GLOBAL GROWTH AND TRADE BARRIERS

R K AgrawalXISS, RanchiContact: 9431109076

GLOBAL GROWTH

•Global growth slowed to 3.6% in 2007 from 3.9 in 2006.•Most of it was caused by slow down in high-income countries.•US growth fell to 2.2 in 2007 from 2.9 in 2006•Fall in global growth was cushioned to some extent by developing countries, which posted a robust 7.4% in 2007, just about same as in 2006.•China and India are two fastest growing major economies of the world.•World growth likely to slow down mainly due to global financial turmoil, high commodity and food prices.

WHAT IS WTO

•WTO BORN OUT OF NEGOTIATIONS•BULK OF WTO’S CURRENT WORK COMES FROM 1986-94 NEGOTIATIONS CALLED URUGUAY ROUND•EARLIER NEGOTIATIONS UNDER GATT•CURRENT NEGOTIATIONS UNDER DOHA ROUND STARTED IN 2001

PRINCIPLES OF TRADING SYSTEM•TRADE WITHOUT DISCRIMINATION: MOST FAVOURED NATION (MFN) TREATMENT

•EXCEPTIONS: TRADING BLOCS•NATIONAL TREATMENT: NO DISCRIMINATION BETWEEN OWN AND FOREIGN PRODUCTS

•TREATING FOREIGNERS AND LOCALS EQUALLY•APPLIES TO GATT, GATS AND TRIPS AT LEAST AFTER THE GOOD HAS ENTERED THE MARKET•CUSTOMS DUTIES NOT CONSIDERED VIOLATION OF NATIONAL TREATMENT

PRINCIPLES OF TRADING SYSTEM CONT..• FREER TRADE: MARKET ACCESS

•REDUCTION IN TARIFF AND NON-TARIFF BARRIERS THROUGH NEGOTIATIONS

•PREDICTABILITY: FOREIGN COMPANIES, INVESTORS AND GOVERNMENTS SHOULD BE CONFIDENT THAT

•THAT TARIFFS WILL NOT GO UP ARBITRARILY•TARIFFS AND MARKET COMMITMENTS ARE BOUND

PRINCIPLES OF TRADING SYSTEM CONTD…•MORE COMPETITIVE: DISCOURAGING UNFAIR PRACTICES SUCH AS EXPORT SUBSIDIES AND DUMPING PRODUCTS AT BELOW COST TO GAIN MARKET SHARE•MORE BENEFICIAL FOR LDCs: GIVING THEM MORE TIME TO ADJUST, GREATER FLEXIBLITY AND SPECIAL PRIVILEGES

CASE FOR OPEN TRADE

•THEORY OF COMPARATIVE ADVANTAGE

•THEORY OF ABSOLUTE ADVANTAGE

TRADE ROUNDS

Year Place Subjects covered Countries

1947 Geneva Tariffs 23

1949 Annecy Tariffs 13

1951 Torquay Tariffs 38

1956 Geneva Tariffs 26

1960-61Geneva (Dillon

Round) Tariffs 26

1964-67

Geneva (Kennedy Round)Tarrifs and anti dumping measures 62

1973-79Geneva (Tokyo

Round) Tariffs and non-tariff measures 102

1986-94

Geneva (Uruguay Round)

Tariffs, non-tariffs, services, intellectual property, dispute settlement, textiles, agriculture and creation of WTO 123

2001- Doha Round Farm subsidies and liberalising trade in services  

FARM SUBSIDIES

•Agricultural subsidy is the process whereby governments give large sums of money to agriculture traders and farmers to increase their overall profits; this allows these exporters to drastically reduce the prices of their goods

•U.S. producers will market crops at very low prices, and then have their incomes topped up by government transfers.

•These measures have allowed the U.S. to dump its farm surplus on world markets. For example, the U.S. exports corn at prices 20 percent below the cost of actual production, and wheat at 46 percent below cost. This has resulted in Mexican corn farmers being put out of business.

•Giant grain traders, such as the Cargill Corporation, will be able to buy commodities from farmers at artificially low prices and farmers will get fat government checks to make up for their losses. 

