Mega Regionals and the Developing Countries

Abstract

Since the stalling of the Doha Round – which was designed to be development friendly – the world is awash in mega regionals. Major negotiations currently underway include the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP), the Trade in Services Agreement (TISA), and the Regional Comprehensive Economic Partnership (RCEP), a negotiation that subsumes the China-Japan-Korea (CJK) negotiation, a mega regional in its own right, as well as the ASEAN Economic Community which is slated to come into force in 2016 and might be considered something of a mega regional as well. In addition, a number of other FTAs involving the world’s 10 largest economies (including bilaterals among various combinations of the United States, the EU, China, Japan, Korea, Canada, and Australia) have recently been concluded or are engaged.

How development-friendly is the current framework for trade and investment liberalization? This paper evaluates a number of features of the mega regionals that bear on this question: preference creation for trade in goods and services, regulatory competition/cooperation, rules of origin, preferential investment liberalization, intellectual property rights, disciplines on state-owned corporations, and financial sector regulation/exchange rate disciplines. The general conclusions are that (a) overall, the mega regionals are likely to impose costs on developing countries and the Doha Round would be a better deal for developing countries; (b) liberalizing rules of origin and investment liberalization serve to mitigate the general negative effects of mega regionals on developing countries; and (c) even if the mega regionals do not succeed (a distinct possibility in view of past failures such as the FTAA and FTAAP), the work on identifying paths forward may still be valuable in contributing to a conclusion of the Doha Round when a sufficient gestation period for that agreement has passed.

Keywords: Mega regionals, TPP, TTIP, TISA, RCEP, CJK, ASEAN Economic Community, trade diversion, market regulation, rules of origin, economic development

JEL Classification: F13, F63