ipe quiz three

These two core principles are accompanied by hundreds of other rules

-1947: governments have concluded about 60 distinct agreements that together fill about 30,000 pages. -These rules jointly provide the central legal structure for international trade. -As a group, these rules constrain the policies that governments can use to control the flow of goods, services, and technology into and out of their national economies. -Some of these rules are -proscriptive: such as prohibition against government discrimination -prescriptive: such as requirements for governments to protect intellectual property. -Many of these rules state instances in which governments are allowed to protect a domestic industry temporarily and then delineate the conditions under which governments can and cannot invoke this safeguard. -All rules entail obligations to other WTO members that constrain the ability of governments to regulate the interaction between the national and the global economies

global trade has grown during the last 70 years

-6% per year -annual world merchandise -$84 billion in 1953 -$16 trillion in 2016 -international trade has never grown so rapidly for such a long period. -even more importantly, trade has consistently grown more rapidly than the world's economic output. -consequently, each year a greater proportion of the goods and services produced in the world are created in one country and consumed in another. -globalization is a consequence of these differential growth rates. -none of this occurred spontaneously; one could argue that the growth of world trade reflects the operation of global markets and the cost-reducing impact of telecommunications technology, all markets rest on political structures.

Why have RTAs proliferated, especially since 1990?

-a country's desire to gain more secure access to the market of a particularly important trading partner -U.S.-Canada Free Trade Agreement concluded in the late 1980s, for example, Canada sought secure access to the U.S. market—the most important destination for Canada's exports. During much of the 1980s, the United States made frequent use of anti-dumping and countervailing duty investigations to protect American producers from Canadian imports. Such measures clearly interfered with the ability of Canadian producers to export to the American market. The Canadian government hoped that the U.S.-Canada Free Trade Agreement would give Canada "some degree of exemption" from these measures (Whalley 1998, 72-73). -emphasize a government's need to signal a strong commitment to economic reform. - Governments use RTAs to convince foreign partners that they will maintain open markets and investor-friendly policies. This argument has been applied most commonly to Mexico's decision to seek a free-trade agreement with the United States. A free-trade agreement with the United States allowed Mexico to signal to American investors the depth of its commitment to market liberalization. -scholars argue that countries enter RTAs to increase their bargaining power in multilateral trade negotiations. -A small country bargaining individually in the WTO lacks power because it does not have a large market to offer. By pooling a group of small countries, the market that can be offered to trade partners in WTO negotiations increases substantially -the impasse in the Doha Round encouraged states to find other paths along which to pursue their trade policy goals. These agreements have enabled the EU, the U.S., Canada, Mexico, and South American countries with Pacific ties, as well as a few partners in Asia to pursue economic integration on issues of common interest and concern that they could not address in the WTO, given the resistance by many members to the initiation of negotiations on new issues. -Within the mega-regionals, governments could negotiate extensive rules to govern this trade. Moreover, the growing importance of global value chains has provided multinational businesses with a strong incentive to pressure their governments to negotiate these deeper agreements in order to better protect their investments, to harmonize product standards across national markets, and to make it easier and cheaper to ship goods across national boundaries

Introduction

-economic production has gone global for the last 20 years -past: Toyota produced cars in Japanese factories and exported them to the US -today: intermediate goods (goods that are assembled together into finished goods) make up a growing proportion of trade -Toyota now sources the components for its autos from producers throughout the world and these components are shipped to factories in the United States (and 15 other countries) where workers assemble them into cars and trucks sold to American consumers as well as exported to more than 20 countries around the world. -Global production networks such as these (often called "global value chains") are increasingly common in today's global economy -ex. nutella -the fragmentation of production into these global networks has been made possible by the dramatic liberalization of and associated rapid growth of world trade flows

bargaining rounds

-eight of these bargaining rounds have been concluded, and a ninth, the Doha Round, began in 2001 -These bargaining rounds are usually extended affairs. Although the earlier rounds were typically concluded relatively quickly, the trend over the last 30 years has been for multiyear rounds. Governments launched the Uruguay Round, for example, in 1986 (though they began discussing a new round in 1982) and concluded negotiations in December 1993 -The growing length of bargaining rounds reflects the complexity of the issues at the center of negotiations and the growing diversity of interests among WTO member governments.

