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RTAs: Threat or Opportunity for the WTO? - The Economist‘s View -

This article by Dipl.-Vw. Jürgen Matthes discusses the impact of Regional Trade Agreements (RTAs) on the World Trade Organization (WTO), highlighting the potential threats and opportunities they present. The author examines the race for markets, the challenges faced by developing countries, and proposes ways to mitigate the detrimental effects of RTAs. The article concludes by questioning whether the failure of bilateralism could lead to a renaissance of the WTO.

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RTAs: Threat or Opportunity for the WTO? - The Economist‘s View -

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  1. RTAs:Threat or Opportunity for the WTO?- The Economist‘s View - Dipl.-Vw. Jürgen Matthes Head International Economic Policy Department

  2. Bilateralism – Facts and Evaluation • New Bilateralism since 2000 – Unprecedented Boom: 16 RTAs per year • Now clear evidence: Stumbling Bloc for the WTO and for the Doha-Round • Preference Erosion • Less Pressure on Protectionsts when Exporters have Bilaterals as an alternative • Concessions may be held back for Bilaterals • Threat to global welfare • Empirical evidence: Global effects of RTAs unclear, could even be harmful • South-South bilaterals (vast numbers) are more trade diverting than North-South deals • Sand in the wheels of Globalisation and efficient Production Networks (esp. in Asia) • Spaghetti Bowl, Transaction Cost increase, especially due to pref. Rules of Origin Jürgen Matthes: RTAs - Threat or Opportunity for the WTO? WTO Public Forum, September 25, 2006

  3. Evaluation (2): Race for Markets • Important reason for surge in Bilaterals: Race for Markets • Anecdotal evidence: • Asia currently with the strongest activity in bilaterals (China, Japan, ASEAN etc.) • Competition among US and EU (Mexico, Chile – now Asia) • Game Theory: Bilateralism is a dominant strategy • No matter what the US does, for the EU an RTA with (say) India is the best choice • Self-reinforcing Race for Markets – largely explains Boom in Bilaterals since 2000 • Problem: Social Dilemma • For individual countries Bilateralism is rational • For global welfare Bilateralism and the Race for Markets is likely to be detrimental • Stopping Bilateralism is a kind of Public Good, but government intervention not feasible Jürgen Matthes: RTAs - Threat or Opportunity for the WTO? WTO Public Forum, September 25, 2006

  4. Renaissance of the WTO? • Failure of Bilateralism as a Catalyst for a Return to the WTO in 10 to 15 years? • Do we have to go “Per Aspera ad Astra”? • For DCs (particularly in Asia): Bilateralism will likely prove a dead-end • Poor DCs are left out • South-South RTAs with Welfare Losses due to Trade Diversion • Transaction costs (esp. relevant for DC-companies and in Intermediates) • North-South RTAs less attractive than hoped for • Asymmetric Power Balance – Unwanted Issues (IP, Capital controls) • RTAs are Positional Goods which lose value with increasing membership • Problem: For IC Bilateralism has fewer Disadvantages • Power Wielding, New Issues, Hub-and-Spoke-Structure (but Transaction Costs) • This could bring DCs back to the WTO – may be even sooner than later Jürgen Matthes: RTAs - Threat or Opportunity for the WTO? WTO Public Forum, September 25, 2006

  5. In the Meantime: Mitigation • Bilateralism is unstoppable for the moment • How can its detrimental effects be mitigated • GATT Art. 24: • Clearer interpretation of vague rules, e.g. „substantially all trade“ • Additional Demand: Lower barriers to outsiders to avoid trade diversion • Reform of Enabling Clause: less Leeway for DC to avoid Trade Diversion • Harmonisation of preferential RoO would reduce transation costs • Templates for RTAs • Avoid dead-ends in new issues such as standards, investment, etc. • Problem: Reform unlikely, but all the more necessary Jürgen Matthes: RTAs - Threat or Opportunity for the WTO? WTO Public Forum, September 25, 2006

  6. RTAs: Threat or Opportunity for the WTO?- The Economist‘s View –Thank you for your attention Dipl.-Vw. Jürgen Matthes Head International Economic Policy Department

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