1. Competitive Liberalization: How it affects the Multilateral Trading System Jeffrey J. Schott Senior Fellow Institute for International Economics Prepared for the WTO Seminar on Regional Trade Agreements and the WTO Geneva, Switzerland November 14, 2003

2. Road map Competitive Liberalization: An Overview Proliferation of RTAs Objectives of Developed and Developing Countries Pros & Cons for the WTO Ensuring RTAs are complements to WTO

3. Competitive Liberalization Globalization Imperative to pursue pro- market reforms Increasingly involve Developing Countries Competition taking place across all regions: –Latin America –Asia –Africa/Middle East

4. RTAS in effect or under negotiation (as of May 2003)

5. Competitive Liberalization: Developed Country Objectives Level the playing field in competition against other suppliers from industrial countries. Protect investment interests. Promote common objectives in multilateral negotiation. Support foreign policy objectives.

6. Competitive Liberalization: Developing Country Objectives Contribute to economic growth. Insurance policy against new protectionism, Lock in domestic reforms. Spur infrastructure investment. Promote better relations with neighbors and close trading partners.

7. Benefits of the RTA Strategy Maintain momentum of trade liberalization –Deeper cuts than in WTO but by fewer countries –Easier to conclude deals (though maybe not super-regionals) Learning by doing –Establish precedents/models for other negotiations –Education on complexities of trade reforms and implementation problems

8. Drawbacks of the RTA Strategy Trade and investment diversion Overlapping jurisdictions (a.k.a. the Spaghetti Bowl) Attention/resource diversion from WTO negotiations Bad precedents (re rules/exceptions) Spawns WTO foot-draggers?

9. Promoting complementary WTO reforms Improve WTO rules for RTAs –Indicative guidelines for rules of origin and contingent protection –Commitment by RTA members to harmonize and lower their MFN tariffs over a 10-year period More active surveillance after pacts enter into force –TPRM ex post analysis –External assessment of RTA impacts after 5-7 years Continue to advance WTO reforms!