Regional Trade Agreements and the Trading System
Summary
TLDRThe WTO Forum features a discussion on regional trade agreements (RTAs) and their impact on the global trading system. Jagdish Bagwati from Columbia University argues that while RTAs are WTO-compatible, their rapid proliferation complicates global trade with preferential rules. He highlights concerns for developing nations. Gary Huffbauer of the Peterson Institute offers a different view, stating that RTAs help reduce trade barriers more quickly than the WTO can. Both experts agree that the challenge lies in balancing the regional and multilateral trade systems, especially ensuring fairness for smaller developing countries.
Takeaways
- 🌍 Regional trade agreements (RTAs) are allowed under WTO rules but have become a systemic issue due to their proliferation, creating complexity in global trade.
- 🍝 Jagdish Bagwati refers to the current state of RTAs as a 'spaghetti bowl problem,' highlighting the confusion caused by overlapping rules of origin.
- 💼 Large corporations can handle the complexity of RTAs, but small countries and businesses face disadvantages navigating these chaotic systems.
- ⚖️ Gary Hufbauer argues that while RTAs are not ideal, they help reduce trade barriers faster than the WTO, which often gets bogged down by the need for consensus among many countries.
- ⏳ There are now over 400 RTAs, a significant increase in recent years, driven by dissatisfaction with the slow pace of WTO negotiations.
- 📉 RTAs, while preferential and not fully free trade agreements, are seen as politically pragmatic methods for faster liberalization, especially for developed nations.
- 🚧 Developing countries often face greater risks in RTAs, especially when dealing with large economies like the U.S. or EU, which may impose conditions beyond just trade terms.
- 🛑 India, a developing country, is blocking progress in the WTO Doha round but is willing to negotiate bilateral deals with other large economies, such as the EU.
- 🤔 Jagdish Bagwati emphasizes that RTAs could erode long-term gains for developing countries as preferential advantages may diminish over time.
- 🔗 Both experts agree that RTAs are here to stay and the next challenge is to integrate them better into the multilateral trading system, ensuring fairness for smaller developing countries.
Q & A
What is the main topic discussed in the WTO Forum?
-The main topic is whether regional trade agreements are stepping stones or obstacles to a more effective global trading system.
What does Jagdish Bhagwati suggest is a systemic problem caused by regional trade agreements?
-Jagdish Bhagwati highlights that the proliferation of regional trade agreements has become a systemic problem for the World Trade Organization (WTO), as they complicate trade by bypassing the most-favored-nation (MFN) clause and creating a complex 'spaghetti bowl' of crisscrossing rules of origin.
What is the 'spaghetti bowl' problem referred to by Jagdish Bhagwati?
-The 'spaghetti bowl' problem refers to the complexity created by numerous regional trade agreements, where overlapping and crisscrossing rules of origin make it difficult to identify the origin of products, complicating international trade.
How does Gary Hufbauer view the benefits of regional trade agreements?
-Gary Hufbauer believes regional trade agreements are a faster and more effective way to reduce trade barriers compared to multilateral agreements. He argues that while they are not perfect, they allow countries to lower barriers quickly, especially in areas like services and investment.
What is one of the concerns Bhagwati raises about developing countries in relation to regional trade agreements?
-Bhagwati is concerned that developing countries, particularly smaller ones, struggle to navigate the complex structure of preferential trade agreements. Large corporations may cope with the complexities, but smaller countries and businesses may face significant disadvantages.
According to Hufbauer, why have regional trade agreements proliferated in recent years?
-Hufbauer argues that the proliferation of regional trade agreements is due to the stalemated situation in the WTO. Countries that want to liberalize trade are turning to regional agreements because the WTO's progress has been slow.
Why does Hufbauer believe unilateral trade liberalization is ideal?
-Hufbauer believes that, following Adam Smith’s principles, unilateral trade liberalization is the best way to reduce barriers. However, he acknowledges that political realities make this difficult, which is why countries rely on the WTO and regional agreements.
What are some advantages of regional trade agreements according to Hufbauer?
-Regional trade agreements can reduce tariffs to zero, go beyond the WTO by addressing areas like services and investment, and deliver benefits faster and more comprehensively than multilateral agreements.
What is Bhagwati's critique of the speed of regional trade agreements?
-Bhagwati critiques that regional trade agreements, while faster for some countries, often involve asymmetric negotiations, especially between larger economies like the U.S. and smaller developing countries. This can lead to developing countries signing onto unfavorable terms.
How do Bhagwati and Hufbauer view the future of regional and multilateral trade systems?
