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Introduction
Chapter covers key aspects of the World Trade Organization (WTO
Introduces International Monetary Fund (IMF) and World Bank
Discusses General Agreement on Tariffs and Trade (GATT)
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The General Agreement on Tariffs and Trade
In July 1944 United States and Britain held a conference (Bretton Woods) for a set of post-war, economic institutions including setting up International Bank for Reconstruction and Development (World Bank) International Monetary Fund
In December 1945 United States attempted to launch idea of an International Trade Organization (ITO) Met for a first set of negotiations in London—twenty-three founding members
were present and signed General Agreement on Tariffs and Trade (GATT) In 1948 ITO charter was agreed to at a United Nations Conference In 1950 US announced it would not seek US Congressional ratification of
Havana Charter, effectively terminating ITO plan• Was in response to pressures from isolationist members of the US Congress
Consequently, vehicle for post-war trade negotiations became GATT
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The General Agreement on Tariffs and Trade
Between 1946 and 1994, the GATT provided a framework multilateral trade negotiations
Rounds reduced tariffs among member countries in many (but not all) sectors Average tariff on manufactured products imposed by
industrial countries fell from 35% to 4% However GATT Secretariat could not always effectively
enforce negotiated agreements without legal standing of ITO
• Resolved in 1994 with Marrakesh Agreement Provided for creation of World Trade Organization (WTO)
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What Does GATT Entail?
Most important principle—nondiscrimination Important sub-principles
• Most-favored-nation Each member must grant treatment to each other member as
favorable as it extends to any other member country For instance if Japan lowers a tariff on Indonesia's exports of a
certain product, it must also lower its tariff on the exports of that product from all other member countries
Exceptions are allowed and preferences are granted
• National treatment Addresses internal, domestic policies such as taxes
Foreign goods within a country should be treated no less favorably than domestic goods with regard to tax policies
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What Does GATT Entail?
A second important GATT principle General prohibition of quotas or quantitative
restrictions on trade• Reflects a longstanding view that price distortions
(tariffs) are preferred to quantity distortions in international markets
• Quantitative restrictions were one of the most significant impediments to trade prior to GATT
• Exceptions are allowed
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GATT Exceptions—Agricultural Products
Applied when certain domestic programs were in place Granted to address US agricultural programs
• Used for decades to reduce US imports of sugar, dairy products and peanuts
In addition, United States insisted export subsidies be allowed for agriculture Generally prohibited by GATT
European Union became the most vociferous supporter of these exemptions in 1980s and 1990s
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GATT Exceptions—Textiles and Clothing
In 1961, a US-initiated conference of major textile traders was convened Developed the Short Term Arrangement Regarding International
Trade in Cotton Textiles• Withdrew cotton textile trade from the MFN system for a period of one
year In October 1962, Long Term Arrangement Regarding
International Trade in Cotton Textiles replaced STA Allowed importers to curb imports in cases of “market disruption” via
bilateral or unilateral action In December 1972, a GATT fact-finding study on world
textile trade was completed Resulted in Arrangement Regarding International Trade in Textiles
or the Multi-fiber Arrangement• General, multilateral framework for managing textile and clothing trade
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Reaction to GATT Exceptions
Exceptions generated negative feelings on the part of developing countries Agriculture, textiles, and clothing are products
countries first turn to in their trade and development process
Developing countries wondered how they could have a fair chance to participate in the trade and development process
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GATT—Tariff Bindings Tariffs are bound at an agreed-upon level often above applied levels
Levels may not be increased in the future Applied rates below bound rates may be increased General purpose of the binding principle
• To introduce a degree of predictability into the world trading system GATT introduced stipulations with regard to subsidies, countervailing
duties, and antidumping duties Use of subsidies is not supposed to harm trading interests of other members
• If subsidies cause “material injury” or “threat thereof” to a domestic industry of another country
That country can apply countervailing duties or tariffs on its imports of product from subsidizing country
Leaves room for different interpretations/controversy• “Dumped” goods are defined as exports sold at a price below those charged by
the exporter in its domestic market Allowed for antidumping duties or tariffs to be imposed under certain circumstances
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The World Trade Organization
The initial Bretton Woods vision of an International Trade Organization ended in 1950
In 1990 Canada proposed a Multilateral Trade Organization to address weaknesses of the GATT Secretariat
In 1991, the Director General of GATT, Authur Dunkel released a draft agreement for the Uruguay Round that became known as “the Dunkel text” Included a draft charter for MTO