WTO rules do not prevent governments from protecting consumers from unsafe foods or protecting the environment from clear hazards

-when cattle stricken by mad cow disease were discovered in the United States, nothing in the WTO prohibited other governments from banning the import of American beef. -Similarly, when U.S. inspectors found toxic chemicals in toothpaste manufactured in China, WTO rules did not prohibit the United States from banning imports of the afflicted product. -Problems arise when governments use health or environmental concerns as an excuse to shelter domestic producers from foreign competition. -Such practices can become common in a world in which governments cannot use tariffs to protect industry -Suppose the United States wants to protect American avocado growers from competition against cheaper Mexican avocados, and so assert that Mexican avocados contain pests that harm American plants (even though they don't) and on this basis ban Mexican avocados from the American market. This is disguised protectionism—an effort to protect a local producer against foreign competition, hidden as an attempt to protect plant health in the United States. -WTO agreements, such as the Agreement on Sanitary and Phytosanitary Standards, attempt to strike a balance between allowing governments to protect against legitimate health risks and preventing governments from using such regulations to protect domestic producers. This is a difficult balance to strike. It is not easy to determine the real motives behind a government's decision to ban imports of a particular product -As a consequence, WTO rules require governments to accept current scientific conclusions about the risks to humans, animals, and plants that such products pose. Governments cannot ban imports of a product on health or safety grounds unless a preponderance of scientific evidence indicates that the product is in fact harmful. Such rules extend deeply into an aspect of national authority: the ability to determine what risks society should be exposed to and protected from.

RTAs have emerged in three distinct waves

1) The first wave began early in the 1950s and extended to the mid-1970s. -began with the construction of the original European Economic Community in 1958 and the Latin American Free Trade Area in 1960, and concluded with the formation of the Economic Community of West African States in 1975. T -was motivated in part by a desire to promote deeper economic cooperation within particular regions in an attempt to promote peace and achieve more rapid economic development. I -n this regard, the contribution of the EEC to Franco-German political reconciliation after World War II and to rapid postwar economic recovery encouraged governments in other regions to emulate the approach. This early enthusiasm waned, however, as the economic gains realized in Europe did not materialize in the so-called developing world imitators 2) The second wave began in the context of far-reaching trade policy reforms in Eastern and Central Europe, the former Soviet Union, and other developing countries. Governments in former members of the Soviet Bloc, for instance, sought new ways to organize their trade, and sought access to Western European markets. Consequently, a large number of agreements were reached between countries within the region and between these countries and the EU 3) The third wave began in 2008 or so and has been closely associated with the so-called mega-regional agreements. The two most prominent of these mega-regional agreements are the Trans-Pacific Partnership (TPP), negotiated between the U.S. and the EU, and the Transatlantic Trade and Investment Partnership (TTIP), which was negotiated by 13 states in Asia and North and South America. -A third mega-regional, the Regional Comprehensive Economic Partnership, ties China to 15 other economies throughout Asia and the Pacific. -In contrast to previous waves, which tended to focus most heavily on trade liberalization, the mega-regional agreements seek deeper economic integration among their members. To achieve this goal, these agreements are both broader in scope and reach more deeply into domestic arrangements than prior agreements. The TTIP and the TPP were intended to promote cooperation and harmonization on technical barriers to trade, which are domestic rules, regulations, and administrative procedures that can limit trade flows. In addition, these agreements included trade in services, more ambitious rules regarding the protection of intellectual property than are present in the WTO and agreement on the treatment and protection of foreign investment. The TPP included most of these issues as well as an elaborate and enforceable code on labor standards.

exceptions for Most Favored Nation

1) regional trade agreements -govs can depart from MFN if they join a free trade area or customs union -ex. NAFTA: goods produced in Mexico enter the US duty-free, the US imposes tariffs on the same goods imported from other countries -ex. EU: goods produced in France enter Germany with a lower tariff goods produced in the US 2) generalized system of preferences (1960) -allows the advanced industrialized countries to apply lower tariffs to imports from developing countries than they apply to the same goods coming from other advanced industrialized countries

Although the trade system's core principles and procedures have been stable for roughly 70 years, the past few years have brought substantial change.