-Both Bhagwati and Hufbauer agree that regional and multilateral trade systems are here to stay. The challenge is to integrate them, addressing the 'rough edges' of regional agreements and ensuring small developing countries get fair treatment.
Outlines
📊 Overview of Regional Trade Agreements (RTAs)
The forum opens with the topic of regional trade agreements (RTAs) and their potential role as either stepping stones or obstacles to the global trading system. Jagdish Bhagwati from Columbia University introduces the problem, noting that RTAs have proliferated, with over 400 currently in place. This growth is seen as a systemic problem for the WTO, complicating trade with overlapping rules of origin and preferential treatment. The spaghetti bowl of rules causes confusion, particularly for smaller countries, as these agreements bypass the Most Favored Nation (MFN) principle.
🌐 RTAs as a Practical Solution to Liberalize Trade
Gary Hufbauer offers a contrasting view, supporting RTAs as a pragmatic solution to reduce trade barriers quickly. While unilateral liberalization is ideal, political realities make it difficult, hence the need for bilateral and regional deals. These agreements often go further than the WTO by addressing services and investments and reducing tariffs to zero. Although he acknowledges the rapid growth of RTAs, Hufbauer attributes this to the stagnation within the WTO, suggesting that developing countries use RTAs to achieve faster liberalization.
⏳ The Increasing Pace of Regional Trade Agreements
The discussion shifts to the growing speed and number of RTAs being formed, with Hufbauer noting that earlier agreements like Chile-U.S. took years, but recent ones have accelerated. Bhagwati explains that the WTO's complexity and slow pace, particularly with large-scale negotiations, are inevitable given the number of countries and issues involved. While he remains optimistic about completing the Doha Round, he warns that RTAs, especially bilateral ones involving large powers like the U.S., are asymmetric and may force developing countries into unfavorable long-term commitments.
🧩 Balancing Regional and Multilateral Systems
The final part of the conversation focuses on the future of both regional and multilateral trade systems. Hufbauer emphasizes that RTAs are here to stay, but the challenge lies in meshing them with the multilateral system. He worries particularly about small developing countries that may struggle in these systems, pointing out the paradox of countries like India blocking WTO progress while simultaneously engaging in deep bilateral agreements. Both experts agree that finding ways to integrate small developing nations into the broader system is crucial for the next decade.
Mindmap
Keywords
💡Regional Trade Agreements (RTAs)
💡World Trade Organization (WTO)
💡Most-Favored-Nation (MFN) Clause
💡Spaghetti Bowl Problem
💡Trade Liberalization
💡Doha Round
💡Unilateral Liberalization
💡Developing Countries
💡Preferential Trade Agreements (PTAs)
💡Rules of Origin
Highlights
Regional trade agreements, while legal under WTO, have proliferated to the point where they may be causing systemic issues in global trade.
Jagdish Bhagwati raises concerns over the 'spaghetti bowl' effect of crisscrossing trade rules, leading to complications for both small countries and businesses.
Bhagwati points out that large corporations can manage complex trade agreements despite the costs, but smaller developing countries struggle to keep up.
Gary Hufbauer emphasizes the political economy behind regional trade agreements, suggesting they are a pragmatic response to the slow progress of WTO negotiations.
Hufbauer argues that regional trade agreements achieve faster tariff reductions, which benefit global trade more quickly than multilateral negotiations.
Bhagwati counters that the proliferation of preferential trade agreements is creating inefficiencies and undermining the most-favored-nation (MFN) principle of non-discriminatory trade.
Hufbauer highlights that while multilateral agreements are ideal, regional agreements often achieve more in areas like services and investment.
Both experts acknowledge that the number of regional trade agreements has exploded in recent decades, with over 400 currently in place.
Hufbauer notes that countries turn to regional agreements as a faster way to liberalize trade, particularly due to the WTO's gridlock.
Bhagwati remains optimistic about the future of multilateral trade agreements like the Doha Round, emphasizing their potential to create a more unified global trading system.
Bhagwati warns that developing countries, when engaging in trade deals with powerful economies like the US or EU, often sign onto unfavorable terms.
Hufbauer argues that some larger developing countries, like India, benefit from bilateral agreements but hinder progress in multilateral negotiations.
Both speakers agree that the challenge ahead lies in reconciling the growth of regional agreements with the need for a cohesive global trading system.
Bhagwati expresses concern that smaller developing countries are disadvantaged by the complex web of preferential trade agreements.
Hufbauer highlights that small developing countries need better integration into both regional and multilateral trade systems to avoid being marginalized.
