FTA and WTO Eki KIM WTO

World Economy and Trade   GDP Exports 2008 2009 2010 World 1.4 -2.4 3.6 2.2 -12.0 14.5 US 0.0 -2.8 3.0 5.8 -14.0 15.4 EU 0.5 -4.2 1.8 -14.5 17.4 China 9.6 9.1 10.3 8.5 -11.2 23.1 India 6.4 5.7 9.7 14.4 -6.8 19.9 NICs 1.9 -0.8 7.7 4.9 -5.7 21.3

World Exports of Merchandise and Services (2010) (billion $) Merchandise: 15,238 Services: 3,665 Transport: 783 Travel: 936 Other: 1,945

1. China: 1,578 2. United States: 1,278 3. Germany: 1,269 4. Japan: World Merchandise Exporters (2010) (billion $) 1. China: 1,578 2. United States: 1,278 3. Germany: 1,269 4. Japan: 770 5. Netherlands: 572 6. France: 521 7. Korea: 466

1. United States: 515 2. Germany: 230 3. United Kingdom: 227 4. China: World Service Exporters (2010) (billion $) 1. United States: 515 2. Germany: 230 3. United Kingdom: 227 4. China: 170 … 14. Korea: 82

Contractual Trade Regime: Bilateral FTAs (US-Korea, EU-Chile), Regional FTAs (NAFTA, Pan-European System, ASEAN, COMESA etc.) Autonomous Trade Regime: GSP, US Caribbean Basin Initiative, EBA, etc.

Alliance with anyone you can Proliferation of PTA Multilateral approach stumbled Surge in PTA in 21st century 70 PTA in force in 1990, 300 by 2010. Alliance with anyone you can Expansion of market

Key Facts and Findings All WTO Members (except Mongolia) belong to at least one PTAs. Intra-PTA trade represents 35% of total world merchandise trade in 2008 (excluding intra-EU trade). 13 is the average number of PTAs that a WTO Member is party to.

Causes and effects of PTAs Earlier times: to avoid relatively high tariffs. Recently: tariffs have fallen markedly → new regulatory matters are increasingly on PTA agendas (investment, competition policy, government procurement and services). In 20 largest importer, only 16% qualified as preferential trade. Preferential tariffs reduce average tariff by 1 percentage point (US 2.5%, Korea 8.1%). Less than 2% of world trade is eligible for preference margins above 10 percentage points.

PTA and Investment Protection against expropriation. Commitment to compensate investors in the case expropriation. Right to invoke the PTA’s dispute settlement mechanism: - NAFTA allows investor-state dispute settlement (investors may submit to international arbitration a claim that a PTA state has breached obligations).

Table C:1 Shallow versus deep integration Integration level Type of PTA Features Example SHALLOW INTEGRATION ↓ DEEP INTEGRATION Free trade agreement (FTA) Members liberalize internal trade but retain their independent external tariffs US-Israel FTA FTA+ An FTA that in addition harmonizes some beyond the border standards (e.g. environmental standards) NAFTA Customs Union (CU) Members liberalize trade within the union and adopt common external tariffs against the rest of the world SACU Common Market Establishment of the free movement of all factors of production within the PTA, including labour and capital EU Monetary Union Establishment of a common currency and completely integrated monetary and exchange rate policy Euro Area Fiscal Union Establishment of a common fiscal policy US Note: The depth of integration of PTAs might overlap across types of agreements in certain circumstances.

Avoiding “trade deflection” in RTAs The partner with the lowest external tariffs would serve as “port of entry” for the whole bloc. Stringent ROO is required. A External tariff: 20% C B External tariff: 5%

Diverse and Complex ROO Origin criteria: VA, CTC Value thresholds: 35%-80% Calculation methods (ex-work price, gross factory cost, FOB price, averaging costs, etc). 7% of tariff lines are excluded (agricultural, food, footwear and textiles). Compliance cost: 5-15.% Managed trade: nothing free about free trade

Supply Switching More stringent ROO favours intermediate goods originating in the region to inputs from outside the FTA More trade diversion, less trade creation Less stringent ROO Less industry protection, more access to cheaper inputs

Yarn-forwarding rule in NAFTA Increased use of American yarn in the region Increased investment into Mexican textile industries Decreased use of cheap Asian yarn Decreased import of cheap Asian clothing

Cumulation Inputs originating in other countries which are members of the regional association are regarded as domestic input and not as foreign input

Diagonal cumulation EC A B Products shall be considered as originating in A, if such products are obtained there, incorporating materials originating in EC or B, provided that the processing carried out in A goes beyond the minimum operations.