TARIFF BARRIERS

•CUSTOMS DUTY ON IMPORT OF GOODS•BINDING TARIFFS:

•The market access schedules are not simply announcements of tariff rates. They represent commitments not to increase tariffs above the listed rates — the rates are “bound”. For developed countries, the bound rates are generally the rates actually charged. Most developing countries have bound the rates somewhat higher than the actual rates charged, so the bound rates serve as ceilings.•Countries can break a commitment (i.e. raise a tariff above the bound rate), but only with difficulty. To do so they have to negotiate with the countries most concerned and that could result in compensation for trading partners’ loss of trade.

URUGUAY ROUND INCREASED TARIFF BINDINGS•Percentages of tariffs bound before and after the 1986–94 talks

Before After•Developed countries 78 99•Developing countries 21 73•Transition economies 73 98

NON-TARIFF BARRIERS

•BARRIERS OTHER THAN CUSTOMS DUTY THAT RESTRICTS TRADE

•NTB INCLUDES•IMPORT LICENSING SYSTEM•RULES FOR THE VALUATION OF GOODS AT CUSTOMS•PRESHIPMENT INSPECTION•RULES OF ORIGIN: Laws, regulations and administrative procedures which determine a product’s country of origin. A decision by a customs authority on origin can determine whether a shipment falls within a quota limitation, qualifies for a tariff preference or is affected by an anti-dumping duty. These rules can vary from country to country. •INVESTMENT MEASURES: LOCAL CONTENT REQUIREMENT AND TRADE BALANCING MEASURES

TRADING BLOCKS

•FTA•CUSTOMS UNION•COMMON MARKET•ECONOMIC UNION

FREE TRADE AREA

•A GROUP OF COUNTRIES GET TOGETHER AND DECIDE TO REMOVE ALL BARRIERS TO TRADE (INCLUDING NTBs) AMONG THEMSELVES.•THE INDIVIDUAL MEMBERS ARE FREE TO DECIDE HOW TRADE WILL BE CONDUCTED WITH NON-MEMBERS, E.G., INDEPENDENT TARIFFS CAN BE SET WITH NON-MEMBER COUNTRIES.•ASEAN (Brunnei Darusalam, Cambodia, Indonesia, Malayasia, Myanmar, Phllipines, Thailand, Singapore and Vietnam)

CUSTOMS UNION (CU)

•IT GOES BEYONG THE CONCEPT OF FTA.•MEMBERS OF A CUSTOMS UNION OBVIOUSLY HAVE FREE TRADE AMONG THEMSELVES. IN ADDITION, THEY DECIDE ON A COMMON AND UNIFORM COMMERCIAL POLICY (T&NTB) FOR FREE TRADE WITH NON-MEMBERS.•MEMBERS OF A CU WILL THEREFORE HAVE THE SAME TARIFFS FOR IMPORTS FROM A COUNTRY THAT IS NOT A MEMBER.•Example: EUROPEAN UNION (27 COUNTRIES)

COMMON MARKET (CM)•THIS GOES BEYOND THE CUSTOMS UNION. AN FTA OR A CU MERELY REMOVES BARRIERS TO FREE FLOW OF GOODS AMONG THE COUNTRIES.•IN A CM, ALL BARRIERS TO THE MOVEMENT OF CAPITAL AND LABOUR AMONG THE MEMBERS ARE ALSO REMOVED.•MERCOSUR, the Southern Common Market ( Argentina, Brazil, Uruguay and Paraguay)

ECONOMIC UNION

•THIS GOES BEYOND A COMMON MARKET.•BEYOND THE OBJECTIVES OF A COMMON MARKET, AN ECONOMIC UNION HARMONISES MACROECONOMIC POLICIES OF MEMBER COUNTRIES.•THIS MEANS EXCHANGE RATES, TAXES, MONETARY POLICY AND THE LIKE.

EXAMPLES OF TRADE BLOCS•EU•EUROPEAN FREE TRADE AREA•NAFTA•AUSTRALIA-NEWZEALAND CLOSER ECONOMIC RELATIONS TRADE AGREEMENT (ANZCERTA)•LAFTA•CENTRAL AMERICAN COMMON MARKET•CARIBBEAN COMMON MARKET (CARICOM)•GULF COOPERATION COUNCIL•SAARC•APEC•ASEAN

THANK YOU

DR. RAMAKANT AGRAWALXISS, RANCHIramakantagrawal@yahoo.comContact: 09431109076