Corso di Economia Internazionale - unirc.it · La globalizzazione della sanità ... Che cos’è la globalizzazione? • E’ lo spostamento verso un’economia mondiale più integrata

Università degli Studi Mediterranea di Reggio Calabria Economia Internazionale Corso di Laurea in Scienze Economiche A.A. 2008 - 2009

MATERIALE DIDATTICO da integrare al libro di testo:

Hill C.W.L. International Business: Economia e Strategia Internazionale

Hoepli Editore 2008 (ed. italiana a cura di A. Grasso e R. Helg)

LEZIONE 1

- Slides della lezione del 17/11/2008 - Estratto Capitolo 10 / Altomonte – Nava / Economics and policies of

an enlarged Europe / Edward Elgar 2005

a cura di Carlo Altomonte e Roberto Mavilia per il corso di Economia Internazionale – Anno Accademico 2008/2009

www.econint.mavilia.it

http://www.econint.mavilia.it/

Capitolo 1

La globalizzazione

Caso di apertura: La globalizzazione della sanità

• Gli Stati Uniti hanno carenza di radiologi, mentre la domanda per questo tipo di servizio cresce ad un tasso doppio rispetto al tasso con cui le scuole diplomano questi tecnici

• Soluzione del problema: si trasmettono le immagini tramite Internet perché siano interpretate da radiologi in India

• L’outsourcing di servizi sanitari non si limita solo alla radiologia; si comincia ad assistere a pazienti che si recano all’estero per ricevere trattamenti medici o subire operazioni chirurgiche

• Nel 2004 circa 170.000 stranieri si sono recati in India per trattamenti medici; si stima che il numero crescerà del 15% nei prossimi anni.

• Domanda: quali sono gli effetti dell’outsourcing per l’economia indiana e statunitense ?

Caso di apertura: La globalizzazione della sanità

Che cos’è la globalizzazione?

• E’ lo spostamento verso un’economia mondiale più integrata e interdipendente

• Due componenti:- La globalizzazione dei mercati - La globalizzazione della produzione

La globalizzazione della produzione

• Si riferisce all’approvvigionamento di beni e servizi da località in tutto il mondo per trarre vantaggio dalle differenze nel costo o nella qualità dei fattori di produzione

• Lavoro• Terra• Capitale

• Storicamente questo fenomeno si è limitato principalmente alle imprese manifatturiere

• Sempre di più le aziende sfruttano le moderne tecnologie di comunicazione, in particolare Internet, per esternalizzare le attività di servizi a produttori a basso costo in altri paesi

La globalizzazione della produzione

A car…. with a gearbox produced in USA…

and assembled in East Germany….a body shell produced in Slovakia….

driven by a Chinese entrepreneur

electric wires produced in Thailand….

La globalizzazione della produzione: beni

A cell phone assembled and sold in USA ……using microchips produced in Taiwan….

Powered by a software developed in India….

…on the basis of a design originated in Finland….

…bought by a South African financial broker….to buy bonds on the Brazilian stock exchange….

La globalizzazione della produzione: servizi

http://www.nokia.com/index

La globalizzazione dei mercati

• Difficoltà che nascono dalla globalizzazione dei mercati

- Esistono ancora differenze significative tra i mercati nazionali ?

• Strategie di marketing specifiche ai paesi• Mix di prodotto diverso nei diversi paesi

• I mercati più globali non sono i mercati dei prodotti di consumo

• I mercati più globali sembrerebbero quelli per i beni industriali e per i materiali che rispondono a bisogni universali in tutto il mondo.



• Unione di mercati nazionali separati in un mercato globale

- La caduta delle barriere al commercio internazionale ha reso più semplice vendere a livello internazionale

- I gusti e le preferenze convergono verso uno standard globale

- Le imprese offrono prodotti standardizzati in tutto il mondo creando un mercato globale.


http://www.mcdonalds.com/home.html

http://www.nokia.com/index

La nascita di istituzioni globali

• Con la globalizzazione diventano necessarie istituzioni che aiutino a gestire, disciplinare e a vigilare sul mercato globale

- GATT- OMC- FMI- Banca Mondiale- Nazioni Unite

I drivers della globalizzazione

• Tre macro fattori sembrano aver facilitato la tendenza verso una maggiore globalizzazione

1. La riduzione delle barriere ai flussi liberi di beni, servizi e capitali che si è verificata a partire dalla fine della seconda guerra mondiale

2. Il cambiamento tecnologico3. L’evoluzione politica da sistemi a economia centralizzata

a sistemi di libero mercato (Cina, Russia, ….)

La riduzione delle barriere al commercio e agli investimenti

• Durante gli anni Venti e Trenta, molti degli Stati nazionali avevano eretto eccezionali barriere al commercio internazionale e agli investimenti diretti esteri

• I paesi avanzati dell’Occidente si impegnarono dopo la seconda guerra mondiale a rimuovere le barriere al libero scambio di beni, servizi e capitali tra paesi.

Dazi medi sui prodotti manufatti

Effetti della riduzione delle barriere commerciali

Source: the Economist, 2006

Effetti della riduzione delle barriere commerciali

Crescita degli IDE

Crescita degli IDE

Il ruolo della tecnologia

• La riduzione delle barriere commerciali ha reso la globalizzazione possibile; la tecnologia l’ha resa una realtà

• Dalla fine della seconda guerra mondiale il mondo ha assistito a progressi

- Nelle comunicazioni- Nell’elaborazione delle

informazioni- Nella tecnologia di trasporto

• Transport and communication costs have steadily decreased in the last century

• Also their relevance has changed

=> “death of distance”?

Changes in average cruising speed

0

200

400

600

800

1000

Before1930s

(ocean liner)

Before1930s

(steamtrain)

1930-60(electric

train)

1930-60(prop

aircraft)

Today(Eurostar)

Today(airjet)

km/h

Distribution of World GDP

0

10

20

30

40

50

60

Agriculture Manufacturing Services

%

1950sToday

Il ruolo della tecnologia

Crescita degli utenti di Internet

La globalizzazione oggi

http://service.spiegel.de/cache/international/spiegel/0,1518,grossbild-572519-398229,00.html

I cambiamenti nella demografia dell’economia globale

• Produzione mondiale e commercio internazionale• Cambiamenti nel quadro degli investimenti diretti

esteri• Cambiamento della natura delle multinazionali

Il dibattito sulla globalizzazione

• Fattori a favore- Riduzione dei prezzi di beni

e servizi- Stimolo alla crescita

economica- Aumento del reddito dei

consumatori- Creazione di posti di lavoro- I paesi si specializzano

nella produzione dei beni e dei servizi che sono prodotti in modo più efficiente

• Fattori contro- Distrugge posti di lavoro

manifatturieri nei paesi ricchi e sviluppati

- I salari dei lavoratori non qualificati nei paesi avanzati diminuiscono

- Le imprese si trasferiscono in paesi con leggi a tutela del lavoro e dell’ambiente più deboli

- Perdita di sovranità

Globalizzazione e diseguaglianze economicheReal GDP/Person (1990 US$)

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

1913 1950 1998

North AmericaEuropean UnionAfricaChinaIndia

σ = 0.44 σ = 0.43σ = 0.46

Human Development Indicator (HDI)

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

1913 1950 1998

North AmericaEuropean UnionAfricaChinaIndia

σ = 0.35 σ = 0.20σ = 0.42

• According to the World Bank (GEP 2007), in developing countries, GDP per capita is expected to rise 3.1 percent a year on average from 2005 to 2030, up from 2.1 percent over the earlier period

• Hence, average GDP pc in the developing world will be $11,000 in 2030 ($4,800 today): countries as China, Mexico, and Turkey would have average living standards roughly comparable to Spain today

• Despite population growth, the number of people living in dire poverty (below the $1-a-day poverty line) is likely to fall to 550 million from 1.1 billion today

• Similarly, the number of people living on less than $2 a day should fall below 1.9 billion, 800 million fewer than today

Problems:• Not all areas will benefit homogeneously: Africa might still lag behind• Inequalities within societies are likely to rise, due to the skilled/unskilled and labor/capital gaps

GDP =Y = C + I + G + NX

⇒

Consumption (C)

⇒

Investment (I)

⇒

Government Purchases (G)

⇒

Net Exports (NX)

PIL e Commercio internazionale

Return

Mutamento dei rapporti di forza tra Stati

Quota del PIL mondiale, 0-2005

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

0 1000 1500 1600 1700 1820 1870 1913 1950 1980 2000

Cina EU Giappone USA Africa

(5.6 vs 1.9%)(5.6 vs 1.9%)

Italy ??

G-7

Return

Capitolo sei

L’economia politica del commercio internazionale

6 - 3

C.W.L. Hill, International Business Copyright © Ulrico Hoepli Editore S.p.A. 2008

Caso di apertura

• Dal 1974, il commercio internazionale nel settore tessile è stato regolato da un sistema di quote noto come Accordo Multifibre

- Ideato per proteggere i produttori tessili nei paesi sviluppati dalla concorrenza estera

• L’Organizzazione Mondiale del Commercio ha concordato il decadimento dell’MFA dal 31 dicembre 2004.

- Nel 2003, la Cina produceva il 17% dei prodotti tessili mondiali

- L’OMC prevede che la Cina possa arrivare al 50% dei prodotti tessili mondiali

6 - 4


Caso di apertura

• Le associazioni commerciali di più di 50 paesi produttori tessili firmarono nel 2004 la “dichiarazione di Istanbul”

- Chiedevano all’OMC di ritardare la rimozione delle quote- La richiesta fu respinta

• Il risultato della rimozione delle quote è l’aumento della produzione della Cina

• Anche se la Cina ha aumentato i dazi alle esportazioni, molti lo vedono come un gesto simbolico

• Nel 2006 le importazioni di prodotti tessili e dell’abbigliamento cinesi negli Stati Uniti e in UE sono aumentate del 15% e del 10% rispettivamente.

