Event 1. Module 2. The Converging Strands Between Trade and Investment Session Two: The mega regionals, impacts for members and non-members

Event 1. Module 2. The Converging Strands Between Trade and Investment Session Two: The mega regionals, impacts for members and non-members The different mega-regionals: groupings, agendas, contents and prospects Why now? What are the implications of mega regionals for members? What are the implications for non-members? How can the WBG help? Presenter: Barbara Kotschwar Resource person: Roberto Echandi

INVESTMENT POLICY AND PROMOTION WEEK The mega regionals, impacts for members and non-members Day 1 [2] Barbara Kotschwar Vienna October 12, 2015

OUTLINE A. Introduction B. The mega-regionals: groupings, agendas, contents and prospects 1.The Trans-Pacific Partnership (TPP) 2.The Trans-Atlantic Trade and Investment Partnership (TTIP) 3.The Regional Comprehensive Economic Partnership (RCEP) C. Implications 1.Implications for members 2.Implications for non-members D. How can the WBG help?

Introduction Rise of so-called mega regional trade agreements. Why now? Slowdown in multilateral talks Bali 2013 Trade Facilitation Agreement important, but multilateral trade talks lack energy Rise of plurilaterals: ITA, TiSA, EGA, etc. Implications for the WTO system?

Overlaps and complementarities Source: Chaisse (2105) Noodle bowl of trade and investment agreements: FTAs, PTAs, BITs and IIAs Will the megaregionals help spur greater multilateral liberalization?

What are the megaregionals? Trade agreements negotiated by multiple countries accounting for significant trade: TPP: 12 countries in the Asia Pacific region TTIP: a US-EU FTA RCEP: Asian integration, including China and India Put together, megaregionals represent about 60 percent of world GDP, 20 percent of world trade of goods and services and 25% of world FDI. If you add in RCEP, this grows to 80 percent of GDP and 60 percent of trade. The TPP and TTIP aim to go beyond WTO disciplines in 21 st century areas. Mega regional trade agreements are as much about investment as they are about trade.

Regional Geography Philippines Indonesia Thailand European Union RCEP Cambodia China Laos India Myanmar Korea Japan Australia Brunei Malaysia New Zealand Singapore Vietnam USA Canada TPP Colombia Peru Chile Costa Rica Mexico PACIFIC ALLIANCE TTIP + EU FTAs What about BRICs? What about small countries? 7

Megaregionals THE TRANS-PACIFIC PARTNERSHIP

The Trans-Pacific Partnership (TPP) TPP-12 Population (millions) GDP ($ billions HDI Goods exports ($ billions) Average MFN tariff Services exports ($ billions) Australia 24 1444 0.933 253 2.7 52 Brunei 0 15 0.852 11 2.5 1 Japan 127 4616 0.902 715 4.9 145 Malaysia 30 327 0.822 228 6.0 40 New Zealand 5 198 0.890 39 2.0 13 Singapore 5 308 0.773 410 0.2 122 Viet Nam 91 186 0.756 132 9.5 10 Canada 35 1789 0.910 458 4.2 78 Chile 18 258 0.737 77 6.0 13 Mexico 120 1283 0.901 380 7.9 20 Peru 31 203 0.914 42 3.4 6 United States 319 17419 0.638 1580 3.4 662 TPP total 805 28046 n.a. 4326 4.4 1163 World 7260 77301 19002 4644

The Trans-Pacific Partnership (TPP) TPP members represent almost 40% of global GDP and 25% of global exports. TPP-12 are like minded in pursuit of comprehensive liberalization covering goods and services, and WTO-plus rules on investment, competition, labor, environment, etc. TPP-12 are not fully alike in terms of size and development status. But TPP will allow asymmetric implementation of common obligations. TPP can serve, as did NAFTA, as a means for participants to lock-in economic reforms or to spur trade and investment climate reforms for countries seeking to join. Pathway to further trade and investment liberalization? 10

TPP: Broad Objectives Expand opportunities for trade and investment in goods and services. Develop comprehensive new 21 st century rulebook including WTO-plus areas. Upgrade existing trade and investment pacts among TPP-12. Reinforce economic and strategic/political ties among Asia- Pacific countries Establish foundation for broader Asia-Pacific and multilateral trade accords Stepping stone to APEC goal of Free Trade Area of the Asia- Pacific (FTAAP)? 11