1) the emergence of developing countries as a powerful bloc within the organization -since 1985. More than 70 countries have joined, increasing total membership to 164 countries -Even if all governments have similar interests, more members will make the decision making harder—it is very difficult to gain consensus among 164 countries. -Membership growth reflects the dramatic reorientation of emerging market countries toward international trade -governments in most developing countries were skeptical about the ability to foster development through trade. -Consequently, most governments participated little in the GATT system. And to the extent that developing countries belonged to the GATT, the industrialized countries accorded them special treatment rather than demanding strict reciprocity. - The GATT became, as a result, a richcountry club in which negotiations focused on the areas of interest to the United States, the EU, and Japan, and neglected liberalization in areas of interest to developing countries. -Since the mid-1980s, emerging market countries have emphasized development through exports and, as a result, have placed substantially greater importance on the market access that participation in the WTO provides -Under the leadership of the three largest emerging economies, Brazil, China, and India, developing-country members have constructed a powerful bloc within the WTO -Developing countries stymied the first effort to launch the current round of negotiations in Seattle in 1999 because the proposed agenda dedicated too much attention to issues of interest to the United States and the EU and insufficient attention to the issues developing countries believed important. -The current round launched once developing countries were satisfied that the agenda focused sufficient attention on the topics of importance to them, especially liberalization of agriculture and maintaining sufficient policy space to promote development. Since 2003, cooperation among developing countries within the WTO has been institutionalized in the Group of 20. -emergence of the developing countries as a powerful bloc in the WTO has transformed bargaining 2) the emergence of NGOs as a powerful force outside the organization. -Together these developments have complicated decision making within the WTO and raised fundamental questions about the ability of governments to continue to achieve their goals through the system. -Few interest groups (other than businesses) paid much attention to the GATT when negotiations focused solely on tariffs. Since the late 1990s, however, hundreds of groups have mobilized in opposition to what they view as the unwelcome constraints imposed by new WTO rules. In many instances, NGOs worry about how WTO rules affect the ability of governments to safeguard consumer and environmental interests.

Nondiscrimination

A core principle of the World Trade Organization (WTO) that ensures that each WTO member faces identical opportunities in trade with other WTO members. Embodied in the "most favored nation" and in "national treatment." -principle takes two specific forms in the WTO 1) most favored nation 2) national treatment

Market liberalism

A core principle of the World Trade Organization that asserts that an open or liberal international trade system raises the world's standard of living. Every country gains from liberal trade, and these gains are greatest when cross-border trade is not restricted by tariffs and other barriers. -provides the economic rationale for the trade system

customs union

A form of regional trading arrangement in which member governments eliminate all tariffs on trade between members of the union and create a common tariff that is imposed on goods entering any member country of the union from countries outside the union. -like the EU, member governments eliminate all tariffs on trade between customs union members and impose a common tariff on goods entering the union from non-members.

hegemonic stability theory

A model that hypothesizes that the global economy will be open and stable when a hegemon exists and will tend toward protectionism, instability, and crisis when no hegemon exists. -often advanced to explain why the system shifts between periods in which it is open and liberal, and periods in which it is closed and discriminatory -rests on the logic of public goods provision. -argues that hegemons act like privileged groups and thus overcome the free-riding problem

hegemon

A particular distribution of power in the international state system characterized by the existence of one country (a hegemon) whose power capabilities are substantially greater than the next-most-powerful country or countries. The relevant capabilities include economic power, measured as the size and technological sophistication of the economy, and military power. A prominent hypothesis, called hegemonic stability theory, links the openness and stability of the international economic system to the presence or absence of a hegemon. -a country that produces a disproportionately large share of the world's total output and that leads in the development of new technologies. -Because it is so large and technologically advanced, the benefits that the hegemon gains from trade are so large that it is willing to bear the full cost of creating international trade rules. -Moreover, the hegemon recognizes that the public good will not be provided in the absence of its contribution. -Hence, the free-riding problem largely disappears, and stable regimes are established, during periods of hegemonic leadership. -As a hegemon declines in power, it becomes less willing to bear the cost of maintaining trade rules, and world trade becomes less open.

dispute settlement mechanism

A quasi-judicial tribunal that is used to resolve trade disputes between WTO member governments. -ensures that governments comply with the rules they establish -if all governments believed they could disregard WTO rules with impunity, they would comply less often. -ensures compliance by helping governments resolve disputes and by authorizing punishment in the event of noncompliance. -tribunal investigates the facts and the relevant WTO rules whenever a dispute is initiated and then reaches a finding. A government found to be in violation is required to alter the offending policy or to compensate the country or countries that are harmed.

free-trade area

A regional trading arrangement in which governments eliminate all tariffs on goods imported from other members, but retain independent tariffs on goods imported from non-members. (See also customs union and regional trading arrangements.) -like the North American Free Trade Agreement, governments eliminate tariffs on other members' goods, but each member retains independent tariffs on goods entering their market from non-members.