6 - 5


Gli strumenti della politica commerciale:

i dazi

• I dazi sono la forma più antica di politica commerciale. Ricadono in due categorie

- I dazi specifici sono imposti come una tassa fissa per ogni unità

- I dazi ad valorem sono imposti come una proporzione del valore del bene importato

• I dazi sono positivi per i governi perché generano entrate

• I dazi proteggono i produttori domestici, ma ne riducono l’efficienza

• I dazi sono negativi per i consumatori perché fanno aumentare il costo dei beni

6 - 6



i sussidi

• Pagamento statale ad un produttore domestico- Sovvenzioni- Prestiti a tasso agevolato- Agevolazioni fiscali- Partecipazioni statali nelle imprese

• I sussidi sono generati dalla tassazione• I sussidi incoraggiano la sovrapproduzione, l’inefficienza e

riducono il commercio internazionale

6 - 7



i contingentamenti

• Contingentamento alle importazioni- Restrizione sulla quantità di un certo bene importata in

un paese- Il contingentamento può avere effetti “perversi” e

tradursi in dazi effettivi molto elevati• Restrizioni volontarie delle esportazioni (VER)

- Quote sul commercio imposte dal paese esportatore, tipicamente su richiesta del paese importatore

6 - 8


Contingentamento tariffario ipotetico

6 - 9



i requisiti di contenuto locale

• Richiedono che una frazione specifica del bene sia prodotta internamente

- Percentuale di parti componenti- Percentuale di valore del bene

• Usati inizialmente dai paesi in via di sviluppo per facilitare il passaggio dall’assemblaggio alla produzione dei beni

• I paesi sviluppati (USA) hanno iniziato ad applicarli• Per i produttori di parti componenti, i requisiti di

contenuto locale agiscono come un contingentamento alle importazioni

• Avvantaggiano i produttori, non i consumatori

6 - 10



barriere non-tariffarie (NTBs)

• Regole burocratiche concepite per rendere difficile l’ingresso delle importazioni in un paese

- Francia – videoregistratori- OGM sui prodotti agricoli- Standard ambientali- Standard sociali

6 - 11



le politiche antidumping

• Il dumping è definito come- La vendita di beni in un mercato estero ad un prezzo

inferiore ai costi di produzione- La vendita di beni in un mercato estero ad un prezzo

inferiore al giusto valore di mercato• E’ il risultato

- Del riversamento della produzione in eccesso- Di un comportamento predatorio

• Rimedio: imposizione di dazi compensativi

6 - 12


Le argomentazioni a favore dell’intervento governativo

• Protezione dei posti di lavoro e dei settori- PAC (Europa) e VER

• Sicurezza nazionale- Settore difesa - semiconduttori

• Ritorsione- Sanzioni punitive

6 - 13


Argomentazioni politiche a favore dell’intervento

• Protezione dei consumatori- Semi e colture geneticamente modificate- Carne trattata con ormoni

• Promozione di obiettivi di politica estera- Helms-Burton Act

• Protezione dei diritti umani- Clausola sociale

6 - 14


Argomentazioni economiche a favore dell’intervento

• La tesi dell’industria nascente (Infant Industry argument)

- E’ l’argomentazione più antica- Alexander Hamilton, 1792

- Protetta dall’OMC- E’ positiva solo se rende il settore efficiente- I produttori di automobili brasiliani – il 10° settore

automobilistico del mondo – si ridimensionarono quando fu eliminata la protezione

- Necessita dell’assistenza finanziaria del governo• Oggi se il settore è un buon investimento, i mercati

globali dei capitali vi investono

6 - 15


Argomentazioni economiche a favore dell’intervento

• La politica commerciale strategica- I governi dovrebbero usare i sussidi per proteggere le

imprese promettenti nei nuovi settori emergenti con economie di scala sostanziali

- I governi ottengono benefici se supportano le imprese domestiche per superare le barriere all’entrata create dalle imprese estere esistenti

6 - 16


Lo sviluppo del sistema di commercio mondiale

• Tesi intellettuali a favore del libero scambio- Adam Smith e David Ricardo

• Libero scambio come politica del governo- Abrogazione britannica delle Corn Laws (1846)

• La Gran Bretagna ha continuato una politica di libero scambio

- Timore di una guerra commerciale

6 - 17



• Grande depressione- Crollo della borsa USA- Smoot-Hawley Act (1930)

• Quasi ogni settore godeva di un dazio “su misura”• La risposta estera fu l’imposizione di barriere• Le esportazioni statunitensi crollarono

6 - 18



• GATT – accordo multilaterale istituito nel 1948 a seguito del fallimento del progetto di International Trade Organization (ITO) a Bretton Woods

- L’obiettivo è liberalizzare il commercio eliminando dazi, sussidi e contingentamenti alle importazioni

- I 19 membri iniziali sono diventati 120

6 - 19


La storia del GATT / WTO

Year Place Issues N. ofCountries

1947 Geneva Tariffs and Duties on Goods 231949 Annecy Tariffs and Duties on Goods 131951 Torquay Tariffs and Duties on Goods 381956 Geneva Tariffs and Duties on Goods 261960-1961(Dillon Round)

Geneva Tariffs and Duties on Goods 26

1964-1967(Kennedy Round)

Geneva Tariffs and Duties on GoodsAnti-dumping measures

62

1973-1979(Tokyo Round)

Geneva Tariffs and Duties on GoodsNon tariff Barriers

102

1986-1994(Uruguay Round)

Punta del EsteGenevaMarrakech

Tariffs and Duties on GoodsNon tariff BarriersGeneral Agreement on Services (GATS)Intellectual Property (TRIPs)MFA (textiles)Agreement on Agricolture (AoA)Creation of WTO

123

1999Millennium Round

2001Development Round

Seattle

Doha

Tariffs and Duties on GoodsNon tariff BarriersAgricoltureServicesIntellectual PropertyCompetition and InvestmentsEnvironmentDevelopment

142(China from2001)

6 - 20



• Il GATT ha usato “round di negoziazione” per ridurre gradualmente le barriere commerciali

• Uruguay Round 1986-93- Furono negoziate riduzioni tariffarie reciproche- Risoluzione delle controversie solo in caso si fosse ricevuto

una denuncia

6 - 21


L’Uruguay Round del GATT

- Overall reduction of tariffs and duties on manufactured goods by 38%

- Progressive abolition of quotas on trade in textiles and apparel (MFA)

- General Agreement on Trade in Services (GATS)(trade creation: 1.000 bln US$ in telecom; 3.000 bln US$ in financial services)

- Agreement on Agricolture (AoA)

- Agreement on Trade Related Intellectual Property rights (TRIPs)

6 - 22


L’Organizzazione Mondiale del Commercio

• L’OMC è stata creata durante l’Uruguay Round per gestire e applicare le norme del GATT

• Competenza generale su tutte le questioni che abbiano attinenza con il commercio (inclusi ambiente / IDE)

• E’ una vera e propria Istituzione Internazionale, contrariamente al GATT (trattato di diritto int.le), con meccanismi di adesione formale

• E’ dotata di un meccanismo vincolante per la risoluzione delle controversie

6 - 23


OMC = WTO

• 151 membri nel 2007• Rappresenta il 90% del commercio mondiale• 9 dispute su 10 sono risolte in modo soddisfacente• Riduzione dei dazi dal 40% al 5%• I volumi di commercio dei beni manifatturieri sono

aumentati di 20 volte

6 - 24


Principi chiave dell’OMC

• Reciprocità• Consenso• Non discriminazione

- National Treatment (NT)- Most Favored Nation

• Tariff bound => risoluzione controversie

6 - 25


La risoluzione delle controversie

• Attualmente il WTO è l’organizzazione di controllo per:

- GATT- Servizi- Proprietà intellettuale

• E’ responsabile della risoluzione delle controversie:- I rapporti sono approvati a meno che non siano

specificamente respinti- Dopo l’appello, se un paese non si adegua, possono

essere messe in atto compensazioni da parte del paese danneggiato o sanzioni commerciali.

6 - 26


L’OMC al lavoro

• 363 controversie presentate all’OMC tra il 1995 e la metà del 2007

• 196 casi analizzati dal GATT nei suoi 50 anni di storia• Gli USA sono il maggior utilizzatore dell’OMC

- Grandi vittorie: Carne di manzo- banane- Grandi sconfitte: Kodak

6 - 27


L’OMC estensione degli accordi

• Telecomunicazioni (1997)- 68 paesi - 90% dei ricavi mondiali da telecomunicazioni- Richiedeva di aprire i mercati ad una concorrenza equa

• Servizi finanziari(1997)- 95% del mercato dei servizi finanziari- 102 paesi avrebbero aperto, con gradi diversi, i propri

mercati

6 - 28


L’OMC a Seattle

• Il Millennium round era rivolto all’ulteriore riduzione delle barriere commerciali nell’agricoltura e nei servizi

• Il meeting dell’OMC fu interrotto da:- Gruppi per la difesa dei diritti umani- Sindacati- Ambientalisti- Gruppi antiglobalizzazione

• Non fu raggiunto un accordo

6 - 29


OMC – L’agenda di Doha

• Riduzione dei dazi sui beni industriali e sui servizi• Eliminazione graduale dei sussidi• Riduzione delle leggi antidumping• La regolamentazione dell’OMC della proprietà

intellettuale non dovrebbe impedire ai membri di proteggere la salute pubblica

- Accordo TRIPS

‘European Neighbourhood Instrument’. Such a new budget item willexplicitly focus on cross-border cooperation along the external border ofthe enlarged EU (see Chapter 6 for further details). If accepted, theInstrument will substantially increase the funding available for externalassistance programmes, set at €255 million for the period 2004–6.