Transcripts
hello and welcome to WTO Forum today's
topic regional trade agreements are they
stepping stones or obstacles to a more
effective global trading system today
we're fortunate to have with us two
noted experts on this topic Jag dish
bagatti professor at Columbia University
and at the Council on Foreign Relations
and Gary Huff Bower of the Peterson
Institute of international economics in
Washington DC gentlemen welcome thank
you very much ja d i could start with
you are regional trade agreements
compatible with a global trading system
well in principle they are because
there's article 24 in the Gat and now in
the WTO in which we allow for uh free
trade agreements and Customs unions to
to go through uh the problem at the
moment is that they proliferated on such
an enormous scale that they have become
very much uh uh a systemic problem right
now for the World Trade Organization uh
I think most people do realize that the
scale to which they've grown there're
about 400 right now that large amounts
of World Trade is now going through uh
through these agreements which actually
deny the most favored nation clause
which is about non-discriminatory
handling of trade so that is one thing
which worries a lot of people it's been
you know I've called it the spaghetti
bow problem in the sense of lot of
crisscrossing tar rules of origin
because you have to identify which
product is whose and that gets very
complicated and I think lot of people
are yearning for Simplicity which is
really what you would get uh with the
mfn treatment in the WTO so while it's
legal WTO compatible historically uh it
is not it's something that's gotten out
of hand and I think a lot of people are
worried about it now and you know the
whole question is now what do we do
about them how do we make them more
compatible uh if at all it's possible
with the World Trade Organization uh and
many people are also worried about the
effects of these very complicated
arrangements with the
literally hundreds of um rules which are
all you know preferential how do the
small countries and the you know the
small corporations deal with this
chaotic structure so many developing
country people uh trade
ministers are worried about the downside
for the developing countries because the
big corporations can get around they are
mbas and you know I mean they're worried
about it but they can surmount it uh it
just adds to the cost of production why
I have to worry about all this but it's
not something which stops them in their
tracks Gary do the developing countries
face disadvantages in a system like this
I want to go back to First principles
because I have a little bit different
take than Jagdish as you might expect
and there Jagdish I know
knows the whole purpose of all this uh
trade system is to lower barriers to get
tariffs down to get other barriers down
now we've known since Adam Smith that
the best way to do that is unilaterally
but we also know from political economy
that countries have a hard time doing it
just on their own um and so that's why
we have the Gat in the WTO so each
country can trade its barriers for the
other country's
barriers that's already a step away from
the best that's good but it's not the
best which is unilateral now the all
these regional trade agreements are just
one further
step towards recognizing the political
reality and uh preferential trade
agreements free trade agreements
whatever you want to call them um they
enable a couple of countries two three
four however many to really get those
barriers way down to zero in many cases
as has happened in Europe as has
happened in
NAFTA and some other
agreements and
um you know you have to ask what's wrong
with that we the big goal is to get the
barriers down and these get the barriers
down they do it a lot faster than the
WTO or the Gat has been able to do it
they go a lot further they go into areas
like services and investment which the
WTO has not been able to do uh and they
go to zero as I as I emphasized now
what's wrong with it is exactly what Jag
dis has emphasized by I have to put the
shoe on the other foot the the wrong is
this explosion this proliferation as
he's correctly said there about 350 or
400 now in existence and there have been
more in the last 10 years than in the
previous 10 years and so
on what's the cause of that the cause of
that is the very stalemated situation in
the WTO and that's where countries are
turning who want to liberalize and get
the benefits of trade including many
developing countries so I finally come
back to your question this is the way
they get there quickest this is the
turnpike method and um it's not the best
but it's sure better than keeping those
barriers up at the
sky further and faster through Regional
agreements it didn't used to be faster
uh like the Chile one with United States
took long long almost twice as long as
the Uruguay round which was dealing with
a great range of issues now it's
quickened that's for sure because once
people learn how to do these things uh
some templates get established and so on
so I think they've they've grown though
there's an enormous growth of all kinds
of templates also I think one of the
reasons why the some of the developing
countries have gone in for these is not
because they're unhappy with the the
pace at which WTO proceeds because in
the end we're dealing with large numbers
of countries large number numbers of
issues so it's inevitable that you know
that the amount of time taken is going
to increase uh Tokyo round was about
five years that was the then we had the
Uruguay round which was about eight a
little short of eight we've now on Doha
gone as far as about 5 and a half to six
so we have another two years to go
before we begin to worry but that I'm
not saying we should go another two
years we are pretty close in my opinion
to an agreement but I think in a sense
this kind of feeling which I think uh I
mean Gary's
