GATT & WTO

Functions of WTO (in depth):

- Administering WTO trade agreements. - Forum for trade negotiations. - Handling trade disputes. - Monitoring national trade policies. - Technical assistance and training for developing countries. - Cooperation with other international organizations.

Appellate Body (class):

- Appointed by the Dispute Settlement Body: * Seven members - Function: * Uphold, modify or reverse the legal findings and conclusions of a panel report - The appeal is limited to issues of law covered in the panel report and legal interpretations developed by the panel. - Appellate Body Reports, once adopted by the Dispute Settlement Body, must be accepted by the parties to the dispute.

MFN (Most Favored Nation) Rule: GATT

- Article 1 clause of GATT Charter - "With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III, any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties." - Non-discriminatory treatment between products of GATT members *Example: If A country applies a 0% tariff rate on an importing good B, A country needs to apply the same 0% tariff rate to similar goods imported from other GATT member countries

Doha Round (2001-present):

- Began in Nov. 2001, to conclude issues on opening agricultural and manufacturing markets, as well as trade- in-services (GATS) negotiations and expanded intellectual property regulation (TRIPS) - Originally planned to conclude by 2005. But negotiations stalled. - Major conflicts * Agricultural subsidies and special safeguards mechanism on agricultural products * Special and differential treatment to developing countries * Environmental standards

Functions of WTO (overview):

- Continuation of GATT (lowering tariffs on goods) - Services & Investment - Intellectual Property Rights

Beggar thy Neighbor:

An economic policy that stresses trade protectionism and causes other countries to bear the costs of efforts at securing prosperity at home

GATT to WTO (2):

Change of primary goals of trade liberalization - Manufacturing Goods ---> Investments, services, intellectual property, agricultural products

GATT to WTO:

Change of primary goals of trade liberalization - Tariffs ---> Non-tariff Barriers

GATT: Historical Origins

Historical Background: "Beggar-Thy-Neighbor policy" during the inter-war period (1919-39) - Protectionism - Decline of global trade volume

Exceptions of the MFN principle:

- Customs unions - Free trade areas - GATT 1994 * Customs union, free-trade areas, and interim agreements leading to the formation of a customs union or free trade area * No imposition of obligation on Members benefiting from a reduction of duties consequent upon the formation of a customs union, or an interim agreement leading to the formation of a customs union, to provide compensatory adjustment to its constituents.

What is a Tariff?:

- Definition: A tax imposed on imported goods and services Effect: - A high tariff increases the price of imported goods and services, thus making them more expensive to customers

Summary

- GATT (1948) --> WTO (1995) - Tariffs --> Non-tariff barriers - Goods --> Services & Investment, Intellectual Property Rights. - WTO has a centralized dispute settlement procedure. - Doha round (2001--) has been stalled due to conflicts between developed and developing countries. * Government subsidies to the agricultural sector in advanced economies - Regional Free Trade agreements have been sharply on the rise due to three exceptions of the MFN principle * Multilateral trade regime (WTO) has been challenged * Spaghetti bowl effect

GATT to WTO

- GATT's 8th Round- Uruguay Round (1986-1994)- addressed such issues as intellectual property rights and trade in services. - Established: 1 January 1995, located in Geneva, Switzerland. - Strengthening the enforcement powers of GATT to force contracting parties to obey new trading rules. - From a consensus-based to a more rule-based organization. - Establishing specific dispute settlement procedures and a centralized sanctions based on the dispute settlement procedures.

Pattern of Trade Liberalization:

- GATT: 23 members (1948) (after WWII) - WTO: 123 members (1995) - Doha Round: (2001) - WTO: 161 members (2015)

Non-tariff Barriers:

- Licenses: Import or Export licenses - Quotas: quantitative restrictions *Voluntary export restraints (VER): A restriction set by a government on the quantity of goods that can be exported out of a country during a specified period of time. *Example: US-Japan auto VER *Embargo: restrictions on imports or exports of particular goods - Subsidies (exports) - Local content requirements

GATT: Establishment

- On June 30, 1948, 23 countries founded GATT in Havana, where they drafted 45,000 tariff concessions. - Intended to create the International Trade Organization (ITO)—mainly b/c U.S. didn't ratify the ITO Charter in 1950. - Lasted until 1994. - Replaced by the World Trade Organization (1995).

The Debate Over FTAs:

- One group consists of those who oppose FTAs because, they assert, FTAs undermine the development of the multilateral trading system and act as a "stumbling block" to global trade liberalization. * Conflicting schedule of implementing tariff reductions - A second group supports FTAs because, they believe, FTAs act as a "building block" to multilateral trade liberalization.

Governance Structure of WTO:

- Organizational structure * The Ministerial Conference * The highest decision-making body of WTO * Meet at least every two years * All members, including customs unions Take decisions on all matters under any of the multilateral trade agreements. - The General Council * The highest-level decision-making body in Geneva Meeting regularly to carry out the functions of WTO * Representatives (usually ambassadors or equivalent) from all member governments * Has the authority to act on behalf of the Ministerial Conference

GATT Goals:

- Promote multilateral free trade among member countries by lowering tariff rates. - To strengthen global peace and security through an international trading system. - To produce laws that regulate international commerce To remove trading obstacles when needed. - To promote fair and unobstructed competition. - To reduce the amount of quotas.