Finally, the ENP also strongly encourages regional and subregional coop-eration, in order to create wider areas of shared peace and stability and largerlocal markets among the neighbouring countries. The issue of establishingregional integration networks among less developed countries is in fact ofparamount importance to allow the same countries to grasp the full benefitsof the continuing process of trade liberalisation, as will be made clear in thenext section, where we analyse the role of the World Trade Organisation.

10.4 THE EU AND THE WORLD TRADEORGANISATION

10.4.1 From GATT to WTO

The first attempts to create an international agency dedicated to the man-agement of worldwide trade issues originated from the same post-WorldWar II spirit that gave birth to such famous multilateral institutions as theInternational Monetary Fund (IMF) and the World Bank. In 1946, a projectwas also put forward to create an International Trade Organisation (ITO).During the negotiations on the ITO, 23 countries16 reached an agreement toreduce some 45000 different tariffs in place at the time, limited to manufac-turing products (goods) but affecting $10 billion of trade, about one-fifth ofthe world’s total. Pending the ratification of the ITO, the 23 countries agreedto start anticipating among themselves some of the trade rules contained inthe draft ITO Charter, and thus wrote a provisional agreement in order tosecure the tariff concessions they had negotiated. The combined package oftrade rules and tariff concessions became known as the General Agreementon Tariffs and Trade (GATT) and entered into force in January 1948. The23 countries became founding GATT members (officially, ‘contractingparties’). In 1950, the United States government finally announced that itwould not seek Congressional ratification of the ITO: the project waseffectively dead. Even though it was provisional, the GATT thus remainedthe only multilateral instrument governing international trade from 1948,until the World Trade Organisation (WTO) was established in 1995.

Although provisional, the GATT was successful. In a series of trade nego-tiations known as rounds, the participating countries agreed to lower theaverage tariffs on traded goods from 50 per cent in 1946 to less than 4 per cent

The economic external dimension of the Union 369

in 1999. The number of GATT signatory parties also increased over time,from the original 23 to more than 120, as shown in Table 10.7. By the mid-1980s, however, the 40-years-old GATT started to be put under strain by theprocess of globalisation of economic activities and the ensuing change in thestructure of trade flows across the world. More than 120 states, especiallydeveloping countries, were now participating in the GATT, and thus, apartfrom the liberalisation of trade in goods, new exigencies were emerging (the

370 Economics and policies of an enlarged Europe

Table 10.7 History of the GATT/WTO

Year Place Issues No. ofcountries

1947 Geneva Tariffs and duties on goods 231949 Annecy Tariffs and duties on goods 131951 Torquay Tariffs and duties on goods 381956 Geneva Tariffs and duties on goods 261960–61 Geneva Tariffs and duties on goods 26

(Dillon Round)1964–67 Geneva Tariffs and duties on goods 62

(Kennedy Round) Anti-dumping measures1973–79 Geneva Tariffs and duties on goods 102

(Tokyo Round) Non-tariff barriers1986–94 Punta del Este Tariffs and duties on goods 123

(Uruguay Round) Geneva Non-tariff barriersMarrakesh General Agreement

on Services (GATS)Intellectual Property (TRIPS)MFA (textiles)Agreement on

agriculture (AoA)

Creation of WTO (1 January 1995)

1999 Seattle Tariffs and duties on goods 147a

(Millennium Round) Non-tariff barriersAgriculture

2001–. . . Doha Services(Development Round) Cancùn Intellectual property

Competition and investmentsEnvironmentDevelopment

Note: a The WTO requires a formal membership procedure. In 2004, 147 countries weremembers, and 30 more observers. Observer countries are due to start negotiations formembership within five years of becoming observers.

liberalisation of trade in agriculture and services, the guarantee of propertyrights, and so on) and had to be dealt with by the organisation. As a result, anew round of negotiations was launched in Punta de l’Este (Uruguay) in1986, with the round becoming known as the Uruguay Round. Because of itscomplex agenda, the Uruguay Round went on for more than the originallyforeseen five years, and only in December 1993, in Geneva, was a compre-hensive agreement found on all the matters under discussion. The agreementwas then signed in Marrakesh in 1994. The Round was, however, the mostfar-reaching and the most successful in the history of the organisation.

Among the main achievements of the Uruguay Round, alongside a seriesof decisions on the type of trade tools (tariffs, quotas, NTBs) that coun-tries are allowed to use in international trade disputes, analysed later, wemay mention the following:

● an overall reduction of tariffs and duties on manufactured goods by38 per cent;

● the progressive abolition of quotas on trade in textiles and apparel by2005, with the abolition of the Multi-Fibre Arrangement;17

● a General Agreement on Trade in Services (GATS), liberalising trade incrucial sectors such as telecommunications and financial services;18

● an Agreement on Agriculture (AoA), leading to an increase in accessto the EU and US markets for developing countries’ agriculturalproducts (an issue already discussed in Chapter 7 when analysing theMacSharry reform of CAP).

● an Agreement on Trade Related Intellectual Property rights (TRIPs),establishing minimum levels of protection that each government hasto give to the intellectual property of other countries (copyrights,patents, industrial design, geographical indications), as well ascommon rules on the enforcement of such protection.

Most importantly, the Uruguay Round saw the birth of the World TradeOrganisation, which replaced from 1995 the GATT in handling all tradeissues at the multilateral level. Contrary to the GATT, the WTO is not aprovisional agreement, but has the status of an international organisation,sitting in Geneva. Therefore it is not composed of ‘contracting parties’, butof member countries, admitted through a formal procedure and after theagreement of all the other participating members. Also unlike the GATT,the WTO is not limited to trade in goods, but has a very broad competence,extended to services and all other general trade issues, for example relatedto issues like the environment, competition, investment, and so on. Last butnot least, the WTO constitutes the most notable exception to the principleof national sovereignty codified by international law, since it is the only


international (multilateral) organisation endowed with a binding system ofdispute settlements, the so-called Dispute Settlement Body.19 Memberstates are therefore obliged to follow the recommendations issued by theWTO if they want to avoid countersanctions by other members. Essentiallya dispute arises when a country (A) adopts a trade policy measure or takessome action that one or more fellow-WTO members (B) consider to bebreaking the WTO agreements, or when the same country A fails to live upto its obligations. The country (or group of countries) B can then appeal tothe WTO for settling the dispute. A third group of countries can eventuallydeclare that they also have an interest in the case and join.

Although a procedure for settling disputes existed under the old GATT,it had no fixed timetables, rulings were easier for countries to block andmany cases dragged on for a long time inconclusively. The WTO procedureis instead binding, that is, countries are forced to comply, and it entails alimited length of time for a case to be settled (usually, no more than15 months for the full procedure, including eventual appeals by the parties,with accelerated procedures if the case is considered urgent). Given itsnovelty and importance, the working of the dispute settlement mechanismis explained in greater detail in Box 10.1.

BOX 10.1 SANCTIONS AT THE WTO

If country A that is the target of the complaint loses its case beforethe Dispute Settlement Body, it must follow the recommendationsset in the report produced by the panel of judges appointed to thecase (or the appeal report, if it has presented an appeal during theprocess). If suddenly complying with the recommendations provesimpractical, country A will be given a ‘reasonable period of time’ todo so. If it fails to act within this period, it has to enter into negot-iations with the complaining country (or countries) B, in order todetermine mutually acceptable compensation: for instance, tariffreductions in areas of particular interest to the complaining side. Ifno satisfactory compensation is agreed, country B may ask theDispute Settlement Body for permission to impose limited tradesanctions (‘suspend concessions or obligations’) against countryA. The Dispute Settlement Body must grant this authorizationwithin 30 days. In principle, the sanctions should be imposed in thesame sector in which the dispute has arisen. If this is not practical,or if it would not be effective given the trade pattern of the coun-tries considered, the sanctions can be imposed in a different sectorof the same agreement. In turn, if this is not effective or practica-


ble and if the circumstances are serious enough, the action canbe taken under another agreement. The objective is, however, tominimise the chances of actions spilling over into unrelated sectorswhile at the same time allowing the actions to be effective.

For example, on 23 January 1995, Venezuela complained to theDispute Settlement Body that the United States was applying rulesthat discriminated against gasoline imports, imposing stricter ruleson the chemical characteristics of imported gasoline than fordomestically refined gasoline, and thus violating the ‘national treat-ment’ principle (see below). Just over a year later (on 29 January1996) the dispute panel completed its final report. By then, Brazilhad also joined the case, lodging its own complaint in April 1996, sothe same panel considered both complaints. The United Statesappealed.The Appellate Body completed its report, and the DisputeSettlement Body adopted the report on 20 May 1996, one year andfour months after the complaint was first lodged, condemning theUnited States. The agreed period for implementing a solution (the‘reasonable period of time’) was 15 months from the date the appealwas concluded (20 May 1996 to 20 August 1997).Within this period,the United States, in agreement with Venezuela, amended its regu-lations and, on 26 August 1997, reported to the Dispute SettlementBody that a new regulation had been signed on 19 August.

10.4.2 Common Commercial Policy and Multilateral Rules

The previously analysed EU pyramid of preferences develops along itsheight the bilateral level of the EU trade relationships, that is the agree-ments autonomously decided by the Union with its partner countries.However, as already recalled, the tools employed by the EU in its bilateralrelationships are not independent of the basis of the pyramid: the rules thatare decided at the multilateral level (among all participating countries)within the World Trade Organisation.

