The Multilateral Trade SystemLecture 17

Snapshot of U.S. TradeHow Much?1998: $1,587.4 Billion Imports and Exports of Goods and Services1998 GDP $8,760.0 BillionOpenness: 18.1%Source: Economic Report of the President, 2000

Top Ten Trading Partners($U.S. Billions, August 2000)Total: 898.4

Top Ten Deficits($U.S. Billions, August 2000)

Top 9 Surpluses, 2000($US Billions)Source: U.S. Bureau of Economic Analysis

US Exports and Imports ($Million)Source: U.S. Department of Commerce

Why Accept Hegemonic Role?Altruism: Created the Postwar Economy Because it was Needed and No Other Country Could.Security: Created the Postwar Economy Because U.S. Security Interests Necessitated it (Liberalism).Materialistic: Created the Postwar Economic System Because American Economic Actors Stood to Realize Large Benefits From Open Trade and Stable Exchange Rates.

Why the GATT/WTO?Mercantilism versus Trade TheoryTrade Theory: Imports Good, Exports Bad.Mercantilism: Exports Good, Imports Bad.Trade Liberalization Possible Only By Exchanging ConcessionsYou Open Your Market to My Exports, I Open My Market to Your Exports.Anarchic System Makes it Difficult to Enforce Trade Agreements (Prisoners Dilemma).GATT/WTO Provide Enforcement MechanismRules Increase Transparency (Whos Cheating?)Dispute Settlement Mechanism Provides Neutral 3rd Party to Examine and Resolve Disputes.

Three Principles of the GATT/WTONon-Discrimination Embodied in Most Favored Nation (MFN) (Article I)Reciprocity and Progressive Tariff ReductionsDomestic SafeguardsIn 1994, the GATT Transformed in the World Trade Organization (WTO)

The GATT/WTO ProcessGATT Bargaining RoundsEight Rounds Between 1947 and 1994; 9th UnderwayKennedy Round (1962-1967) is High Water Mark of Tariff Reductions.Uruguay Round (1986-1993) Brings Institutional Change (World Trade Organization).Developing Countries Were Very Reluctant Participants:Didnt Believe That Free Trade Worked to Their AdvantageBelieved GATT Bargaining Process Biased Against their Exports

