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Regional
Trade Agreements At
a lunchtime meeting held in Brussels André
Sapir (Université Libre de Bruxelles and CEPR) examined the extent,
as well as the causes and consequences, of regional trade agreements (RTAs)
centred in or on Europe. The meeting, which was jointly organized by
ECARE and CEPR and hosted by ECARE, was chaired by Luciana
Castellina (Committee on External Economic Relations, European
Parliament). Sapir argued that,
although the EU had a substantial history of regionally based trade
arrangements and was actively considering a number of extensions, there
was a lack of long-term vision about the consequences of regionalism
which needed to be redressed with urgency. He noted that, from its
inception, the EU had operated a complex, three-tier system of trade
relations with third countries. The first tier included countries
enjoying preferential access to the EU market. The second contained
countries treated purely on a most-favoured-nation (MFN) basis. The last
tier consisted of countries granted access on a less-than-MFN basis.
Currently, the MFN tier consists of only six countries (Australia,
Canada, Japan, New Zealand, Taiwan and the United States), and the
less-than-MFN tier contains only one country (North Korea). All the
other countries belong to the preferential tier. Surprisingly,
however, despite maintaining preferential trade arrangements with
virtually all countries of the world, preferential trade accounted for
no more than 25% of total EU trade. Sapir argued that this low share of
preferential trade was attributable to two factors. The first was the
high proportion of non-dutiable trade: 30% of the total value of EU
imports was accounted for by products with zero MFN rates. The second
explanation lay in administrative rules. All EU preferential trade
arrangements were subject to three types of administrative regulation
which limited their preferential value: product exclusion, origin rules
and tariff quotas. Sapir
noted that EU regionalism appeared to come in waves. Until recently, new
developments had involved exclusively potential EU members, including
EFTA countries, Central and East European countries, and Turkey. By
contrast, a new wave was now underway, involving recent or prospective
agreements either with non-European countries, such as the Mediterranean
countries, Mexico, South Africa and MERCOSUR, or with CIS members, such
as Russia and Ukraine, which were unlikely to join the EU in the
foreseeable future. None
the less, these successive waves of regionalism shared the same economic
determinants, albeit to a different extent. First there was a demand in
non-EU countries for such arrangements. This demand arose partly from
the ‘domino effects’ associated with the deepening and the widening
of the EU and partly from the economic reforms undertaken by the non-EU
countries themselves. Second, there was a willingness on the part of the
EU to supply RTAs. This stemmed partly from a desire for preferential
access to third markets and partly from a wish to promote regional
stability. In
Sapir’s view, the potential extension of RTAs to non-candidate
countries constituted a radical departure from past EU behaviour. He
questioned whether this new trend reflected some grand design, however,
and submitted instead that the EU’s thrust towards regionalism stood
at a crossroads with three possible options. The first would involve the
construction of an EU-centred free-trade area, which might comprise at
some stage 20–25 nations from Eastern Europe, the Mediterranean and
Africa, in addition to the 25–30 EU members. Going down this track
might result in the demise of the multilateral trading system. The
second option consisted of seeking global free trade by a given year,
say 2010. The third would combine elements of the first two options,
seeking to facilitate harmonious coexistence between regionalism and
multilateralism. This would imply a substantial strengthening of GATT
Article XXIV, aimed at minimizing the discriminatory aspect of RTAs. Sapir
considered that the existence of these options underlined the urgent
need for the EU to reflect on the regionalism process and to formulate a
long-term vision regarding its consequences. This urgency was not
lessened by the failure of President Clinton to secure ‘fast-track’
legislation, which would have facilitated plans to create a Free Trade
Area of the Americas. André
Sapir, ‘The Political Economy of EC Regionalism’, CEPR Discussion
Paper No. 1739, November 1997 |