Rue the ROOs

Rue the ROOs

PubPol/Econ 541 The World Trade Organization by Alan V. Deardorff University of Michigan 2019 www.fordschool.umich.edu Outline History The Institution Today Early Issues Current Issues Trump and the WTO

2 www.fordschool.umich.edu World Trade Organization: History 1930s: Tariffs raised, to high levels 1930 US Smoot-Hawley Tariff Act Raised tariffs on 890 items Prompted retaliation by other countries, who then also raised tariffs 3 www.fordschool.umich.edu Hawley Smoot

4 www.fordschool.umich.edu Source: Economist, The battle of Smoot-Hawley, December 18, 2008. 5 www.fordschool.umich.edu World Trade Organization: History Mid-1940s: 6 Created IMF and World Bank at meeting in Bretton Woods, New Hampshire US tried to create ITO = International Trade Organization Interim agreement: GATT = General

Agreement on Tariffs and Trade When ITO failed to be approved (by US!), GATT governed trade policy by default www.fordschool.umich.edu World Trade Organization: History What GATT Does (GATT is still the largest part of WTO) Rules for trade policy Forum for negotiation 7 Of both trade policies (e.g., tariffs) and rules Major negotiations took place in Negotiating Rounds Decisions made at occasional meetings of trade ministers: Ministerial Meetings

www.fordschool.umich.edu World Trade Organization: Rounds Rounds of GATT Multilateral Trade Negotiations No. Years Name 1-5 1947-61 Accomplishments Reduced tariffs 6 1964-67 Kennedy Tariffs + anti-dumping

7 1973-79 8 1986-94 9 2001-15 Tokyo Tariffs + NTBs Uruguay Tariffs, NTBs, Services, Intellectual Property, Textiles, Ag., Dispute Settlement, Created WTO Doha

FAILED: Doha Development Agenda 8 www.fordschool.umich.edu How negotiations took place Tariffs: In early rounds, tariff cuts were negotiated between principal supplier country and principal demander country Cuts are extended to all other members (MFN) But large countries dominate this process In recent rounds, negotiations start with a formula for tariff cuts, then negotiate exceptions 9 www.fordschool.umich.edu

How negotiations took place Rules: Groups of countries draft changes, then persuade others Again, large countries dominate 10 www.fordschool.umich.edu Do small and poor countries lose? They need not lose, if they participate in the process They benefit from the rule of law: Otherwise the large countries would be even more powerful By grouping together, small countries can also exert bargaining power They may well lose if they do not

participate: growth of trade may exclude them 11 Tariffs did not fall on their major www.fordschool.umich.edu exports Outline History The Institution Today Early Issues Current Issues Trump and the WTO

12 www.fordschool.umich.edu World Trade Organization: Today WTO Today Established Jan 1, 1995 Members: 164 Most recent: Afghanistan 2016 Including: China (as of 2001) Russia (as of 2012) Not including: Iran, Iraq, N. Korea 13 Headquarters: Geneva, Switzerland (also home of ILO, WIPO,

and www.fordschool.umich.edu 14 www.fordschool.umich.edu Interactive: https://www.wto.org/english/res_e/statis_e/statis_maps_e.htm 15 www.fordschool.umich.edu World Trade Organization: Today WTOs Three Parts 1. GATT (Still exists, as largest part of WTO) 2. GATS = General Agreement on Trade in Services 3. TRIPs Agreement = Trade Related aspects of Intellectual

Property Rights 16 www.fordschool.umich.edu World Trade Organization: Today WTOs Two Basic Principles 1. MFN = Most Favored Nation Each member country should treat all members as well as it treats its most favored nation (i.e., the member that it treats the best) 2. National Treatment Once a product or seller has entered a country, it should be treated the same as products or sellers that originated inside that country 17

(There are many permitted www.fordschool.umich.edu exceptions to both of these World Trade Organization: Today WTO Decision Making Decisions by consensus: all countries present at ministerial meetings must agree, Alternatively, a certain fraction, 2/3 or 3/4, of all members must agree In practice, large and rich countries dominate this process They first agree among themselves Then seek consensus based on that Is this democratic? 18