Doha Round

A series of negotiations under the World Trade Organization that began in Doha, Qatar, in 2001. It followed the Uruguay Round and has focused on agricultural subsidies, intellectual property, and other issues. -Governments launched the Doha Round in 2001 WTO's Fourth Ministerial Conference with plans to conclude the round by late 2005. Yet, in late 2017, governments remain unable to reach agreement. -In Doha, governments reached agreement on the bargaining agenda: what issues they would address and which they would ignore. -Governments agreed to (1) negotiate additional tariff reductions (with a specific focus on developing countries' exports), (2) incorporate existing negotiations in services into the Doha Round, and (3) pursue meaningful liberalization of trade in agricultural products. -In agriculture, they agreed to reduce barriers to market access, to eliminate agricultural export subsidies, and to reduce domestic production subsidies. -called for negotiations on trade-related intellectual property rights, on modifications of existing WTO rules regarding anti-dumping and subsidies' investigations, and on the rules pertaining to regional trade agreements and review of the operation of the dispute-settlement mechanism. -governments agreed to explore aspects of the relationship between trade and the environment. -members agreed to defer negotiations on trade and investment, competition policy, government procurement, and trade facilitation (four issues known collectively as "The Singapore Issues"). -They agreed to treat the agenda as a "single undertaking," meaning that everything must be agreed or nothing is agreed. The Doha Agenda was just that—an agenda for negotiations. It contained no details about the form an eventual final agreement would take. Negotiations between governments aimed at elaborating these details began at WTO headquarters in Geneva in early 2002. - These initial negotiations (conducted for the most part by national delegations staffed by career civil servants or foreign service officers) were not oriented toward making final decisions, but instead explored areas of agreement and disagreement. These negotiations would set the stage for a stock-taking exercise scheduled for the WTO's Fifth Ministerial Conference in Cancún, Mexico, in September of 2003. -two issues posed large obstacles. -First, developing countries were demanding deeper liberalization of agriculture than the United States and the European Union (EU) were willing to accept. -Second, the EU was insisting that negotiations on the Singapore issues be initiated in 2004, but developing countries were unwilling to negotiate on new issues until they had achieved substantial gains in agriculture. -In the late summer of 2003, negotiations in Geneva paused as governments prepared for the Cancún Ministerial Conference. As trade ministers gathered in Cancún in September 2003, they hoped to achieve two broad goals that would push the Doha Round into the home stretch. -The first was to bridge the gap concerning agriculture and the Singapore issues. Governments hoped this would be possible in Cancún because trade ministers had the political authority that lower-level officials lacked to make substantial concessions. -A simple compromise appeared possible: the United States and the EU would accept substantial liberalization in agriculture, and the developing countries would allow negotiations on some of the Singapore issues. -Second, once they had removed this major obstacle, governments would agree on a broad framework for the final agreement. The Geneva-based delegations would then work out the precise details during the following year, and the final agreement would be concluded at the next Ministerial Conference scheduled for Hong Kong in December 2005. Neither goal was achieved. The EU and the United States were unwilling to meet the developing countries' demands regarding agriculture, and the developing countries refused to allow negotiations on the Singapore issues. -Unable to reach agreement, the Cancún Ministerial Conference adjourned with negotiations in complete disarray. It took almost a year to put the negotiations back on track. Finally, on August 1, 2004, governments reached the agreement that had eluded them in Cancún. The EU and the United States accepted broad principles concerning the liberalization of trade in agriculture. In exchange, developing countries agreed to negotiating one of the Singapore issues: trade facilitation. Members hoped that this agreement would allow them to finish negotiations in time to complete the round at the Hong Kong Ministerial in December 2005. Negotiations progressed slowly, however, as it proved difficult to translate these broad principles into meaningful tariff and subsidy reductions. As a consequence, when governments arrived in Hong Kong in December 2005 there was little chance they would conclude the round. Instead, governments reached a few specific agreements at the Hong Kong Ministerial (the EU agreed to eliminate agricultural export subsidies by 2013; the advanced industrialized countries agreed to eliminate 97 percent of the tariffs on exports of the least developed countries), and they accepted a work program intended to conclude the round by the end of 2006. Governments ended the Doha Round 9 years later without reaching an overarching agreement. At the 10th WTO Ministerial Conference held in Nairobi, Kenya, members reached limited agreements on

