SESSION VI RIAs: SUMMING IT ALL UP

1. SESSION VI RIAs: SUMMING IT ALL UP JAIME DE MELO This version, March 2004

2. OUTLINE: SESSION VI  A checklist to keep in mind  Rules of Thumb for Regionalism  Where are we Heading?

3.  A checklist to keep in mind … you might want to consider one in your own work!

4.  Rules of Thumb for Regionalism (mostly, but not all are from SW) (I ordered them in my current perception of decreasing order of importance…) • Preambule: Ask yourself what the RIA gives you that isn’t available via the WTO? • Easier to sell on political economy grounds and to negotiate than on a MTL front. Also in a mercantilist view of the world of reciprocal market access. And? • Deeper integration than via MTL? Possibility but… • Credibility on policies enhanced+ lock-in effect? Really? • Include formal commitments to grant rights of establishment for FDI. • … Southern countries’ negotiation resources are scarce!

5. Having recognized that RIAs are here to stay for the foreseeable future…. • Message 1: Use RIAs to foster competition • For small countries, do UTL if necessary to lower protection against ROW. • Do deep integration, or at least include services and thereby reduce TBTs • Include formal commitments to grant rights of establishment for FDI

6. Message 2: North-South dominates South-South Southern partners will minimize TD by choosing a Northern partner. Pro-competitive effect likely to be strong ….but could result in resource transfers to the North (loss in tariff revenue) which can only be avoided by reducing tariff level.  RIAs among small countries will mostly result in TD, that can only be mitigated if care is taken to create a larger home market and competition.  RIAs among small poor countries could lead to divergence, which could be mitigated by reducing tariffs (but difficult because of GR constraint) and by including provisions for tariff revenue losses (also difficult among poor countries!)

7. Message 3: Transaction costs severely reduce market access…. • Applies mostly to N-S, but also to S-S RIAs. •  RoO are required for PTAs that fall short of CU. They are costly to implement (reflected in rather low utilization rates) •  Make RoO as simple as possible (just the opposite of what producers in Northern countries want.. And • CU could be preferable to FTAs if CET is low, and if borders are really eliminated. • CU may help tax collection and relax the GR constraint, but in the long run trade taxes are not the solution to revenue needs, so use RIAs as a means to push for fiscal reforms that enlarge the tax base (w/o becoming more corrupt in implementation than trade taxes!)

8. Message 4: Regional cooperation does not require preferential market access…. • Applies to all RIAs in a world of increasing public goods and transborder externalities. •  Offset regional market failures (e.g. transportation, common resources, etc…) using where available international norms. •  Where harmonization is necessary, minimal rather than universal standards and go for MRAs. • Regional integration may help policy cooperation, but unilateal adoption of international norms still an option.

9. Message 5: Credibility requires explicitness Applies mostly to N-S. Fully specify path to FT and prohibit contingent protection to minimize backsliding.  Sign RIAs with large partners (if possible nearby) that have an interest in your country and include language to prevent backsliding (e.g. punishment for non-compliance).  Include binding settlement dispute mechanisms that are substantive  Do not believe that “credibility” will come from the signing alone. FDI will only come if fundamentals are there (property rights are secure, etc…)!

10.  Where are we Heading? •  Strains in WTS system most evident after Cancun with all countries rushing to sign bilateral FTAs with the US…. • Small (largely poor) developing countries could be left in the cold if the multilateral trading system (as imperfect as it is…) collapses, or even countries lose interest in multilateral negotiations as they have their market access on a reciprocal bilateral regional basis. • Will the EPAs, FTAAs help? Perhaps, some insurance certainly, but… • RoO may not give much effective market access (especially if trade barriers remain low and the worse case scenario does not develop). • The Northern partner might not play the “agent of external role” for the Southern partner What do you think?