Summing up
SESSION VI
RIAs: SUMMING IT ALL UP
JAIME DE MELO
This version, March 2004
1
Summing up
OUTLINE: SESSION VI
 A checklist to keep in mind
 Rules of Thumb for Regionalism
 Where are we Heading?
2
Summing up
 A checklist to keep in mind
Hypothetical Balance sheet evaluation of engaging in a REPA relative to ‘across-the-board’
tariff policy for SSA1 (Mali) with : SSA2 (Côte d’Ivoire) in col. 2, and with the EU in col. 3
Co1umn 1
2
3
PTA partner
Economic Effects
SSA1(Mali) SSA2 (CIV)
SSA1
EU
TD/TC (manufactures)
--/?
+
0
TD/TC (agriculture)
?
?
0
Implementation (RoO)
?/+
-0
Pro-competitive/scale economies
+/ 0
0
+
0
Rent-seeking (lobbying)
-/ 0
-/ 0
0
Location (FDI)
0
0
0/?
0
Tariff revenue loss
-0
?/+
0
Transfer of technology
?
0
+/ ?
0
Political effects
Security
?
0
+
0
Bargaining power
?/+
0
?
0
Policy lock-in
0
0
?/+
0
Cooperation
+
?
+
0
Notes: “0” = negligible ; “-”= negative ; “- -” = strongly negative ; “+” = positive ; “++”= strongly
positive ; “?”= uncertain ; “TD/TC” = Trade Diversion/Trade Creation
… you might want to consider one in your own work!
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Summing up
 Rules of Thumb for Regionalism (mostly, but not all
are from SW)
(I ordered them in my current perception of decreasing
order of importance…)
Preambule: Ask yourself what the RIA gives you that isn’t
available via the WTO?
 Easier to sell on political economy grounds and to
negotiate than on a MTL front. Also in a mercantilist view of
the world of reciprocal market access. And?
 Deeper integration than via MTL? Possibility but…
 Credibility on policies enhanced+ lock-in effect? Really?
 Include formal commitments to grant rights of
establishment for FDI.
… Southern countries’ negotiation resources are scarce!
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Summing up
Having recognized that RIAs are here to stay for the
foreseeable future….
Message 1: Use RIAs to foster competition
For small countries, do UTL if necessary to lower
protection against ROW.
 Do deep integration, or at least include services and
thereby reduce TBTs
Include formal commitments to grant rights of
establishment for FDI
5
Summing up
Message 2: North-South dominates South-South
Southern partners will minimize TD by choosing a Northern
partner. Pro-competitive effect likely to be strong
….but could result in resource transfers to the North (loss in
tariff revenue) which can only be avoided by reducing tariff
level.
 RIAs among small countries will mostly result in TD, that
can only be mitigated if care is taken to create a larger home
market and competition.
 RIAs among small poor countries could lead to
divergence, which could be mitigated by reducing tariffs (but
difficult because of GR constraint) and by including
provisions for tariff revenue losses (also difficult among
poor countries!)
6
Summing up
Message 3: Transaction costs severely reduce market
access….
Applies mostly to N-S, but also to S-S RIAs.
 RoO are required for PTAs that fall short of CU. They are
costly to implement (reflected in rather low utilization
rates)
 Make RoO as simple as possible (just the opposite of
what producers in Northern countries want.. And
CU could be preferable to FTAs if CET is low, and if
borders are really eliminated.
 CU may help tax collection and relax the GR constraint,
but in the long run trade taxes are not the solution to
revenue needs, so use RIAs as a means to push for fiscal
reforms that enlarge the tax base (w/o becoming more
corrupt in implementation than trade taxes!)
7
Summing up
Message 4: Regional cooperation does not require
preferential market access….
Applies to all RIAs in a world of increasing public goods
and transborder externalities.
 Offset regional market failures (e.g. transportation,
common resources, etc…) using where available
international norms.
 Where harmonization is necessary, minimal rather than
universal standards and go for MRAs.
Regional integration may help policy cooperation, but
unilateal adoption of international norms still an option.
8
Summing up
Message 5: Credibility requires explicitness
Applies mostly to N-S. Fully specify path to FT and
prohibit contingent protection to minimize backsliding.
 Sign RIAs with large partners (if possible nearby) that
have an interest in your country and include language to
prevent backsliding (e.g. punishment for non-compliance).
 Include binding settlement dispute mechanisms that are
substantive
 Do not believe that “credibility” will come from the
signing alone. FDI will only come if fundamentals are there
(property rights are secure, etc…)!
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 Where are we Heading?
Summing up
 Strains in WTS system most evident after Cancun with
all countries rushing to sign bilateral FTAs with the US….
Small (largely poor) developing countries could be left in
the cold if the multilateral trading system (as imperfect as
it is…) collapses, or even countries lose interest in
multilateral negotiations as they have their market access
on a reciprocal bilateral regional basis.
Will the EPAs, FTAAs help? Perhaps, some insurance
certainly, but…
 RoO may not give much effective market access
(especially if trade barriers remain low and the worse case
scenario does not develop).
 The Northern partner might not play the “agent of
external role” for the Southern partner
 What do you think?
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