non-tariff barriers

Any of a number of policy or structural impediments to trade other than tariffs. NTBs include such things as health and safety regulations, government purchasing practices, and retail and distribution networks. As quotas have been eliminated and tariffs reduced, NTBs have become one of the most important remaining obstacles to international trade and are thus an increasingly important issue in the World Trade Organization. -ex. health and safety regulations, government purchasing practices, and many other government regulations

japan

During the 1960s, the Japanese economy grew at average annual rates of more than 10 percent, compared with average growth rates of less than 4 percent for the United States. Although Japanese growth slowed during the 1970s and 1980s, Japan continued to grow more rapidly than the United States. Faster growth allowed Japan to catch up with the United States. In the early 1960s, the United States produced 40 percent of the world's manufactured goods, whereas Japan produced only 5.5 percent. By 1987, the United States' share of world manufacturing production had fallen to 24 percent, whereas Japan's share had increased to 19.4 percent (Dicken 1998, 28). In less than 30 years, therefore, Japan transformed itself from a vanquished nation into a powerful force in the world economy. -Many commentators viewed Japan's ascent as a harbinger of hegemonic decline.

WTO public good characteristics

International rules and procedures benefit all governments (though not necessarily all benefit equally). Moreover, it is difficult (though not impossible) to deny a government these benefits once an institution has been established. Moreover, these benefits do not decrease as a function of the number of governments that belong to the institution. Because international institutions have these public good characteristics, their provision can be frustrated by free riding. All governments want global trade rules, but each wants someone else to bear the cost of providing such rules.

mega-regional agreements

Mega-regional agreements seek deeper economic integration among their members. To achieve this goal, these agreements are both broader in scope and reach more deeply into domestic arrangements than prior agreements. The TTIP and the TPP were intended to promote cooperation and harmonization on technical barriers to trade, which are domestic rules, regulations, and administrative procedures that can limit trade flows. In addition, these agreements included trade in services, more ambitious rules regarding the protection of intellectual property than are present in the WTO, and agreement on the treatment and protection of foreign investment.

Generalized System of Preferences (GSP)

Part of the General Agreement on Tariffs and Trade (GATT) concluded in the late 1960s under which advanced industrialized countries can allow manufactured exports from developing countries to enter their markets at preferential tariff rates. The GSP is therefore a legal exception to the GATT principle of non-discrimination.

tariffs

Taxes that governments impose on foreign goods coming into the country. This tax raises the price of the foreign good in the domestic market of the country imposing the tariff. Even though tariffs distort international trade, they are the least distortionary of all trade barriers.

whether China's emergence today is a hegemonic transition like that which occurred during the early twentieth century or a false alarm like that prompted by Japan during the 1980s.

That is, is the global system transitioning from the American century to the Asian century, or will Asia's ascent level off? Moreover, if we are experiencing hegemonic transition, must the global trade system weaken and collapse as it did during the 1920s and 1930s? Might the institutional structures constructed under American leadership help governments transition to a new global power structure without suffering another economic "dark age"?

