Distinguished Speaker Seminar: Richard Baldwin - Ideas for a WTO Action Plan on Regionalism: Implications for Asia

Richard Baldwin, Professor of International Economics, Graduate Institute of International Studies, Geneva, and Policy Director, Centre for Economic Policy Research, presented his ideas for a WTO action plan on regionalism at a distinguished speaker seminar on 26 November 2007.

Baldwin pointed out three facts:

1. the world trade system is marked by a motley assortment of discriminatory trade agreements, known as ‘spaghetti bowl' or ‘noodle bowl';
2. more countries are now involved in free trade agreements (FTAs), so regionalism is here to stay; and
3. this tangle of trade deals is a bad way to organize world trade because it is inefficient and unfair.

The implication is that the spaghetti bowl's inefficiencies and unfairness are going to increase as more countries are involved in FTAs. The spaghetti bowl makes trade unfair, especially for the small countries that have to take the rules-of-origin (ROO) created by the world's trade hegemons such as the US and EU because they have no negotiation leverage. These spaghetti bowl's inefficiencies and unfairness are increasing not only in trade, but also in other sectors of the economy, which is anti-development and bad for the world trade.

Since regionalism does exist, the world must find a solution to work with existing regionalism, not against it. Professor Baldwin argued that the solution is to multilateralize regionalism and make it as multilateral-friendly as possible.

Baldwin mentioned that hard-law ideas for a WTO Action Plan on regionalism would not work because of ‘grandfather' problems and that only developing countries will face tighter discipline, which is not politically tenable. He instead suggested using soft-law ideas. That is, negotiate voluntary best-practice guidelines for new RTAs and modifications of existing RTAs. The WTO can organize a hierarchy of best-practice guidelines for North-North, North-South and South-South RTAs. Also, negotiate an intermediate WTO on RTA that is somewhere between Article 24 and the Enabling Clause.

After presenting the 'families' of ROOs, he suggested taming the ROOs by encouraging nations to harmonize their ROOs on a regional basis; make regionalism development friendly by establishing WTO advisory services and/or a centre on RTAs for developing nations; and creating scope for development-friendly ROOs by encouraging nations to expand the cumulation zone of their RTAs to include as many developing country partners as possible.

If the WTO continues to be an innocent bystander in the massive spread of regionalism, it will face the risk of erosion of the WTO system and its relevance. At this point, however, the WTO is probably the only international organization that is well-placed to help tame the tangle of free trade deals at the global level. Thus, it has a clear incentive to do so. He reminded the audience that the GATT/WTO survived because it adapted to new realities. Today's new reality is regionalism, and WTO must adapt to it. This should be reflected in the WTO Action Plan on Regionalism.

Turning to Asia, Professor Baldwin has noted the growing 'noodle bowl' in the region such as AFTA, ASEAN+1's and Japan's bilateral arrangements with individual countries in Asia. Some Asian countries such as the Republic of Korea, Thailand and Singapore have extra-regional RTAs. Thus, overlapping ROOs are increasingly becoming a problem. While ASEAN ROOs have not yet been used much, NAFTA-like ROOs could come to Asia through extra-regional FTAs such as FTA with Chile, Mexico, Peru and the US, and the Pan-European Cumulation System (PECS), or single list rule through FTAs with the European Union. The problem with Asia is that it lacks regional coordination. In this regard, Professor Baldwin suggested that the ASEAN's Secretariat's capacity should be strengthened. He also suggested forming an East Asian coalition to participate in talks on regional harmonization of ROOs and to make the system of Asian ROOs more development friendly.

Baldwin concluded by suggesting that the WTO should act as a coordinator to facilitate in multilateralizing the existing regionalism rather than do nothing. A well functioning WTO system is critical to all East Asian economies.