By the end of 1993, text of the Uruguay Round contained a final charter for a World Trade Organization (WTO) Marrakesh Agreement is actually “Marrakesh Agreement
Establishing the World Trade Organization”
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Marrakesh Agreement
Marrakesh Agreement and WTO is sometimes referred to as a “tripod” in that it primarily addressed the following areas Trade in Goods—an Agreement on Agriculture and an Agreement
on Textiles and Clothing Trade in Services as specified in General Agreement on Trade in
Services Intellectual Property as specified in Agreement on Trade-Related
Aspects of Intellectual Property Rights Included a WTO charter
Established WTO as a legal international organization Stipulated that “WTO shall provide the common institutional
framework for the conduct of trade relations among its members” Defined the functions of WTO
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Trade in Goods
Agreement on Agriculture addresses three outstanding issues concerning international trade in agricultural goods Market access
• Replaced a quota-based system with a system of bound tariffs and tariff-reduction commitments
Known as tariffication—represents a significant change of regime• Non-tariff measures (quotas) are now prohibited
Domestic support• Distinction is made between
“Green box” measures—are exempt from any reduction commitments
“Amber box” measures—are not exempt Export subsidies
• Use has not been eliminated but limited to specified situations
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Agreement on Agriculture
Best viewed as a change in rules Not as a significant program for the liberalization
of trade in agricultural products Hope that further liberalization of tariffied
quotas will take place in the current Doha Round of trade negotiations
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Agreement on Textiles and Clothing
Requires countries reintegrate textile and clothing sectors back into GATT framework
At the end of ten-year period, all quotas on textile and clothing trade must be removed
Are stated in terms of product categories listed in an ATC Annex
Noteworthy points Integration is in terms of volume, not value Importing countries expanded Annex to include many
items never subject to MFA Safeguard clause can be invoked to slow down its
implementation
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Trade in Services
Composes more than 20% of total world trade and has at times grown faster than trade in goods
General Agreement on Trade in Services (GATS)—significant outcome of Uruguay Round Represented first time services were brought into a multilateral trade
agreement Negotiations were difficult due to fact that trade in services is less
tangible than trade in goods Defined trade in services as occurring in one of four modes
Mode 1: Cross-border trade Mode 2: Movement of consumers Mode 3: Foreign direct investment or FDI Mode 4: Movement of natural persons
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Trade in Services
Cross-border trade Mode of supply that does not require physical movement of
producers or consumers• For example, Indian firms provide medical transcription services to US
hospitals via satellite technology Movement of consumers
Consumer travels to the country of producer• For example, tourism services
Foreign direct investment Services that require a commercial presence by producers in country
of the consumers• For example, financial services
Temporary movement of natural persons Non-commercial presence by producers
• For example, consulting, construction, and instructional services
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Difficulty Negotiating GATS
Resistance from a number of developing countries
United States and European Union supported it Prevailed upon developing countries to allow
negotiations to move forward Each member was allowed to specify
nondiscrimination exemptions on a “negative list” of sectors upon entry into the agreement Were to last for 10 years
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Positive List Restrictions
GATS prohibited certain market access restrictions Number of service suppliers Total value of service transactions Total number of operations or quantity of output Number of personnel employed Type of legal entity in the case of FDI Share of foreign ownership in the case of FDI
These requirements were optional if a member identified ones they want to maintain in a second positive list
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Protocols to GATS
Second GATS Protocol: Revised Schedules of Commitments on Financial Services, 1995
Third GATS Protocol: Schedules of Specific Commitments Relating to Movement of Natural Persons, 1995
Fourth GATS Protocol: Schedules of Specific Commitments Concerning Basic Telecommunications, 1997
Fifth GATS Protocol: Schedules of Specific Commitments and Lists of Exemptions from Article II Concerning Financial Services, 1998
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Intellectual Property
An asset in the form of rights conferred upon a product of invention or creation by a country’s legal system
Agreement on Trade-Related Aspects of Intellectual Property Rights Most contentious aspect of Marrakesh Agreement Defined intellectual property as belonging to one of six categories
• Copyrights• Trademarks• Geographical indications• Industrial designs• Patents• Layout designs of integrated circuits
Applied the principle of nondiscrimination to intellectual property
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TRIPS Agreement Sets out obligations for members
Copyrights• Members must comply with 1971 Berne Convention on copyrights
Trademarks• Goods and services are to be protected for a term of no less than seven years• Provisions for the registration of trademarks must be made and are renewable
indefinitely Geographical indications
