The DDA is Dead: long live regionalism

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The DDA is Dead long live regionalism?

• Professor Jim Rollo
• University of Sussex

2
outline

• The long road to the suspension of the DDA
• Whos to blame?
• Can the DDA be revived and by whom and when?
• the accelerating rise of regionalism
• The plusses and minuses of regionalism
• whos doing what with whom and does it matter
• The implications for the multilateral system.
• And if there is time present the Sussex Framework
  for analysing preferential trade agreements as an
  example of academic contribution to public
  participation in trade policy making

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The long road to the suspension of the DDA

• The DDA had 3 main purposes
• To drive forward the liberalising and rule making
  momentum of the Uruguay Round. A process that
  began at the first WTO ministerial in 1996 and
  culminated in the Doha Development Agenda in 2001
• To engage the developing countries in the
  multilateral rules game. A process that began to
  fail at Seattle in 1999 and was completed at the
  failed ministerial at Cancun in 2003 a Round
  for Free
• To engage the new big players on the global
  market like China in the liberalising/rule making
  game. A process that began with Chinese accession
  in 2001 and carried on through the formation of
  the G20 in 2003 and that finally died in July
  2006.

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Whos to blame? Success has many fathers failure
is an orphan

• Short answer is that everyone is to blame
• Too many players who wanted too much from their
  partners but were willing to give too little to
  their partners
• The EU, Switzerland, Japan, Korea, China, India
  unwilling to give enough on agricultural market
  access for the US, the Cairns Group and G90
• The US unwilling to give enough on agricultural
  support the reason for the final failure for
  the EU, the G20, the Cairns Group the G90
• The G20 unwilling to give enough on NAMA and
  Services
• The EU wasting negotiating capital on the
  Singapore issues (investment, competition policy,
  government procurement and trade facilitation)
• The G90 unwilling to sign up for any new rules
  (the cause of collapse at Cancun) or any new
  liberalisation (special and differential
  treatment) and asking for compensation for
  preference erosion a round for free
• China unwilling to go beyond the WTO entry
  package despite some unilateral liberalisation
  since 2001

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Can the DDA be revived and by whom and when?

• Needs two things
• A more ambitious package of measures that
  includes
• bigger tariff cuts on agriculture from the EU,
  Japan, Korea Switzerland as well as probably
  China and India
• Bigger cuts in barriers on NAMA and services by
  the G20 with some contribution by China beyond
  the WTO entry package tariff bindings crucial
• bigger cut in agricultural support in the US
• An extension of Trade Negotiating Authority for
  the US Administration beyond June/July 2006
• Can this happen?
• No sign in Geneva or capitals that any real
  momentum for more ambition Mandelsons comments
  in Beijing and Delhi
• The change of power in the US Congress makes and
  extension of TNA for the DDA very unlikely it
  may need a new president so not until 2009 and
  perhaps not then if a Democrat

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Which brings us to the rise of regionalism
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The number of PTAs exploded since the 1990s
Cumulative number of agreements (EU-15 counted as
single country
Cumulative number of agreements (EU- 25 counted
as single country
Agreements not notified to the WTO
Agreements notified to the WTO
Source Chapter 2 World Bank Global Economic
Prospects from WTO data and WTO staff
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Strong evidence of natural trading blocs
developing

• a bloc defined as one which includes only
  countries that add to the share of within Bloc
  trade
• On that basis market led integration is ahead of
  state led integration

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Natural Trade Blocs 1970s(source GEP 2005 Ch 2)
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Natural Trade Blocs 1980s(source GEP 2005 Ch 2)
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Natural Trade Blocs 1990s(source GEP 2005 Ch 2)
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The plusses and minuses of bilateralism

• Plusses
• Easier to negotiate - usually only one partner at
  time
• Aims at complete liberalisation so goes deeper
  and further than WTO
• Can cover deep integration with benefits for
  growth
• Minuses
• Trade diversion
• Hard to defend sensitive sectors -Trade creation
  leads to unemployment
• Hurts third parties who may be politically
  important
• Complexity if details of each bilateral agreement
  different the noodle bowl of regionalism

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whos doing what with whom and does it matter

