Regional and Bilateral Trade Agreements

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Regional and Bilateral Trade Agreements

• Lance Graef
• www.nathaninc.com

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Some terms

• Regional and bilateral FTAs and preferential
  trade agreements are exceptions to Article I of
  GATT/WTO (MFN)
• Free trade agreements
• Reciprocal
• Bound (committed in a schedule)
• Disciplined safeguard action
• Subject to dispute resolution
• Preferential trade arrangements
• Unilateral
• Not scheduled
• Expedited safeguard actions
• Not subject to dispute resolution (except as
  provided for the preference offering country)

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WTO exceptions for RTAs/PTAs

• Goods
• Article XXIV
• Cover substantially all trade
• Not raise barriers to non-members
• Implement in 10 years
• Enabling Clause
• Services
• Article V
• Doha Round Rules Group

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RTAspluses and minuses

• Economic benefits
• Trade creation
• Larger market (returns to scale)
• Attractive to FDI
• Lower prices due to tariff elimination
• Increased efficiency resulting from greater
  competition
• Economic costs
• Trade diversion
• Rise in prices if absorbed in tariff cut
• Complex difficult to implement rules especially
  rules of origin
• Revenue loss
• Structural adjustment within the RTA

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Pluses and minuses (continued)

• Non-economic benefits
• Faster liberalization
• Greater certainty (locking in reforms)
• Related stability for investors
• Increased bargaining power
• Non-economic costs
• Increased demands on limited government resources

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Rise of non-MFN trade

• WTO estimates of trade flows under RTAs and PTAS
• 40 of world trade 1988 1992
• 42 1993 -1997
• WTO 10th Anniversary Report
• Exceeds 50 percent
• 176 FTAs notified since 1995
• 150 currently in force
• Estimated 70 more in place

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New generation FTAs are different

• Old Generation
• Import substituting
• Limited coverage
• Non-compliance
• Lacked political commitment
• Weak secretariats
• Limited private sector role

• New Generation
• Trade creating
• Comprehensive coverage
• Dispute settlement
• High commitment
• Strengthened institutions
• Private sector involved

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Classification matrix for free trade agreements
Closed Open
WTO Maintain high external tariffs basic commitments to lower duties Lower external tariffs basic commitments to lower duties
WTO () Maintain high external tariffs make commitments to reforms that go beyond the WTO Lower external tariffs make commitments to reforms that go beyond the WTO
(Services, investment laws, IPR, trade facilitation, dispute settlement) (Services, investment laws, IPR, trade facilitation, dispute settlement)
Weaker
Weaker
Stronger
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What is to be done

• First best solution is successful completion of
  the Doha Round
• Second best to make RTAs trade creating
• and not prevent multilateral liberalization
• Clarify Article XXIV in the Doha Round

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Trends in Mozambiques Trade with SADCthe Agenda
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Mozambique exports by destination, 1999-2004
(Million Dollars) (Million Dollars) (Million Dollars) (Million Dollars) (Million Dollars) (Million Dollars)
1999 2000 2001 2002 2003 2004
SADC 121.6 119.9 156.4 173.3 256.6 295.4
SADC (minus electricity) 58.8 52.9 99.1 78.0 143.4 193.1
EU 74.0 93.6 448.4 336.0 656.8 1012.7
EU (Minus Aluminum) 74.0 33.4 64.8 32.7 89.2 97.7
Select Developing Countries 45.8 31.3 16.9 29.3 28.7 105.7
Select Developed Countries 24.1 33.3 37.2 67.8 25.5 23.0
Transition Countries 0.0 0.0 0.0 0.2 0.0 16.2
Other 5.3 85.9 44.2 75.4 76.3 50.9
Total 270.8 364.0 703.1 682.0 1043.9 1503.9
Adjusted Total 208.0 236.9 262.2 283.4 363.1 486.6
SourceINE
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• Most of the increase in total exports has come
  from aluminum and electricity
• Aluminum exports begin in 2000 and have risen to
  915 million
• Electricity exports have increased 40 million in
  the same time period
• If these are deducted from the total
• Have more than doubled
• Recovered strongly from 2002 decline
• Exports to SADC have more than doubled but
  increased only slightly as a percentage of
  adjusted export from 37 to 39 percent
• Exports to developing countries have increased
  significantly
• Exports to the EU are up strongly

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Mozambiques exports to SADC (non-electricity),
1999-2004
(Million Dollars) (Million Dollars) (Million Dollars) (Million Dollars) (Million Dollars) (Million Dollars)
1999 2000 2001 2002 2003 2004
Malawi 4.8 11.0 10.3 10.3 32.8 49.3
Swaziland 5.2 0.6 0.7 0.5 17.6 2.7
RSA (minus electricity) 42.9 44.0 83.4 59.2 81.7 129.0
Zimbabwe 5.4 0.4 3.6 4.5 4.7 7.1
ABMLND 0.4 0.6 1.0 3.4 6.9 5.1
58.8 52.9 99.1 78.0 143.4 193.1
SourceINE
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Products of export interest in SADC