united states

The United States began running trade deficits in the 1970s, and these deficits continued to grow during the 1980s. American policymakers interpreted these deficits as evidence of declining competitiveness, particularly in high-technology industries. Measures of the United States' comparative advantage in high-technology industries suggested that it was losing ground in critical sectors such as mechanical equipment, electronics, scientific instruments, and commercial aircraft. And what the United States appeared to be losing, Japan appeared to be gaining. Statistics suggested that as the American share of global high-technology markets fell (from 30 percent to 21 percent between 1970 and 1989), Japan's share of this market rose (from 7 percent to 16 percent in the same period) (Tyson 1995, 19). Thus, the trade deficit and the apparent decline in American high-technology industries both pointed to the same conclusion: the United States was losing ground to Japan. The United States responded to these developments by adopting a more aggressive and protectionist trade policy: it increasingly relied on bilateral initiatives and threatened to protect the American market to force changes in other countries' trade policies (Krueger 1995). Japan was the principal (though not the sole) target of American assertiveness. Many analysts argued that this assertiveness reflected "the syndrome of hegemonic decline." Some argued that the protectionist tendencies generated by hegemonic decline would be reinforced by the end of the Cold War, which deprived the United States of a broader purpose provided by the alliance against the Soviet threat. Robert Gilpin, a political economist at Princeton University, summarized this pessimistic outlook, arguing that "at the opening of the twenty-first century, all the elements that have supported an open global economy have weakened" -Assertions of hegemonic decline proved premature, however. American unilateralism subsided in the mid-1990s as the United States entered a period of sustained robust growth and Japan struggled to recover from a financial and banking crisis. In this decade, governments strengthened and extended the multilateral trade system. They established the WTO, which enjoyed greater support and attracted a larger membership than the GATT did at the height of American hegemony. As one analyst concluded in looking back on the predictions of hegemonic decline, "the institutions that took hold after World War II continue to provide governance now, and the economic interests and political consensus that lie behind them are more, not less, supportive of an open world economy today than during the Cold War"

reciprocity

The central principle upon which bargaining within the World Trade Organization is based. The concessions that each government makes to its partners in multilateral trade negotiations are roughly the same size as the concessions it gains from its trading partners.

Most-Favored Nation (MFN)

The central principle upon which the World Trade Organization (WTO) is based, this rule requires that any advantage extended by one WTO member government to another also be extended to all other WTO members. The principle therefore prevents trade measures that discriminate between countries. -article 1 of GATT -ex. US cannot apply lower tariffs to goods imported from Brazil (a WTO member) than it applies to goods imported from other WTO members -ex. if US reduces tariffs on goods imported from Brazil, it must extend these same tariffs to all other WTO members

Ministerial Conference

The highest level of World Trade Organization decision making. They draw top-level officials together for a 3- or 4-day session at least once every 2 years. Typically used to establish an agenda for forthcoming negotiations or bridge remaining differences in ongoing negotiations. -Rather than bargain continuously, governments organize their negotiations in bargaining rounds, each with a definite starting date and a target date for conclusion. At the beginning of each round, governments meet as the WTO Ministerial Conference -Meeting for 3 or 4 days, governments establish an agenda detailing the issues that will be the focus of negotiation and set a target date for the conclusion of the round -Once the Ministerial Conference has ended, lower-level national officials conduct detailed negotiations on the topics embodied in the agenda. Periodic stock takings are held to reach interim agreements. Once negotiations have produced the outlines of a complete agreement, trade ministers meet at a final Ministerial Conference to conclude the round. National governments then ratify the agreement and implement it according to an agreed timetable.

conclusion

The largest contemporary challenges to the WTO emerge from the ability of its decision-making process to continue to produce outcomes in a changing world. On the one hand, the growth of WTO membership and the emergence of the G-20 as a powerful bloc within the organization has raised the stakes of trade negotiations and made it more difficult to find packages acceptable to the full membership. On the other hand, the emergence of a vocal NGO movement critical of the WTO's apparent tendency to place business interests before consumer interests has made it even more difficult to reach agreements within the organization. The full consequences of these two challenges remain uncertain. Can governments reform decision making in the system in a way that simultaneously enhances its legitimacy and efficiency? Or will continued decision-making paralysis impart additional impetus to regionalism?

World Trade Organization (WTO)

The principal international trade organization today that began operation in 1995. Located in Geneva, Switzerland, the World Trade Organization is a relatively small organization whose role includes administering trade agreements, providing a forum for trade negotiations, helping governments settle trade disputes, and reviewing national trade policies. -governments negotiate, enforce, and revise rules to govern their trade policies -1947 and 1994 the GATT fulfilled the role now played by the WTO -1995, governments folded the GATT into the newly established WTO, where it continues to provide many of the rules governing international trade relations. The rules at the center of the world trade system were thus established initially in 1947 and have been gradually revised, amended, and extended ever since -WTO is small compared with other international organizations. -Although 164 countries belong to the WTO, it has a staff of only about 640 people and a budget of roughly $200 million -political scientists believe that, had governments never created this institutional framework after World War II, or had they created a different one, world trade would not have grown so rapidly. -Internationalization, therefore, has been brought about by the decisions governments have made about the rules and institutions that govern world trade -As the center of the world trade system, the WTO provides a forum for trade negotiations, administers the trade agreements that governments conclude, and provides a mechanism through which governments can resolve trade disputes. -As a political system, the WTO can be broken down into three distinct components: 1) a set of principles and rules, 2) an intergovernmental bargaining process, and 3) a dispute settlement mechanism. -two core principles 1) market liberalism 2) nondiscrimination -an international political system that regulates national trade policies. It is based on rules that constrain what governments can do to restrict the flow of goods into their countries and to encourage the export of domestic goods to foreign markets. All of these rules have been created (and can be amended) through intergovernmental bargaining. Because compliance with the rules cannot be taken for granted, governments have established a dispute-settlement mechanism to help ensure that members comply. By creating rules, establishing a decision-making process to extend and revise them, and enforcing compliance, governments have brought the rule of law into international trade relations.

