Transcript International Negotiations and Trade Policy

International Negotiations
and Trade Policy
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Preferential Trading Agreements
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Nations establish preferential trading
agreements under which they lower tariffs
with respect to each other but not the rest of
the world.
The GATT-WTO, through the principle of nondiscrimination called the “most favored nation”
(MFN) principle, prohibits such agreements.
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The formation of preferential trading agreements is
allowed if they lead to free trade between the
agreeing countries.
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International Negotiations
and Trade Policy
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Free trade can be established among several
WTO members as follows:
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A free trade area allows free-trade among
members, but each member can have its own trade
policy towards non-member countries.
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A customs union allows free trade among
members and requires a common external trade
policy towards non-member countries.
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Example: The North American Free Trade Agreement
(NAFTA) creates a free trade area.
Example: The European Union (EU) is a full customs
union.
A common market is a customs union with free
factor movements (especially labor) among
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members.
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International Negotiations
and Trade Policy
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Are preferential trading agreements good?
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It depends on whether it leads to trade
creation or trade diversion.
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Trade creation
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Trade diversion
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Occurs when the formation of a preferential trading
agreement leads to replacement of high-cost domestic
production by low-cost imports from other members.
Occurs when the formation of a preferential trading
agreement leads to the replacement of low-cost imports
from non members with higher-cost imports from
member nations.
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Trade Diversion – Good or Bad
Importing Country
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Consumer Surplus
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Producer Surplus
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- (c + e)
National Welfare
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-a
Govt. Revenue
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+ (a + b + c + d)
+ (b + d) - e
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Trade Creation-1
Importing Country
FTA with country a
 Consumer Surplus
 + (a + b + c)
 Producer Surplus
 -a
 Govt. Revenue
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0
National Welfare
 + (b + c)
Trade Creation (imports) from “0” to
D2-S2 from country a
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Trade Creation -2
Importing Country
Price, P
Free Trade Area
S
Signed with country c, which
has comparative
advantage in producing
the good.
Trade Create:
M1-M2=all the extra imports
Welfare analysis?
Pa+t
Pc+t
Pa
Pc
D
S1 D!
S2
D2
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M2
Quantity, Q
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AD- Trade Restriction and Trade Diversion
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Importing Country
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Level of Import Restriction:
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Level of Import Diversion from
country A to country C:
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[(D1 - S1) - (D2 - S2)]
[(D2 -S2) - (D3 - S3)]
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Summary
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There are three arguments in favor of free
trade:
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The efficiency gains from free trade
The additional gains from economies of scale
The political argument
There are two arguments for deviating from
free trade:
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The terms of trade argument for a tariff
The domestic market failures
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Summary
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In practice, trade policy is dominated by
considerations of income distribution.
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Political parties adopt policies that serve the interests
of the median voter.
Groups that are well organized (or small groups) are
often able to get policies that serve their interests at
the expense of the majority.
And considerations of the trade policies in the
world economy - WTO
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The WTO
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The Uruguay Round
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Its most important results are:
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Trade Liberalization
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Trade liberalization
Administrative reforms
The average tariff imposed by advanced countries
decreased by almost 40%.
 More important is the move to liberalize trade in two
important sectors: agricultural and clothing.
From the GATT to the WTO
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Much of the publicity surrounding the Uruguay Round
focused on its creation of the WTO.
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The WTO
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How different is the WTO from the GATT?
The GATT was a provisional agreement, while the
WTO is a full-fledged international organization.
 The GATT applied only to trade in goods, while the
WTO included rules on trade in services (the General
Agreement on Trade in Services (GATS)) and on
international application of international property
rights.
 The WTO has a new “dispute settlement” procedure
which is designed to reach judgments in a much
shorter time.
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The WTO
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Location: Geneva, Switzerland
Established: 1 January 1995
Created by: Uruguay Round negotiations (1986-94)
Membership: 146 countries (as of April 2003)
accounting for over 97% of world trade.
Budget: 155 million Swiss francs for 2003
Secretariat staff: 560
Head: Director-General, Supachai Panitchpakdi
It does not have branch offices outside Geneva.
Since decisions are taken by the members
themselves, the Secretariat does not have the
decision-making role that other international
bureaucracies are given.
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Members - Developing Countries
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The WTO
Functions:
• Administering WTO trade agreements
• Forum for trade negotiations
• Handling trade disputes
• Monitoring national trade policies
• Technical assistance and training for
developing countries
• Cooperation with other international
organizations
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Dispute Settlement Procedure
of the WTO
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301 disputes have been initiated under the dispute
settlement system of the WTO since its creation less
than 9 years ago.
Country
Complaints/ Respondent
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Canada
United States
European Communities
China
Japan
India
24
75
62
1
11
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81
47
0
13
14
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The dispute settlement has
following stages
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Consultation between the Governments involved in the dispute.
60 days to reach a settlement.
The case is then examined by a panel body consisting of three
legal/technical experts. The Panel has six to nine months to
produce a detailed report.
If the Panel report is appealed, an Appellate body is set up
which takes two to three months to examine the appeal and
report its finding.
The DSB then decides if both the panel and the appellate report
is to be adopted. These reports can only be rejected by
consensus from all the parties involved. If the accused party is
found to be innocent the case stops there. If not then we move to
the third stage.
The accused government is given a reasonable period of time to
implement the DSB’s ruling.
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The dispute settlement has
following stages
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In case there is a dispute regarding the proper
implementation of the ruling: There is no clear
procedure to handle such disagreements.
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In case the accused government concedes to nonimplementation
 members generally agree that the complaining government
can seek compensation, suspension of concessions or
authorization to retaliate. The authorization is given by the
DSB within 30 days of the expiry of the time frame for
implementation. .
Any disagreements regarding the suspension of
concessions or retaliation are referred for
arbitrations.
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Case to be Discussed
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Choices
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Related to Canada
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Complaint by Canada
Complaint by another country regarding Canada, where
Canada is the respondent
Recent complaint to the Dispute settlement body
Or Old complaint which has been resolved
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Antidumping Legislation
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What is dumping?
AD legislation under the WTO agreement
Spread of AD legislation
AD law in the United States
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Softwood lumber
AD law in Canada
AD law in India (brief)-India has the largest
AD complaints in the world.
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Dumping is defined as
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When an exporter sells a product for export
to the importing country at a lower price than
the price at which the same (or similar)
product is sold in its own domestic market
Domestic price of exporter > Export price
Dumping = Price discrimination between
national markets
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