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www.fordschool.umich.edu
The Changing Landscape of Trade Negotiations Alan V. DeardorffUniversity of Michigan
For presentation at 2015 Seoul Conference on Trade & Industry: A New Paradigm for the World Trading System November 10, 2015
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How Trade Negotiations Have Changed• 1945-1994–Under GATT, 8 Rounds of
Multilateral Trade Negotiations• Reduced tariffs to about 1/10 what
they were before• On MFN (Most Favored Nation) basis• Among all GATT Signatories
– 15 countries in 1945– 128 countries in 1994
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• 1945-1994– Culminated in the 1995 creation of
the World Trade Organization, which included• GATT• GATS• TRIPs
How Trade Negotiations Have Changed
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• 1995-2015–Under WTO, only one Round of
multilateral negotiations covering broad trade policy: The Doha Round• Began 2001• Still has not finished, and may never
– Only multilateral success has been the 2014 “Bali Package” dealing primarily with Trade Facilitation
How Trade Negotiations Have Changed
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• 1995-2015– Other negotiations under WTO
have been “plurilateral”• Involve a subset of WTO members in
agreements that others may or may not not join
– Instead, Free Trade Agreements (FTAs) have proliferated• Mostly zero tariffs within only a
group of 2 or more countries
How Trade Negotiations Have Changed
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• Plurilaterals negotiated under WTO– Information Technology Agreement
• 1996, 29 countries but grew to 81• Updated in ITA-II, but not yet adopted
– Financial Services Agreement• 1997, 70 countries
– Agreement on Basic Telecommunications Services• 1998, 90 countries
– Anti-Counterfeiting Trade Agreement• 2012, 37 countries
How Trade Negotiations Have Changed
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• FTAs– Started with NAFTA in 1994• US, Canada, & Mexico• Prodded the GATT Uruguay Round
negotiations to completion
–NAFTA was followed by other FTAs by other countries
How Trade Negotiations Have Changed
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South Korea’s FTAs2003 Chile 2010 EU2005 EFTA 2011 Peru2005 Singapore 2012 Turkey2006 ASEAN 2014 Australia2007 US 2014 Canada2009 India
How Trade Negotiations Have Changed
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• Mega-FTAs in the Past– European Union (grew from 6 to
28 countries) – Customs Union–MERCOSUR (Grew from 4 to 5 S.
American countries)– ASEAN FTA (10 countries)
How Trade Negotiations Have Changed
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• Mega-FTAs in the Present– Trans-Pacific Partnership - TPP• 12 countries• Negotiations completed Oct 5, 2015• Yet to be ratified• Intended to be open to additional
countries– Indonesia– S. Korea?
How Trade Negotiations Have Changed
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• Mega-FTAs in the present– Regional Comprehensive
Economic Partnership – RCEP• 10-member ASEAN plus 6 countries
with which ASEAN has FTAs: – Australia– China– India– Japan – S. Korea– New Zealand
How Trade Negotiations Have Changed
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• Mega-FTAs in the present– Trans-Atlantic Trade and
Investment Partnership – TTIP• US• 28-member EU
How Trade Negotiations Have Changed
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• Preferential tariff cuts– Pro: trade creation• Similar to the classic “gains from
trade”
– Cons: • Trade diversion• Rules of origin (ROOs)• Exemption of sensitive sectors
Pros and Cons of FTAs
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• Other aspects of actual FTAs– Pros:• Extension to trade in services• Harmonization of regulations
– Cons (?): • Extension of IP protection• Trade enforcement of labor standards• Trade enforcement of environmental
standards• Investor-State Dispute Settlement
Pros and Cons of FTAs
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• Preferential tariff cuts– Pros: • Larger potential for trade creation• If ROOs cumulative, less distorting• Potential for adding members
– Cons: • Though there are fewer outsiders,
each may be harmed more by trade diversion
Additional Pros and Cons of Mega-FTAs
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• Other aspects of actual Mega-FTAs– Pros:• May contribute to broader and more
uniform standards
– Cons: • Their use as weapons of geopolitics
Additional Pros and Cons of Mega-FTAs
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• May create pressure to complete Doha Round. – Possible, just as NAFTA motivated
Uruguay Round (but not likely)– Further multilateral trade
liberalization as was done under the GATT is unlikely in the foreseeable future
Implications of Mega-FTAs for the WTO
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• By lowering trade barriers regionally, Mega-FTAs will –Hasten the decline of
uncompetitive industries,– Thus gradually reduce political
forces for protection– This may reduce the need to use
WTO-sanctioned administrative protection (anti-dumping, etc.)
Implications of Mega-FTAs for the WTO
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• Trade disputes will have alternative fora in which to be settled: Choice between WTO panels and FTA panels– This may lessen the role of the
WTO Dispute Settlement Mechanism
– But it will remain relevant
Implications of Mega-FTAs for the WTO
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• WTO will continue to be important for plurilateral negotiations on issues that transcend the Mega-FTAs
• Some issues that lend themselves neither to plurilateral agreements not to Mega-FTAs will remain unresolved–Most important: Subsidies
Implications of Mega-FTAs for the WTO
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• If S. Korea does not join–Will suffer from trade diversion in
countries without Korea FTA• Japan• Others
–Will suffer from trade diversion due to ROOs even in countries with Korea FTAs• United States
Implications of TPP for S. Korea
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• If S. Korea does not join–Will not be subject to other
requirements of TPP• But most of these are already part of
KORUS
Implications of TPP for S. Korea
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• If S. Korea does join– I can’t see much harm, and
considerable benefit.
Implications of TPP for S. Korea