WTO Handout - 1 - 10/26/03PP C253 – ARE C253 Elisabeth SadouletFall 2003Handout # 10Multilateral Trade Agreements I. PreliminaryHuge expansion of tradeSome presumptions that trade is good for countriesYet strong opposition movements to trade liberalization and globalization∑ Basic trade theories:Aggregate gains from trade (almost always)Two categories of arguments:Comparative advantage: Two countries will gain from trade whenever their relative prices ofgoods differ in absence of trade.Economies of scale: Expansion of the market through trade makes it possible to attaineconomies of scaleTheories ignore non-tradable goods, i.e., all goods will be either exported or imported.Distribution effects of trade: gainers and losersBy and large consumers will gain from lower prices of the imported goods. Most concernsabout the different producers.Examples:∑ Oil or mineral exports, coffee/cocoa: In aggregate: beneficial for the country.Yet, as with any export, it produces an appreciation of the real exchange rate.∑ Labor intensive goods for skill/capital intensive goods. Unskilled labor “rare”and skilled “abundant" in DCs, and the reverse in LDCs.Dynamic issues, industrialization strategies and trade policies∑ Problems with the primary exports model: sluggish demand, declining terms oftrade, fluctuating export earnings, few linkages, weak productivity growth.∑ Creating dynamic comparative advantage: Industrialization policies II. Brief historicCollapse of international trade ~1930s, with tariffs around 60% and retaliationCreation of GATT (General Agreement on Tariff and Trade) in 1947.Objective: Coordination mechanism to reduce tariffs.Works by “round” of negotiation, 8 rounds between 1947 and 1994By mid-1980s average tariffs in industrialized countries ~6%, but still many NTBs (nontariffs barriers). Only on manufactured goods, not on agriculture and services.Previous to last round, the Uruguay round 1986-94 created the WTO.WTO Handout - 2 - 10/26/03Last round launched at Qatar in Nov 2001: Doha Development Round, expectedly for 3years, with 143 - now 168 countries. Negotiation on Agricultural subsidies, reduction ofdiscriminatory government procurement practices, trade in services; TRIPs to allow poorcountries to override patent protection for health issues; TRIMs (trade related investmentmeasures); rules regarding the use of anti-dumping.Cancun Ministerial conference . 10-14 Sept 2003International commodity agreements:MFA (Multi-Fiber Agreement) III. Basic functioning of the WTOTrade rules∑ Non-discrimination:Most Favored Nation principle. same tariffs vis-à-vis all membersExcept for regional trade agreement partners and former colonies.Ex: Bananas warNational treatment principle: Equal tax and regulation treatment of domestic and importedgoods. Ex: Tuna with Mexico.∑ Toward freer tradeAgreement to cut and “bind” tariff rates (agreement on maximum rates). At each roundagreement on an average tariff rate reduction in sectors. Then flexibility of countrieswithin each sub-sector.Elimination of quotas, except:- “Safeguards” for balance of payment problems- “Temporary escape clause relief” for specific industry facing “serious injury”- “Development goal” for developing countries Major remaining quotas on sugar, textiles (multifiber agreement).Elimination of export subsidies, except:- in agriculture, under certain rules (de-coupling).∑ Special provisionsRegulation of anti-dumping (similar to US rule), based on sales at price below cost. Big issueis the establishment of “costs”.Health/safety protection: “Precautionary principle”. Countries can protect their citizens fromperceived risks. Used to be that WTO had to prove the safety. Now countries have toscientifically prove the risk.TRIPs (Agreement on Trade-Related Aspects of Intellectual Property Rights) oblige all WTOmembers to adopt a core set of intellectual property rights.∑ Note: two US trade laws implemented by ITC at odd with WTO regulationsCountervailing duties: in response to export subsidies by foreign countries, even if no injury.Section 301: Retaliation by US government against unfair practice by foreign government vis-à-vis imports from the US. (Retaliation π WTO dispute resolution scheme)WTO Handout - 3 - 10/26/03Forum for negotiation∑ Avoid trade war. WTO seen as an intermediary between countries that would engage in tradedispute anyway.∑ Schedule of negotiations, “rounds”, to agree on mutual reduction of protection.Last round Uruguay on agriculture, textile, and services. Largely perceived as having favoredindustrialized nations over developing countries (insufficient in ag and textile whichrepresent 70% of their exports, services are interests of the North)New round agreed on in Qatar: Doha Development Round, planned for 3 yearsAgenda, beyond tariff reduction:- Negotiation on textile quotas (accelerate the scheme from Uruguay)- Negotiation on tariffs on ag. products (still ~ 40%)- Reduction with a view to phase out of agricultural subsidies- Discuss anti-dumping- No discussion on labor standard- Intellectual property rights (TRIPs): exception for drugs when public health needsjustify it.- Discussion on environmental, investment, and competition issues.Eco-labeling of goods“Precautionary principle”Extension of TRIMS (Trade related investment measures, regarding domesticcontent, requirement on exports matching imports). Establishment of a “nationaltreatment principle” for FDI.∑ New commodity: Pollution rights?Platform for dispute resolutionProcess:Countries submit their complaint, and ask for talk.If talks fail, the country can ask for a panel of trade officials to adjudicate.If the panel finds rules have been broken, the “guilty” country is asked to amend its behavior.It can appeal. But once appeals are exhausted, the decisions can only be reversed byconsensus of all members (and not one single country as before).The panel authorizes the offended country to retaliate by “withdrawing a concession ofequivalent value which it had previously negotiated with that country).Countries remain sovereign in determining how to respond. Conformity to WTO rule anddecisions cannot be compelled by external force.Example: the Hormone-treated beef.Issues on the WTO institutionInter-governmental entity, not supra-governmental.Inefficient: all decisions taken by consensus. (168 countries)Trade negotiation kept secret.
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