The Global Trade Regime Today Lecture 10 – Thursday, 11 October 2011 J A Morrison 1 WTO Building (Geneva, Switzerland)
Dec 14, 2015
The Global Trade Regime Today
Lecture 10 – Thursday, 11 October 2011J A Morrison 1
WTO Building (Geneva, Switzerland)
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Last time, we discussed the GATT’s creation and its
emergence as the cornerstone of the postwar trade regime.
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Today, we’ll return to the RTAA and consider six or seven more
explanations of its creation.
(Just kidding.)
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Actually…
Today, we’ll build on this foundation to explain and consider the global trade regime as it exists today.
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Lec 10: Global Trade Regime Today
I. From the GATT to the WTOII. Regionalism vs MultilateralismIII.Doha: The Colonies Strike BackIV.Discussion Points
6
Lec 10: Global Trade Regime Today
I. From the GATT to the WTOII. Regionalism vs MultilateralismIII.Doha: The Colonies Strike BackIV.Discussion Points
7
I. From the GATT to the WTO
1. Why the move to the WTO?2. Key Features of the WTO3. Decision-making in the WTO
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In the Marrakesh Agreement (1 January 1995), the GATT was
displaced by the newly created World Trade Organization
(WTO).
For all practical purposes, the GATT was dead.
Why?
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On Tuesday, we saw how the “Provisional” framework of the GATT successively deepened,
broadened, and formalized over the last half century that
followed.
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This raises a puzzle:
If the GATT proved so resilient, flexible, and durable, why was
it formally replaced by the WTO? Why wasn’t the GATT
just revised and expanded as it had been in the past?
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The WTO website reports that the GATT was not really killed
by the move to the WTO:
“The WTO replaced GATT as an international organization, but the General Agreement still exists
as the WTO’s umbrella treaty for trade in goods, updated as a result of the Uruguay Round
negotiations. Trade lawyers distinguish between GATT 1994, the updated parts of GATT, and GATT
1947, the original agreement which is still the heart of GATT 1994. Confusing? For most of us, it’s
enough to refer simply to ‘GATT’.”
(http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact5_e.htm)
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The WTO just frames itself as an expanded version of the
GATT.
According to the WTO, the GATT just needed further
expansion which the “umbrella” of the WTO would
provide.
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It’s certainly true that the WTO expanded the trade regime
well beyond the parameters of the GATT.
But the transition from the GATT to the WTO was not
evolutionary like the previous revisions of the GATT…
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Tokyo Troubles
• Tokyo Round (1973-1979)• Brazil, India, & Egypt threaten to
block consensus• Infamous “Side Agreements”– Developing countries want exceptions:
MFN treatment without signing all codes– GATT becomes “plurilateral”
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US Response
• US threatens to walk out• US will sign new agreements as part
of “GATT-Plus” Regime
➔ But the US eventually caved.
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The situation, however, changed with the Uruguay
Round (1986-1994).
The Cold War had ended, and the bargaining position of the
developed countries had increased considerably.
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The Move to the WTO• 1990: US & EC agree to “single
undertaking” in creation of WTO– All agreements must be accepted as 1
package
• WTO is “legally distinct from the General Agreement on Tariffs and Trade, dated 30 October 1947."
• After creating WTO, US & EC withdrew from GATT 1947– Effect: Developing countries need to sign
onto the WTO to get access to the US & EC
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WTO Website: “Trade lawyers distinguish between GATT 1994, the updated parts of GATT, and
GATT 1947, the original agreement which is still the heart of GATT
1994...For most of us, it’s enough to refer simply to ‘GATT’.”
➔ Not if you’re a developing country!!
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I. From the GATT to the WTO
1. Why the move to the WTO?2. Key Features of the WTO3. Decision-making in the WTO
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General Agreement on Trade in Services (GATS)
Mode ServiceSupplier Presence
Mode 1: Cross-border supply
Services supplied from one country to another (e.g. international phone calls)
Service supplier not present within the territory of the member
Mode 2: Consumption abroad
Consumers or firms making use of services in another country (e.g. tourism)
Mode 3: Commercial presence
Foreign company establishes subsidiaries/branches in foreign country to provide services abroad (e.g. banks opening branches abroad)
Service supplier present within the territory of the MemberMode 4: Presence of
a natural personIndividuals travel to foreign country to provide services in another (e.g. fashion model or consultant)
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Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS)
• Protection of copyrights and patents abroad– standards largely imported from US & EC
• Software as copy-written• Limits on fair-use and other exceptions• National Treatment: Foreigners
accorded same rights/opportunities as nationals
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Agreement on Trade Related Investment Measures
(TRIMs)Prohibited Activity Explanation
Local Content Requirements (Article III:4)
Laws requiring purchase/use of domestic inputs or G&S
Trade Balancing Requirements (Article III: 4; Article XI:1)
Laws requiring certain proportion of domestic/foreign inputs
Foreign Exchange Restrictions (Article XI:1)
Restrictions on the availability of foreign exchange
Export Restrictions (Article XI:1)
Restrictions on export of G&S
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Limits of TRIMS• Mandates self-reporting• Exceptions for developing countries• Transition Period– Developed: 2 Years– Developing: 5 Years– Least Developed: 7 Years
• “Buy American” provision of stimulus– US: we can choose how to spend tax
money– EU, Canada, Brazil: We’ll see you in court!
