Mega-regionalism and Great Power Geo-economic Competition

Xianbai Ji

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000454970
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Treaties
• Index: Politics & International Relations

The regional trade governance architecture is in flux. The latest wave of regionalism in the form of mega-regional trade partnerships between countries with major shares of the world economy occurred in the aftermath of the Global Financial Crisis of 2008-09. The most systematically important mega-FTAs included the Trans-Pacific Partnership led by the United States (US), the China-backed Regional Comprehensive Economic Partnership, and the Transatlantic Trade and Investment Partnership between the European Union (EU) and the US.

Drawing on policy diffusion and competitive regionalism literatures, Xianbai Ji develops an innovative model of competitive spill-over to uncover the historical and contemporary sources of mega-regionalism resulting from a temporal clustering of mega-FTA initiatives from great powers. In the book, mega-FTA is conceptualised as an instrument of geo-economic competition between the US, China, and the EU. Each aspired to leverage its mega-FTA to gain an edge over its rivals in economic, geopolitical, and legal terms. Through a mix-method research strategy involving computable general equilibrium modelling, game theory, desk research, and perception survey, Ji generates an impressive chorus of quantitative, qualitative, and perceptual data demonstrating that the rise of mega-regionalism was driven by the multidimensional competition between the US, China, and the EU over international economic benefits, geopolitical influence, and the authority to write rules governing emerging trade issues.

This book will attract academics, think tankers, practitioners, and postgraduate students interested in regionalism, international trade, international political economy, applied trade policy analysis, great power competition, geo-economics, and international relations.

1 Regionalism

An Introduction

DOI: 10.4324/9781003177067-1

Introduction

Regional trade agreements (RTAs) have been an integral part of the evolving transnational trade governance architecture (Velut et al. 2018). They are also an intrinsic fixture of rules-based international economic relations emerged in the aftermath of the World War II when Bretton Woods institutions were set up to supply various global public goods ranging from macroeconomic stability to development financing and trade openness. Although they produce highly uneven economic benefits across countries (Gowa and Kim 2005), the rules-based system in general and RTAs in particular have entrenched as important international guardrails within which national policymakers conduct economic policies in a globalised world. In the trade lexicon of the World Trade Organisation (WTO), an RTA is a reciprocal trade liberalising treaty that involves two or more partners but fewer than all WTO members. Depending on the customs arrangement separating contracting parties and the wider world of non-members, RTA can be further distinguished into two types: free trade agreement (FTA) and customs union (CU) (Krueger 1997). In an FTA, free trade partners swap trade preferences among themselves, leaving their respective trade regimes governing trade with third-parties untouched. The members of a CU, by contrast, not only liberalise trade internally but also erect a common external tariff structure to regulate goods imported into the integrated customs territory. As such, an FTA necessitates provisions on rules of origin (ROOs) to prevent transhipment of goods through the partner that charges the lowest external tariffs (Shibata 1967), while a CU typically institutes mechanisms to redistribute tariff revenues collected at the shared customs borders.

As exceptions to the “Trade without Discrimination” principle of the WTO embodied chiefly in the most-favoured-nation (MFN) clause, FTA and CU are legally permitted under conditions pursuant to the General Agreement on Tariffs and Trade (GATT) Article XXIV¹ (Chase 2006, Mathis 2002). Specifically, the GATT/WTO law gives green light to RTAs provided that they constitute “voluntary agreements” of liberalising “substantially all the trade between the constituent territories” within “a reasonable length of time” in a way that does not raise barriers for or discriminate against non-participating economies.² The salience of RTAs in the prevailing international trading system is, above all, manifested in the sheer surge in their numbers over the past decades. Since the establishment of the European Economic Community (EEC) through the Treaties of Rome – the first ever RTA notified to the GATT/WTO in 1957 and still active today – the number of FTAs and CUs has increased explosively as evidenced in the sharp upward trend depicted in Figure 1.1. As at June 2021, a total of 565 physical RTAs have been notified, of which 349 are currently in force. Participation in RTAs and enthusiasm for trade regionalism are also ubiquitous with all WTO members taking part in at least one regional trade accord. The average number of RTAs that a typical WTO member has is approximately 13 (van Marrewijk 2017).

Figure 1.1 RTAs in force (by year of entry into force), 1948–2020

Source: Author’s illustration based on WTO RTA Database.

While RTAs come in all shapes and sizes, differing with respect to type, membership composition, geographic spread, liberalisation depth and scope, and external openness, their evolution from the 1950s till present day has displayed four broad trends. The first is that CU, popular in the early days of regionalism, has steadily become an obsolescent enterprise which appears to have outlived its policy usefulness (Andriamananjara 2011). Countries are increasingly antipathetic to pooling external trade policies through forming CUs. Even the United Kingdom refused to stay in a CU with the European Union (EU) after Brexit in favour of an FTA-style agreement. Therefore, RTAs and FTAs are progressively indistinguishable. For this reason, the term “FTA” is more widely used in this book for its popularity beyond academia and in policy narratives.