Contents of FTAs:

- Rules of origin - Dispute settlements - Rules on the implementation of border controls - Rules on foreign investment, intellectual property rights protection, treatment of labor and environment, and trade in services - The size and complexity of FTAs vary depending on the size and complexity of economic relations * Ex) US FTAs with Israel and Jordan vs. NAFTA

Rules of Origin:

- Rules of origin are the criteria used to determine the country in which a product was made. - They define what constitutes a product manufactured within the FTA and therefore is eligible to receive duty-free and other preferential trade treatment. - Rules of origin prevent products from nonmembers entering an FTA market over the lowest tariff wall. - They significantly contribute to creating "regional trading bloc".

Intellectual Property Rights (TRIPS):

- The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is the most comprehensive international treaty governing the protection, administration and enforcement of intellectual property rights. - Intellectual property rights have become a key part of the debate over economic development and broader public policy questions, such as public health and the environment.

Two Major Organizations :

- The Dispute Settlement Body (most important). - The Appellate body. - Both were established in 1995 and located in Geneva, Switzerland.

Services (GATS under WTO):

- The General Agreement on Trade in Services (GATS) mandates WTO members to progressively liberalize trade in services. - Services are the most important economic activity in most countries when measured as a share of overall production, and they are the single largest source of employment.

Dispute Settlement Body (complex class):

- The General Council convenes as the Dispute Settlement Body (DSB) to deal with disputes between WTO members. - To maintain surveillance over the implementation of recommendations and rulings contained in panel reports. - The DSB has authority: 1. To establish dispute settlement panels 2. To maintain surveillance over the implementation of recommendations and rulings contained in panel reports

Agricultural Conflicts:

- The negotiations take place in the WTO Committee on Agriculture, meeting in special session. They also take into account social and political sensitivities in the sector and the needs of developing countries. - Food security - Export subsidies

Joining the WTO:

- To join the WTO, a government has to bring its economic and trade policies in line with WTO rules and principles, and negotiate with interested, individual trading partners on guaranteed minimum levels of access to their domestic markets for goods and services. - It can take many years to become a WTO member because, in practice, it requires the full support and consensus of the existing membership. *Example: China gained the observer status with GATT from 1986, but it became a member of WTO in 2001.

Most Favored Nation Status (simple):

Agreement to offer a trading partner the lowest tariff rate offered to other trading partners

WTO Membership:

161 members(as of Oct. 2015), more than 95% of global trade.

Evolution: "Round" of trade negotiations

1948 - Geneva - Tariffs - 23 counties 1949, 1951, 1956, 1961, 1964-67 1973 - 1979 - Tokyo Round - Tariffs, non-tariff measures, "framework" agreements - 102 countries 1986 - 1994 - Uruguay Round - Tariffs, non-tariff measures, rules, services, intellectual property, dispute settlement, textiles, agriculture, creation of WTO - 123 countries 2001 - Doha Round - Stalled due to Agriculture & other issues - 153 countries

Free Trade Area

A group of countries committed to removing all barriers to the free flow of goods and services between each other, but pursuing independent external trade policies.

Spaghetti or Noodle bowl effect:

A problem of free trade agreements (FTAs) in applying the rules of origin that designate which country a product comes from.

Dispute Settlement Procedure:

Dispute Settlement Body (DSB) & Appellate - Body Consultation (60 days) —> Litigation (9-12 months) —> Implementation (15-16 months)

Custom Union

Eliminates trade barriers between member countries and adopts a common external trade policy.

World Trade Organization:

Established as a result of the Uruguay Round (1986-1994). Officially established in 1995. Headquarters in Geneva Switzerland. Has enforcing power (unlike GATT) to enforce rules.

GATT:

General Agreement on Tariffs and Trade

Increasing Free Trade Agreements: Spaghetti Bowl Effect: Complication of Rules of Origin

Last topic.

Dispute Settlement Body (simple):

Means, provided by the World Trade Organization, for member countries to resolve trade disputes rather than engage in unilateral trade sanctions or a trade war.

Structure Chart:

Ministerial Conference (every 2 year meet) | General Council | Council for trade in goods, council for intellectual property rights, council for trade in services

Who Accuses Whom?:

Most involved in disputes, 1995 to 2013 - The US government has filed the highest number of complaints (disputes) the WTO

High Tariff Rates:

Tariff rates (%) for selected countries, 1875-1931 France: 1926 = 12%, 1931 = 38% Germany: 1926 = 12%, 1931 = 40.7% Japan: 1926 = 16%, 1931 = 24% Sweden: 1926 = 13%, 1931 = 26.8%

Appellate Body (complex quizlet):

The Appellate Body consists of 7 individuals that hear the appeals of reports brought to the DSU. Although the DSU has proven to be extremely slow and ineffective, Goldstein & Steinberg argued that the AB has allowed for the rise of judicial liberalization by filling in gaps where there is no legal text and clarifying ambiguities in existing text. They show a tendency towards liberalism (with the exception of consumer/environmental protectionist measures) and have seen a 95% compliance rate

WTO:

World Trade Organization

Observer Governments: (underdeveloped and poor countries)

• Afghanistan • Algeria • Andorra • Azerbaijan • Bahamas • Belarus • Bhutan • Bosnia and Herzegovina • Comoros • EquatorialGuinea • Ethiopia • Holy See (Vatican) • Iran • Iraq • Kazakhstan • LebaneseRepublic • Liberia, Republic of • Libya • Sao Tomé and Principe • Serbia • Seychelles • Sudan • Syrian Arab Republic • Uzbekistan