Intergovernmental bargaining

The process through which governments negotiate the agreements with which they regulate their interaction in the global economy. -All WTO rules are created by governments through intergovernmental bargaining -the WTO's primary decision-making process, and it involves negotiating agreements that directly liberalize trade and indirectly support that goal -To liberalize trade, governments must alter policies that restrict the cross-border flow of goods and services -ex. of policies: tariffs & non-tariff barriers -focuses on negotiating agreements that reduce and eliminate these government-imposed barriers to market access -The rules established by intergovernmental bargaining provide a framework of law for international trade relations. Participation in the WTO, therefore, requires governments to accept common rules that constrain their actions. By accepting these constraints, governments shift international trade relations from the anarchic international environment in which "might makes right" into a rule-based system in which governments have common rights and responsibilities. In this way, the multilateral trade system brings the rule of law into international trade relations

National treatment

The second component of non-discrimination in the General Agreement on Tariffs and Trade (GATT) embodied in GATT Article III, as well as in the General Agreement on Trade in Services and Agreement on Trade-Related Aspects of Intellectual Property Rights. National treatment requires governments to impose identical tax and regulatory policies on foreign and domestic like products. This principle thus prohibits governments from using taxes and regulatory policies to provide advantages to domestic producers over foreign producers. -ex. the US gov cannot establish one fuel efficiency standard for foreign cars and another for domestic cars. if the U.S. government wants to advance this environmental goal, it must apply the same requirement to domestic and foreign auto producers

The rapid growth of RTAs raises questions about whether they challenge or complement the WTO

This is not an easy question to answer. On the one hand, RTAs liberalize trade, a mission they share with the WTO. In this regard, RTAs complement the WTO. On the other hand, RTAs institutionalize discrimination within world trade. In this regard, RTAs challenge the WTO. -Economists conceptualize these competing consequences of RTAs as trade creation and trade diversion

regional trade arrangement (RTA)

Trade agreements in which tariffs discriminate between members and non-members. Although inherently discriminatory, RTAs are recognized as a legitimate exception to this principle under General Agreement on Tariffs and Trade Article XXIV. Sometimes called preferential trade arrangements. (See also customs union and free-trade area.) -Regionalism is one alternative that has gained particular appeal. Indeed, many observers believe that regional trade arrangements pose the single greatest challenge to the multilateral trade system. Regional trade arrangements pose a challenge to the WTO because they offer an alternative, and often more discriminatory, way to organize world trade. -between two or more countries, usually located in the same region of the world, in which each country offers preferential market access to the other. -RTAs come in two basic forms: 1) free-trade areas and 2) customs unions -they are inherently discriminatory. Though such discrimination is inconsistent with the GATT's core principle, GATT's Article XXIV allows countries to form RTAs as long as the level of protection imposed against nonmembers is no higher than the level of protection applied by the countries prior to forming the arrangement. Nevertheless, the discriminatory aspect of RTAs makes many worry about the impact they will have on the nondiscriminatory trade encouraged by the WTO. -According to the WTO, there are currently 279 RTAs in operation. -Free-trade agreements constitute the vast majority of these RTAs, for 86 percent of existing RTAs and for 99 percent of arrangements currently being negotiated. More than half of all RTAs are bilateral agreements. The others are "plurilateral" agreements that include at least three countries. RTAs are densely concentrated in Europe and the Mediterranean region.