The latter rules can be reduced to four basic principles: reciprocity, con-sensus, tariff binding and non-discrimination. The reciprocity principleestablishes that WTO members have symmetric rights and obligations, andshould obtain mutually beneficial reductions of trade barriers, thereforesetting up a multilateral system of trade liberalisation. In practice, sinceevery country starts from a different degree of openness to internationaltrade, the principle ensures for the contracting parties balanced (that is,reciprocated) tariff reductions from the starting equilibrium, rather than anequal market access for everyone.


As we have seen in Chapter 2, such a principle is only partly consistentwith standard theoretical predictions, which show that a unilateral (that is,not necessarily a reciprocal) tariff reduction is already optimal from a singlecountry’s point of view. However we have also shown that standard resultschange if we consider ‘non-small’ countries: in this case, countries canachieve an ‘optimal’ degree of protectionism, itself a function of the tradestrategy of the other countries; thus large countries do not have incentivesto cut tariffs unilaterally. The reciprocity principle corrects this imbalance,facilitating tariff reductions. In fact large countries can be assured that,once they reduce a tariff, thanks to reciprocity they can impose the sametariff reduction on their counterpart, essentially on a quid pro quo basis,thus offsetting the adverse terms of trade effects resulting for them from aunilateral trade liberalisation. As a result, a mutual agreement on a moreliberal trade policy can be reached more easily (Bagwell and Staiger, 1999).

Under the principle of consensus, any decision taken within the WTOrequires unanimity of all the participating countries. Although the need toreach a unanimous consensus might seem highly inefficient, given the highnumber of heterogeneous member countries belonging to the organisation,as a matter of fact countries often negotiate in coalitions centred on themain trading partners. Historically some of the most difficult negotiationshave in fact been cleared with an initial breakthrough in talks among thefour largest members, the United States, the European Union, Canada andJapan, known as the ‘Quadrilaterals’ or the Quads, with developing coun-tries playing alongside one of the Quads. However, after the closure of theUruguay Round, new coalitions of developing countries started to emerge,thanks to the pivotal role played by large DCs like India or Brazil. As willbe discussed later, such a change in the political panorama of negotiationsis dramatically shifting the traditional balance of powers at the WTO, withconsequences yet to be understood, given also the still unclear attitude cur-rently presented by China, the newest (2001) of the large WTO members..

In order to guarantee the enforcement of the decisions undertaken, thetariff binding principle ensures that, once a tariff reduction has been nego-tiated and accepted, it becomes ‘bound’ at the negotiated rate: a tariffcannot be subsequently increased above the bound rate without incurringsanctions. The tariff binding principle is important, since promising not toraise a trade barrier can be as important as lowering one: such a promisein fact gives businesses a clearer view of their future trade opportunities.Table 10.8 shows the contribution of the Uruguay Round to the tariffbinding principle, showing how virtually all tariffs in developed countriesand a large, increasing, number in developing countries are now bound.

Last but not least, the WTO negotiations are based on the principle ofnon-discrimination. The goal is to eliminate any form of discrimination in


international trade. In particular two clauses, enforced by the WTO regu-lations, rule out major forms of discrimination in international trade: thenational treatment (NT) rule requires that, once foreign products enter animporting country, they should be accorded a treatment equal to that guar-anteed to similar national products;20 the most-favoured-nation (MFN)clause, on the other hand, states that all WTO members should receive froma given home country the same treatment as that accorded to the partnercountry that receives the best (most favoured) treatment. Therefore, ifenforced, the MFN clause should guarantee that the tariff rate on any givenproduct would be uniform across trading partners, at the lowest level.

The non-discrimination principle is therefore a key pillar of the WTOstrategy, and hence it is not the case that the application of both the MFNand the NT rules are in general the main object of disputes among coun-tries, as already seen from Box 10.1. The principle is also at the heart of atraditional debate among economists (starting from Keynes, during theGATT negotiations) between multilateralism and regionalism. It is worthrecalling here our discussion in Chapter 2 about the setting up of regionalintegration agreements (RIAs). In fact, it is now clear that, when a WTOmember signs a regional integration agreement such as an FTA or a CU, inprinciple it violates the MFN rule, since it grants more favourable condi-tions to its partners in the agreement than to other WTO members. Manyeconomists therefore claim that regionalism (the tendency of countries toenter into preferential trade arrangements of a regional nature) leads to aless efficient trade system with respect to the multilateral reduction of tradebarriers, guaranteed by the full application of the MFN clause.21

However, other arguments, often of a non-economic nature, are in favourof regionalism. In particular, they point to the fact that, if a group of coun-tries completely abolishes internal trade restrictions, then such a group ofcountries can be considered as a single nation from the trade point of view:this translates, in political terms, into a step towards the multilateral goal


Table 10.8 Percentages of tariffs bound before and after the UruguayRound

Before 1986 After 1994

Developed countries 78% 99%Developing countries 21% 73%Transition economies 73% 98%

Source: WTO Secretariat; percentages are calculated over the total number of tariff lines,hence not weighted by trade volumes.

of free trade for all. For example, services, intellectual property, environ-mental standards, investment and competition policies are all issues thatwere first raised within negotiations on RIAs, and only later developed intoagreements or topics of discussion in the WTO. In a sense, therefore,regionalism offers a dynamic time path towards global free trade whichseems to be more politically feasible than the multilateral negotiations,although at the cost of a loss in economic efficiency (Bhagwati, 1999).

Implicitly recognising the validity of the latter arguments, Paragraphs4 to 10 of Article XXIV of GATT allow for regional integration agree-ments to be considered as an exception to the MFN rule. In particular itis stated that, if a free trade area or customs union is created (only thesetypes of RIAs are allowed), duties and other trade barriers should bereduced or removed in substantially all sectors, in order to achieve the‘single nation’ status. In any case, non-members should not find tradewith the newly created group any more restrictive than before the groupwas set up, in order to ensure that regionalism acts as a complement tomultilateralism.

As shown by the previously discussed data, the CCP of the EuropeanUnion has undoubtedly contributed to international economic liberalis-ation, and hence in this case regionalism and multilateralism seem to havebeen mutually reinforcing. However, it is also true that the EU pyramidof preferences has generated some fragmentation of global markets(Panagariya, 2002), especially when the EU has favoured the so-called huband spoke preferential trade agreements, negotiating bilateral concessionswith each developing country or region individually (as with the southernMediterranean countries or MercoSur). In this respect, nevertheless, we haveseen that the new neighbourhood policy of the EU, strongly encouragingregional cooperation among all partners, is likely to change the situation.

But how have the principles at the root of the WTO trading system, justanalysed, influenced or constrained the development of the EU commoncommercial policy? It is worth elaborating a scheme where we show theimpact of the WTO rules on the various tools normally employed by theCCP. The exercise is presented in Table 10.9. As can be seen, WTO rulesaffect the definition of the EU commercial policy essentially in two ways.On the one hand, they constrain, through the negotiated tariff bounds,the level of the Common External Tariff applied by the EU Customs Unionon the different products. On the other hand, on the basis of the non-discrimination principle, they limit the range of tools available for the CCPessentially to two: tariff rates and anti-dumping measures, the latter nowa-days extensively used by the EU and therefore analysed in some detail inBox 10.2. Other tools, extensively employed by the EU in the past, such asquotas and the so-called ‘voluntary export restraints’ (VER) are now ruled


out.22 The latter changes came as a consequence of the agreements under-taken within the Uruguay Round, according to which almost all importrestrictions that did not take the form of tariffs, such as quotas, had to beconverted to tariffs, a process known as tariffication.

Having assessed how the multilateral rules work, and how they affect theEU common commercial policy, we can now analyse the main current issuesunder negotiation at the WTO between the Union and its counterparts.

BOX 10.2 DUMPING AND ANTI-DUMPINGMEASURES

Sometimes a company might decide to penetrate new markets byaggressively underpricing a product. When the company exportsthis product at what is considered to be an unfair price, that is, lowerthan the price it normally charges on its own home market or lowerthan its average cost of production, it is said to be dumping theproduct. The action distorts competition, since through dumping


Table 10.9 The impact of WTO rules on the Common Commercial Policy

CCP tool before WTO WTO rule CCP tool after WTO

Average tariffs on Reduction of at least Average tariffs on manufactured goods at 38% by year 2000 manufactured goods6% of import values (1995) at 3.7% of import

values in year 2000

Average tariffs on Reduction of at least Average tariffs on agricultural goods at 26% 38% by year 2000 agricultural goods atof import values (1995) 18.4% of import

values in year 2000

Quotas on textiles and Banned under WTO Multi-fibre arrangement other agricultural products dismantled in 2005.

Other quotas progressivelyabolished

Voluntary Export Banned under WTO AbolishedRestraints

Anti-dumping measures Allowed Extensively used by the EU also as aprotectionist tool

Source: Authors’ elaboration from European Commission and WTO official documents.

the exporter will harm domestic producers, acquire market sharesand then eventually use its increased market power to the detri-ment of local consumers, raising the price once it has con-quered the new market. As a result, many governments take actionagainst dumping. The problem is, however, that, in order to passprotectionist policies, governments tend too often to declare that animported product is ‘dumped’ on their market.To clear up the issue,an ‘Anti-Dumping Agreement’ has therefore been negotiated, dis-ciplining the way governments can or cannot react to dumping.Broadly speaking the WTO agreement allows governments to actagainst dumping where there is genuine (‘material’) injury to thecompeting domestic industry. In order to do that, the government(or the European Commission, in the EU case) has to be able toshow that dumping is taking place, calculate the extent or ‘margin’of dumping (how much lower the export price is compared to theexporter’s home market price) and show that the dumping iscausing injury or threatening to do so on the domestic market(very small margins of dumping, lower than 2 per cent, or negligi-ble volumes of dumped imports, less than 3 per cent of totalimports, do not justify a government’s action). If the dumping hasbeen proved true and significant, countries are allowed to react ina way that would normally break the WTO principles of bindingtariffs and not discrimination, that is, they can charge extra importduties on the particular product from the particular exportingcountry in order to bring its price closer to the ‘normal value’ (thuscompensating the margin of dumping) and remove the injury to thedomestic industry.

