1. FTA and WTO
Eki KIM
WTO

2. 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

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

4. 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

5. 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

6. 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.

7. 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

8. 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 (excluding intra-EU trade).
13 is the average number of PTAs that a WTO Member is party to.

9. 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.

10. 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).

11. 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.

12. 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%

13. 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: %
Managed trade: nothing free about free trade

14. 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

15. 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

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

17. 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.

18. 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

23. What is the WTO?

24. 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

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

26. 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

27. 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

28. 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!

29. 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

30. 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

31. 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

32. 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

33. 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

34. 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

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

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

37. 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

38. 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

39. 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

40. Thank you!
Eki KIM 40