Notes, ECON 4415, lecture 1:
International trade institutions
•
•
•
•
•
•
Focus: Theory + institutions
Reference: Hoekman and Kostecki (2001)
Some parts ”should be known”
Other parts: For your own interest
Several internet sources
www.nupi.no: Some relevant working
papers
Important institutions
•
•
•
•
The World Trade Organisation (WTO)
Regional and bilateral trade agreements
The OECD: For trade in services
IMF and the World Bank: Developing
countries, adjustment programmes
• UNCTAD: Opinion-shaping
• Aid agencies: Trade-related aid
Focus of lectures, institutional
issues
•
•
•
•
•
This lecture: Aspects of WTO
Lecture 12: TRIPS
Lecture 13: Regional trade blocs
Lecture 14: Trade in services/GATS
Lectures 10-11: Trade and growth, relevant
for trade policy issues
• Various lectures: Welfare aspects
Is free trade good for
development?
•
•
•
•
Correlation between openness and growth
Correlation between trade and growth
But: Causality is complex
Support for the ”free trade story”, but not
yet fully conclusive
• Example: Growth in Europe and South East
Asia
Should developing countries
liberalise?
• New trade theory: More arguments for
protection
• Market access abroad is always good
• Import protection may limit technology
imports
• Scope for autonomous industrialisation
limited under ”globalisation”
• Good reasons for gradual approach
Trade liberalisation is linked to
other policies
• Institutions, macroeconomic policies
• Technological capacity, education
• Considerable evidence on ”threshold
effects”
• Hence trade liberalisation is no simple cure
• Tariff revenues matter for poor countries
• But: Trade seems to be good…
WTO
• Result of ”Uruguay Round” 1986-1994
• From 1.1.1995
• ”Umbrella” for three components:
 GATT – General Agreement on Tariffs and Trade
 GATS – General Agreement on Trade in Services
 TRIPS – Trade-Related Aspects of Intellectual Property
Rights
• Common system for Dispute Settlement
• Trade policy review mechanism
• ”Single undertaking”: Most agreements binding
GATT (1947..)
• ITO (International Trade Organization)
1948 – never came about (US opposition)
• GATT 1947 – provisional agreement
• Tariff reduction + parts of ITO
• Broader aspects (”UNCTAD-like” not
included
• 1947: 23 members, one half developing
Negotiation rounds
• 5 rounds 1947-61
• Kennedy Round 1964-67: Part IV on development
• Tokyo Round 1973-79 (new agreements,
development issues: ”enabling clause”)
• Uruguay Round 1986-94 (WTO, services,
agriculture, TRIPS, disciplines)
• WTO (1995) = GATT + GATS + TRIPS
• ”Doha development agenda” 2001-?
• Seattle (1999), Doha (2001), Cancun (2003)
WTO: 148 members
(Melchior 2003)
The expansion of GATT/WTO 1948-2003
(based on accession dates for members since 1994)
160
140
100
80
60
40
20
0
19
48
19
53
19
58
19
63
19
68
19
73
19
78
19
83
19
88
19
93
19
98
20
03
Mem bers
120
Implications of size
•
•
•
•
•
•
•
Global organisation (ex. Russia etc.)
Mainly based on consensus
More complex negotiations
Different interests, issue linkages
”Green room” vs. plenary sessions
Difficult to create ”representative” bodies
”Give and take” vs. ”UNCTAD method”
Major principles of GATT/WTO
• Non-discrimination 1: The Most Favoured
Nation principle
• Non-discrimination 2: National Treatment
• Transparency
• Forum for negotiations
• Reciprocity
• Member-driven organisation
Major exceptions to equal
treatment in WTO
• Free trade agreements
– Article XXIV of GATT, Article V of GATS
•
•
•
•
Textile trade restrictions, MFA
Trade preferences for developing countries
National treatment: Negotiated in GATS
Non-reciprocity for developing countries in
negotiations
• Anti-dumping
Trade in goods: Major issues
• Tariff negotiations
• Anti-dumping and subsidies
• Technical barriers to trade
– TBT: Agreement on Technical Barriers to Trade
– SPS: Agreement on Sanitary and Phytosanitary
Measures
• Trade in textiles
• Trade in agriculture
• More, see Chapter 2 H&K
Tariffs, non-agriculture
• Gradually reduced through negotiating
rounds
• GATT 1947 – around 40%
• Currently – 3-4% for industrial countries
• Still very important for developing
countries
• Manufactures: More than 2/3 of DC exports
Too much liberalisation: Hardly the explanation of poverty?
Tariffs on trade in goods after the Uruguay Round
Sub-Sah. Africa
DCs South Asia
Bound
Applied
Latin America
DCs East Asia
Industrial countries
0
20
40
60
80
Tariffs continued…
Importing region
Exporting
region
Highincome
Developing
Highincome
0.8
10.9
Developing
3.4
12.8
Source: Hertel and Martin (2000), see H&K p. 43.
Tariffs continued..
• Developing countries have higher tariffs
• But: Industrial countries have higher tariffs
for developing country products
• Example: Textiles
• ”Doha Round”: Formula approach +
sectoral tariff elimination
• DCs: Reject binding sectoral liberalisation
Formulas
• ”Swiss formula”: t1=at0/(a+t0) where t0 is
the original tariff
• Used in Tokyo Round
• Upper bound = a
• Current round: Modified formula, ”a”
function of initial tariff level
• Proportional cuts in mean tariffs, higher
(lower) cuts for tariffs above (below) mean
Tariffs versus income levels
(Melchior 2003)
80
70
Bound tariff average
60
50
40
y = -0.0009x + 34.69
R2 = 0.1051
30
20
10
0
0
10000
20000
30000
Income per capita (2001, USD)
40000
Implications
•
•
•
•
•
•
Only weak correlation tariff/ income levels
Great dispersion among poor countries
Large gaps old vs. New members
Bound tariffs much higher than applied
Not a consistent system of non-reciprocity
Problem: How to differentiate between
developing countries
Special and Differential
Treatment (SDT)
• Chapter 12, H&K
• 1960s: ”Part IV”, non-reciprocity, nonbinding language
• 1960s: GSPs, colonial background
• 1971: Temporary ”waiver” from GSP
• Tokyo Round: Enabling clause – made
waiver permanent
GSP
• Industrial countries: Tariff preferences for
DCs
• EU, US: More differentiated approach
• EU: Lomé waiver expires, FTAs instead
• Norway: Extensive GSP for manufactured
goods
• But: Tariff liberalisation eliminates effect
Problems with SDT
• GSP is non-binding
• The benefits of GSP are modest
• GSP makes DCs more protectionist?
• LDCs well-defined, DCs self-nominated
• Differentiation between DCs difficult
Possible solution:
• More differentiation between DCs?
• ”GSP-like” measures in other areas?
• Binding rather than voluntary measures?
”Anti-preferences”: The textile
regime of the WTO
• Textiles: Still high tariffs
• MFA (textile quota regime): Network of
bilateral quota agreements 1974-• To be phased out by January 2005
• Slow implementation, anger from
developing countries
• Will quotas be replaced by other restraints?
• Other quotas: Eliminated in Uruguay Round
Example:
Norway’s textile quotas
• Extremely protective around 1980, then
gradually liberalised
• When quotas were lifted, the share of
developing countries increased from 32 to
65% in 4 years (Melchior 1994)
• Big welfare loss due to quotas
• Free trade with Western Europe
• Today: Fully liberalised in Norway