• South Africa fish, coconut oil, pimentos,
  pigeon peas, bananas, guavas/mangoes, grapefruit,
  oilcake, lumber
• Malawi coal, beans, maize, tobacco, cooking oil
• Zimbabwe coal, fish, wheat flour

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Disappointments

• Declines in some traditional exports
• Tires, apparel, wood products
• Expected non-traditional exports have not
  appeared
• Footwear
• Recorded agricultural trade with Malawi
• Sugar to SADC

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Recommendations for the SADC Agenda

• Accelerate tariff reductions
• Implementation by Malawi, Zimbabwe
• Current decision to eliminate duties under 5 is
  best efforts and doesnt address backloaded
  products of export interest to Mozambique in
  Non-SACU offers
• Revisit sensitive list (drawn up 4 years ago)
• Liberalize rules of origin
• Single transformation to replace MMTZ quotas
• SPS Protocol
• Services
• Transport
• Tourism
• Accession offers Angola, Madagascar
• Common External Tariff

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Relationship of SADC to other negotiations
(overlapping agreements)

• EPA negotiations (EU would like an agreement with
  a Customs Union)
• BLNS part of SACU
• de facto partners in RSA/EC agreement
• Negotiating FTA with US
• Tanzania part of EAC
• Four SADC members negotiating EPA with ESA
  (Malawi, Mauritius, Madagascar, Zambia)
• RSA not participating
• SADC 14 committed to Customs Union (2010 not
  2008)
• Bilateral negotiations by Mozambique
• Malawi, Zambia, Zimbabwe
• Should there be a SADC enabling clause

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Economic Partnership Agreement
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• ACP and GSP Plus
• Export Products
• Fisheries
• Sugar
• Rules of Origin
• Apparel
• Safeguards
• Services
• Capacity Building/Development

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Relationship to other negotiations and events

• ESA EPA negotiations include SADC partners
• SADC Customs Union
• GSP/EBA Reform in EU
• Still an option to withdraw

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Mozambiques assignment

• Negotiating strategy for non-agricultural and
  fisheries market access

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Export Trade
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Exports, 1999-2004
(Thousand Dollars) (Thousand Dollars) (Thousand Dollars) (Thousand Dollars) (Thousand Dollars) (Thousand Dollars)
1999 2000 2001 2002 2003 2004
Total Exports 270.8 364 703.1 682.0 1,043.9 1,503.9

Aluminum 0.0 60.2 383.6 361.3 567.6 915.0
Electricity 62.8 67.0 57.3 95.3 113.2 102.3
Natural Gas 0.1 0.2 31.3
Agriculture 87.0 82.7 79.5 80.1 119.5 193.4
Fisheries 74.8 99.6 99.6 66.5 95.9 106.8
Other Goods 46.2 54.6 83.2 78.7 147.6 155.1
Source INE
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Preferential ArrangementsGSP, EBA, AGOA
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EU GSP January 2006

• GSP Plus
• General scheme covers 7200 products (300 new in
  agriculture and fisheries)
• Duty free access for the poorly diversified
• 5 largest products must account for 75 of total
  exports and
• Less than 1 of total EU GSP imports provided
  that beneficiary ratifies and implements 27
  international conventions (human rights, labor
  standards, etc.)
• Graduation
• Share exceeds 15 of total GSP, 12.5 for apparel
• Rules of Origin
• EBA

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EBA

• EBA and GSP rules of origin the same
• EBA exceptions to duty free/quota free
• Tariff on bananas for LDCs will be free in
  January
• Tariff on sugar will disappear July 2009
• Quota for LDC will expand from 74 thousand tons
  in (MY 2001/2002) to 197 thousand tons (MY
  2008/2009)

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AGOA

• Mozambique participation low and declining
• Apparel declining
• Offset by tobacco appearing ??