Yes: Every country has one vote No: Rich countries dominate decisions in www.fordschool.umich.edu practice WTO Functions Functional Outline of the World Trade Organization Communication Constraints Exceptions Dispute Settlement 19 www.fordschool.umich.edu WTO Functions Communication s

r e t s i n c.) i M et wo e d TR, y T a r T US ver ( t E rs e Yea e M Ministerials Negotiating Rounds Working Groups

Trade Policy Review Mechanism Councils and Committees ; s n tio s c u ed Rule R iff s in r a e T g n C ha 20

www.fordschool.umich.edu WTO Functions Constraints s e i d r t n un te a o C tia t to ffs go mi tari e n om m c u

m xi a m Enforce Pate 21 Tre Natio Se atme nal r Tariff Bindings (on vice nt fo l y i Fi r m r Customs Valuation ind n s ust om s r ie e Product Regulations s) Quantitative Restrictions Subsidies

Foreign Direct Investment (TRIMS) Services (GATS) Intellectual Property (TRIPs) nts, Copyrigh ts , Trademarks www.fordschool.umich.edu WTO Functions com Most mo use nly d Exceptions Anti-Dumping Countervailing Duties Safeguards

Balance of Payments Protection Preferential Trade Agreements ed; tt i d m Per equire r not All ow sN EU , e AFTA tc. , 22

www.fordschool.umich.edu WTO Functions Dispute Settlement 3-p e De rson ci d es Pane Ca se l 23 Standing Committee that reviews most cases

Consultation Panel Recommendation Appellate Body Remedy Implementation Compensation Retaliation te a m ti l U The edy: Rem Tariffs it m r Pe www.fordschool.umich.edu

Outline History The Institution Today Early Issues Current Issues Trump and the WTO 24 www.fordschool.umich.edu WTO Early Issues Seattle Protest and Beyond Seattle Ministerial December

1999 Intended to start a new Round Protesters flocked to Seattle, with objections 25 www.fordschool.umich.edu 26 www.fordschool.umich.edu 27 www.fordschool.umich.edu 28 www.fordschool.umich.edu

29 www.fordschool.umich.edu 30 www.fordschool.umich.edu 31 www.fordschool.umich.edu 32 www.fordschool.umich.edu WTO Early Issues Seattle Protest and Beyond Seattle Ministerial December 1999 Intended to start a new Round

Protesters flocked to Seattle, with objections Labor issues Environmental issues Corporate dominance Lack of transparency, democracy 33 www.fordschool.umich.edu WTO Early Issues Seattle Protest and Beyond Seattle Ministerial December 1999 Negotiators failed to reach

agreement Labor standards US & EU wanted them in trade agreement Developing countries feared protectionism Many other issues were also divisive 34 Result: Negotiating round was not begun www.fordschool.umich.edu WTO Early Issues Doha Round Began at WTO Ministerial at Doha, Qatar, Fall 2001 (after Sep 11) Emphasis on development: Doha Development Agenda

35 www.fordschool.umich.edu WTO Early Issues Doha Round Issues to be included US and EU agricultural subsidies and tariffs Developing-country tariffs on manufactures Market access for services into developing countries 36 www.fordschool.umich.edu WTO Early Issues Doha Round

Cancn Ministerial Sep 2003 Intent was to agree on outline of agreement Developing countries spoke as a group (for the first time) Pushed hard for elimination of US and EU agricultural subsidies Resisted cutting their own tariffs Meeting ended without agreement: Failure! 37 www.fordschool.umich.edu WTO Early Issues Doha Round 2003-5 Developing countries continued negotiating as Group of 20 Major countries in G20: Brazil, India,

