Transcript ECON3315 – International Economic Issues

ECON3315
International Economic Issues
Instructor: Patrick M. Crowley
Issue 4: GATT and the WTO
Overview
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GATT – some history and background
GATT rounds – how it worked
Uruguay round
GATT rounds – what was achieved?
Frustrations and deadlock
The WTO – organization
Dispute settlement mechanism
Case study: US gasoline
The Doha round
Issue: does GATT/WTO membership
increase trade?
GATT background
In mid-1920s US became more protectionist.
After 1929 stockmarket crash, Smoot-Hawley
Tariff Act enacted, raising US tariffs by up to 60%
Madsen (2002) estimates that effect of this and
retaliation by other countries (“beggar-thyneighbor”) reduced world trade by 14%
In 1944, US and
UK were
determined not to
let this happen
again, and so
idea of
multilateral
negotiations on
trade under an
ITO mooted
GATT – some history and background
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GATT was set up as part of Bretton Woods Conference in
1944. Idea was to house it under an ITO
First met in 1947 in Havana, Cuba and agreement signed by
23 countries
1947-51 (Torquay round): negotiations explored which
commodities covered by agreement – difficult task
1959-79 (Dillon, Kennedy and Tokyo): negotiations cut tariff
rates on a variety of commodities and extended areas.
1986-93 (Uruguay) extended GATT into new areas such as
services, capital, intellectual property and agriculture. 125
countries participated
1994: GATT agreed on formation of WTO the following year.
150 countries are members.
2001: WTO “hosts” the Doha round
2005: Deadline for completion of Doha missed after talks
break down in Cancun
GATT rounds – how it worked
i.
ii.
iii.
iv.
Negotiate about what you want to negotiate about
Negotiate details of tariff reductions
Negotiate opt-out clauses
Tie everything together into an agreement with possible
concessions where there are trade-offs between issues
Uruguay round
GATT rounds – what was achieved?
PLUSES
8 successful rounds led to
significant tariff reduction –
roughly 40% to 5% for
industrialized countries.
This boosted world trade –
comparison of exports after
WWI and WWII shows this.
Other “spin-off” side
agreements as common
interests understood (e.g. govt
procurement
MINUSES
Agriculture was “put aside” in
the 1955 talks, but is now
back on the table.
Anti-dumping measures and
VERs not tackled in the GATT
talks…
Source: Irwin, in Eichengreen (1995)
Also dispute mechanism poorly
designed
Frustrations and deadlock
In 1950s widespread frustration with the GATT process and
little progress made.
Caused some countries to decide to use Article XXIV to set up
a preferential trading area – e.g. European Community in
1958.
This led to a split in the economics profession, with Rudiger
Dornbusch (MIT) applauding these “regional trade
agreements” and Jagdish Bhagwati (Columbia) fiercely
opposing them as detracting from multilateral efforts.
Only in the Uruguay round did the impetus to reducing tariffs
resume and substantially expand on previous achievements
In Uruguay though, agriculture was a particularly contentious
issue as both the EU and the US have vested interests in
retaining protectionist measures in this area.
Decision in Uruguay round to begin talks in other areas, and
this required an umbrella organization, so WTO was
formed.
WTO
Director-General: Pascal Lamy (France)
HQ: Geneva, Switzerland
Staff: 635
Formed in 1995 to “house” the GATT as other negotiations began to
reduce trade barriers
Now we have GATT, GATS, and
TRIPS negotiations running
side by side in each round of
talks
WTO organization
3 previous DGs (3 year terms)
 Renato Ruggeiro (Italy)
 Mike Moore (NZ)
 Supachai Panitchpakdi (Thailand)
Principles
1. MFN = “Most favored nation”
Under the WTO agreements, countries cannot
normally discriminate between their trading
partners. Lower customs duty rate for one
country has to be extended to all other WTO
members.
2. “National treatment” = treating foreign firms as
if they were domestic firms
WTO organization
3. Transparency
“Binding” = getting countries
to commit not to increase
tariffs
This promotes predictability
and “transparency”
4. Promote freer trade to
underscore economic
advantages of
“comparative advantage”.
Dispute settlement mechanism
Revamped under Uruguay round
Panels of experts settle disputes
1995-2005:
332 dispute
cases raised
Only 132 went
to a full panel
Most settled
amicably “out
of court”
Case study: US imports of gasoline
United States applied
stricter rules on the
chemical
characteristicsof
imported gasoline
than it did for
domestically-refined
gasoline.
Venezuela (and later
Brazil) said this was
unfair because US
gasoline did not
have to meet the
same standards — it
violated the
“national treatment”
principle
The Doha round
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Doha round tried to put developing countries as the central focus
of this round
Round to address: agriculture, services, intellectural property,
anti-dumping, subsidies, regional agreements, environment, least
developed economies, Singapore issues — trade and investment,
trade and competition policy, transparency in government
procurement, trade facilitation
See: www.wto.org/english/tratop_e/dda_e/dohaexplained_e.htm
14th Sept 2003, on 4th day of meeting in Cancun, talks broke down
as Brazil and other developing countries walked out of the
meetings
Main issue agriculture and US and EU unwilling to budge:
EU’s Mandelson: "What they're saying is that for every dollar that
they strip out of their trade-distorting farm subsidies, they want to
be given a dollar's worth of market access in developing country
markets. That is not acceptable to developing countries and it's a
principle that I, on Europe's behalf, certainly couldn't sign up to
either.”
US’s Schwab: "We are deeply disappointed that the EU failed to
exhibit similar restraint and hope this will not jeopardise the few
chances we have left to save the Doha Round.”
Issue: does GATT/WTO membership increase
trade?
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Rose (2004) uses a gravity model to estimate whether WTO/GATT
membership boosts trade.
X = other variables
Initial answer was “no”
Rose then asked, does this mean that WTO doesn’t affect trade
policy
- answer here was definitive “no”
So question has to be asked: why no effect?
A: i) few demands placed on developing countries
ii) no progress on liberalizing agriculture or textiles
iii) many countries just substituted quotas for tariffs
iv) liberalization usually comes before membership
v) many other reasons why trade has grown post-WWII
Of course, not all economists agree with this view – some say that
the econometrics used is not sophisticated enough to pick up this
effect