The second trend relates to a conscious drive towards deeper and broader FTAs. More governments than not have since the 2000s onwards elected to rise above merely reaffirming the WTO rulebook in agreeing to FTA provisions that are WTO-plus and WTO-extra in nature (Acharya et al. 2011, Baldwin 2011). WTO-plus obligations, while dealing with issue areas within the mandate of the WTO, go deeper than existing multilateral rules. WTO-extra commitments refer to new trade disciplines applicable to emerging policy areas currently lying outside the purview of the WTO. As Figure 1.2 illustrates, the most incorporated WTO-plus and WTO-extra elements in modern FTAs are technical barriers to trade (TBTs), sanitary and phytosanitary measures (SPS), competition and intellectual property rights (IPRs), whereas E-Commerce and labour provisions are relatively less adopted by FTA signatories. The growing acceptance of WTO-plus and WTO-extra disciplines within FTA frameworks point to the fact that countries are moving away from “negative integration” in terms of removing discriminatory border measures to “positive integration” of developing common trade rules and regulatory standards (Lawrence 1996). As more agreements are referred to as EPAs (economic partnership agreements) or CEPs (comprehensive economic partnerships) instead of FTAs, a profound transformation from trade liberalisation towards trade co-operation is taking place on the landscape of regionalism.

Figure 1.2 The cumulative number of WTO-plus and WTO-extra provisions in active RTAs

Source: Author’s illustration based on WTO RTA Database.

The third evolutionary pattern is that the geographic spreads of FTA participating economies have come to be broader and more diverse. In the burgeoning phase of trade regionalism, intra-regional trade agreements that arose between neighbouring countries from conventionally defined regions were the main game in town; but nowadays efforts to forge long-distance and bespoke trade partnerships cutting across regional boundaries are in vogue given the abundance of transcontinental, inter-bloc and region-to-region FTAs. This picture has been referred to as “permeated regionalism” (Katada and Solís 2008). As shown in Figure 1.3, cross-regional FTAs accounted for only a third of all notified RTAs in the GATT era, while close to three-fifths of RTAs notified to the WTO in the first two decades of its existence were between economies from at least two geographic regions. A related point to note is that, in some parts of the world such as Europe, the advent of new larger trade groupings is routinely followed by subsuming geographically narrower FTAs, whereas in Asia, a region long resistant to regional trade liberalisation, such a process of consolidation is largely absent (Acharya et al. 2011, Baldwin 2011). Hence, a tangled web of intersecting and overlapping regional trade agreements has emerged in Asia and adjacent regions (Figure 1.4) where FTAs of varying sizes co-exist with each other (Aggarwal and Urata 2006, Dent 2006, Kawai and Wignaraja 2009, Sen 2006).

Figure 1.3 Cross-regional and intraregional RTAs notified to the GATT/WTO

Source: Author’s illustration based on WTO RTA Database

Figure 1.4 The convoluted regional trading architecture in the Asia-Pacific region

Note: AANZFTA=ASEAN-Australia-New Zealand FTA; ANZCERTA=Australia-New Zealand Closer Economic Agreement; ANZPAFTA=Australia-New Zealand-Pacific Alliance FTA; APTA=Asia-Pacific Trade Agreement; CJKFTA=China-Japan-Korea FTA; EAEU=Eurasian Economic Union; ECOTA=Economic Cooperation Organization Trade Agreement; FTAAP=Free Trade Area of the Asia Pacific; JEEPA=Japan-EU Economic Partnership Agreement; SAFTA=South Asian FTA; USMCA=US-Mexico-Canada Agreement.Source: Author’s illustration.

One last pronounced trend is that FTAs are growing more open and less discriminatory in implementation as well as in conceptualisation and negotiation in accord with the “open regionalism” principle. While arguably no FTAs thus far have lived up to the Asia-Pacific Economic Cooperation (APEC)’s aspirational goal of voluntarily multilateralising supposedly reciprocal trade concessions exchanged between FTA partners on an MFN basis (Garnaut 1994, PECC 1992, Drysdale, Elek and Soesastro 1998, Garnaut 2004), countries entering into FTAs have actively sought to lessen exclusivity and discrimination through some politically feasible means – building in an accession pathway for interested outsiders to sign up at a later stage of their choice is regarded as an international best practice. Recent examples include the 2017 admission of Panama into the Central American Common Market (CACM) and the joint accession of Samoa and Solomon Islands into the EU-Pacific States Interim Economic Partnership Agreement in 2020.

From a chronological point of view, the contemporary FTA landscape as sketched out above took shape over three waves of regionalism. The first wave occurred in the 1950s and the 1960s (WTO 2011) when post-war Europe started embarking on a journey of German-Franco reconciliation which sparked all-round regional economic, political, legal and security integration. The recasting of the European Coal and Steel Community mainly for centralising industrial production into a full-fledge EEC that implied a regional single market galvanised the subsequent creation of the European Free Trade Association in 1958 (a one-time rival pact to the EEC). European regionalism, coupled with the establishment of the Andean Pact and the CACM in the developing world, marked the acme of the inaugural period of regional trade liberalisation and integration. In the early to mid-1990s, the “second wave” of regionalism³ (Bhagwati 1999) unfolded in a post-Cold War world. The Southern Cone Common Market (MERCOSUR) formed in 1991; the Association of Southeast Asian Nations (ASEAN) Free Trade Area (AFTA) (Nesadurai 2003) and the European Single Market (ESM) came into existence in 1993; the North American Free Trade Agreement (NAFTA) (Tomlin and Cameron 2000, Hufbauer and Schott 2005),⁴ the Common Market for...