China, South Africa Membership varies; currently 23 countries 38 www.fordschool.umich.edu G20 of Developing Countries: 39 www.fordschool.umich.edu WTO Early Issues Doha Round 2003-5 Developing countries continued negotiating as Group of 20 Major countries in G20: Brazil, India, China, South Africa

Membership varies; currently 23 countries Developed countries gave up pushing for some Issues In July 2004, negotiators achieved the framework agreement that had eluded them at Cancn 40 www.fordschool.umich.edu WTO Early Issues Doha Round Hong Kong Ministerial, Dec 2005 Negotiators were determined not to fail again Meeting ended with agreement, but progress was very minimal 41

www.fordschool.umich.edu 42 www.fordschool.umich.edu WTO Early Issues Doha Round July 2006: Doha Round Talks Suspended June 2007: Potsdam Meeting of G-4 (US, EU, Brazil, India) failed July 2008: Negotiations broke down over agriculture December 2015: Nairobi Ministerial meeting Ended without reaffirming intent to complete the Doha Round Implicitly, that was admission that it had ended in failure

43 www.fordschool.umich.edu Outline History The Institution Today Early Issues Current Issues Trump and the WTO 44 www.fordschool.umich.edu

WTO Current Issues What happens without Doha? Tariffs may rise because bound tariffs wont fall Bound tariffs are almost twice as high as applied ones Some argue that world trade will fall Has it happened? Trade did stop growing for a while, but has resumed recently Not clear that tariffs have risen (until Trump) 45 www.fordschool.umich.edu WTO Current Issues Other negotiations have been more successful December 2013: Bali Ministerial salvaged

a limited agreement, mainly on Trade Facilitation July 2014: Implementation of the Bali Package was delayed by objections from the new India Prime Minister Modi November 2014: Modi and Obama met and resolved the disagreement. Bali Package was adopted at WTO. December 2015: Nairobi Ministerial agreed on several commitments, including to 46 Abolish export subsidies on farm exports. www.fordschool.umich.edu December 2017: Buenos Aries Ministerial WTO Current Issues WTO has also succeeded in

negotiating plurilateral agreements These are agreements the members can sign or not, and are only binding on those who do Agreements that have been negotiated: Information Technology Agreement (from 1996, with an update completed 2015) Financial Services Agreement Basic Telecommunication Services Agreement Anti-Counterfeiting Trade Agreement 47 www.fordschool.umich.edu WTO Current Issues WTO Disputes There have been 590 disputes brought to the WTO since its creation in 1995 (as of 9/20/19) Two of the more notable were

EU ban on hormone treated beef (ruled by WTO to have no scientific basis) US shrimp-turtle import prohibition (struck down by WTO) 48 www.fordschool.umich.edu WTO Current Issues WTO Disputes More Boeing-Airbus dispute over subsidies by EU and US WTO ruled that both were using illegal subsidies US now allowed to retaliate EU awaiting permission Canada and Mexico complaint about US Country-of-Origin Labeling

(COOL) law for meats (WTO ruled against US law) 49 www.fordschool.umich.edu WTO Current Issues Other WTO Issues Independence US (under Obama) vetoed reappointment of a member of the Appellate Body He had found against the US in several cases Others worried that this would undermine the bodys independence This made US look like a bully Since then, US under Trump has blocked further appointments The Appellate Body will soon (December, 2019) lack a quorum to make decisions. 50

www.fordschool.umich.edu WTO Current Issues Other WTO Issues Chinas market economy status Because China is currently classed as a non-market economy, its prices need not be used in deciding antidumping cases This leaves others free to base dumping decisions on prices in other countries, hurting China China is arguing for market economy status, and the issue is likely to be addressed soon by the Appellate Body 51 www.fordschool.umich.edu WTO Current Issues

Other WTO Issues Developing-country status Self determined Gives some privileges to countries. Trump objects 52 www.fordschool.umich.edu Outline History The Institution Today Early Issues

