The World Trade Organization
READING ASSIGNMENT:
Oatley – Chapter 2
Suggested (not required) further reading:
Busch, Marc. Overlapping Institutions, Forum
Shopping, and Dispute Settlement in International
Trade. International Organization 61(4): 735-761.
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Today’s Plan
• History of the WTO
• What it does
• Relation to regional trade organizations
2
All markets rest on political structures
Trade?
GATT/WTO
3
History
Immanuel Kant David Ricardo
1724-1804
1772-1823
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GATT/WTO
• Initial idea: International Trade Organization
– discussed at Bretton Woods
• But the ITO failed
– Charter drafted 1948
– United States Congress failed to approve it
• Meantime, GATT had been initially formed with 15 countries – grew
from there.
• On 1 January, 1948 the GATT was signed by 23 countries
• GATT: 1947-1994
• General Agreement on Tariffs and Trade became:
– The World Trade Organization in 1995
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WTO
• 160 members as of 2014
– http://www.wto.org/english/theWTO_e/whatis_e/tif_e/org6_e.htm
• Staff of only 635
– IMF: ~2000
– World Bank: >10,000
• 2013 Budget: About CHF 200,000,000
– http://www.wto.org/english/thewto_e/secre_e/budget11_e.htm
– http://www.wto.org/english/thewto_e/secre_e/budget_e.htm
– World Bank operating budget ~ $1 billion
– Total IMF resources approaching 1 trillion…
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Initial GATT members (1/1/1948)
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Australia
Belgium
Brazil
Burma
Canada
Ceylon
Chile
China
Cuba
Czechoslovak Republic
France
•
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India
Lebanon
Luxembourg
Netherlands
New Zealand
Norway
Pakistan
Southern Rhodesia
Syria
South Africa
United Kingdom
United States
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The WTO
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What does the WTO do?
• Provides a forum for negotiations
• Administers trade agreements
• Provides a dispute settlement mechanism
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3 components
1. A set of principles and rules
2. An intergovernmental bargaining process
3. A dispute settlement mechanism
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(1) Principles & Rules
1. Market liberalism
•
•
In the aggregate gains from trade outweigh losses
Winners could compensate losers
2. Nondiscrimination
•
Most Favored Nation (MFN): Treat all countries as
well as its favorite trading partner
•
National treatment: prohibits the use of taxes,
regulations, other domestic policies to advantage
domestic over foreign firms
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Article I: Most Favored Nation
Article I
(MFN)
General Most-Favoured Nation Treatment
1.
With respect to customs duties and charges of any kind imposed
on or in connection with importation or exportation or imposed on the
international transfer of payments for imports or exports, and with respect
to the method of levying such duties and charges, and with respect to all
rules and formalities in connection with importation and exportation, and
with respect to all matters referred to in paragraphs 2 and 4 of Article III,*
any advantage, favour, privilege or immunity granted by any
contracting party to any product originating in or destined for any
other country shall be accorded immediately and unconditionally to
the like product originating in or destined for the territories of all
other contracting parties.
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Source: World Trade Organization, Legal Texts
Article III*
National Treatment on Internal Taxation and Regulation
Article III: National Treatment
1. The contracting parties recognize that internal taxes and other internal
charges, and laws, regulations and requirements affecting the internal
sale, offering for sale, purchase, transportation, distribution or use of
products, and internal quantitative regulations requiring the mixture,
processing or use of products in specified amounts or proportions, should
not be applied to imported or domestic products so as to afford
protection to domestic production.*
2. The products of the territory of any contracting party imported into the
territory of any other contracting party shall not be subject, directly or
indirectly, to internal taxes or other internal charges of any kind in excess of
those applied, directly or indirectly, to like domestic products. Moreover, no
contracting party shall otherwise apply internal taxes or other internal
charges to imported or domestic products in a manner contrary to the
principles set forth in paragraph 1.*
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Source: World Trade Organization, Legal Texts
MFN exceptions
• Regional trade arrangements
– Free-Trade Area (e.g., NAFTA)
– or Customs Union (e.g., EU)
• Generalized System of Preferences (from 1960s):
– Developed countries can apply lower tariffs for
developing countries than for their peers
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(2) Intergovernmental Bargaining Process
• Bargain over what?
• Tariffs and nontariff barriers
– Nontariff barriers? Health & safety regulations, standards
(environmental), government purchasing practices, quotas,
bans, rules of origin, packaging/labeling conditions, complex
regulatory environment, licensing
• Antidumping
• Intellectual property rights
• Textiles, agriculture, services, government procurement,
e-commerce…
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9 Bargaining Rounds
• 1947 Geneva
• 1949 Annecy
• 1951 Torquay
• 1956 Geneva
• 1960-61 Dillon Round
• 1964-67 Kennedy Round
Take-away?
The rounds are
getting longer
because
remaining
issues are more
difficult.
• 1973–79 Tokyo Round
• 1986-93 Uruguay Round
• 2002-??? The Doha Round
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(3) Dispute Settlement Mechanism
• “The dispute settlement mechanism
ensures compliance by helping
governments resolve disputes and by
authorizing punishment in the event of
noncompliance.” (Oatley txtbook, p28)
• How do you tie your hands without a rope?
