at University of Sussex, 22 May 2008
• Simon J. Evenett
• www.evenett.com

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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.

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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?

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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 obviousa 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.

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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 usand has surprised some
  in the trade policymaking community.

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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
  partiesbut 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.

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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 timeit 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 identifiednot least because
  the Spaghetti Bowl problem isn't always created
  by every type of FTA provision.

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De Jure MFN Spread of NAFTA performance
requirements provisions in FTAs.
United States
Korea
Chile
Colombia
Mexico
Singapore
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
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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
Croatia
Bosnia-Herzegovina
Moldova
Morocco
Macedonia
Albania
Turkey
Slovenia
Montenegro
Tunisia
Bulgaria
Kosovo
Romania
Israel
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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
Mexico
EFTA
EC
Korea
SACU
Japan
Singapore
Australia
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Discouraging use of exceptions to WTO principles
FTAs with Joint Committee provisions to oversee
antidumping and safeguard measures
Romania
1993 - 2007
EFTA
Morocco
Serbia and Montenegro
Turkey
7. 1.2.1998
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
Moldova
EC
Lebanon
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
CEFTA
agreements 1993 2000 agreements concluded after
2000
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Adoption of common/similar rules Spread of NAFTA
Art. 1305.1
United States
Colombia
Honduras
Chinese Taipei
Venezuela
Panama
Mexico
El Salvador
Central America
Bolivia
Guatemala
Chile
EFTA
Uruguay
CAFTA
original NAFTA agreement
identical language of provisions
Korea
Nicaragua
almost identical language, same provisions
EU
Canada
same content, different language
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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
Nicaragua
almost identical language, same provisions
Canada
same content, different language
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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 provisionsfrom a
  welfare-theoretic and political economy
  perspective.
• On Effects Better understanding of the effects
  of these provisions on parties and third
  partiesare 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.)