Since the calculation of dumping is the critical issue, the agree-ment narrows down the range of possible options, providing threemethods to calculate a product’s ‘normal value’ from which toderive the margin of dumping. The main one is based on the pricein the exporter’s domestic market. When this cannot be used, twoalternatives are available: the price charged by the exporter inanother country, or a calculation based on the combination of theexporter’s production costs, other expenses and normal profitmargins. Since the different methods yield different answers, coun-tries have an incentive to use the method which maximises thedumping effect, in order to be able to impose more protectionistmeasures. In June 2004, for example, a dispute arose between theEU and China on whether China had the status of a ‘marketeconomy’, which the EU was neglecting. The issue might seem ofa political nature, but in reality it boiled down to whether the first


method for the calculus of dumping (the price in the exporter’sdomestic market) or alternative ones had to be used. If China wasnot considered a market economy, then the first method for calcul-ating dumping, not convenient for the EU in the case in question,could not be used; instead, using the alternative methods, a largerdumping could be proved to exist and therefore duties imposed onChina imports.

10.5 THE DOHA ROUND OF TRADENEGOTIATIONS AND THE ROLE OF THE EU

After the closure of the Uruguay Round, the newly established WTOstarted from 1995 to monitor the implementation of the agreements arisingfrom the round. In particular, the WTO General Agreement on Trade inServices (GATS) committed member governments to undertake furthernegotiations on specific issues (public procurement, transport) and, no laterthan the year 2000, to enter into successive rounds of negotiations to pro-gressively liberalise trade in services. Also the implementation of theTRIPS agreement on intellectual property was delicate, since a balance hadto be found between the long-term benefits of intellectual property protec-tion (increased incentives to invest in R&D) and possible short-term coststo society (such as the cost of using a particular drug).

Moreover, having the Uruguay Round solved several pending tradeissues and with the globalisation of economic activities producing moreand more interdependencies among countries, the ground was ready tostart discussing new questions that were arising at the multilateral level,related to the interaction of trade with other policy areas such as competi-tion, investment, environment, and so on. Ministers from WTO membercountries therefore decided at the 1996 Singapore Ministerial Conferenceto set up three new working groups: on trade and investment, on competi-tion policy and on transparency in government procurement.23 These issuesare known as the Singapore issues. A comprehensive work programme alsostarted on trade and environment, with the creation of the Trade andEnvironment Committee, thus bringing environmental and sustainabledevelopment issues into the mainstream of WTO work. Last but not least,extensive discussions also started on core labour standards, essential stan-dards applied to the way workers are treated.

In order to start formalising a comprehensive negotiation on all theseissues, the member countries met in Seattle, in November 1999, to launch


a new round of multilateral liberalisation, named the ‘Millennium Round’.The meeting was a complete failure. For the first time, in fact, a compact,organised coalition of developing countries, led mainly by India, wasopposing any further progress on the new Singapore issues, unless moreflexibility was guaranteed on the implementation of the Uruguay Roundagreements, less than five years old, together with a greater access tomarkets of developed countries, especially in agriculture. On the other side,the two largest Quads, the United States and the European Union, were indisagreement on several points of the agenda, starting from the way inwhich the works should proceed.24 Also for the first time, a large and organ-ised protest by non-governmental organisations was staged outside themeeting rooms of delegates, giving voice to the so-called ‘Seattle’ or‘no-global’ movement, a complex mix of voices and often conflicting inter-ests protesting against the ways in which the globalisation of economicactivities is managed by governments worldwide.25

The failure of the Seattle meeting has however helped to clarify severalissues. First of all, it is clear that, within the WTO, the political economyof negotiations (whereby the mechanism and equilibria behind the coal-ition formation of the organisation are defined) now needs to take intoaccount also the coalitions of developing countries, who might take apolitical stance of their own. As a result, the developed countries, out-numbered by the developing ones in terms of votes, have now to find acommon strategy if they want to retain some bargaining power. Even morerelevant, the intensity of protests which surrounded the Seattle meetingrevealed that moving from GATT to WTO had profoundly changed theorganisation, not only in legal terms, but also, and especially, in its politi-cal dimension. The WTO is an international organisation with a verybroad mandate and, for the first time, endowed with a binding mechanismfor trade disputes. As such, it has a significant political influence onvarious issues related to the management of globalisation; therefore it hasto be accountable to public opinion, guaranteeing the transparency of itswork, a characteristic which was completely lacking before the Seattlemeeting.

Member countries and the WTO took two years to learn from their mis-takes.26 at the Fourth Ministerial Conference in Doha, Qatar, in November2001, WTO member governments finally agreed to launch new negotiationson all the issues originally on the agenda in Seattle. The entire package,called the Doha Development Agenda (DDA), is still under discussion,having already missed (like the early stage of the Uruguay Round) severalpreviously set deadlines.

In what follows we present a broad overview of the different negotiationsof the DDA, together with the position of the main counterparts, in par-


ticular of the European Union.27 As a synthesis, the overview is neitherexhaustive nor extremely detailed, in that other agreements on more spe-cific topics are being negotiated, and several exceptions or particular pro-cedures exist for specific aspects of the agreements herein presented.The interested reader should therefore refer to the WTO website (http://www.wto.org) for a complete and continuously updated status of the nego-tiations on each topic.

10.5.1 Agriculture

In Doha, member governments committed themselves to comprehensivenegotiations on agriculture, with a three-pillar approach: an increase inthe access to markets of developed countries; reductions of domesticsupport measures that distort trade flows; and reduction, with a view tophasing out, of all export subsidies. The negotiations explicitly state aspecial and differential treatment for developing countries, which shouldbe able to meet their needs in food security and rural development issues.The ministers, under pressure from the European Union, decided to takeinto account in the negotiations also the so-called ‘non-trade concerns’(such as environmental protection, food security and rural development)thus recovering also within the WTO the concept of multifunctional-ity currently at the root of the EU common agricultural policy (seeChapter 7).

In terms of market access, the new rule in agricultural products is ‘tariffsonly’. As we have seen, before the Uruguay Round some agriculturalimports were restricted by quotas and other non-tariff measures, tradetools that are not allowed any more. As a result, these tools have now beenreplaced by tariffs that provide more or less equivalent levels of protec-tion,28 that is, the exercise of tariffication previously mentioned. Quiteobviously, countries disagree on the modalities and the rates at whichtariffication has to be implemented, and hence negotiations are taking placeon this issue, as well as on special safeguards that governments might wantto introduce in order to prevent swiftly falling prices or surges in importsfrom harming their farmers.

As far as domestic support is concerned, the main complaint about thesekinds of policies is that they encourage overproduction, resulting in thesqueezing out of imports or the emergence of export subsidies and low-priced dumping on world markets, as we have seen when studying the EUcommon agricultural policy. The Agriculture Agreement in particular dis-tinguishes between support programmes that stimulate production directlyand those that are considered to have no direct effect. Domestic policiesthat do have a direct effect on production and trade enter the so-called


amber box (a reference to the amber colour of traffic lights, which means‘slow down’) and should be cut back.29 Therefore, as we have seen inChapter 7, if direct aid granted by the European Union to farmers is linkedto production, this violates the WTO agreements, and should be reformed,an undertaking the Union has started to tackle with the June 2003 reformof the CAP. On the contrary, measures with minimal impact on trade canbe used freely (they are listed in a green box, indicating road clear as withtraffic lights). They include payments made directly to farmers that do notstimulate production, such as direct aid linked to the concept of potentialincome (see Chapter 7), help to farmers for restructuring agriculture, anddirect payments under environmental and regional assistance programmes(the rural development chapter of the CAP, for example). Also permittedare certain direct payments to farmers where the farmers are required tolimit production called ‘blue box’ measures (such as the set-aside measuresunder the CAP), certain government assistance programmes to encourageagricultural and rural development in developing countries, and othersupport which takes place on a small scale (de minimis rule), when com-pared with the total value of the product or products supported (5 per centor less in the case of developed countries, and 10 per cent or less for devel-oping countries). The latter exception, however, is currently under discus-sion, because of the distortions it is creating in some sectors (such ascotton, whose production is heavily subsidised by the United States underthis rule).

As regards export subsidies, the Agriculture Agreement simply prohibitsthem, unless the subsidies are specified in a member’s list of commitments.If listed, the agreement requires WTO members to cut both the amount ofmoney they spend on export subsidies and the quantities of exports thatreceive subsidies. Taking averages for 1986–90 as the base level, developedcountries agreed to cut the value of export subsidies by 36 per cent oversix years, starting in 1995 (24 per cent over ten years for developing coun-tries). Developed countries also agreed to reduce the quantities of sub-sidised exports by 21 per cent over the six years (14 per cent over ten yearsfor developing countries). Least-developed countries do not need to makeany cuts.

Apart from the dividing line between developed and developing coun-tries, agriculture negotiations are also complicated because of the diverg-ing goals within developed countries. Large countries practising intensiveindustrial-style agriculture, such as Canada, the USA or Australia, arebroadly in favour of more free trade for agricultural products, whichbasically amounts to denying any specificity of agriculture, although stillretaining some distortive measures in specific sectors. The EU, on thecontrary, is attached to the multifunctional character of agriculture (see


Chapter 7) and therefore tends to ensure some protection for the agri-cultural markets, based on regulations for non-trade concerns.