Current Issues Trump and the WTO 53 www.fordschool.umich.edu Trump and the WTO Oct 25, 2017, on Fox interview with Lou Dobbs: The WTO, World Trade Organization, was set up for the benefit for everybody but us. we lose the lawsuits, almost all of the lawsuits within the WTO In fact, like other countries, US Wins most of the cases it brings Loses most the cases brought against it

During 1995-2018, in all cases complainant has won 90% 54 As complainant, US won 91% As respondent, US lost 89% www.fordschool.umich.edu Trump and the WTO Oct 30, 2018, FT: Donald Trump threatens to pull US out of the WTO If they dont shape up, I would withdraw from the WTO, Mr Trump said in an interview. 55 www.fordschool.umich.edu Trump and the WTO

Date DS# Against Regarding Sep 2017 531 Canada Wine Mar 2018 541 India

Export measures Mar 2018 542 China Intellectual Property Jul 2018 557 Canada Additional duties Jul 2018

558 China Additional duties Jul 2018 559 EU Additional duties Jul 2018 560 Mexico Additional duties

Jul 2018 561 Turkey Additional duties Aug 2018 566 Russia Additional duties Jul 2019 585

India Additional duties US ret com on alia pla ste tion ints el an agai abou d a ns t lum t US oth inu tar ers m iffs WTO Disputes since Jan 20, By United States 2017:

56 www.fordschool.umich.edu Trump and the WTO WTO Disputes since Jan 20, Against United States 2017: Date DS# By Regarding Mar 2017 523

Turkey CVDs on pipes & tubes Nov 2017 533-4 Canada 2 on Softwood lumber Dec 2017 535 Canada Trade remedies Jan 2018

536 Viet Nam Anti-dumping on fish fillets Feb 2018 539 Korea AD& CVDs Feb 2018 540 Viet Nam Pangasius seafood products

Apr 2018 543-4 China 2 on Tariffs May 2018 545-6 Korea 2 on tariffs, washers & solar panels 57 www.fordschool.umich.edu Trump and the WTO WTO Disputes since Jan 20, Against

United States 2017: Date DS# By Regarding May 2018 547 India Tariffs on steel & aluminum Jun 2018 548

EU Tariffs on steel & aluminum Jun 2018 550 Canada Tariffs on steel & aluminum Jun 2018 551 Mexico Tariffs on steel & aluminum

Jun 2018 552 Norway Tariffs on steel & aluminum Jun 2018 554 Russia Tariffs on steel & aluminum Jul 2018 556 Switzerland

Tariffs on steel & aluminum Aug 2018 564 Turkey Tariffs on steel & aluminum 58 www.fordschool.umich.edu Trump and the WTO WTO Disputes since Jan 20, Against United States 2017:

Date DS# By Regarding Aug 2018 562 China Tariffs on solar panels Aug 2018 563 China

Renewable energy Aug 2018 565 China Tariffs II Dec 2018 574 Venezuela Goods & services Jan 2019

577 EU Ripe olives from Spain Jul 2019 586 Russia AD on steel Sep 2019 587 China Tariffs III

59 www.fordschool.umich.edu Trump and the WTO Aug 13 2018, NYT: Trumps National Security Claim for Tariffs Sets Off Crisis at W.T.O. Are tariffs on steel and aluminum to protect national security legal? If no, Trump will further blame WTO If yes, other countries will use that excuse 60 www.fordschool.umich.edu

Trump and the WTO The GATT National Security Exception: Article XXI: [n]othing in this Agreement shall be construed . . . to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests . . . taken in time of war or other emergency in international relations[.] 61 www.fordschool.umich.edu Trump and the WTO The GATT National Security Exception:

Article XXI: [n]othing in this Agreement shall be construed . . . to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests . . . taken in time of war or other emergency in international relations[.] 62 www.fordschool.umich.edu The Future of the WTO Hard to know Its still being used, but will it be obeyed? If the US does not follow it, will others? There is some hope that the WTO may be reformed in response to

the current crisis. 63 EU and Canada are negotiating an alternative to the WTO appeal process www.fordschool.umich.edu

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