Outline for 10/22: International Trade II
Gravity Model of Trade
US Trade Partners
Global Trade IGOs
ITO
GATT
WTO
Regional Trading Arrangements (RTAs)
The Gravity Model of Trade and Economic Geography
Force of gravity = ( mass1 * mass2 ) / distance2
Amount of international trade = (GDP1 * GDP2) / distance between them
Open book to pp. xxii-xxiii (Map of the World)
In what regions of the globe would we expect to see a lot of trade?
In what regions of the globe will trade be very difficult?
Who would we expect to be the United States’ major trading partners?
US Trade Partners
Exports
Canada
Mexico
China
Japan
England
Imports
China
Canada
Mexico
Japan
Germany
Trade deficit
China
Mexico
Japan
Germany
Saudi Arabia
Does this fit the gravity model logic?
International Trade Organization (ITO)
Proposed at Bretton Woods conference in 1944
2 major parts
1. rules about free trade (GATT)
2. rules about foreign direct investment, specifically rights for host countries
Havana Charter signed in 1948
US Senate refused to ratify in 1950, objected to rules about foreign direct investment
General Agreement of Tariffs and Trade (GATT)
Set of rules about what constitutes free trade
Based on principle of non-discrimination
Most Favored Nation (MFN)
National Treatment
Lots of exceptions
Generalized System of Preferences (GSP)
Domestic Safeguards
Regional Trading Arrangements (RTAs)
Expansion of the GATT (1)
Width (number of member-states)
vs.
Depth (what it covers)
Why might there be a tradeoff between these 2 dimensions?
Initially limited in both dimensions
1. Width – starts with only 23 member-states
2. Depth
Product areas covered – manufactured goods only
Forms of trade protection covered – tariffs only
Expansion of the GATT (2)
Expanded in a series of trade rounds
Name
Geneva
Annecy
Torquay
Geneva II
Dillon
Kennedy
Tokyo
Uruguay
Start
1947
1949
1950
1956
1960
1964
1973
1986
Length
7 mos.
5 mos.
8 mos.
5 mos.
11 mos.
37 mos.
74 mos.
87 mos.
Which dimension came first?
Countries
23
13
38
26
26
62
102
123
Subjects discussed
tariffs
tariffs
tariffs
tariffs
tariffs
tariffs and anti-dumping
tariffs, NTBs
tariffs, NTBs, intellectual property rights
agriculture, services, textiles,
creation of new WTO
Width or Depth?
Any pattern between length and # of countries?
World Trade Organization (WTO)
Signed in 1994 at the end of Uruguay Round, ratified in 1995.
Structure
1. Secretariat in Geneva, led by Director-General (currently Roberto Azevedo)
2. Ministerial Council
3. General Council
4. Dispute Settlement Body
5. Appellate Body
(meets every 2 years)
1st Singapore 1996
2nd Geneva 1998
3rd Seattle 1999
4th Doha 2001
5th Cancun 2003
6th Hong Kong 2005
7th Geneva 2009
8th Geneva 2011
Have the GATT/WTO been effective?
Yes –
increased trade
and
decreased tariffs post-WWII
No –
trade gains uneven
and
tariffs being replaced by NTBs
Doha Round
Began in 2001
Southern countries want free trade in agriculture and textiles
Northern countries want greater intellectual property rights protection
and free trade in services
Currently at an impasse
Lots of criticism directed at the WTO
1. Too strong – Dispute Settlement Body
2. Too weak – unanimity requirement in the Ministerial Council
Regional Trading Arrangements (RTA) as an Alternative to Global Free Trade
What is an RTA?
Is it Discriminatory?
Examples?
RTA expansion
Increase in # of RTAs (~200 registered with the WTO)
Increased size within existing RTAs
EU (6 →9 → 10 → 12 → 15 → 25 → 27)
US-Canada FTA → NAFTA → Free Trade Area of the Americas