1. Managing Asymmetries in Trade Agreements in the Western Hemisphere
Inter-American Development Bank Integration and Regional Programs Department
Managing Asymmetries in Trade Agreements
in the Western Hemisphere
Jaime Granados, Consultant
Regional Policy Dialogue, Trade and Integration
Subregional Meeting for Caribbean Trade Viceministers
December , Montego Bay, Jamaica

2. The problem…
Trend: developing countries (DC) participating in the global economy through trade agreements
Gains: trade and investment, structural reform, signaling, transparency and accountability
Risks: DC start from a vulnerable plateau: size, level of development, factor endowment, distance, natural disasters, weak institutions, etc
Response: some mechanisms in trade agreements to manage perceived asymmetries
Questions: what are those mechanisms and are they appropriate and enough?

3. Content… Approaches for managing asymmetries in the WH
Mapping out the mechanisms
General trends and conclusions

4. Managing asymmetries: 3 main approaches
Special and Differential Treatment (SDT)
Ad hoc Technical Assistance
Trade-Related Capacity Building (TRCB)

5. SDT: typology of measures
time-limited derogations from obligations and longer periods for implementation of obligations
more favorable thresholds for undertaking certain commitments
flexibility in obligations and procedures
other commitments and “best endeavor clauses”

6. SDT in the WH: the Andean Community (1)
From its inception, the Cartagena Protocol provided for preferential treatment in favor of Bolivia and Ecuador “to attain more rapid economic growth through effective and immediate participation in the benefits of the industrialization of the area and of the liberalization of trade” (Art.121, Ch XIII)

7. SDT in the WH: the Andean Community (2)
Non-reciprocal preferences, different liberalization schedules for Bolivia and Ecuador
Longer phase outs of exceptions and restrictions
Preferential treatment for products in the industrial programming system
Financial assistance and cooperation
CET exceptions: flat tariff in Bolivia, 5 point difference in Ecuador
Services: Bolivia and Ecuador given “consideration” in negotiations regarding deadlines and exceptions

8. SDT in the WH: the Andean Community (3)
Origin: Bolivia and Ecuador have a higher value test for non-originating inputs (60%, 50% the rest)
Agricultural safeguards: on products from Bolivia and Ecuador only in very qualified cases
Commission and Secretariat must adopt measures to hasten agricultural and agroindustrial development of Bolivia and Ecuador and their participation in the larger market

9. SDT in the WH: CACM
Protocol of Guatemala (1997): Nicaragua could be granted transitory preferential and asymmetric treatment in the area of goods, finance, investment, and debt until Dec.31, 1999
Nicaragua applied a special “temporary protection tariff” on intra and extra-regional products (750 items) , subject to phase out

10. SDT in the WH: MERCOSUR
Treaty of Asuncion established the principle of reciprocity of rights and obligations. Parties recognize certain differentials at which Paraguay and Uruguay will make the transition.
Paraguay and Uruguay: 5 years, instead of 4, to eliminate tariffs on products included in the List of Exceptions
Paraguay was permitted more exceptions to the CET. Convergence to the 14% tariff for capital goods is required to be in place by the year 2006 for Paraguay and Uruguay, and 2001 for Argentina and Brazil

11. SDT in the WH: CARICOM (1)
SDT firmly rooted in CARICOM legal texts. Two groups of countries are recognized: more developed countries and less developed countries (LDCs). Treaty of Chaguaramas: “special measures for less developed countries”

12. SDT in the WH: CARICOM (2)
Origin regime: differentiated thresholds: 60% for LDCs, 50% for others. For repaired goods to be reimported: 80% of foreign materials can be foreign, 65% for the rest
Safeguards: not allowed when products originate in an LDC, except when this country holds more than 20% of the market share. Duration of the safeguard in LDCs can be extended
Tariffs: in cases of losses of revenue due to imports from CARICOM, the Council may impose import duties for a duration and under terms and conditions that it determines

13. SDT in the WH: CARICOM (3)
Import restrictions: when applying the industrial integration program, an LDC may, for a period specified by the Council, suspend origin to competing goods
Infant industry protection: the Council can authorize quantitative restrictions and the suspension of tariff preferences in order to develop an industry in one country.

