1 Lecture 9 World Trade Arrangements and the WTO Econ 340 Lecture 9: WTO 2 Outline: World Trade Arrangements and the WTO • World Trade Organization – History, as GATT – GATT Rounds – WTO Today – Functions • Current Issues – Seattle Protests and Beyond – Doha Round – Disputes Lecture 9: WTO 3 World Trade Organization: History • 1930s: – Tariffs raised, almost to record levels – 1930 US Smoot-Hawley Tariff Act • Raised tariffs on 890 items • Prompted retaliation by other countries, who then also raised tariffs2 Lecture 9: WTO 4 Hawley Smoot Lecture 9: WTO 5 Source: Economist, “The battle of Smoot-Hawley,” December 18, 2008. Lecture 9: WTO 6 World Trade Organization: History • Mid-1940s: – Created IMF and World Bank at meeting in Bretton Woods, New Hampshire – US tried to create ITO = International Trade Organization – Interim agreement: GATT = General Agreement on Tariffs and Trade – When ITO failed to be approved (by US!), GATT governed trade policy by default3 Lecture 9: WTO 7 World Trade Organization: History • What GATT Does (GATT is still the largest part of WTO) – Rules for trade policy – Forum for negotiation • Of both trade policies (e.g., tariffs) and rules • Negotiations take place in “Negotiating Rounds” • Decisions made at occasional meetings of trade ministers: “Ministerial Meetings” Lecture 9: WTO 8 Outline: World Trade Arrangements and the WTO • World Trade Organization – History, as GATT – GATT Rounds – WTO Today – Functions • Current Issues – Seattle Protests and Beyond – Doha Round – Disputes Lecture 9: WTO 9 World Trade Organization: Rounds Rounds of GATT Multilateral Trade Negotiations No. Years Name Accomplishments 1-5 1947-61 Reduced tariffs4 Lecture 9: WTO 10 World Trade Organization: Rounds Rounds of GATT Multilateral Trade Negotiations No. Years Name Accomplishments 1-5 1947-61 Reduced tariffs 6 1964-67 Kennedy Tariffs + anti-dumping Lecture 9: WTO 11 World Trade Organization: Rounds Rounds of GATT Multilateral Trade Negotiations No. Years Name Accomplishments 1-5 1947-61 Reduced tariffs 6 1964-67 Kennedy Tariffs + anti-dumping 7 1973-79 Tokyo Tariffs + NTBs Lecture 9: WTO 12 World Trade Organization: Rounds Rounds of GATT Multilateral Trade Negotiations No. Years Name Accomplishments 1-5 1947-61 Reduced tariffs 6 1964-67 Kennedy Tariffs + anti-dumping 7 1973-79 Tokyo Tariffs + NTBs 8 1986-94 Uruguay Tariffs, NTBs, Services, Intellectual Property, Textiles, Ag., Dispute Settlement, Created WTO5 Lecture 9: WTO 13 World Trade Organization: Rounds Rounds of GATT Multilateral Trade Negotiations No. Years Name Accomplishments 1-5 1947-61 Reduced tariffs 6 1964-67 Kennedy Tariffs + anti-dumping 7 1973-79 Tokyo Tariffs + NTBs 8 1986-94 Uruguay Tariffs, NTBs, Services, Intellectual Property, Textiles, Ag., Dispute Settlement, Created WTO 9 2001-? Doha ? (Doha Development Agenda) Lecture 9: WTO 14 World Trade Organization: Rounds • How negotiations take place – Tariffs: • In early rounds, tariff cuts were negotiated between “principal supplier” country and “principal demander” country – Cuts are extended to all other members – But large countries dominate this process • In recent rounds, negotiations start with a formula for tariff cuts, then negotiate exceptions • Swiss Formula: Z = AX/(A+X) » X = initial tariff rate » A = coefficient and maximum tariff rate » Z = resulting lower tariff rate – Proposed by Switzerland in Tokyo Round – Reduces high tariffs more than low tariffs Lecture 9: WTO 15 World Trade Organization: Rounds • How negotiations take place – Rules: • Groups of countries draft changes, then persuade others • Again, large countries dominate6 Lecture 9: WTO 16 World Trade Organization: Rounds • Do small and poor countries lose? – They need not lose, if they participate in the process • They benefit from the “rule of law”: Otherwise the large countries would be even more powerful • By grouping together, small countries can also exert bargaining power – They may well lose if they do not participate: growth of trade may exclude them Lecture 9: WTO 17 Outline: World Trade Arrangements and the WTO • World Trade Organization – History, as GATT – GATT Rounds – WTO Today – Functions • Current Issues – Seattle Protests and Beyond – Doha Round – Disputes Lecture 9: WTO 18 World Trade Organization: Today • WTO Today – Established Jan 1, 1995 – Members: 159 • Most recent: Laos, Tajikistan 2013 • Including: China (as of 2001) • Not including: Iran, Iraq, N. Korea – Headquarters: Geneva, Switzerland (also home of ILO, WIPO, and others)7 Lecture 9: WTO 19 World Trade Organization: Today • WTO’s Three Parts 1. GATT (Still exists, as largest part of WTO) 2. GATS = General Agreement on Trade in Services 3. TRIPs Agreement = Trade Related aspects of Intellectual Property Rights Lecture 9: WTO 20 World Trade Organization: Today • WTO’s Two Basic Principles 1. MFN = Most Favored Nation • Each member country should treat all members as well as it treats its “most favored nation” (i.e., the member that it treats the best) 2. National Treatment • Once a product or seller has entered a country, it should be treated the same as products or sellers that originated inside that country (There are many permitted exceptions to both of these principles) Lecture 9: WTO 21 World Trade Organization: Today • WTO Decision Making – Decisions by consensus: all 159 countries must agree, at ministerial meetings – In practice, large and rich countries dominate this process • They first agree among themselves (This originally done in “Green Room”, hence “Green Room Group”) • Then seek consensus based on that – Is this “democratic”? • Yes: Every country has one vote • No: Rich countries dominate decisions in practice8 Lecture 9: WTO 22 Outline: World Trade Arrangements and the WTO • World Trade Organization – History, as GATT – GATT Rounds – WTO Today – Functions
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