The EU broadly agrees with the three-pillar agenda set in Doha. In par-ticular, it agrees to: (1) open markets for farm imports by slashing tariffs;(2) to cut trade-distorting farm support measures under the amber box; (3)to scale back all forms of export subsidies, on the condition that all formsof export subsidisation and distorting domestic support measures fromother countries (especially the USA) are treated on an equal footing. TheEU also agrees on granting special treatment for developing countries, toensure that they fully benefit from the expansion of world trade. The specialtreatment means increased market access for them, while accepting theneed for the most fragile developing countries to maintain protection inorder to have adequate time for adaptation.

Owing to their technical difficulty, and the contrasting desiderata ofcountries, the negotiations on agriculture are one of the main stumblingblocks on the road to a successful outcome of the Doha Round. The mostrecent progress in negotiations achieved at the July 2004 WTO GeneralCouncil,30 however, allows a certain degree of optimism in their positiveconclusions.

10.5.2 Services

Negotiations on services were already almost two years old when they wereincorporated into the new Doha agenda, since they officially started inearly 2000, while in March 2001 the negotiating guidelines and procedureswere agreed upon. The Doha Declaration thus endorses the work alreadydone, reaffirms the negotiating guidelines and procedures, and establishessome key elements of the timetable including, most importantly, an agree-ment for concluding the negotiations as part of a single undertaking, thatis, with a comprehensive agreement on the different issues currently underdiscussion.

The contents of the talks include some of the disciplines not yet includedin GATS: rules on emergency safeguard measures,31 government procure-ment, electronic commerce and, possibly, air transport services. Work alsostarted in 1995 to establish discipline on domestic regulations, the require-ments that foreign service suppliers have to meet in order to operate in alocal market. The focus is on qualification requirements and procedures,technical standards and licensing requirements. By December 1998,members had, for example, agreed disciplinary measures on domestic reg-ulations for the accountancy sector. Since then, members have been engag-ing in developing general discipline for all professional services and, wherenecessary, additional sectoral discipline. As already stated, all the agreed


disciplinary measures will be integrated into GATS and become legallybinding once the comprehensive package is signed at the end of the currentservices negotiations.

As far as government procurement is concerned, the issue arises because inmost countries the government, and the agencies it controls, are the biggestpurchasers of goods of all kinds, ranging from basic commodities to high-technology equipment. As a result, the political pressure to favour domes-tic suppliers over their foreign competitors can be very strong. To preventdistortions, an Agreement on Government Procurement had alreadyentered into force on 1 January 1981, with the purpose of opening up asmuch as possible this sector to international competition as well as makinglaws, regulations, procedures (especially tendering procedures) and practicesregarding government procurement more transparent, avoiding discrimina-tion against foreign products or suppliers. The agreement is, however, pluri-lateral: only 28 WTO members signed it, among them the European Unionand the United States. In the Uruguay Round the coverage of the agreementwas extended to services (including construction services), procurement atthe subcentral level (for example, states, provinces, departments and prefec-tures) and procurement by public utilities. The new agreement took effect on1 January 1996. Among the Singapore issues, as we have seen, talks have alsostarted on whether it is possible to extend this agreement from the plurilat-eral level to the multilateral level (for all WTO members).

The Doha Declaration also endorses the work already done on electroniccommerce. In particular, the declaration on electronic commerce from theSecond Ministerial Conference in Geneva, 1998, said that WTO memberswill continue their practice of not imposing customs duties on electronictransmissions. The Doha Declaration states that members will continuethis practice until the closure of the round, where possibly new arrange-ments could be undertaken.

Finally, at present, most of the air transport sector – traffic rights and ser-vices directly related to traffic rights – is excluded from the GATS coverage.However GATS mandates a review by members of this situation. Thepurpose of the review, which started in early 2000, is to decide whetheradditional air transport services should be covered by GATS. The reviewcould develop into a negotiation in its own right, resulting in an amend-ment of GATS itself by adding new services to its coverage, and by addingspecific commitments on these new services to national schedules.

10.5.3 TRIPS and Public Health

An issue that has arisen recently within the implementation of the TRIPSagreement is how to avoid the risk that patent protection for pharmaceutical


products prevents people in poor countries from having access to medicines,while at the same time maintaining the patent system’s role in providingincentives for research and development into new medicines. Although flex-ibilities are foreseen in the TRIPS Agreement, some governments wereunsure how these would be interpreted, and how far their right to use themwould be respected. In this regard, a special declaration was issued at theDoha Ministerial Conference in November 2001. On that occasion countriesagreed that the TRIPS Agreement does not and should not prevent membersfrom taking measures to protect public health. In addition countries alsoagreed to extend exemptions on pharmaceutical patent protection for least-developed countries until 2016. Extra flexibility was also granted in August2003, so that countries unable to produce pharmaceuticals domestically cannow import patented drugs made under compulsory licensing in other devel-oping countries, thus benefiting from the patent exception.

Another issue related to the TRIPS agreement of particular interest forthe EU is related to the protection of geographical indication: a brand orlabel such as ‘Champagne’, ‘Scotch’, ‘Roquefort’, ‘Parmigiano’ or ‘Chianti’does not only say where the product was made but also, and more impor-tantly, identifies the product’s special characteristics, which are the result ofthe product’s origins. Clearly wines and spirits makers are particularly con-cerned about the use of place names to identify products, and the TRIPSAgreement contains special provisions for these products. However the issueis also important for other types of goods, since misusing the geographicalindication, as in the controversy over ‘parmesan’ cheese, can mislead con-sumers, and it can lead to unfair competition. Countries are thereforeobliged to prevent this misuse of place names, although some exceptions areallowed, for example if the name is already protected as a trademark or ifit has become a generic term.32 However, any country wanting to make anexception under these reasons must be willing to negotiate with the countrywhich wants to protect the geographical indication in question.

As a result, further negotiations are necessary in order to establish a mul-tilateral, more automatic and transparent system of notification and regis-tration of geographical indications. The issue is particularly important forthe EU, given the increased focus of its agricultural policy on quality goodshighlighting particular, location-specific characteristics, a strategy thatrisks failing if inadequate protection for these products is not guaranteedat the multilateral level.

10.5.4 Trade, Competition and Investment: the ‘Singapore’ Issues

The close relationships between trade, investment and competition policyhave long been recognised. As a result, over the years both GATT and the


WTO have increasingly dealt with specific aspects of these relationships.For example, one type of trade covered by the General Agreement on Tradein Services (GATS) is the supply of services by a foreign company settingup operations in a host country, through foreign investment. The Trade-Related Investment Measures Agreement (TRIM) negotiated within theUruguay Round also says that investors’ right to use imported goods asinputs should not depend on their export performance, therefore con-straining the imposition of specific rules on multinational companies byhost governments.

The same goes for competition policy. The agreements on both goodsand services at the WTO contain rules on monopolies and exclusive servicesuppliers. The principles have been elaborated thoroughly in the rules andcommitments on telecommunications within GATS. Also the agreementson intellectual property and services recognise both governments’ rights toact against anti-competitive practices, and their rights to work together tolimit these practices.

As a result, in search of a comprehensive agreement, these subjects,together with transparency in government procurement, were originally onthe Doha Development Agenda. However, for all these issues, the 2001Doha declaration did not launch negotiations immediately, postponingthem until the Fifth Ministerial Conference in Cancùn in 2003. The failureof the latter meeting then led the WTO in 2004 finally to remove these issuesfrom the Doha agenda.

10.5.5 Trade and Environment

Currently there are about 200 international agreements in force (outside theWTO) dealing with various environmental issues, in general called multi-lateral environmental agreements (MEAs). About 20 of these include pro-visions that can affect trade: for example they ban trade in certain products,or allow countries to restrict trade in certain circumstances. Disputes oftenarise, given the increased environmental sensibility of developed countries(especially the European Union) and the suspicious attitude of developingcountries, which tend to consider trade restrictions for environmental pur-poses as hidden forms of protectionism.

Hence negotiations on trade and environment are currently going onwithin the Doha Development Round, and are essentially based on twoimportant principles: (a) the WTO is only competent to deal with trade-related aspects of environmental issues, that is, its only task is to study ques-tions that arise when environmental policies and trade rules affect oneanother, leaving the definition of national or international environmentalpolicies or standards to other specialised agencies; b) the solution to any


controversy arising in the field must continue to uphold the principles ofthe WTO trading system of non-discrimination, consensus, tariff bindingand reciprocity.

Clearly the relationship between trade rules and environmental policiesis multifaceted: environmental rules can affect trade flows; specific actionstaken on trade flows can play a positive, important role in some environ-mental agreements (for example, lower tariffs for environmentally friendlyproducts or services such as catalytic converters, air filters or consultancyservices on wastewater management); trade facilitation in certain productscan be a direct cause of the environmental problems, as with the contro-versy reported in Box 10.3.