CONSOLIDATED TEXT (G/RO/W/111/Rev.6) HWP has not been completed. Text contained origin rules endorsed by the CRO and CRO Chair’s proposal. Text reflects the collective efforts of origin experts from all over the World. The most comprehensive and least-restrictive rules of origin. (Examples: Textiles and Agricultural Products

What is the WTO?

What is the WTO? World Trade Organization Intergovernmental organisation: governments Established in 1995 General Agreement on Tariffs and Trade (GATT) Deals with the rules of trade between nations at a global level

Location: Geneva Staff: approx. 700 Director General: Pascal Lamy

What are its objectives? Economic growth and increase in living standards and ensure full employment expand the production of and trade in, goods and services How? Allowing trade to flow as freely as possible: gradual liberalisation of trade (removal of barriers) i.e. create conditions so that exporters, and importers conduct their business, while allowing governments to meet social and environmental objectives Integrate developing countries to global trade

What does the WTO do? 5 main functions: It is a forum for discussions and negotiations It administers WTO trade agreements It handles trade disputes It monitors national trade policies It provides technical assistance and training

1. A forum to negotiate It is a table: people sit round the table The WTO is a forum for Member governments to negotiate the rules of international trade It is a table: people sit round the table and negotiate!

Set of rules concluded as a result of negotiations WTO Agreements 2. Administering rules Set of rules concluded as a result of negotiations WTO Agreements Rules have binding effects on Members Facilitate the implementation, administration and operation of rules They cover: trade in goods, trade in services and,trade-related aspects of intellectual property rights 29

Import Licensing Procedures Non-preferential rules of origin Coverage of rules Customs Valuation Import Licensing Procedures Non-preferential rules of origin Anti-dumping and countervailing duties Agriculture: subsidies Trade-related investment measures Etc. 30

3. A place to settle disputes Members may have conflicting interests, Agreements may need interpretation Neutral procedure based on an agreed legal foundation Panels Appeals 31

4. Monitoring of national trade policies Transparency help build predictability and respect of mutually agreed norms Regular review of Member’s national trade policy Trade Policy Review (TPR) Mechanism Frequency depends on Members’ share of international trade 32

5. Technical assistance national plans for economic development and support domestic efforts for mainstreaming trade: national plans for economic development and strategies for poverty reduction assist developing, least-developed and low-income countries in transition to adjust to WTO rules and disciplines, implement obligations exercise the rights of membership, including by fully benefiting of an open, rule-based multilateral trading system 33

Successive “Rounds” of trade negotiations Mutual advantageous basis How does it function? Member driven “Negative” consensus Regular work Successive “Rounds” of trade negotiations Mutual advantageous basis “Single undertaking” 34

Members All major trading nations: 154 Developed countries, developing countries (self-designation), least-developed countries (UN criteria) Hong Kong, Macau, EU, 35

Transparency and predictability: binding commitments Basic principles Non Discrimination: Most Favoured Nation National Treatment Transparency and predictability: binding commitments 36 36

Basic Principles: MFN Most Favoured Nation (GATT Article I) any advantage, favour, privilege or immunity granted by a Member to any product of any other country shall be accorded immediately and unconditionally to the like product of all other WTO Members 37 37

Basic Principles: NT National Treatment (GATT Article III) internal taxes, laws, regulations and requirements affecting the internal sale, purchase, transportation, etc. should not be used to protect domestic products from like imported products 38 38

Basic Principles: bindings Tariff bindings (GATT Article II) Parties shall accord to each other treatment no less favourable than that provided for in the Schedule subject to the terms, conditions or qualifications set forth in that Schedule 39 39

Thank you! Eki KIM Eki.Kim@wto.org 40