Lecture 7 WTO

7/27/2019 Lecture 7 WTO

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International Political Economy #7

The World Trade Organization

William Kindred Winecoff

Indiana University Bloomington

September 19, 2013

W. K. Winecoff | IPE #7: The WTO 1/23
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Recap

Post-WWII, the U.S. wanted to create a mechanism for keeping the

trade system going.

Promote economic growth.Promote open, multilateral system so rising powers wouldnt

be dissatisfied.

Trade cooperation is difficult: the Prisoners Dilemma.

Institutions can help resolve P-D problems.

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Institutions and the Prisoners Dilemma

Prisoners Dilemma is a tragedy because the Nash equilibrium (both

sides defecting) is suboptimal.

A Pareto-improving outcome exists: both sides cooperating.

The Nash equilibrium arises because of:

Information Asymmetries.

Commitment Problems.

Institutions provide mechanisms for sharing information (via open

negotiations) and making commitments credible (by punishing

defectors).

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The ITO

Very ambitious attempt to create an institution within the U.N.

framework.

Not just trade; also employment, commodity agreements, restrictive

business practices, international investment, and services.

50 countries negotiate a draft charter. U.S. fails to ratify.

It becomes clear that a less-comprehensive approach was needed in

order to get the approval of all governments.

Also, to reach consensus a narrower bargaining group was needed.

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The GATT

So the GATT was designed to reduce information asymmetries and

enforce commitments.

But needed to be more focused than the ITO.

Only 15 countries negotiated initially.

Goal (from the preamble): substantial reduction of tariffs and other

trade barriers and the elimination of preferences, on a reciprocal and

mutually advantageous basis.

Not totally free trade; reciprocal reductions in barriers.

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The Original Agreement

45,000 concessions concerning 20% of the worlds trade at the time.

By 1948, when the deal went into place, 23 countries were members.

Focused on goods trade. Focused on goals of Western economies.Countries agree to a schedule of commitments, i.e. limitations on

tariffs.

New negotiations would add to previous commitments; these were called

rounds.



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The First GATT



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Later Rounds

There have been nine rounds since the original.

Each one has intended to address new issues, and issues raised by new

members.

More and more brought into the GATT orbit: services, agriculture,

dumping, intellectual property.

Eventually, the treaty system of GATT became encumbered.

This led to the desire to create a more comprehensive organization: the

WTO.



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Moving Towards the WTO

Basic tenants: emphasize a regularized process governing trade that is

based on a set of rules, which rest on basic principles, which are agreed

by governments.

The process is contained in rounds. A few notables:Kennedy Round (1962-1967): major tariff reductions,

especially in manufacturing.

Uruguay Round (1986-1994): establishes WTO as successor

to GATT.

Doha Round (ongoing): emphasizes development.

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The Effect of GATT



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Length of Negotiating Rounds

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Tariffs Down, Trade Up

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GATT Issues

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The WTO Rules



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Breakdown of Rules

GATT: agriculture, textiles, sanitation standards, technical barriers to

trade, safeguards, investment measures, anti-dumping & subsidies.

GATS: movement of persons, air transport, financial services, shipping,telecommunications.

TRIPS: intellectual property (e.g. pharma, entertainment), copyright,

trademarks, etc.



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The Core Principles

Market-based liberalism (i.e., no communism, no fascism).

Non-discimination:

Most-Favored Nation (MFN) status (Article I): any benefit

extended to one member must be extended to all members.

Schedule of Concessions (Article II): countries make firmcommitments to tariff levels.

National Treatment (Article III): no difference between

foreign and domestic goods w/r/t taxation, regulation, etc.

Reciprocity and progressive tariff reductions.

Domestic safeguards: temporary protections allowable to save dying

industries, protect public health, etc.

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The Dispute Settlement Mechanism

Not in GATT; new to WTO.

A quasi-judicial body adjudicates disputes over rules and compliance.

When a complaint is filed, initial consultations seek to resolve the issue.

If that fails, goes to a Dispute Panel composed of 3-5 experts in trade

law. They hear the case, and rule on whether facts support thecomplaint. If so, they give timeframe for adjustment.

Appellate Panel: 3-5 different individuals. Review Dispute Panels

interpretation of law, monitor adjustment, and approve retaliation when

warranted.

Note whats happening here: a reduction in private information, and a

commitment mechanism that is credible (because it is self-enforcing).

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The Club

Developing countries either dont participate or do so reluctantly from1945-1985.

Think the rules are stacked against them (mostly because they are).

Rich countries negotiate among themselves, then tell the poor countries

to take it or leave it. Therefore, rules largely represent the interests of

the Core, not the Gap.

Heavy reductions in manufacturing tariffs; fewer in

agriculture.

Capital-rich countries benefit from trade in manufactures;

land-rich countries benefit from trade in agriculture.The Doha round is intended to restore some balance; bring developing

countries more into the liberal order. But politics gets in the way.



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The Problem of Agriculture

U.S.: Farm Bill (subsidies and other supports for U.S. farmers).

E.U.: Common Agricultural Policy (ag. subsidies).

Japan Agricultural Cooperatives (subsidies).

Worldwide agriculture tariffs/supports still average over 60%.

This kills farmers in the developing world. Also expensive (and

sometimes unhealthy) for those in the developed world.

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Agriculture Tariffs



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Agriculture Versus Non-Agriculture, 2008

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WTO Politics

The WTO, like all institutions, both reflects and restrains power.

Rich countries have leverage in negotiations, and capabilities in

adjudication.

Comparative (dis)advantages vary across countries, definitionally;politicians in each country want to protect their disadvantaged

industries. This leads to political battles.

The WTO has been at a stalemate for a decade.

WTO: undemocratic? tool of corporations? anti-environment? engine

of inequality? agent of imperialism by the Core?

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Doha Politics

Developing countries increase in numbers and clout.

Want concessions from the Core, esp on agriculture; Core doesnt wantto.

More next week.

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Documents

Lecture 7 WTO