Must FTAs Be Vehicles
For Discrimination?
Presentation at University of
Sussex, 22 May 2008
Simon J. Evenett
www.evenett.com
Contents of this presentation
1.
2.
3.
4.
2
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.
Must FTAs be vehicles for
discrimination?
1.
2.
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."
3. The answer to the question: NO. So what?
– Given historical precedents. No claims about novelty
per se.
– Logic and Effects?
3
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.
4
Relationship to "Multilateralising
Regionalism"
1.
2.
3.
4.
5
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 us—and has surprised some in
the trade policymaking community.
BEL (2008) found FTA provisions
where:
1.
2.
3.
4.
5.
•
6
The parties agreed to a commitment on a MFN basis.
The parties agreed to a commitment that legally-speaking
discriminates against third parties—but 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.
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.
7
De Jure MFN: Spread of NAFTA performance requirements provisions in FTAs.
United States
Korea
Chile
Colombia
Mexico
Singapore
Peru
Morocco
Japan
Venezuela
Australia
Panama
NAFTA agreement
identical or almost identical language of provisions
same NAFTA provisions with some exeptions or omissions
Canada
Chinese Taipei
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
Bosnia-Herzegovina
Palestine Authority
Croatia
Moldova
Morocco
Albania
Macedonia
Turkey
Slovenia
Montenegro
Bulgaria
Tunisia
Kosovo
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
Lebanon
Israel
Chile
Tunisia
EFTA
Mexico
EC
Korea
SACU
Japan
Singapore
Australia
Discouraging use of exceptions to WTO principles: FTAs with Joint Committee
provisions to oversee antidumping and safeguard measures
Romania
1993 - 2007
Serbia and Montenegro
Turkey
EFTA
FYR Macedonia
Bulgaria
EC
Moldova
5. 1.7.1997
Algeria
Jordan
Lebanon
Morocco
Tunisia
EFTA
Morocco
Tunisia
Albania
Kosovo
Bosnia and Herzegovina
Croatia
Israel
EFTA
agreements 1993 – 2000
agreements concluded after 2000
EFTA
CEFTA
Adoption of common/similar rules: Spread of NAFTA Art. 1305.1
United States
Colombia
Honduras
Venezuela
Chinese
Taipei
Panama
El Salvador
Mexico
Central America
Bolivia
Guatemala
Chile
Uruguay
EFTA
CAFTA
original NAFTA agreement
identical language of provisions
almost identical language, same provisions
same content, different language
Korea
Nicaragua
Canada
EU
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
identical language of provisions
almost identical language, same provisions
same content, different language
Nicaragua
Canada
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
What remains to be done
1.
2.
3.
4.
14
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 provisions—from a welfare-theoretic and political
economy perspective.
On Effects: Better understanding of the effects of these
provisions on parties and third parties—are 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.)