The Past and Uncertain Future of of International Trade Negotiations Alan V. Deardorff University of Michigan For presentation at University of Athens February 28, 2017

How Trade Negotiations Have Changed Three phases since 1945 1945-94: GATT rounds, multilateral 1995-2016: FTAs, bilateral and regional 2016-?: The uncertain future

How Trade Negotiations Have Changed 1945-1994 Under GATT, 8 Rounds of Multilateral Trade Negotiations Reduced tariffs to about 1/10 what they had been before On MFN (Most Favored Nation) basis Among all GATT Signatories 15 countries in 1945 128 countries in 1994

How Trade Negotiations Have Changed 1945-1994 Culminated in the 1995 creation of the World Trade Organization, which included GATT GATS TRIPs

How Trade Negotiations Have Changed 1995-2015 Under WTO, only one Round of multilateral negotiations covering broad trade policy: The Doha Round Began 2001 Ended without success at Nairobi Ministerial December 2015

How Trade Negotiations Have Changed 1995-2015 Only multilateral successes have been The 2014 “Bali Package” dealing primarily with Trade Facilitation The 2016 Nairobi agreement to limit agricultural exports subsidies

How Trade Negotiations Have Changed 1995-2015 Other negotiations under WTO have been “plurilateral” Involve a subset of WTO members in agreements that others may or may not choose to join Instead, Free Trade Agreements (FTAs) have proliferated Mostly zero tariffs within only a group of 2 or more countries

WTO https://www.wto.org/english/tratop_e/region_e/regfac_e.htm

How Trade Negotiations Have Changed The EU’s 11 FTAs: With Europe 1972 Iceland 2008 Bosnia & Herzeg. 1972 Switzerland 2008 Serbia 1973 Norway 2014 Moldova 2001 Macedonia 2014 Ukraine 2006 Albania 2014 Georgia 2007 Montenegro Years are dates FTAs on goods were signed.

How Trade Negotiations Have Changed The EU’s 8 FTAs: With Africa 1995 Tunisia 2002 Algeria 1996 Morocco 2008 Côte d'Ivoire 1999 South Africa 2009 Cameroon 2001 Egypt 2009 Eastern & Southern African States Interim EPA* Years are dates FTAs on goods were signed. *4 Countries (Madagascar; Mauritius; Seychelles; Zimbabwe)

How Trade Negotiations Have Changed The EU’s 5 FTAs: With Middle East 1977 Syria 1997 Palestinian Auth 1995 Israel 2002 Lebanon 1997 Jordan Years are dates FTAs on goods were signed.

How Trade Negotiations Have Changed The EU’s 4 FTAs: With Latin America 1997 Mexico 2012 Colombia & Peru 2002 Chile 2012 Central America* Years are dates FTAs on goods were signed. *6 Countries (Costa Rica; El Salvador; Guatemala; Honduras; Nicaragua; Panama)

How Trade Negotiations Have Changed The EU’s 6 FTAs: With Other 1970 Overseas Countries & Territories* 2009 Papua New Guinea / Fiji 1996 Faroe Islands 2010 South Korea 2008 CARIFORUM ETA* Years are dates FTAs on goods were signed. *19 Overseas Countries & Territories (Anguilla, Aruba, …) *14 CARIFORUM States (Antigua & Barbuda, Bahamas, …) Years are dates FTAs on goods were signed.

How Trade Negotiations Have Changed The EU’s 3 Customs Unions 1991 Andorra 1995 Turkey 1991 San Marino Years are dates CUs were signed.

How Trade Negotiations Have Changed The EU’s 14 FTAs: In Process Canada Morocco East African Com. SADC India Singapore Indonesia Thailand Japan Tunisia Malaysia Vietnam Philippines West Africa Also: US TTIP ???

Recently: “Mega-FTAs” Mega-FTAs of the Past European Union (grew from 6 to 28 countries) – Customs Union MERCOSUR (Grew from 4 to 6 South American countries) ASEAN FTA (10 countries)

Recently : “Mega-FTAs” TPP: Trans-Pacific Partnership 12 countries Negotiations completed Oct 5, 2015 Not ratified President Trump pulled US out

Recently : “Mega-FTAs” RCEP: Regional Comprehensive Economic Partnership 10-member ASEAN, plus 6 countries with which ASEAN has FTAs: Australia China India Japan S. Korea New Zealand

Recently : “Mega-FTAs” TTIP: Trans-Atlantic Trade and Investment Partnership US 28-member EU Status today unclear but unlikely

Pros and Cons of all FTAs Preferential tariff cuts Pro: trade creation Similar to the classic “gains from trade” Cons: Trade diversion Rules of origin (ROOs) Exemption of sensitive sectors Sensitive = Most likely to be trade-creating if included

Pros and Cons of all FTAs 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

Additional Pros and Cons of Mega-FTAs Preferential tariff cuts Pros: Larger potential for trade creation If ROOs are cumulative, less distorting Potential for adding members Replace multiple rules with a single set Cons: Though there are fewer outsiders, each is harmed more by trade diversion In fact (in TPP) there was more complexity

Additional Pros and Cons of Mega-FTAs Other aspects of actual Mega-FTAs Pros: May contribute to broader and more uniform standards Cons: Their use as weapons of geopolitics

Implications of Mega-FTAs for the WTO Might have created pressure to complete Doha Round. Possible, just as NAFTA motivated Uruguay Round Didn’t happen; Round is dead.

Implications of Mega-FTAs for the WTO By lowering trade barriers regionally, Mega-FTAs would Hasten the decline of uncompetitive industries, Thus gradually reduce political forces for protection This could reduce the need to use WTO-sanctioned administrative protection (anti-dumping, etc.)

Implications of Mega-FTAs for the WTO 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 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 Europe Most immediately: Whether to complete TTIP (if US under Trump is willing) Longer term: Continue with ever more bilateral FTAs? Or consolidate EU existing FTAs into one larger one?

The Uncertain Future Brexit UK exit from EU Not motivated by trade agreements Concerns were migration and rules Nonetheless matters for many FTAs UK negotiations with EU & EU FTA partners

The Uncertain Future Trump Renegotiation of (or exit from) NAFTA FTAs with UK Japan Says he prefers bilateral deals Most recently indicated he would not use the WTO dispute settlement mechanism!

The Uncertain Future Anti-Globalists in Europe France: National Front, Marine Le Pen, Frexit Germany: Alternative for Germany Netherlands: Dutch Freedom Party, Geert Wilders Austria: Freedom Party Italy: Northern League Greece: Worry that it might leave the euro, and what this could imply for its membership in EU

The Uncertain Future Outside US and Europe China is proceeding with RCEP China is courting Latin America May see China take the lead on trade away from US

The Uncertain Future Conclusion The US is clearly giving up its world lead on trade Whether the world trading system will continue to function well depands on others: EU? China?