• The US is doing it in Latin America and East Asia
  and doing WTO plus
• The EU is doing it with African Caribbean
  Pacific countries its neighbours in eastern
  Europe and north Africa and Middle East with
  Mercosur now with proposing negotiations with
  India, Korea and ASEAN. All WTO plus but usually
  agriculture-lite
• China has negotiated a very complete agreement
  with Hong Kong is proposing them with partners
  in east and south east Asia and with Australia
  but with very uneven content
• Korea negotiating with the US and the EU
• Japan considering agreements in the Region
• Singapore a major instigator of FTA including
  with US and India as well as rest of ASEAN

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The implications for the multilateral system.

• Takes negotiating attention and capacity away
  from the multilateral system
• Undermines the key WTO principle of non
  discrimination
• Preferential agreements always damage third
  parties so could put increasing pressure on
  dispute settlement and make the WTO a place where
  people litigate but dont negotiate
• Overall could destroy the multilateral system and
  the WTO with it

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The Sussex Framework for the Analysis of FTA
Project Objectives

• first, to develop a framework of qualitative
  questions and statistical indicators and derive
  rules of thumb which allow busy and
  under-resourced officials to assess likely
  economic impact of RTAs
• second, to test the framework on two cases
  EU/Egypt and EU/ Caribbean and compare the
  results with the more sophisticated analyses
  based on econometric modelling, both partial and
  general equilibrium

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The Sussex Analytical framework - the
justification

• trained people key binding constraint for any
  bureaucracy, assessing new policy.
• Intention to create an easy to understand
  analytical checklist on likely impact of specific
  RTA to help relax that constraint
• three key elements
• looking at the details of the agreement - check
  list of the likely elements and their
  implications
• 6 rules of thumb based on descriptive statistics
  to assess likely impact of shallow integration on
  balance of trade diversion and trade creation
• likely indicators for the potential for deep
  integration

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the qualitative issues

• objective to check-off and analyse the actual
  content of any proposed agreement in a systematic
  way that reveals
• what is in and what is out
• the extent of proposed liberalisation and any
  exceptions
• remaining regulatory barriers and the elements of
  deep integration proposed
• how it interacts with existing agreements
  including WTO
• potential for impact on particularly politically
  sensitive groups

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Initial conditions - shallow integration

• summary of economic structure
• measures of initial comparative advantage - RCA
• trade shares by source
• price dispersion - unit value differences among
  sources
• similarity and differences in export structure
  across partners - Finger -Kreinen
• similarity in production structures
• trade intensity indexes
• RCA indices
• Herfindahl indices
• tariff and non tariff barriers - averages and
  peaks
• Framework describes the statistical indicators
  and how to calculate them from easily available
  and cheap sources (notably WITS and TRAINS
  databases)

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Shallow Integration - some rules of thumb

• rules of thumb
• The effects will be greater the higher are the
  initial tariffs.
• The greater the number of RTA partners the more
  likely it is that there will be trade creation as
  opposed to trade diversion.
• Wide differences in comparative advantage likely
  to lead to a welfare improving RTA provided the
  initial tariffs are not too high.
• The more similar is the product mix in the
  economies concerned and the higher the
  elasticities of supply the more likely there is
  to be Trade Creation
• The higher the percentage of trade with potential
  partners the more likely the RTA is to be welfare
  enhancing.
• if trade is initially a small share of GNP, an
  RTA can be considered more likely to be welfare
  improving.

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Indicators of market integration, product variety
and potential for trade induced productivity
gains from deep integration

• FDI
• common standards and/or recognition of conformity
  testing and certification among partners at
  sectoral level
• product variety and intra industry trade -
  Grubel-Lloyd indices and variants
• local scale economies
• public /private ownership reduced rent seeking
• regulatory obstacles to trade or FDI expansion

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the potential for deep integration

• no easily derivable composite indicators of
  likely potential for and or welfare effects of
  deep integration
• framework gives suggestions of where to look via
  indicators of
• market integration
• product variety and intra industry trade
• opportunities for trade driven productivity
  improvements
• suggests the use of case studies in sectors where
  regulation appears to be an obstacle to bilateral
  trade