• Members must provide legal means to prevent false use of geographical indications
Industrial designs• Members must protect “independently created industrial designs that are new or
original” Patents
• Exceptions exist and include protection of public order, human, animal, and plant life
Layout designs of integrated circuits• Distribution of protected layout designs is forbidden
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TRIPS Agreement
Citizens and firms in developed countries own most of the world’s IP
Developing countries currently often have less IP protection than developed countries Especially in the case of patents
Raises cost of many goods and services to developing countries Represents a transfer from developing country consumers to
developed country producers Allows for greater transition periods for developing countries for the
six obligations• Developed countries must have instituted the above obligations by 1996• Developing countries must have instituted them by 2000• Least developed countries have until 2005
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TRIPs Agreement
In short to medium time frames welfare gains may be absent
Some economists from developing countries consider TRIPs to be a welfare-worsening, “non-trade” agenda item that has no place in WTO Lacks efficiency gains that characterize trade and restricts freedom
of countries to choose intellectual property regime that is best for them
Represents a significant concession on the part of developing world
Most contentious area of agreement is AIDS drugs US government has pressured countries to honor US patents on
AIDS drugs• Could price drugs above the reach of AIDS patients in certain countries,
increasing AIDS mortality rates Meeting in 2001 offered flexibility with regard to public health
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Benefits to Developing Countries from TRIPS?
Economist Keith Maskus (2000) argues Increased inward FDI and technology transfer Increased domestic innovation
TRIPs imposes short-term costs in the hopes of generating long-term benefits
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Dispute Settlement
Marrakesh Agreement included an Understanding on Rules and Procedures Governing the Settlement of Disputes
Original GATT was unclear about resolution of disputes—Marrakesh Agreement attempted to clarify dispute settlement procedures
WTO includes councils on trade in goods and services as well as a council on TRIPs Should help minimize occurrence of disputes
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Dispute Settlement
If the consultation process fails to settle a dispute within 60 days, the complaining member may request the establishment of a panel Composed of three or five “well-qualified governmental or
non-governmental individuals” Function is to assist DSB in dispute settlement process
• Consults the parties involved and provides DSB with a written report of its findings
• DSB has 60 days to adopt report by consensus unless a party to dispute decides to appeal
The appeal of a panel report is referred to an appellate body
• Reviews the appeal and submits its report to the DSB• Any DSB member can effectively insist on the adoption of the
appellate body report
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Dispute Settlement
Dispute settlement procedure applies to all aspects of the Marrakesh Agreement
Improves procedures of old GATT and makes a significant contribution to the conduct of international trade
Effectiveness of procedures depends on members’ commitment to it A country has option of ignoring outcome of the dispute
settlement process• Complaining member has right to impose retaliatory tariffs on a
volume of imports from the other country determined by the DSB
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The Environment
In 1991, the GATT reactivated a long-dormant Working Group on Environmental Measures and International Trade (EMIT)
GATT dispute resolution panel issued its controversial opinion in the now-famous tuna-dolphin case Ruled against US law banning imports of Mexican tuna that involved
dolphin-unsafe fishing practices Argued import ban violated general prohibition against quotas and
United States had not attempted to negotiate cooperative agreements on dolphin-safe tuna fishing
• US environmental community reacted strongly against the GATT panel ruling, casting the GATT as anti-environment
Trade-environment issue has loomed large over the WTO ever since
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Committee on Trade and the Environment
EMIT was replaced by Committee on Trade and the Environment
Most developing country members of WTO have taken a dim view of the work of CTE Fear the possibility of further protection against their exports on
environmental grounds, what they term “green protection” Often view environmental matters as non-trade issues that have no
place in the trade policy agenda of the WTO Many trade economists support the developing-country view
that environmental issues represent an “intrusion” into WTO trade agenda Suggest environmental agenda could result in an inappropriate “one
size fits all” approach to environmental policies across WTO members
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Committee on Trade and the Environment
In 1999, WTO formally took up trade and environment issue Report argued increased trade can have both positive
and negative impacts on the environment Emphasizes trade-driven growth cannot always be
counted upon to deliver improvements in environmental quality through increased incomes
• Consequently, these higher incomes must be “translated into higher environmental quality” through mechanism of international cooperation
• Also emphasized that government subsidies to polluting and resource-depleting sectors such as agriculture, fishing, and energy can exacerbate the environmental consequences of trade