International trade institutions

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 M e m be r s

120 100 80 60 40 20 0 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

B o u n d ta ri ff a v e ra g e 70 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: Lom 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: 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