Regional Trade Agreements: Implications for China

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Regional Trade Agreements Implications for
China
Richard Newfarmer World Bank
December, 2004
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Regional trade agreements are proliferating
South-south agreements driving the numbers
but US and EU driving coverage
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What are Chinas interests in RTAs?

• Designing arrangements that are likely to have
  the greatest benefit
• Whats worked for members lessons of experience
• Evaluating benefits of alternative RTAs
• Avoiding discrimination that RTAs of others could
  imply -- systemic issues

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Whats worked
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Whats worked Do RTAs create or divert --
trade?
Estimated exponential impact on trade
Intra-regional trade
Note The bars show the magnitude of the dummy
variables capturing respectively the extent to
which intraregional trade, overall imports and
overall exports differ from the normal levels
predicted by the gravity model on the basis of
economic size, proximity and relevant
institutional and historical variables, such as a
common language.
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Whats worked Do RTAs create or divert --
trade?
Estimated exponential impact on trade
Overall exports
Overall imports
Intra-regional trade
Note The bars show the magnitude of the dummy
variables capturing respectively the extent to
which intraregional trade, overall imports and
overall exports differ from the normal levels
predicted by the gravity model on the basis of
economic size, proximity and relevant
institutional and historical variables, such as a
common language.
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Both US and EU agreements include services,
investment and intellectual property rights
but development consequences of rules are not
clear
Source Global Economic Prospects, 2005 Chapter 5
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Whats worked Open regionalism

• Low external tariff barriers
• Nonrestrictive rules of origin
• Wide coverage with few exclusions
• Liberalization of services
• Facilitating trade at borders
• Appropriate rules

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Evaluating alternatives
Change in Chinas real income in 2015 compared to
baseline in percent
Percent change in GDP
Multilateral
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Evaluating alternatives
Change in Chinas real income in 2015 compared to
baseline in percent
Percent change in GDP
Multilateral
ASEAN
ASEAN 3
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Evaluating alternatives
Change in Chinas real income in 2015 compared to
baseline in percent
Percent change in GDP
Multilateral
Mercosur
ASEAN
ASEAN 3
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Systemic issuesavoiding discrimination

• Preferences hurt excluded countries

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Systemic issuesavoiding discrimination

• Preferences hurt excluded countries

Simulated welfare impact of Chiles FTA with US
m.
Gains to Chile
Costs to excluded countries
Source Harrison, et al, 2002
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Systemic issuesavoiding discrimination

• Preferences hurt excluded countries

• Hub and spokes put weaker countries at
  disadvantage

Change in real income in 2015 compared to
baseline in percent
Multilateral liberalization
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Systemic issuesavoiding discrimination

• Preferences hurt excluded countries

• Hub and spokes put weaker countries at
  disadvantage

Change in real income in 2015 compared to
baseline in percent
Multilateral liberalization
Individual RTA (average)
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Systemic issuesavoiding discrimination

• Preferences hurt excluded countries

• Hub and spokes put weaker countries at
  disadvantage

Change in real income in 2015 compared to
baseline in percent
Multilateral liberalization
Individual RTA (average)
All countries sign RTAs
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Systemic issuesavoiding discrimination

• Preferences hurt excluded countries

• Hub and spokes put weaker countries at
  disadvantage

• Multiple arrangements burden customs

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Overlapping African agreements
Nile River Basin
COMESA
IGAD
ECCAS
AMU
CEMAC
Somalia
Sao Tomé Principe
Algeria Libya Morocco Mauritania Tunisia
Egypt
Cameroon Central African Rep. Gabon Equat.
Guinea Rep.Congo
ECOWAS
Djibouti Ethiopia Eritrea Sudan
Burundi Rwanda
Ghana Nigeria
Conseil de LEntente
Cape Verde Gambia
Chad
DR Congo
Kenya Uganda
Benin Niger Togo
Burkina Faso Cote dIvoire
Angola
Guinea-Bissau Mali
Senegal
EAC
Liberia Sierra Leaone
Guinea
Tanzania
Mauritius Syechelles
Malawi Zambia Zimbabwe
SACU
Comoros Madagascar
WAEMU
Mano River Union
South Africa Botswana Lesotho
CLISS
Namibia Swaziland
Reunion
AMU Arab Maghreb Union CBI
Cross Border Initiative CEMAC Economic
Monetary Community of Central Africa CILSS
Permanent Interstate Committee on Drought
Control in the Sahel COMESA Common Market for
Eastern and Southern Africa EAC East
African Cooperation ECOWAS Economic Community
of Western African Studies IGAD
Inter-Governmental Authority for Government IOC
Indian Ocean Commission SACU
Southern African Customs Union SADC
Southern African Development Community WAEMU
West African Economic Monetary Union
CBI
Mozambique
SADC
IOC
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Systemic issuesavoiding discrimination

• Preferences hurt excluded countries

• Hub and spokes put weaker countries at
  disadvantage

• Multiple arrangements burden customs

• Disincentives to engage in multilateral
  liberalization

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Policy implications

• International community through the WTO
• Get Doha done lowers risk of trade diversion for
  members and minimizes effects on excluded
  countries
• Developing countries should adopt a 3 part
  strategy, using each instrument to its most
  appropriate objective
• Unilateral driving competitiveness
• Multilateral seeking broad market access
• Regional deep market access and institutional
  reforms (customs, ports, trade-related standards)
• China a special interest in strengthening the
  multilateral system
• Promoting greater access to worlds markets
• Rules-based system essential for Chinas export
  growth (e.g, disciplines on anti-dumping)
• Intra-regional opportunities significantly less
  important

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Global Economic Prospects, 2005Trade,
Regionalism and Development
Richard Newfarmer World Bank
November, 2004