TPP coverage 30 chapters on traditional and new issues Market access: eliminate tariffs (expect some exceptions) and other barriers to goods and service Trade facilitation: Regulatory coherence Mechanisms for interagency consultation; good regulatory practices; transparency Transparency in customs procedures Competitiveness- boost regional production and supply chains 12

TPP coverage Investment: NT and MFN; minimum standard of treatment, right of establishment, prohibition of performance requirements; negative lists of precluded investment, repatriation rights and ISDS Services trade: prohibits quantitative restrictions; accepts obligations on a negative list basis; Financial Services: provides for the sale of certain financial services across borders to a TPP Party from a supplier in another TPP Party rather than requiring suppliers to establish operations in the other country in order to sell their service 13

TPP coverage Intellectual Property Rights: strong, state-ofthe-art, and balanced rules Patents, TMs, copyrights, trade secrets (including safeguards against cyber thefts) Digital economy Chapter on E-commerce and telecommunications TPA language on digital trade in goods and services Competition policy and SOEs: commercial considerations and fair competition Transparency 14

TPP coverage Government Procurement: Non-discrimination and transparency; positive list Labor: Parties agree to adopt and maintain laws according to ILO fundamental labor rights Environment: Parties agree to effectively enforce their environmental laws; and not to weaken environmental laws in order to encourage trade or investment Development: 3 areas for collaboration: (1) growth; (2) women and (3) education SMEs: commitment to develop websites aimed at SMEs SME Committee; support to SMEs 15

TPP prospects Will the TPP be ratified? If ratified, will TPP lead to an FTAAP? What will be the effect on members? Nonmembers? The international commercial system?

Megaregionals THE TRANS-ATLANTIC TRADE AND INVESTMENT PARTNERSHIP

The Transatlantic Trade and Investment Partnership (TTIP) Members: United States and the EU 28 Combined GDP of about 46 % of world GDP; goods and services exports of $1.1 trillion, about 6 % of world exports and direct investment of about $3.9 trillion (about 16% of world outward investment). Negotiations are still ongoing; 10th round finished in July 2015 US and EU have many common FTA partners Key goal: regulatory coherence

The Transatlantic Trade and Investment Partnership (TTIP) Shared Principles for International Investment: Open and Non-Discriminatory Investment Climate Broad market access, allowing investor to establish investment and conduct business on MFN, NT terms Level Playing Field competitive neutrality between SOEs and private firms Strong Protection for Investors and Investments Highest legal certainty and protection Fair and Binding Dispute Settlement Robust Transparency and Public Participation Responsible Business Conduct for MNEs Promote adherence to OECD Guidelines for Multinational Enterprises Narrowly Tailored Reviews of National Security Considerations

The Transatlantic Trade and Investment Partnership (TTIP) Proposals for TTIP investment chapter include: Detailed investment protections EU proposal for the establishment of an International Investment Court to resolve TTIP disputes in place of an ISDS mechanism Right to regulate Arbitral tribunals Appellate mechanism

Megaregionals THE REGIONAL COMPREHENSIVE ECONOMIC PARTNERSHIP (RCEP)

The Regional Comprehensive Economic Partnership (RCEP) A third megaregional? Members: 10 ASEAN members (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Viet Nam) and their six FTA partners (Australia, China, India, Japan, Korea and New Zealand) Large membership but lower level of ambition in provisions than TPP or TTIP Possibility to help untangle Asian noodle bowl of IIAs

The megaregionals IMPACTS

Impact on members TTIP gains: export gains of about $70 billion within 10 years; significant investment gains, but hard to forecast (Hufbauer and Cimino 2015). TPP gains: differ depending on degree of current free trade with members (Petri et al)

TPP: Payoff from a Comprehensive Deal TPP: Income gains in 2025 (change in 2025 baseline in $2007 billion and %) Country TPP-12 TPP-16 FTAAP United States 76.6 0.4% 108.2 0.5% 295.2 1.5% Japan 104.6 2.0% 128.8 2.4% 227.9 4.3% Canada 8.7 0.5% 12.4 0.6% 31.4 1.6% Mexico 9.9 0.5% 31.2 1.0% 73.7 3.9% Peru 3.9 1.2% 5.4 1.4% 6.2 1.9% Vietnam 35.7 10.5% 48.7 14.3% 81.1 23.9% TPP countries 285.0 0.9% 572.6 1.5% 2,279.6 2.2% China -34.8-0.2% -82.4-0.5% 837.1 4.9% Europe -3.7 negl. -4.9 negl. -36.4-0.2% World 223.4 0.2% 450.9 0.4% 2,358.5 2.3% negl. = negligible ; FTAAP = Free Trade Area of the Asia-Pacific Source: Petri, Plummer, and Zhai (2013), http://asiapacifictrade.org/. 25

