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Trade Policy Spillovers and Regulatory Cooperation

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Abstract

This chapter criticises the “tariff equivalent syndrome”, whereby non-tariff measures are treated like tariffs. Trade liberalisation beyond tariffs is often non-discriminatory, and this leads to “trade policy spillovers”, whereby liberalisation in a Free Trade Agreement (FTA) also benefits third countries. This chapter provides an overview of different types of trade policy spillovers and concludes that this is a real phenomenon that may sometimes be addressed by means of standard trade models, but often not. The chapter also presents a taxonomy of regulatory cooperation in trade policy, using Western Europe as an illustration. The European model with extensive harmonisation can hardly be replicated on a global scale. The WTO is a great success by having binding rules and jurisdiction in a difficult area, but plurilateral agreements between subsets of countries may be needed for future reforms.

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Notes

  1. 1.

    Using tariff equivalents for non-tariff barriers, the revenue aspect of tariffs is often neglected and this also applies to Chaps. 6, 7 and 8 of this book. It would be technically possible to account for tariff revenue in Chaps. 6, 7 and 8 but it would likely not lead to a major change in the results. Tariffs represent below one-third of the trade cost reductions undertaken in the regional integration scenarios studied in these chapters.

  2. 2.

    For TTIP , CEPR (2013) assumed that one-fifth of the NTM trade cost reductions for trade between the EU and the USA also applied to trade between EU/USA and third countries. In addition to these “direct spillovers” they also assumed that one-tenth of the intra-TTIP NTM trade cost reductions applied to trade between third countries because of “indirect spillovers”. Source: CEPR (2013), Appendix 5, Table A.1.

  3. 3.

    In the “domino” model of Baldwin (1993), the number of manufacturing firms is exogenous and the PTA is fully open and so all new members are welcome. As shown by Melchior (1997) in a model with many countries and endogenous number of firms, there may be a saturation level since for existing members, the gains from further enlargement reaches a maximum for a certain size of the PTA. Hence, while for outsiders the incentive to join increases with bloc size, the incumbent’s incentive to enlarge reaches a maximum before all outsiders have joined. The logic is simple: In the new trade theory, some of the gains for insiders are obtained by discriminating against outsiders, but this advantage is eliminated if all countries join. The global welfare level would still be the highest if all countries join. In this model, trade policy is still exogenous; for a review and discussion of related political-economy models where FTA formation is endogenous, see Baldwin (2009).

  4. 4.

    The Financial Times 5 October 2017, “Tariffs and energetic protection of US trade is the American way”, also supports this interpretation: “The decade-long so-called ‘Doha round’ of global trade talks had myriad problems, but what killed it was the US refusal to countenance a deal that did not give its rice, wheat, soy and other farmers more access to markets such as India and China.”

  5. 5.

    See, for example, Financial Times 16.10.2017; “EU’s top trade official warns on Trump impact on WTO”. For a presentation of current US policies, see USTR (2018, 22ff.).

  6. 6.

    The agreement text is available at http://www.state.gov/e/eb/rls/othr/ata/i/ic/170684.htm or Official Journal of the European Union (L 283, 29 October 2011, https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=OJ:L:2011:283:TOC).

  7. 7.

    In 2011, the Norwegian Government signalled that it would veto EU’s third postal directive. The decision was reversed by a new Norwegian Government in 2013.

  8. 8.

    The Luxemburg declaration of 1984, between the EU and EFTA, is available at http://www.efta.int/sites/default/files/documents/about-efta/EFTA-EC-joint-declaration-1984.pdf.

  9. 9.

    “Trump calls trade deal ‘a rape of our country’”; Politico 28 June 2016, by Cristiano Lima, at www.politico.com. See also Noland et al. (2016) for documentation of Trump’s colourful statements on trade policy.

  10. 10.

    These were four issues suggested at the WTO Ministerial Conference in Singapore in 1996, to be considered for further WTO negotiations. An agreement on trade facilitation was concluded at the WTO Ministerial Conference at Bali in 2013 and entered into force in 2017.

  11. 11.

    The tariffs on steel and aluminium products announced by the USA in March 2018 were based on Section 232 of the Trade Expansion Act of 1962. At the WTO, the USA has referred to the WTO “security exception” (Article XXI). Together with Russia, the USA maintains that the interpretation of Article XXI is self-judging and not subject to dispute settlement at the WTO. See inside US Trade/World Trade Online 17 April 2018: “U.S. agrees to enter into WTO consultations with China over 232, 301 tariffs”. https://insidetrade.com/daily-news/us-agrees-enter-wto-consultations-china-over-232-301-tariffs. See also Alford (2011) for a discussion of WTO Article XXI.

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Melchior, A. (2018). Trade Policy Spillovers and Regulatory Cooperation. In: Free Trade Agreements and Globalisation. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-92834-0_9

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  • DOI: https://doi.org/10.1007/978-3-319-92834-0_9

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