absolutely uh telling us the sort of
feeling which you have in some you know
some among some negotiators that this is
such a uh hornest Nest uh the WTO that
therefore we have to go the other route
but that is I think over overd
dramatizing the slowness in my opinion
uh even now I'm an optimist on Doha and
I think there are ways in which you
could get it done uh and simply saying
that we Retreat
into in a second best um you know
bilaterals and so on seems to me to be a
little short sight in terms of the
impact it leaves on the system I don't
agree with um Gary uh that any kind of
trade liberalization is good I mean just
like any kind of tax increase is not
good if you want to raise revenue you
worry about what kind and I think I
would say that the downsides of many of
these ptas or preferential trade
agreements I call them preferential
because we have to remember these are
not free trade they B they're they're
they're not multilateral free trade
they're less than that and they're
preferential so they they have different
kind of animal from the rest Gary Jack
uh Jack D is absolutely right that the
time from the end of the last round to
the end of the next round it's getting
longer and longer and we would be lucky
if this round has concluded you know 50
years after the uh the Uruguay
run this is not an accident this is not
an accident imagine a
parliament which worked on two rules one
it had to get everything through
unanimously and two every issue whether
it be taxes Health roads defense had to
be in a
single undertaking had to be in a single
Bill well that Parliament would never
get place that's exactly the WTO system
right now 150 members they basically all
have to agree or essentially all of them
have to agree and we've got this single
undertaking which goes across a vast
range of issues now when you have that
kind of um of system you have built in
stalemate and countries want to get the
benefit of liberalization it's beyond
doubt that liberalization you know pays
enormous dividends it's one of the best
things a country can do for
itself and they don't want to wait wait
for uh you know for 133 years to do it
and uh Jag is absolutely right Chile
took 13 years but Chile did a lot of
unilateral liberalization they're
they're a virtuous country they did a
lot first but if you take uh us
Australia that took all of two years
chag dish final thoughts well uh I think
uh when you deal with a number of issues
like like take my
University the 3,000 professors all of
whom have a senate we get things done we
have lots of issues there so the within
the WTO we worked out ways in which the
150 don't matter as much because they
work through groups and so on and they
natural coalitions which which gets
established so I think when you think in
abstracted by the number of countries
and so you're going to go the the Gary
half Bar Route and start woring like M
two I think uh the developing countries
among themselves can do things uh and
are doing some of them they're uh a fair
number now by now but when it comes to
Big countries like us or or group like
EU when they get into agreements you
know one onone I'm not surprised it goes
through fast right because it's very
uneven it's not it's not negotiation
it's actually a very asymmetric thing so
and the part that really worries me and
the last thought uh is that when you're
doing that and when you take a country
like United States which which is you
know very responsive democracy with a
whole lot of Ling groups and so on we
managed to put in all kinds of
extraneous issues uh which then muddy up
the trade picture and My worry is that a
lot of developing countries are in when
that with EU or us and particularly us
which is much more responsive uh that
you are actually signing on to a variety
of things uh which are going to remain
with you and the preferential advantage
you have in the American Market is one
which is going to erode over time the
more because do is bound to succeed
there'll be another round so I think the
developing countries are the ones I'm
really worry about uh much more uh first
because of the spaghetti Bowl problem
and to the signing onto things and in
Aid we've learned that you know if you
get a somebody calls it an aid program
and when you actually your P you know
you're being ripped off we've learned
that so now with trade we have to to
again make sense you know be careful
what are you buying into it looks like
you're getting entry into the US market
but you know it will go through fast
right but I think cavat empor bar beware
is is something that you know many
developing countries are beginning to
worry about now Gary Huffer you have the
last
word I just would like to make two
points uh I do worry about the
developing countries but I worry about
the small developing countries I think
it's an outrage right now that India is
one of The Blocking powers in this Doha
round but India is willing to reduce its
tariffs to zero in a deal with the
European
Union India doesn't have a problem I
think it's it's not benefiting the uh
the multilateral system but India is a
is a developing country which can take
care of itself could I say that at
Bangladesh probably not the second point
and here I think ja D and I are
absolutely in agreement is that
the regional and the multilateral system
are are both here to stay the Regionals
are here to stay nobody thinks they're
going away and the challenge ahead which
was the challenge of this um two two and
a half day conference we just had is how
you can mesh The Regionals how you can
get over these rough edges how you can
bring in these you know these small
developing countries and give them a
fair shap that's really the challenge of
the next decade two different points of
view on regional trade agreements I'd
like to thank Our Guest Gary Huff and
Jagdish bagatti and thanks to you for
watching WTO forum
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