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Dispute Settlement Understanding (DSU)
• Dispute Settlement Body (DSB)–WTO “Court” -- Decides trade disputes– DSB = Entire body of WTO– Appellate Body: Select 7 on 4-year Terms
• Dispute Settlement Process– Consultation: states attempt to resolve
dispute– Panel & Expert Reviews ➔ Panel Report:
Decision– Loser has option for Appellate Review– Implementation– Retaliation for Non-implementation
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I. From the GATT to the WTO
1. Why the move to the WTO?2. Key Features of the WTO3. Decision-making in the WTO
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Formally, the WTO makes all decisions by consensus
(unanimous decision). (Article IX)
Dispute Decisions can be overturned only by reverse-
consensus--meaning all states (including the winner of the
dispute) vote to overturn the decision.
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The “Green Room” -- Director
General’s Private Conference Room
WTO Policy
Ghana Cameroon Fiji Haiti
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The developing countries don’t get invited up into the “Green
Room.”
They have to stay downstairs, in the corridor, waiting for the
“big” countries to set the agenda.
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Remember the Canadians’ two-step plan in which a “nucleus”
agrees on policy and generalizes it to the other
members?
We’re still doing that...
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“Power-Based Bargaining”
• Quad Countries: US, EU, Japan, & Canada– Set agenda– Dominate Green Room Caucus
• Unequal resources for handling disputes• Strong countries intimidate weak
countries• Developed countries threaten to
abandon and remake regime– E.g. “GATT-Plus”– E.g. WTO “Single Undertaking”
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Lec 10: Global Trade Regime Today
I. From the GATT to the WTOII. Regionalism vs MultilateralismIII.Doha: The Colonies Strike BackIV.Discussion Points
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On Tuesday, we discussed the essential disagreement
between GB and the US over the matter of Imperial
Preference.
The US wanted a multilateral trade regime; and GB wanted
to preserve its right to organize Preferential/Regional Trade Agreements (PTAs/RTAs).
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GB was ultimately pressed to phase out Imperial Preference.
But the pattern of allowing PTAs persisted.
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Despite the MFN principle, Article XXIV allows for PTAs.
These are sometimes called “Article XXIV exceptions.”
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(1) Effect on Trade
• Do PTAs increase or divert trade?– Increase: PTAs foster trade that would
not otherwise exist– Divert: PTAs capture trade that would
otherwise take place with nonmembers of the PTA
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(2) Effect on Trade Policy
• Do PTAs encourage additional liberalization?– PTAs as Stepping Stones: Once states
experience the benefits of liberalization, they are more likely to liberalize multilaterally
– PTAs as Alternatives: Why would Canada need to trade with the US when it has a great thing going with the British Empire?
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Lec 10: Global Trade Regime Today
I. From the GATT to the WTOII. Regionalism vs MultilateralismIII.Doha: The Colonies Strike BackIV.Discussion Points
49
So the WTO radically expanded liberalization to include
services, investment, and intellectual property.
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November 2001 brought the start of the latest round of
trade negotiation.
This round was launched in Doha, Qatar at the insistence of the developing countries.
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Of course, Doha has brought further expansion and
deepening of the GATS, TRIPS, and TRIMS agreements.
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Since GATT 1947, agriculture has always been the exception
to the rule of trade liberalization.
Agriculture has been heavily managed in both developed and developing countries.
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Developing countries conjecture, however, that
agricultural liberalization would play to their comparative
advantage--particularly since they have been exposed to
increased competition in other sectors as a result of the WTO.
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Food is Different
• Food is a real necessity, a security issue
• Undifferentiated product ➔ fierce competition
• Considerable health & safety concerns• Sustainability & carbon footprint• Plausible cultural arguments for
management• Well-entrenched interest groups
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So, what is going to happen?
Will Europe ease the Common Agricultural Policy (CAP)? Will
the US stop subsidizing farmers?
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(1) 1846 All Over Again
• Developed world will realize its comparative advantage
• Developed world will seek resolution with developing world
• Leaders in developed countries will find creative ways to “sell” the policy to agro-business
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(2) 1994 All Over Again
• Developed world will realize its powerful advantage
• Developed world will choose to dominate developing world
• Leaders will find a way to conclude Doha with moderate “liberalization” on agriculture and increased liberalization on services, IP, &c.
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Lec 10: Global Trade Regime Today
I. From the GATT to the WTOII. Regionalism vs MultilateralismIII.Doha: The Colonies Strike BackIV.Discussion Points
67
Positive Questions
• What do we expect will be the results of the Doha Round?
• Does the WTO matter? Is the WTO itself trade-creating or trade-diverting?
• Will PTAs undermine the Multilateral Regime?
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Normative Questions• Should we press for liberalization at all?• What should be our preference hierarchy in
the global trade regime?– Development– Equality– Stability– “Sustainability” -- short-term versus long-term
benefits and our discount rate
• Should the WTO be the cornerstone of the global trade regime?
• Should we remedy the “democratic gap”? If so, how?
• How else should we reform the WTO?