Must FTAs Be Vehicles For Discrimination?

Presentation at University of Sussex, 22 May 2008

Simon J. Evenettwww.evenett.com

Contents of this presentation

1. Reflecting on the question: Must FTAs be vehicles for discrimination?

2. Relationship to "multilateralising regionalism."

3. New information on certain classes of FTA non-tariff provisions.

4. Some hard yet-to-be answered questions.

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Must FTAs be vehicles for discrimination?

1. Intellectual significance--given Viner's classic analysis.

2. 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."

3. 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"

1. Initial contribution was Baldwin (2006). Work followed by others including Baldwin, Evenett, and Low (2008).

2. 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.

3. 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"

1. 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."

2. Plus BEL (2008) were interested in the generality of the Baldwin (2006) logic.

3. 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.

4. What we found surprised us—and has surprised some in the trade policymaking community.

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BEL (2008) found FTA provisions where:

1. The parties agreed to a commitment on a MFN basis.

2. The parties agreed to a commitment that legally-speaking discriminates against third parties—but in fact was implemented on a MFN basis.

3. More parties join an agreement with preferential treatment.

4. 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).

5. 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:

1. Using FTAs to limit non-discrimination is not confined to any one set of FTA provisions.

2. Using FTAs to limit non-discrimination is not confined to any one group of FTA parties.

3. Using FTAs to limit non-discrimination is spreading over time—it is becoming more prevalent.

– See the cool charts on the following slides!

4. 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.

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United States

Mexico

Korea

Chile

Australia

Morocco

Canada

Singapore

Peru

Colombia

Panama Chinese Taipei

Japan

Venezuela

NAFTA agreementidentical or almost identical language of provisionssame NAFTA provisions with some exeptions or omissions

De Jure MFN: Spread of NAFTA performance requirements provisions in FTAs.

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

Croatia

Macedonia

Bulgaria

Albania

Bosnia-Herzegovina

Moldova

Montenegro

Kosovo

Turkey

Morocco

Palestine Authority

Slovenia

Tunisia

Romania Israel

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

MexicoEFTA EC

Israel

Australia

Lebanon

Chile

Tunisia

Korea

SACU

Singapore

Japan

Romania

Moldova

FYR Macedonia

Croatia

Serbia and Montenegro

Bulgaria

Israel

Bosnia and Herzegovina

Albania

Turkey

CEFTA

EC

3. 1.01.1995

5. 1

.7.1

997

6. 30.10.19974.

1.0

5.19

97

7. 1.2.1998

Discouraging use of exceptions to WTO principles: FTAs with Joint Committee provisions to oversee antidumping and safeguard measures

1993 - 2007

1. 1

.1.1

993

2. 31.12.1993

9. 1

.01.

1999

8. 1.01.1999

10. 1.1.200011. 1.9.2000

13. 1.09.2000

12. 1.06.2000 Kosovo

EFTA

EFTA

Morocco

Tunisia

EFTA

EFTA

Algeria

Jordan

Tunisia

Morocco

Lebanon

agreements 1993 – 2000agreements concluded after 2000

United States

MexicoEl Salvador

Nicaragua

Bolivia

Chinese Taipei

Venezuela

Chile

Central America

Guatemala

Colombia

Canada

Adoption of common/similar rules: Spread of NAFTA Art. 1305.1

EU

Korea

Panama

Honduras

Uruguay CAFTA

EFTA

identical language of provisions

almost identical language, same provisions

original NAFTA agreement

same content, different language

United States

Mexico

El Salvador

Nicaragua

Bolivia

Venezuela

Chile

Central America

Guatemala

Colombia

Canada

Adoption of common/similar rules: Spread of NAFTA Art. 1305.2

Korea

Panama

Honduras

UruguayNote: 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

same content, different language

original NAFTA agreement

Chinese Taipei

What remains to be done

1. On Why? Learn what the trade negotiators understood they were doing, with whom, and what outcomes they sought.

2. On Why? Develop models that rationalise the signing of these provisions—from a welfare-theoretic and political economy perspective.

3. On Effects: Better understanding of the effects of these provisions on parties and third parties—are they as benign as they might seem?

4. On Systemic Effects: Examine theoretically whether the sequential adoption of these provisions by more parties does raise world welfare. (Must be some doubts here.)

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