Notes ECON 4415 lecture 1 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: Ø GATT – General Agreement on Tariffs and Trade Ø GATS – General Agreement on Trade in Services Ø 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)

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

Tariffs continued… Exporting region Importing 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”: t 1=at 0/(a+t 0) where t 0 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)

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 • 1960 s: ”Part IV”, non-reciprocity, nonbinding language • 1960 s: 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: Lomé 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: Norway’s 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