1. Live and Let Live The Attitude of the WTO Membership Towards Preferential Trade Agreements Petros C. Mavroidis Edwin B. Parker Professor at Columbia Law School (on leave at EUI, Florence)

2. The Argument Trading nations adopted imprecise law to scrutinize PTAs and almost never enforced it Over the years, they diluted the test: no ‘green light’ for consumption is necessary; litigation, the only option for those unhappy with PTAs Litigation does not occur for good reasons, so end result: PTAs are tolerated Current content of (some) PTAs shows the limits of WTO integration Saturday, April 11, 2015 © Mavroidis, 2013

3. The Original Setting Art. XXIV, an exception to MFN trade Clear why FTAs included: Chase (2006) Unclear why CU included in the first place Legal test for consistency of PTAs Notify the GATT that will decide by consensus if conditions have been met (‘green light’): No new external protection Intra-PTA barriers have been eliminated with respect to ‘substantially all trade’ (SAT) Saturday, April 11, 2015 © Mavroidis, 2013

4. Practice No green light except for 1 case (+3 ‘broadly’ acceptable cases) Difficult to state why, but Consensus voting did not help SAT was not clarified: rationale is clear, Grossman & Helpman (1991); its precise content remains a mystery 2006: Transparency Mechanism, a substitute not a complement to review End result: 546 PTAs of uncertain consistency Saturday, April 11, 2015 © Mavroidis, 2013

5. What Do When Multilateral Review Fails? Litigate Facts: scarce litigation (3x during GATT; 2x during WTO) Favourable test for complainants: have to show MFN violation; then burden shifts to defendant to show compliance with all conditions embedded in Art. XXIV (AB, Turkey-Textiles) Saturday, April 11, 2015 © Mavroidis, 2013

6. Why Scarce Litigation? /I The size of the problem is reduced Irwin (1998): tariffs largely immaterial Bhagwati (2002), Limão (2006) point to potential of preference erosion, but Empirical papers [Freund (2011), Baldwin and Seghezza (2010)] show little if any erosion Some do though, Karacaovali and Limão (2008) Even so, diversion through tariffs is not the same issue as it was in the ‘50s Saturday, April 11, 2015 © Mavroidis, 2013

7. Why Scarce Litigation? /II Strategic reasons Original sin: the EU, Finger (2003); no challenge for fear of undoing the EU integration Collective action: Mavroidis (2005); if I don’t do it, somebody else will Fear for retaliation: Martin & Vergote (2008); why provoke counterclaims? Is more integration good? Mavroidis (2005), outsiders better off when PTA partners integrate less Saturday, April 11, 2015 © Mavroidis, 2013

8. Why Scarce Litigation? /III Institutional reasons Voting (but compare TMB and the consensus minus two rule) Agency design of Panels (should judges decide what Membership cannot decide?) Remedies: de facto prospective in the WTO, so why bother? Saturday, April 11, 2015 © Mavroidis, 2013

9. Why Scarce Litigation? /IV PTAs in the 50s, and PTAs now are not ‘like’ products Horn et al. (2010): majority of issues covered are WTOx (outside the mandate of the WTO); even WTO+ elements concern NTBs; tariffs are a minor issue How much more can the WTO do in a world where ‘protection’ is regulatory? Can we move beyond non-discrimination? Can instruments of ‘deep integration’ (harmonization, mutual recognition) find their way in a multilateral contract? Saturday, April 11, 2015 © Mavroidis, 2013

10. Instead of Conclusions A ‘vertical’ (50s – nowadays) and a ‘horizontal’ (PTA is not a PTA is not a PTA: some are signed between like minded countries and cannot be multilaterally reproduced) mutation of PTAs WTO should strive to be the background for deep integration schemes Saturday, April 11, 2015 © Mavroidis, 2013