– (commitment/enforcement questions)
– COSTS OF ESCALATION
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Dispute Settlement: GATT vs. WTO
•Under GATT, a defendant could block actions.
•Under the WTO, this cannot happen
GATT
WTO
Requestforfor
Request
Consultations
Consultation
Request for
Request
for Panel Panel
Compliance
Retaliation
Panel
Panel
Ruling
Appellate
Body
Panel Ruling
Arbitration
Panel
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Retaliation can be clever
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Sometimes the WTO…
lets you lose!
Governments can use the WTO as an
excuse to protectionist lobbies for opening
up to free trade.
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Regional trade agreements
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RTAs
• Free Trade Area (e.g., NAFTA)
– Eliminate tariffs amongst members
– Members maintain independent trade policies with non-members
• Customs union (e.g., EU)
– Eliminate tariffs amongst members
– Common tariff policy with non-members
• Discriminatory?
– Allowed under GATT Article XXIV – as long as tariffs are no higher
than the level applied by (ALL***) countries prior to the arrangement
– (MERCOSUR led Argentina to raise tariffs on non-members – but
not above the level of the highest MERCOSUR member)
• Currently 190-250 RTAs in operation (up to 400 on the horizon for 2010)
• More than half are bilateral (e.g., KORUS)
• Most are free trade agreements
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Customs Unions
• Central American Common Market (CACM)
• Andean Community (CAN)
• Caribbean Community (CARICOM)
• Economic and Monetary Community of Central Africa (CEMAC)
• East African Community (EAC)
• Eurasian Economic Community (EAEC)
• European Economic Area (EEA) (plus EC – Andorra, EC – Turkey)
• Gulf Cooperation Council (GCC)
• Southern Common Market (MERCOSUR)
• Southern African Customs Union (SACU)
• West African Economic and Monetary Union (WAEMU)
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Why RTAs not the WTO?
• Sign with particularly important markets
• New “forums”  Forum shopping! (Busch)
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Why would you go to NAFTA?
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Why would you go to NAFTA?
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Choose the forum that best suits you!
• NB:
– In the absence of the regional option, you
may prefer no litigation at all!
• By moving a li’l bit toward free trade under
NAFTA
– Anti-trade interest groups may weaken
– Eventually get to WTO position?
– (Richardson Hypothesis)
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Take-home points
• WTO is a small international organization
• Purposes: Provide a negotiation forum, administer trade
agreements, provide a dispute settlement mechanism
• Chief principles: MFN, Nondiscrimination
• Major negotiation issues: tariffs, nontariff barriers,
antidumping, intellectual property rights, textiles,
agriculture, services
• Regarding disputes - most are settled before full escalation
• So the WTO does not cast many rulings - but it still may
have a big effect as a deterrent
• Regional trade agreements - FTAs and Customs Unions
– Why? Forum shopping
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Thank you
WE ARE GLOBAL GEORGETOWN!
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Concessions and Legal Escalation
80
Probability Defendant Concedes
70
60
50
80

61% of all
instances of
full
concessions
under WTO
occur prior to
ruling
70
Panel Established,
No Ruling
30
50
Ruling for
Complainant
40
60
Consultations
40
30
20
20
10
Ruling for
Defendant
0
10
0
Stage Dispute Reaches
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Source: Busch and Reinhardt 2000
Full Concessions Under GATT/WTO
Busch & Reinhardt. Developing Countries and GATT/WTO Dispute
Settlement.” Journal of World Trade 37 (4) 2003: 719-735.
100
90
.63-.78
Prob (Full Concessions)
80
WTO
Developed
70
.41-.64
60
WTO Developing
50
40
GATT Developed
GATT Developing
30
20
.27-.49
.33-.48
10
0
Complainant Status by Period
NOTE: Displays predicted probabilities from Model 1, holding all other variables at their sample means, moving WTO
32 from
0 to 1 and Complainant's Per Capita Income from its 10th percentile value ($2,152) to its 90th ($29,251), with 90 percent
confidence intervals
The WTO Effect
• While the rich are doing better than the poor
going from GATT to WTO (as complainants)
• This is NOT because the rich win more often or
get more compliance ex post.
• Rather, it is because rich countries settle more in
advance of a ruling.
• Remember, the DV is concessions, not wins
• The effect of the WTO is through deterrence
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What is Doha Trying to Get Done?
• Getting a deal done: agriculture for nonagricultural market access (NAMA)
• Rich countries are increasingly voicing
demand for services, as per Singapore
agenda
• http://www.youtube.com/watch?v=03GU14
F2Zb0 (10 minutes)
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WTO
• Derives most of its income from contributions by its members
– according to a formula based on share of international trade
– http://www.wto.org/english/thewto_e/secre_e/contrib07_e.htm
– (Detail: share of international trade (%), based on trade in goods, services
and intellectual property rights for the last five years for which data are
available. There is a minimum contribution of 0.015%)
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