The Changing Landscape of Trade Negotiations Alan V. Deardorff University of Michigan For presentation at 2015 Seoul Conference on Trade & Industry: A New Paradigm for the World Trading System November 10, 2015

How Trade Negotiations Have Changed – 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

– Culminated in the 1995 creation of the World Trade Organization, which included GATT GATS TRIPs 3 How Trade Negotiations Have Changed

– 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 4 How Trade Negotiations Have Changed

– 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 5 How Trade Negotiations Have Changed

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 6 How Trade Negotiations Have Changed

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 7 How Trade Negotiations Have Changed

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9 South Korea’s FTAs 2003 Chile2010 EU 2005 EFTA2011 Peru 2005 Singapore2012 Turkey 2006 ASEAN2014 Australia 2007 US2014 Canada 2009 India How Trade Negotiations Have Changed

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) 17 How Trade Negotiations Have Changed

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? 18 How Trade Negotiations Have Changed

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 19 How Trade Negotiations Have Changed

Mega-FTAs in the present – Trans-Atlantic Trade and Investment Partnership – TTIP US 28-member EU 20 How Trade Negotiations Have Changed

Preferential tariff cuts – Pro: trade creation Similar to the classic “gains from trade” – Cons: Trade diversion Rules of origin (ROOs) Exemption of sensitive sectors 21 Pros and Cons of 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 22 Pros and Cons of FTAs

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 23 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 24 Additional Pros and Cons of Mega-FTAs

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 25 Implications of Mega-FTAs for the WTO

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.) 26 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 27 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 28 Implications of Mega-FTAs for the WTO

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 29 Implications of TPP for S. Korea

If S. Korea does not join – Will not be subject to other requirements of TPP But most of these are already part of KORUS 30 Implications of TPP for S. Korea

If S. Korea does join – I can’t see much harm, and considerable benefit. 31 Implications of TPP for S. Korea