Notes, ECON 4415, lecture 1: International trade institutions

1
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

2
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

3
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

4
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

5
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

6
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

7
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

8
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

9
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)

10
WTO 148 members (Melchior 2003)
11
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

12
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

13
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

14
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 HK

15
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

16
Too much liberalisation Hardly the explanation
of poverty?Tariffs on trade in goods after the
Uruguay Round
17
Tariffs continued
18
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

19
Formulas

• Swiss formula t1at0/(at0) 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

20
Tariffs versus income levels (Melchior 2003)
21
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

22
Special and Differential Treatment (SDT)

• Chapter 12, HK
• 1960s Part IV, non-reciprocity, non-binding
  language
• 1960s GSPs, colonial background
• 1971 Temporary waiver from GSP
• Tokyo Round Enabling clause made waiver
  permanent

23
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

24
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?

25
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

26
Example Norways 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