Challenges: Mega regionals impact on nonmembers Diversion of trade in goods and services Diversion of investment Impact on supply chains Left out of rule-writing for international trading system

Opportunities: Mega regionals impact on nonmembers Opportunity to use emerging regional/multilateral framework to upgrade domestic investment climate Opportunity to accede to mega regional FTA Opportunity for regional upgrades

DISCUSSION GATT model of make it here, sell it there has evolved to make it many places, sell it to the world Global direct investment now totals around $25 trillion. WTO TRIMS Agreement only tangentially covers the relationship between trade and investment. Instead, investment norms are set by bilateral investment treaties (BITs now more than 2800) and FTAs, including the mega regionals. Megaregionals contribute to the evolution of an international investment regime. Can they help untangle the noodle bowl? Can the megaregionals inject energy into a lagging international trade system?

What the Bank Can Do Continue to work with member countries to support efforts to bolster the WTO/multilateral trading system Aid for Trade: help countries meet standards and obligations and continue to integrate more fully into the international trading system Assist countries in implementing Trade Facilitation agenda Technical assistance to countries implementing TPP provisions Conduct impact assessments of the TPP on non-member countries Technical assistance to help non-member countries prepare to accede to the TPP 29

What the Bank Can Do Continue to work with member countries to support efforts to bolster the WTO/multilateral trading system Aid for Trade: help countries meet standards and obligations and continue to integrate more fully into the international trading system Assist countries in implementing Trade Facilitation agenda Training on emerging trade and investment issues Technical assistance to countries implementing TPP provisions Needs assessment Strategies for implementation Regional approaches, where appropriate 30

What the Bank Can Do Conduct impact assessments of the TPP on non-member countries Training and educational initiatives to help policymakers understand new provisions in mega regionals Technical assistance to help non-member countries prepare to accede to the TPP Needs assessments Country strategies Regional approach, where appropriate 31

For further reading: TPP Petri, Peter. Asia-Pacific Trade. Website with research, data, updated impact analysis of the TPP and RCEP. Kotschwar, B and J. Schott. 2013. The Next Big Thing? Americas Quarterly. Spring. Schott, J. et al. 2013. Understanding the Trans-Pacific Partnership. PIIE Policy Analysis 99. January. Fergusson et al. 2015. The Trans-Pacific Partnership (TPP) Negotiations and Issues for Congress. Congressional Research Service. March. RCEP ADB information on the RCEP. Website with news items, research reports, etc. DFAT Australia site on the Regional Comprehensive Economic Partnership. Timeline of RCEP process, links to information, data. Petri, Peter. Asia-Pacific Trade. Website with research, data, updated impact analysis of the TPP and RCEP. TPP and RCEP Hamanaka, Shintaro. 2014. Trans-Pacific Partnership versus Regional Comprehensive Economic Partnership: Control of Membership and Agenda Setting. ADB Working Paper Series on Economic Integration. ADB. December.

For further reading: TTIP European Commission. 2013. Transatlantic Trade and Investment Partnership: the Economic Analysis Explained. September. Freund, Caroline. 2015. Gains from Harmonizing US and EU Auto Regulations under the Transatlantic Trade and Investment Partnership. PIIE. June. Foreign Affairs, Trade and Development Canada. 2013. Canada-European Union: Comprehensive Economic and Trade Agreement. Technical Summary of Final Negotiated Outcomes (October). Akman, Evenett and Low. 2015. Catalyst? TTIP s Impact on the Rest. VoxEU. Megaregionals World Economic Forum. 2014. Mega-regional Trade Agreements: Game Changers or Costly Distractions for the World Trading System? Hufbauer, G and C. Cimino. 2015. How will TPP and TTIP Change the WTO System? Journal of International Economic Law. September 18(3). E-15 Initiative. Stoler, A. 2013. Will the WTO have Functional Value in the Mega-Regional World of FTAs? Draper, et al. 2014. Mega-Regional Trade Agreements: Strategic Implications for South Africa. SAIIA.

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