As a result of these complex interactions, however, it is clear that, whenstudying the relationship between trade and environment, trade restrictionsare not the only actions that can be undertaken, and they are not necessar-ily the most effective. Alternatives include helping countries acquire envir-onmentally friendly technology, giving them financial assistance andproviding training. Negotiations are thus focusing also on these issues.Finally another area of negotiation is related to the issue of eco-labelling,the requirement to indicate (or not) on a product some of its components(such as genetically modified organisms) that might be considered danger-ous for the environment.33

10.5.6 Labour Standards

The discussion on labour standards, or the social clause, as it is sometimescalled, relates to the definition worldwide of essential standards applied tothe way workers are treated. The term clearly covers a wide range of issues:from the use of child labour and forced labour, to the right to organisetrade unions and to strike. The subject has been discussed extensivelywithin the WTO, because of its potential impact on trade, although neverin a formalised forum. In particular, three broad questions emerge: whethertrade actions should be permitted as a means of putting pressure on coun-tries considered to be severely violating core labour rights; whether acountry which applies lower standards for labour rights gains an unfairadvantage; and whether the WTO is the proper place to discuss labour.Clearly all three questions have a political angle: developed countries (theUSA and the EU in particular) agree in principle to use trade actions toimpose labour standards, while for developing countries these are simplyexcuses for hidden forms of protectionism.34

Lacking a consensus on the issue, however, at the 1996 SingaporeMinisterial Conference members identified the International LabourOrganization (ILO) as the competent body to deal with labour standards.



BOX 10.3 THE SHRIMP–TURTLE CASE

In early 1997, India, Malaysia, Pakistan and Thailand jointly com-plained to the WTO against a ban imposed by the USA on theimportation of certain shrimp and shrimp products. In order toprevent sea turtles being killed by fishing nets, in fact, the USEndangered Species Act of 1973 required US shrimp trawlers touse ‘turtle excluder devices’ (TEDs) in their nets when fishing forshrimps in areas where there is a significant likelihood of encoun-tering sea turtles. As a consequence, US laws declared that shrimpharvested with a technology that may adversely affect sea turtlesmay not be imported into the USA, unless the harvesting nation wascertified as having a regulatory programme and an incidental take-rate comparable to that of the USA, or the particular fishing environ-ment of the harvesting nation did not pose a threat to sea turtles. Inpractice, countries that had sea turtles within their waters and har-vested shrimp with mechanical means had to impose on their fish-ermen requirements comparable to those borne by US shrimpers ifthey wanted to be certified to export shrimp products to the USA. Inits report, theWTOmadeclear thatunder its rulescountrieshave theright to take trade actions to protect the environment (in particular,human,animalorplant lifeandhealth),providedcertaincriteriasuchas non-discrimination were met.However the USA lost the case:notbecause it sought to protect the environment but because it dis-criminated between WTO members. In fact it provided countries inthe western hemisphere – mainly in the Caribbean – with technicaland financial assistance and longer transition periods for their fish-ermen to start using turtle excluder devices. It did not give the sameadvantages, however, to the four Asian countries (India, Malaysia,Pakistan and Thailand) that filed the complaint to the WTO.

To expand the scope of the discussion, suppose instead that thistrade dispute had arisen among member countries also signato-ries of an environmental agreement outside the WTO. Should thedispute be handled under the WTO or under the other agreement?The WTO says that, if a dispute arises over a trade action takenunder an environmental agreement, and if both sides to thedispute have signed that agreement, then they should try to usethe environmental agreement to settle the dispute. But if one sidein the dispute has not signed the environment agreement, then theWTO will provide the only possible forum for settling the dispute.

As a result, there is currently no formal work on the subject in the WTO,although the countries concerned may continue their pressure for morework to be done in this forum.

10.5.7 The Political Economy of Negotiations from the EU Perspective

The Doha Development Round, once concluded, will push even furtherthe liberalisation of trade flows worldwide and, as we have seen, will be thefirst comprehensive attempt to manage some of the more controversialissues arising from the globalisation of economic activity. The EU, as thelargest world trading partner, has therefore a strong interest in the closureof the round, since this will entail, on average, a broader market access forEU products (especially services) and more transparent and generallyagreed rules on sensitive issues like the environment. In addition, the focusof the round on the needs of developing countries is in principle entirelyshared by the EU, which is already the largest donor of development aidin the world.

However, given the centrality of agriculture in the political economy ofnegotiations, the EU had to concede even more on its agricultural policythan the proposals put forward for the Fifth Ministerial Meeting inCancùn, in 2003 (and analysed in Chapter 7). These proposals were infact judged insufficient and essentially led to the failure of the conference.In May 2004, the Commission agreed on a proposal to abolish export sub-sidies completely, provided that other developed countries eliminate othertrade-distorting measures. The resulting combined proposals wereaccepted in principle by the WTO members within the so-called July 2004package on the Doha Agenda work programme, together with the deci-sion of aborting any further negotiations on the Singapore issues, as wehave seen.

It remains to be seen whether, after these concessions on agriculture andon the Singapore issues, the gains that the EU figures to make in othersectors (services, environment) will be enough to generate, within the singleundertaking summarising all the negotiations, the agreement of the EUmember states, and thus the final closure of the Doha Round.

10.6 THE INTERNATIONAL DIMENSION OF THEEU MONETARY POLICY

So far we have seen in what respect the Common Commercial Policy addsto the role of the EU within the issues of global governance, and to what


extent the same policy is constrained by the multilateral agenda of tradeliberalisation negotiated at the WTO. Although providing a substantialcontribution, the CCP alone is not able to guarantee to the Union a polit-ical presence on the world stage comparable to that of the USA, sincecommon actions are also needed in the field of monetary governance.

As already discussed in the introduction to this chapter, the opera-tional decisions are still pending on the external representation of theEuro zone: whether the EU should speak with a single voice in multilat-eral fora such as the IMF or the World Bank, or enter a system ofexchange rates. Therefore significant room for improvement exists in thisarea, given also the fact that, should the EU member states vote togetherat, say, the IMF, they would overcome the voting power of the USA, cur-rently the largest member in the multilateral financial institutions.Nevertheless, even in this situation, the launch of the Euro, per se, hasendowed the EU with a currency that is increasingly being used in inter-national financial transactions, therefore contributing to the external roleof the EU.

To look at this issue in more detail, we have first to assess what is ingeneral the role of a currency. In particular, the economic literature tradi-tionally identifies three main functions of a currency:

1. means of exchange: a currency can be used to conclude transactions,being the currency of denomination of exports or imports (forexample, oil is traded in US dollars);

2. unit of account: a currency can be used as the unit of denomination ofprices of financial assets (that is, the currency in which stocks or cor-porate bonds are denominated);

3. store of value: a currency can be used as the preferential tool to trans-fer purchasing power to the future, through the constitution of foreignexchange reserves of central banks, or being used as the vehicle cur-rency35 of exchange rate systems (for example, the US dollar in theBretton Woods system analysed in Chapter 3).

The use of the Euro as a currency of settlement or invoicing for inter-national trade transactions in selected Euro area countries has continuedto increase. In 2002, for most Euro area countries the share of the Euroused for exports with non-Euro area residents was above 50 per cent forboth goods and services, reaching levels close to 60 per cent in a few cases.Data on the currency breakdown of international trade of two of the Euroarea’s largest trade partners, namely Japan and the United Kingdom,broadly confirm this picture. It is worth noting, however, that the share ofthe Euro – relatively high when only bilateral transactions within the


European Union are considered – decreases substantially when trade withthe rest of the world is examined. For instance, the Euro is the first cur-rency used by Japan to export to the European Union, yet the Euro’s sharefalls to below 10 per cent when all Japanese exports are considered. This isdue to the still predominant role of the US dollar in the market of the maincommodities (oil, metals, cereals and so on), a situation which is difficultto reverse for the EU since trade invoicing tends to be very strongly relatedto the political (and military) power of the country whose currency is usedas a vehicle.

As unit of account, Figure 10.2 shows how the use of the Euro as a cur-rency of emission of debt securities has increased by ten percentage pointsover the 1994–2003 period, significantly reducing its gap with respect to theUS dollar.36 The ECB (2003) reports that similar trends can be found whenlooking at non-securitised financial instruments, that is, the use of the Euroby non-Euro area residents in international loan markets. Figure 10.3shows that the role of the Euro in the foreign exchange (FX) markets wasbroadly similar to that of the Deutschmark in the past. The Euro is thesecond currency (25 per cent of total) in FX trading, although the USdollar remains the preferred (50 per cent) vehicle currency, without anyindication of changes in this allocation of portfolios.

Finally, as a store of value, around 40 non-EU countries use the Euroeither as the sole anchor or reference currency for their exchange rates, oras part of the currency basket including the Euro as the anchor, with manyof these countries being close to the Euro area and/or having establishedspecial institutional arrangements with the European Union (accessioncountries, as well as countries of the western Balkans, northern Africa andthe CFA Franc Zone). In the rest of the world, however, the Euro only playsa very limited role as an anchor currency.

The situation is slightly better in terms of reserves. Since 2000, the shareof the Euro in global foreign exchange reserves has been growing gradually,from 15.9 per cent to 18.7 per cent with both industrial and developingcountries having increased their holdings of Euro-denominated reserveassets. Symmetrically the share of reserve holdings in US dollars decreasedin 2002, in spite of an increase, in absolute terms, of central banks’ reservesworldwide. The gradual increase in the share of the Euro can be partlyexplained by historical evidence, suggesting that the currency compositionof reserves changes only gradually. Moreover there is a strong regionalpattern in the recent build-up of foreign exchange reserves, as revealed inTable 10.10. This reflects a general trend whereby the currency compositionof foreign exchange reserves is closely linked to the choice of an anchor cur-rency as well as to trade invoicing (Eichengreen and Mathieson, 2000).Since the latter is a component in which the EU, as we have seen, is still


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In the concluding chapter of the book, these latter considerations will beanalysed in more detail.

NOTES

1. In particular, TEC, art. 111, para. 4 states that ‘the Council, acting by a qualified major-ity on a proposal from the Commission and after consulting the ECB, shall decide on theposition of the Community at international level as regards issues of particular relevanceto economic and monetary union and on its representation’. The same TEC art. 111,paras 1 and 2, lays down the provisions relative to the management of the exchange rateof the Euro (including eventually the setting up of a system of exchange rates).