Consequences of the GATT

1. Tariff Reductions

2. Growth of World Trade

Chart5

225.8

258.4

299.7

335.9

399.9

556.1

829.1

850.7

958.7

1086.3

1257.6

1625

1940.8

1924.2

1765.5

1734.5

1840.6

1872

2046.4

2401.4

2742

2981.5

3395.3

3489.1

3730.2

3730.7

4244.8

5079.4

5079.4

5546

$US Billions

World Trade, 1968-1997

Chart2

Chart3

00.1052632

0.11111110

0.10.0952381

00

0.18181820.0869565

00.04

0.15384620.0384615

-0.06666670

0.14285710.037037

0.1250.0714286

0.05555560.0333333

0.05263160.0645161

0.10.0606061

0.13636360.0571429

0.040.0540541

0.11538460.0512821

0.03448280.0487805

0.10.0465116

0.12121210.0666667

0.10810810.0416667

0.07317070.06

0.06818180.0566038

0.12765960.0714286

0.05660380.0166667

-0.07142860

0.11538460.0655738

0.03448280.0461538

0.050.0294118

0.0476190.0428571

0.0303030.0136986

00.0135135

-0.02941180.0133333

0.0303030.0263158

0.07352940.0512821

0.02739730.0365854

0.040.0235294

0.06410260.0344828

0.07228920.0444444

0.06741570.0425532

0.05263160.0204082

0.040.01

0.03846150.009901

0.04629630.0098039

0.09734510.0194175

0.08870970.0190476

0.05185190.0280374

0.10563380.0272727

Annual Change in Exports

World GDP Growth

Annual Percent Change

Figure 2.X: Growth of Trade and World GDP

Chart4

Sheet1

XvolumeWRLDGDPchexchgdp

1950919

195192100.1052632

195210210.11111110

195311230.10.0952381

1954112300

195513250.18181820.0869565

1956132600.04

195715270.15384620.0384615

19581427-0.06666670

195916280.14285710.037037

196018300.1250.0714286

196119310.05555560.0333333

196220330.05263160.0645161

196322350.10.0606061

196425370.13636360.0571429

196526390.040.0540541

196629410.11538460.0512821

1967225.830430.03448280.0487805

1968258.433450.10.0465116

1969299.737480.12121210.0666667

1970335.941500.10810810.0416667

1971399.944530.07317070.06

1972556.147560.06818180.0566038

1973829.153600.12765960.0714286

1974850.756610.05660380.0166667

1975958.75261-0.07142860

19761086.358650.11538460.0655738

19771257.660680.03448280.0461538

1978162563700.050.0294118

19791940.866730.0476190.0428571

19801924.268740.0303030.0136986

19811765.5687500.0135135

19821734.56676-0.02941180.0133333

19831840.668780.0303030.0263158

1984187273820.07352940.0512821

19852046.475850.02739730.0365854

19862401.478870.040.0235294

1987274283900.06410260.0344828

19882981.589940.07228920.0444444

19893395.395980.06741570.0425532

19903489.11001000.05263160.0204082

19913730.21041010.040.01

19923730.71081020.03846150.009901

19934244.81131030.04629630.0098039

19945079.41241050.09734510.0194175

19955079.41351070.08870970.0190476

199655461421100.05185190.0280374

19971571130.10563380.0272727

Sheet1

$US Billions

World Trade, 1968-1997

Sheet2

Sheet3

3. Growth of Foreign Direct Investment

Chart1

39

43.2

168

187

234

$US Billions

Foreign Direct Investment Flows, 1975-1995

Sheet1

197539

198043.2

1985168

1990187

1995234

Sheet1

$US Billions

Foreign Direct Investment Flows, 1975-1995

Sheet2

Sheet3

4. Global Division of Labor

Chart4

1611763

1257761

692191

268611

243653

154425

139031

128486

100322

88366

81196

73295

64417

60111

$US Millions

Largest Manufacturing Countries

Sheet1

NorthSouth

1953964

1963955

19709010

19808515

19908614

19958119

Sheet1

North

South

North-South Shares of World Manufacturing

Sheet2

United States1,611,76326.9

Japan1,257,76121

Germany692,19111.6

France268,6114.5

Great Britain243,6534.1

Brazil154,4252.6

China139,0312.3

Italy128,4862.2

Canada100,3221.7

Argentina88,3661.5

Spain81,1961.4

Taiwan73,2951.2

Australia64,4171.1

Switzerland60,1111

Sheet2

$US Millions

Largest Manufacturing Countries

Sheet3

manprod prcnt of total

South Korea2.7

Brazil2.6

China2.3

Argentina1.5

Taiwan1.2

Thailand0.8

Mexico0.8

Indonesia0.5

India0.4

Singapore0.3

Malaysia0.3

Hong Kong0.2

Philippines0.2

Rest LDC6.2

Sheet3

Distribution of Manufacturing Production

Chart1

964

955

9010

8515

8614

8119

North

South

North-South Shares of World Manufacturing

Sheet1

NorthSouth

1953964

1963955

19709010

19808515

19908614

19958119

Sheet1

North

South

North-South Shares of World Manufacturing

Sheet2

United States1,611,76326.9

Japan1,257,76121

Germany692,19111.6

France268,6114.5

Great Britain243,6534.1

Brazil154,4252.6

China139,0312.3

Italy128,4862.2

Canada100,3221.7

Argentina88,3661.5

Spain81,1961.4

Taiwan73,2951.2

Australia64,4171.1

Switzerland60,1111

Sheet2

$US Millions

Largest Manufacturing Countries

Chart6

2.7

2.6

2.3

1.5

1.2

0.8

0.8

0.5

0.4

0.3

0.3

0.2

0.2

6.2

Distribution of LDC Manufacturing Production

Sheet3

manprod prcnt of total

South Korea2.7

Brazil2.6

China2.3

Argentina1.5

Taiwan1.2

Thailand0.8

Mexico0.8

Indonesia0.5

India0.4

Singapore0.3

Malaysia0.3

Hong Kong0.2

Philippines0.2

Rest LDC6.2

Distribution of LDC Manufacturing

Chart2

2.7

2.6

2.3

1.5

1.2

0.8

0.8

0.5

0.4

0.3

0.3

0.2

0.2

6.2

Sheet1

NorthSouth

1953964

1963955

19709010

19808515

19908614

19958119

Sheet1

North

South

North-South Shares of World Manufacturing

Sheet2

United States1,611,76326.9

Japan1,257,76121

Germany692,19111.6

France268,6114.5

Great Britain243,6534.1

Brazil154,4252.6

China139,0312.3

Italy128,4862.2

Canada100,3221.7

Argentina88,3661.5

Spain81,1961.4

Taiwan73,2951.2

Australia64,4171.1

Switzerland60,1111

Sheet2

$US Millions

Largest Manufacturing Countries

Sheet3

manprod prcnt of total

South Korea2.7

Brazil2.6

China2.3

Argentina1.5

Taiwan1.2

Thailand0.8

Mexico0.8

Indonesia0.5

India0.4

Singapore0.3

Malaysia0.3

Hong Kong0.2

Philippines0.2

Rest LDC6.2

Sheet3

North-South Distribution of Foreign Direct Investment

Chart4

982

973

964

955

9010

North

South

Percent of Total

Chart1

128959

61322

55491

50755

49530

38453

26801

26510

21769

16775

$US Billion

Foreign Direct Investment in Developing Countries

Sheet1

ctryFDI Stock

China128,959

Mexico61,322

Singapore55491

Indonesia50755

Brazil49530

Malaysia38453

Argentina26801

Saudi Arabia26510

Hong Kong21769

Thailand16775

Rest LDC217034

Sheet1

Sheet2

NorthSouth

1960982

1975973

1985964

1990955

19959010

Sheet2

North

South

Percent of Total

Sheet3

Distribution of LDC FDI

Chart2

128959

61322

55491

50755

49530

38453

26801

26510

21769

16775

217034

Chart1

128959

61322

55491

50755

49530

38453

26801

26510

21769

16775

$US Billion

Foreign Direct Investment in Developing Countries

Sheet1

ctryFDI Stock

China128,959

Mexico61,322

Singapore55491

Indonesia50755

Brazil49530

Malaysia38453

Argentina26801

Saudi Arabia26510

Hong Kong21769

Thailand16775

Rest LDC217034

Sheet1

Chart3

982

973

964

955

9010

North

South

Percent of Total

Sheet2

NorthSouth

1960982

1975973

1985964

1990955

19959010

Sheet3

The Global Division of LaborAdvanced Industrialized CountriesComparative Advantage in Capital and Human Capital Intensive GoodsPharmaceuticals, Computers and Software, Telecommunications Systems, Aircraft.Asian Newly Industrializing CountriesComparative Advantage in Mature Capital Intensive GoodsSteel, Semiconductors, Autos.Other Developing CountriesComparative Advantage in Labor Intensive Goods (Apparel & Footwear; Assembly) and in Primary Commodities.