14. SDT in the WH: CARICOM (4)
The Council shall apply, to the extent necessary, the provisions of the Special regime for the LDCs to Highly-Indebted Poor Countries
LDCs will receive technical and financial assistance to allow them to participate in the Single Market and administer international trade agreements
Promoting investment: more developed countries agree to help facilitate the flow of investment capital to LDCs

15. SDT in the WH: CARICOM (5)
Oils and fats: differentiated thresholds when allocating production of oils and fats
Services: greater flexibility in obligations and disciplines for LDCs with regards to the removal of barriers
Investment: greater flexibility in undertaking obligations and disciplines on investment for LDCs, their special needs and circumstances are to be taken into account

16. SDT in the WH: CARICOM (6)
Investment and financial incentives
Technical assistance
Programs to facilitate private and public sector financial flows
Shared use of technological and research facilities in the more developed countries
Provisions under the 1992 Protocol on Disadvantaged Countries, Regions and Sectors

17. SDT in the WH: ALADI (1)
ALADI also contemplates a “System of Support for the Relatively Less Economically Developed Countries” (Chapter III of the Treaty of Montevideo) which purpose is “to establish favorable conditions for the participation of the relatively less economically developed countries (of ALADI) in the economic integration process”

18. SDT in the WH: ALADI (2) A three-tier classification:
-Relatively less developed countries (LDCs): Bolivia, Paraguay and Ecuador
-Intermediate developed countries: Chile, Colombia, Peru, Uruguay and Venezuela
-Other member countries: Argentina, Brazil and Mexico

19. SDT in the WH: ALADI (3)
Tariffs: members will grant non-reciprocal duty-free and barriers-free treatment to products from LDCs Preferences granted to other non-ALADI countries of Latin America, shall be extended to LDCs.
Best endeavors: technical assistance and compensation mechanisms regarding the situation of land-locked countries
Origin regime: products from LDCs benefit from better foreign value content rule: 60% as opposed to 50% for the rest

20. SDT in the WH: NAFTA
No specific provisions for differential treatment according to size or level of development
Transitional measures that allow for different treatment among the parties, not based on considerations of a member’s level of development or size of economy, but the result of negotiations

21. SDT in the WH: Chile-US FTA (1)
No explicit recognition of the differences in size or level of development of the parties
Chile was granted, however, longer timetables for the implementation of certain obligations in the following areas:

22. SDT in the WH: Chile-US FTA (2)
Customs Administration: publication of regulations in Internet, designation of contact points, express shipments, advance rulings, and separate electronic manifests
Intellectual Property: trademarks, geographical indications, copyrights and related rights, non-interactive digital transmissions, patents, enforcement

23. SDT in the WH: Chile-US FTA (3)
Cooperation programs may be set in the following areas:
Customs Administration: technical assistance regarding risk assessment techniques, simplification of procedures, upgrading personnel skills, advance rulings
Labor: capacity building programs may be established
Environment: identifies many cooperation projects

24. SDT in the WH: DR-CAFTA (1)
Preamble recognizes the differences in size and level of development
Tariffs: longer phase out periods
Special regimes: SDT recognized in WTO regarding export processing zones (also, drawback and duty deferral programs not restricted)
Agricultural safeguards: more eligible products for DR and CA than for the US

25. SDT in the WH: DR-CAFTA (2)
Textiles: transitory, quota-based preferential tariff treatments for wool apparel goods assembled in Costa Rica, and for non-originating apparel goods of Nicaragua
Origin of textiles: accumulation zone enlarged to include certain textile products in Chapter 62 from Mexico and Canada (further, the de minimis rule for the weight of non-originating fibres in DR-CAFTA is 10%, as opposed to 7% in Chile-US FTA)

26. SDT in the WH: DR-CAFTA (3)
Customs Administration:
Longer timeframes for the implementation of obligations on the publication of regulations in Internet and the designation of contact points, automation and risk assessment, express shipments and advance rulings on valuation matters
Cooperation in the areas of risk assessment, simplification of procedures and upgrading of personnel skills in all of the areas under Customs including origin and valuation

27. SDT in the WH: DR-CAFTA (4)
Antidumping and Countervailing Duties:
The US will continue to treat DR and CA countries as beneficiary countries under the CBERA subject to special rules on cumulation in the determination of material injury by the US ITC (will not accumulate with injury-causing imports from India or China, for example, only with imports from CBERA countries)

28. SDT in the WH: DR-CAFTA (5)
Government Procurement:
Higher transitional thresholds for procurement of goods, services and constructions services by covered entities of DR and CA countries
Other longer timeframes for implementing specific aspects of the obligations regarding tendering procedures
DR can apply certain offsets for a period of 15 years

29. SDT in the WH: DR-CAFTA (6)
Financial services: commitments on investment advice and portfolio management services subject to longer implementation timeframes in DR and El Salvador. Commitments on insurance shall be effective by 2011 in Costa Rica
Telecom: a two year period to ensure that a major supplier in DR and CA territories provides interconnection at cost-oriented rates
Telecom in Costa Rica: gradual opening of private networks, Internet and mobile phone services. A new regulatory framework by 2006 based on certain principles