2. Yet the combined share of the exports of the three regions – the so-called Triad –declined from 56.1 per cent to 43.7 per cent between 1965 and 2002, indicating thegrowing role assumed by the emerging economies. Note also that the EU reported figuresexclude intra-EU15 trade, which accounts for almost two-thirds of its total trade.Adding to this amount the trade with the new member states of Central and EasternEurope, the intra-European trade would account for almost 80 per cent of the EU-25trade.

3. See OECD (2000) or Messerlin (2001) for a detailed analysis of the effects of the CCP.4. As recalled in Chapter 2, various tools can be used to influence the trade flows of a given

country: tariffs (ad valorem or specific), quotas, non-tariff barriers (NTBs).5. More specifically, the Commission conducts trade negotiations, the European

Parliament eventually gives its endorsement and the Council finally approves them,according to the procedure set out in TEC, art. 300. We also recall that the tariffs’provisions constitute one of the sources of revenues for the EU budget, as analysed inChapter 6.

6. In the pre-Nice version, the article also conferred powers on the EU institutions fordealing with trade issues in services and property rights, but required a unanimousdecision by member states, rather than the more efficient qualified majority votingprocedure.


Table 10.10 The role of the Euro in Central Bank reserves

Region Range of Average Range of Averageholdings of holdings of holdings holdingsUS dollars US dollars of Euro of Euro

Africa 40–100 62 0–30 18Emerging Asia 24–85 60 0–16 6Emerging Europe 1–80 39 11–98 50Western Hemisphere 0–100 77 0–50 14Total 0–100 57 0–98 29

Source: ECB (2003).

7. Such an amendment to the new version of art. 133 agreed in Nice was strongly requestedby France, where the protection of the cultural and linguistic heritage is a very sensitivepolitical issue. For example, foreign movie advertising is forbidden on French TV.

8. In general exploiting to various extents the juridical base of art. 300 of the Treaty, pre-viously discussed.

9. In particular, in the trade agreements the EU might grant free access to imports of man-ufactured goods and services from its trade partners, especially developing countries,without requesting a similar treatment for its exports, owing to the concerns for the com-petitiveness of the same developing countries. Similar provisions, albeit more limited inscope, exist for trade in some agricultural products.

10. Such as, for example, the definition of common standards in pythosanitary measures, orstricter cooperation in the field of the fight against fraud and the protection of propertyrights, and so on.

11. As will be made clear, the preferences offered by the GSP were violating the non-dis-crimination principle of the GATT/WTO, and hence they required a waiver which wasgranted in 1971 with the ‘Enabling Clause’ for a ten-year period, then renewed in 1979for an indefinite period. More detailed information on the Generalised System ofPreferences can be found at http://europa.eu.int/comm/trade/issues/global/gsp/index_en.htm.

12. Regulation (EC) 416/2001 was then incorporated into the GSP (Regulation 2501/2001).Only imports of fresh bananas, rice and sugar were not fully liberalised immediately.Duties on those products will be gradually reduced until duty-free access will be grantedfor bananas in January 2006, for sugar in July 2009 and for rice in September 2009.

13. We could place the EBA initiative somewhere in between the cooperation agreementsand the GSP, since it is disciplined by a standard EU regulation, but it offers free tradeaccess (not just a reduced CET) to the EU market.

14. For more updated information and the legal texts produced so far by the EuropeanCommission on the subject, see the ENP website: http://europa.eu.int/comm/world/enp/index_en.htm.

15. The so-called ‘Barcelona process’originated in 1995 with all the Southern Mediterraneancountries (Morocco, Algeria, Tunisia, Egypt, Israel, PNA, Syria, Lebanon, Jordan,Cyprus, Malta and Turkey) except Libya, and was centred on the three pillars of political,social and economic partnership. More information is available on the Commission’sdedicated website: http://europa.eu.int/comm/external_relations/ euromed/index.htm.

16. The list is available at www.wto.org/english/thewto_e/gattmem_e.htm.17. From 1974 until the end of the Uruguay Round, trade in textiles was governed by the

Multi-Fibre Arrangement (MFA). This was a framework for bilateral agreements or uni-lateral actions that established quotas limiting imports into countries whose domesticindustries were facing serious damage from rapidly increasing imports. Quotas were themost visible feature of the system, since they conflicted with GATT’s general preferencefor customs tariffs instead of measures that restrict quantities. They were also exceptionsto the GATT principle of treating all trading partners equally because they specified howmuch the importing country was going to accept from individual exporting countries.The MFA was dismantled on 1 January 2005, with trade in textiles finally homogenisedto trade in standard goods.

18. The GATS is possibly the widest agreement negotiated at the Uruguay Round, and theone that has set the most significant future agenda in terms of subjects to be progres-sively liberalised. More information can be found at the WTO Services Gateway:http://www.wto.org/english/tratop_e/serv_e/serv_e.htm.

19. The European Court of Justice within the European Union is also endowed with bindingpowers with respect to national member states, but it is a regional, not a multilateral,institution.

20 Note that the NT rule ensures equal competitive opportunities to the imported products(for example, same tax rates, same sales or transport opportunities, same contentrequirements) only once they have entered the domestic market. It does not imply equalopportunities for the foreign products in the sense of zero tariff rates.


21. In particular, efficiency breaks down when FTA or CU are set up among countries thatare not ‘natural’ partners, that is, countries that have similar income levels and govern-ments that maximise similar welfare functions (Rivera-Batiz and Oliva, 2003, p. 598).The debate between regionalism and multilateralism has produced a great body of liter-ature. Recent contributions in favour of multilateralism are Rivera-Batiz and Oliva(2003) and Tharakan (2002). Bhagwati (1999) provides a detailed analysis of this dis-cussion, from both an economic and an historic perspective. Rose (2004) claims that mul-tilateral rules negotiated at the GATT/WTO have been much less relevant in increasingtrade flows among countries than regional integration agreements or other standarddeterminants of trade.

22. VER are arrangements between countries, usually negotiated bilateral agreements, inwhich suppliers in an exporting country (or their government) agree to limit to prede-termined levels their exports of a particular product to an importing country. The WTOagreement states that members must not seek, take or maintain any voluntary exportrestraints, orderly marketing arrangements or any other similar measures on the exportor the import side. The bilateral measures that were not modified to conform to theagreement were phased out at the end of 1998. Countries were allowed to keep one ofthese measures an extra year (until the end of 1999), but only the European Union –for its restrictions on imports of cars from Japan – made use of this provision, nowdismantled.

23. They also instructed the WTO Goods Council to look at possible ways of simplifyingtrade procedures, an issue sometimes known as ‘trade facilitation’.

24. The USA, having to face an electoral year in 2000, pressed for the closure of specificdeals as soon as an agreement could be found, leaving more controversial issues forfuture negotiations. The EU, which had to compromise on agriculture in order to gainin other sectors, insisted instead on a comprehensive approach, in which no deal couldbe closed unless every deal was closed.

25. See Deutsch and Speyer (2001) for a detailed discussion of the Millennium Round failure.26. The USA and the EU agreed on a common initial position to be presented at the nego-

tiations, while the WTO significantly improved the transparency of its work through itswebsite. A nice example of this improved transparency, quoting the WTO position on‘ten common misunderstandings’ about trade talks, can be found at http://www.wto.org/english/thewto_e/whatis_e/10mis_e/10m00_e.htm.

27. We have used various sources for the elaboration of the overview, mostly through web-sites. The main reference, however, has been WTO (2003).

28. For example, if the previous policy generated domestic prices 75 per cent higher thanworld prices, then the new ad valorem tariff could be set at around 75 per cent.

29. WTO members calculated how much support of this kind they were providing per yearfor the agricultural sector (using calculations known as ‘total aggregate measurement ofsupport’ or ‘Total AMS’) in the base years of 1986–88. Developed countries agreed toreduce these figures by 20 per cent over six years, starting in 1995. Developing countriesagreed to make 13 per cent cuts over ten years. Least-developed countries do not needto make any cuts.

30. The latest developments on agriculture, together with updates on the negotiating posit-ions of countries, can be monitored on the WTO dedicated website: www.wto.org/english/tratop_e/agric_e/agric_e.htm.

31. Safeguards are temporary limitations on market access to deal with market disruption,and the negotiations aim to set up procedures and discipline for governments using these.

32. For example, ‘cheddar’ now refers to a particular type of cheese not necessarily made inCheddar, in the UK.

33. The controversy on genetically modified organisms (GMO) is a good example of theproblems arising when dealing with trade and environment. Products containing GMOscould be denied access to domestic markets if considered dangerous by the importingstate (the WTO has already ruled against this procedure), or could be requested to havea specific label explicitly indicating that they contain GMOs, thus leaving the choice to


the consumers. The latter seems to be the general orientation of the WTO, and hencespecific rules have to be agreed on labelling.

34. Many officials in developing countries believe that the campaign to bring labour issuesinto the WTO is actually an attempt by industrial nations to undermine the comparativeadvantage of lower-wage trading partners.

35. A vehicle currency (let us call it B) is defined as a currency that is used in the foreignexchange markets as a means to exchange two other currencies, A and C, so that cur-rencies A and C are not exchanged directly (AC) but via B in two transactions (AB andBC). In the foreign exchange markets, most transactions between relatively illiquid cur-rencies are effected via vehicle currencies because of lower transaction costs, and in orderto avoid excess intra-day volatility (ECB, 2003).

36. Debt securities comprise both instruments with long-term maturities (bonds and notes)and short-term maturities (money market instruments).


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