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Exports, Destinations, and WTO Negotiations
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Agricultural exports
Agriculture 87.0 82.7 79.5 80.1 119.5 193.4
Cotton 20.2 25.8 18.3 19.4 37.3 33.6
Tobacco 2.6 7.8 9.1 4.9 21.5 40.9
Sugar 5.5 4.3 8.0 22.3 16.1 48.1
Oilseeds 2.9 1.3 1.7 2.1 8.7 12.5
Cashew 33.1 20.0 13.8 13.2 10.1 29.2
Coconut oil 5.3 3.6 6.2 2.0 2.7 6.6
Vegetables 9.5 2.0 0.6 3.2 1.9 4.1
Oilcake 2.8 6.5 16.2 2.4 4.5 5.2
Wheat Flour 0.0 0.2 0.4 2.2 6.3 4.3
Maize 1.2 1.6 1.6 1.7 1.4 3.1
Tea 0.2 1.0 0.3 0.5 1.8 2.2
Other fruit and nuts 0.0 0.0 0.0 0.0 0.3 0.8
Cut flowers 0.0 0.0 0.0 0.0 0.1 0.2
Other agriculture 3.7 8.6 3.2 6.2 6.7 2.5
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Destinations for key exports
Developed Developing Regional
Peas Beans x x
Bananas ? X
Grapefruit X X
Tea X
Coconut Oil X
Sesame X
Tobacco ? ? X
Cotton X X X
Sugar X X
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Selected agricultural schedules
EU India Japan RSA US
Grapefruit 12.8 100 10 4 1.9c/kg
Tea Free 150 12 170 Free
Maize 94ECU/ton NB 12Y/kg 50 25c/kg
Coconut Oil 12.8 165 4.5 81 Free
Sugar 339/414/t 150 103.1Y/kg 105 1.46/kg
Cottoncake Free 100 Free 33 .56c/kg
Tobacco 18.4/22.4/t 100 Free 44 11.4 --23.9c/kg
Cotton Free 100/150 Free 60 31.4c/kg
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WTO negotiations on agriculture

• Three Pillars
• Market Access
• High levels of tariffied products
• Minimum market access (TRQs)
• Domestic Support
• Not addressed in RTAs
• Export Subsidies
• Development Dimension
• Cotton
• Flexibilities for developing countries
• Special and differential treatment for LDCs
• Reserve portion of expansion of TRQs for LDCs,
  especially new supplier LDCs

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Exports of non-agricultural goods
Fisheries 74.8 99.6 99.6 66.5 95.9 106.8
Prawns 64.6 91.2 90.2 63.7 75.7 91.7
Other seafood 10.2 8.4 9.4 2.8 20.1 15.1
Other Goods 46.2 54.6 83.2 78.7 147.6 155.1
Wood 9.2 14.3 12.3 17.4 16.0 30.4
unprocessed 7.0 10.8 8.7 14.0 11.0 23.5
processed 2.2 3.5 3.6 3.4 5.0 6.9
Apparel 5.8 6.7 18.1 6.0 13.5 3.9
Coal 0.5 0.4 0.8 0.1 0.5 2.5
Steel containers/cables 0.3 0.4 3.5 0.6 1.0 2.3
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Destinations for non-agricultural exports
Developed Developing Regional
Prawns x x x
Logs x X
Processed Wood x X
Apparel x X
Plastics X
Coal X
Steel Products X
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Selected bound NAMA tariff levels
EU India Japan RSA US
Prawns 18 Unbound 1 Unbound Free
Coal Free 25 Free Unbound Free
Plastics 6.5 Unbound 3.9 30 3.4-6.5
Wood in rough Free 25 Free 15 Free
Plywood 7 40 10 15 Free
Apparel 12 Unbound 16.9 40 15.9
Pumps 1.7 40 Free Free Free
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Non-agricultural market access issues

• Level of ambition and flexibilities
• LDCS not expected to make commitments
• Is this good
• Developing country flexibilities
• Lower rate of reduction
• Longer phase-in
• Exemptions
• Sectoral negotiations
• Fisheries
• Wood
• Bound duty and quota free access for LDCs
• Erosion of preferences

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Other WTO interests

• Services
• Tourism
• Telecommunications
• Other reforms ???

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Why trade facilitation?

• Increase in competitive position
• Equivalent of reducing tariff on inputs between
  2?6.5 points
• Increase in transparency equals increase in
  predictability
• Uniform application of procedures/regulations
• Advance ruling
• Improved investment environment
• Facilitation measures already widely used
• Especially in Asia

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Trade facilitation mandate

• Clarify and improve GATT to expedite the
  movement, release and clearance of goods
• Article V Transit
• Article VIII Fees and Formalities
• Article X Transparency
• Enhance technical assistance/capacity building
• During Negotiations
• Post-Negotiations
• Establish provisions for effective cooperation
  between customs and other appropriate authorities
• Facilitation issues
• Compliance issues

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Trade facilitation mandate (continued)

• Special and Differential Treatment
• Developing countries and LDCs separate
• LDCs consistent with administrative/institutiona
  l capabilities
• Take into account implementation capacities
• Including investment in infrastructure
• Negotiations required to address concerns related
  to cost implications of proposed measures

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All concepts are not new

• Transparency (concepts in the Agreement on Rules
  of Origin)
• Notification and Publication
• Advance Rulings
• Appeals

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Trade facilitation

• Other important proposals/concepts
• Fees and charges
• Reduction in procedures/formalities
• Expedited release in goods
• Pre-arrival clearances
• Risk management
• Post-clearance audits
• Regional agreements
• Transit