30. SDT in the WH: DR-CAFTA (7)
Intellectual Property:
Longer timetables for the implementation of certain obligations on trademarks, domain names in the Internet, geographic indications, copyrights and related rights, protection of satellite signals, patents, enforcement, border measures, limitations on liabilities for Internet Service Providers, and the accession to certain IP international agreements, including UPOV, Trademark and Satellite Conventions

31. SDT in the WH: DR-CAFTA (8)
Labor:
capacity building programs may be established, including possible technical assistance
Environment:
Identifies the need to create a framework to define possible cooperation projects

32. SDT in the WH: DR-CAFTA (9)
Trade Capacity Building:
A Committee is established to foster trade-driven economic growth, poverty reduction, and adjustment to liberalized trade. A Working Group on Customs Administration and Trade Facilitation is also convened under this Committee

33. General observations on SDT in the WH
Andean Community, CARICOM and ALADI contain several provisions on management of asymmetries. Most of texts are “best endeavor clauses”
MERCOSUR and the CACM make some differentiation in favor of LDCs, but the concept of equality among members is more deeply rooted
North/South agreements –NAFTA, Chile/US, and DR/CAFTA- are based on the principle of reciprocity and contain stringent commitments. While longer timeframes for implementing some obligations were negotiated -usually in favor of the smaller countries- only DR/CAFTA envisages several capacity building and cooperation programs in key areas and provides for limited flexibility

34. Mapping out TRCB in the WH
Emergence of TRCB is the product of:
proliferation of North/South agreements;
inclusion of beyond the border measures in those agreements
perceived insufficiencies of the Washington Consensus: new role for institutions;
difficulties in implementing the Uruguay Round in developing countries;
economic development tests versus cost/benefit analyses of trade agreements

35. TRCB in the WH: the FTAA
Establishment of the Hemispheric Cooperation Program
Evolution of the HCP:
Definition of National Strategies
Round table of Donors and Beneficiaries
Coordinating role of the IADB
The Canadian Trust Fund

36. TRCB in the WH: DR-CAFTA (1)
Donors: IADB, US agencies, BCIE, World Bank, OAS, ECLAC
IADB’s programs (defined with participation of governments):
Reimbursable:
Trade and Competitiveness Loans: Costa Rica, El Salvador, DR
Special Trade Facility: Guatemala, Nicaragua, Honduras, DR

37. TRCB in the WH: DR-CAFTA (2)
Non-Reimbursable:
Private Sector: MIF program with Fedcaexca: NTMs and export requirements
Implementation seminars:
Origin regime and verification
Labor and trade workshops with Ministers
Environment and trade technical cooperation
Discussion with Congresses: Guatemala
Discussions with the Press

38. TRCB in the WH: Col,Per,Ec-US FTA (1)
Donors: IADB, US agencies, CAF, World Bank, OAS, ECLAC
IADB’s programs (defined with participation of governments):
Reimbursable:
Special Trade Facility: Peru, Ecuador, Bolivia
Competitiveness loans in preparation for Colombia and Ecuador

39. TRCB in the WH: Col,Per,Ec-US FTA (2)
Non-reimbursable:
Training workshops with negotiators
Workshops with journalists
Sharing negotiators experiences
Workshop on administration of FTAs
Private Sector: MIF program similar to CAFTA

40. TRCB in the WH: other donors
WTO/INTAL
CDB
CIDA
Specialized UN agencies EU
DFID

41. Observations on TRCB in the WH
Programs promote cooperation processes between donors and beneficiaries to determine the content of TRCB programs
Defined with domestic needs and priorities in mind and are economically and institutionally sound
Superior than similar multilateral efforts
Reimbursable and non-reimbursable programs
Effectiveness is yet to be seen: too early to tell!!!
TRCB should not be oversold. Can not overcome most development bottlenecks. Just one policy of many required to foster development

42. Conclusions (1)
Management of asymmetries in trade agreements in the WH varies by agreement: no general rule. Not similar to traditional WTO approach. More reciprocity.
North/South agreements are reciprocal in nature, but try to address sensitivities in developing countries through a mix of transitory measures, plus some SDT and TRCB conceived in hortatory terms that have yet to show its effectiveness

43. Conclusions (2)
In comparison to traditional SDT and TRCB in WTO, regional and subregional North/South agreements provide for less SDT, and more TRCB. However, the scope and depth of commitments in North/South FTAs is far deeper and more challenging for developing countries
Regional and subregional negotiations and their respective SDT and TRCB efforts are embedded in a much broader context of strategies, tactics and constraints of countries in the North

44. Conclusions (3)
No fundamental departure in this approach can be expected in new North/South FTA negotiations in the WH over the short term

45. Thanks!