Trade

Regional economic communities: integration to compete and pathway to inclusive globalisation

 

Remarks by Angel Gurría, OECD Secretary-General - Saint Petersburg International Economic Forum 2013


Saint Petersburg, Russian Federation
20 June 2013

 

Deputy-Prime Minister Shuvalov,  Minister Aitzhanova,  Deputy-Minister Likhachev, Ladies and Gentlemen,

 

Globalisation is largely about participation in global value chains. But making the most of globalisation and successfully integrating these value-chains requires that enterprises enhance their competitiveness and raise their productivity.

  • Among the wide range of policies which can support these policy goals, regional integration initiatives like the EU single market or trade initiatives like the Transatlantic or the Transpacific Partnerships as well as the Eurasian Economic Community can play a useful role.


The EU single market provides a good example of successful regional trade integration initiative. Trade in goods between EU countries is twice as high as their share of GDP as compared with trade to non-EU countries. Trade flows between the “old” and “new” EU states is up almost 30% since EU enlargement.

 

If properly designed around the principle of open markets and cross-border convergence of regulations, regional integration can play a key role in giving customers more choice; in increasing competition leading to lower prices; by giving companies access to new business opportunities as well as the possibility of maximising economies of scale; while at the same time facilitating access to higher quality inputs, a prerequisite for enhanced competitiveness in a world of rapidly expanding value-chains.  

 

  • There is currently a seemingly “irresistible” move towards greater regional economic integration via more integrated trade regimes. At the OECD, we believe this is a very positive step forward.


Just two days ago at the G8 Summit in Lough Erne, the US and the EU announced the formal launch of negotiations on the TTIP – the Transatlantic Trade and Investment Partnership.


If successfully concluded, TTIP would be the most significant bilateral Free Trade Agreement to date - covering 50% of global GDP, almost 30% of world merchandise trade, and 20% of global FDI.


This agreement is much less about classic trade barriers at the border – that are at fairly low level between the US and the EU - than about the myriad of regulatory measures and standards that increase costs and place unnecessary obstacles in the way of business between the US and the EU. In this regard, very large benefits would be expected from the agreement - in the range of 3% of GDP.


This would undoubtedly offer a boost of confidence to economic operators and a much-needed, fiscally free stimulus to the global economy. So, yes, definitely, let’s get it done! Let’s go for it!

  • In the same vein, the setting-up of a Eurasian Customs Union (ECU) can potentially be a positive development.


The most recent developments in Eurasia clearly represent a striking departure from what we’ve seen for most of the last 20 years. The Eurasian Customs Union, the latest Russian-led initiative in the region, is ambitious, at least more than previous initiatives, which turned out to be largely declarative and did not achieve the expected results. The new ECU has a stronger institutional framework [see briefing], it is being implemented in ways that previous agreements never were, and it is based on a system of rules harmonised with the WTO regime.  


I hear and understand the concerns of the proponents of a truly and vivid global multilateral system. The proliferation of regional agreements raises the risk of a capture of the international system by a few powerful sovereign states which would like to escape global multilateral disciplines - which they regard as overly stringent, complex and unwieldy, and finally insufficiently amenable to their needs and objectives.

 

This fragmentation, the “multilateralists” say, will gradually undermine the entire multilateral system and lead to its outright collapse. Countries will no longer engage in ambitious multilateral negotiations – be it on trade or climate change - directly at the global level.

 

  • We, at the OECD, think that you need both, regional integration and an effective multilateral system.


We need to be creative to unlock the current deadlock and give a new momentum to the multilateral system. Deep regional integration efforts can help by providing a stepping stone to wider arrangements and - why not? – to truly global ones, bringing us right back to the multilateral trading system and to the centrality of the WTO. 


But for bilateral or regional agreements to become building blocks for future multilateral initiatives they must meet a number of conditions: they need to be ambitious, to break new ground in sensitive areas, keep participation as open as possible, and to be essentially non-discriminatory in nature. If these conditions are met, it will be easier for regions that are already deeply integrated to link to other regions, and for regional integration to be a building block rather than a stumbling block to inclusive globalisation. An interesting example is the current interest in multilateralising “WTO-plus” provisions of existing Regional Trade Agreements.


This would represent a new – “bottom-up” - approach to the gradual design of multilateral regulations.

  • This is an area where a global organisation such as the OECD can play a pivotal role.

 

This “new regionalism” is indeed  likely to run up against the so-called “spaghetti bowl” problem – an expression once coined by Jagdish Bhagwati – which refers to the multiplication of (partially) overlapping FTAs and other regional trade agreements. For example, when countries participate in multiple trade agreements of this kind, unanticipated complexities arise when they try to address things like rules of origin. On the one hand, given the complexity of global supply chains, businesses will require support to help untangle the “spaghetti”  and reap maximum value from increased trade and economic integration. 

 

On the other hand, governments must increasingly juggle national development objectives and their obligations under regional initiatives, while navigating the requirements of the overall trading environment.


Hence the central role of institutions such as the OECD that can help in ensuring coherence across the wider global governance system: You can count on us to help turn future regional trade agreements into the foundations of a renewed multilateral system and prevent “new regionalism” from being the gravedigger of multilateralism.

 

Thank you

 

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