public good

defined by two characteristics: non-excludability and non-rivalry -Non-excludability means that once the good has been supplied, no one can be prevented from enjoying its benefits. A lighthouse, for example, warns captains away from a nearby coast. Once that beacon is lit, no captain can be prevented from observing the light and avoiding the coast. -Non-rivalry means that consumption by one individual does not diminish the quantity of the good available to others. No matter how many captains have already consumed the light, it remains just as visible to the next captain. -Public goods tend to be undersupplied relative to the value society places upon them. -Undersupply is a result of a phenomenon called free riding.

trade diversion

diversion of trade away from nations not belonging to a trading bloc and toward member nations -Because the RTA does not eliminate tariffs on trade between France and Germany on the one hand, and the United States on the other, some trade between the United States and Germany is replaced by trade between France and Germany. This is trade diversion. An RTA's net impact on trade is the difference between the trade it creates and the trade it diverts

The growing power of developing countries within the WTO and the greater pressure by NGOs on the outside of the organization have combined to generate questions about whether the WTO can remain relevant under its current decision-making procedures.

effectiveness? -Can 164 governments at different stages of economic development reach agreements that provide meaningful trade liberalization? The failure to reach a broad agreement in the Doha Round highlights the limited effectiveness of consensus-based bargaining among so many states. -Concerns about the effectiveness of WTO negotiations highlight the need for reform that limits the number of governments actively participating in negotiations. -the creation of a steering committee, a WTO equivalent of the United Nations Security Council, with authority to develop consensus on trade issues; Such reform would make it easier to reach agreement, but only by making negotiations less inclusive legitimacy? -Should rules that constrain national regulations be negotiated without the full participation of civil society? -Concerns about legitimacy highlight the need for reform that opens the WTO process to NGOs. Opening the WTO in this manner, NGOs argue, would ensure that business interests are balanced against other social concerns. Although such reforms might make WTO decision making more inclusive, they would also make it even more difficult to reach agreement within the organization. Dissatisfaction with current decision-making procedures has yet to produce a consensus about whether and how to change current procedures. The most important consequence of the impasse that prevented major gains in the Doha Round, therefore, has been that governments have found the WTO increasingly less useful as a forum within which to pursue their trade objectives. And as they have reached this conclusion, they have begun to seek alternatives that can be more effective.

Free riding

enjoying the benefits of some good or action while letting others bear the costs -describes situations in which individuals rely on others to pay for a public good -ex. radio -In other words, I free ride on other listeners' contributions. Because everyone faces the same incentive structure, contributions to the station are lower than they would be if noncontributors could be denied access to public radio. More broadly, goods that are non-excludable and non-rivalrous tend to be undersupplied.

trade creation

increase in the level of trade between nations that results from regional economic integration -RTA between France and Germany. Because the RTA eliminates tariffs on trade between France and Germany, more Franco-German trade takes place. This is trade creation

The world does seem to be moving toward three RTAs

one in Europe, one in the Western Hemisphere, and one in Asia. At the same time, governments appear to be aware of the challenges RTAs pose to the WTO, as they have created a WTO committee on RTAs that is exploring the relationship between these arrangements and the multilateral system. Only time will tell, however, whether RTAs will develop into discriminatory trade blocs that engage in tariff wars or if instead they will pave the way for global free trade.

large vs small groups free riding

severity of the free-riding problem is partly a function of the size of the group. -In large groups, each individual contribution is very small relative to the total contribution, and as a result each individual has only a small impact on the ability of the group to achieve its objective. -Consequently, each individual readily concludes that the group can succeed without his contribution. -In large groups, therefore, the incentive to free ride is very strong. -In small groups, sometimes called "privileged groups," each individual contribution is large relative to the total contribution, and therefore each contribution has a greater impact on the group's ability to achieve its common goal. -It becomes more difficult for any individual to conclude that the group can succeed without his contribution. -As a result, the incentive to free ride is weaker (though not altogether absent) in small groups.

If more trade is created than diverted, the RTA has liberalized trade

true

If more trade is diverted than created, the RTA has pushed the world toward protectionism.

true

historical evidence that provides support for hegemonic stability theory

world trade has flourished during periods of hegemonic leadership and floundered during periods without it. two periods of rapid growth of world trade occurred under periods of clear hegemony. 1) Great Britain was by far the world's largest and most innovative economy throughout the nineteenth century. Trade within Europe and between Europe and the rest of the world grew at what were then unprecedented rates. British hegemony, therefore, created and sustained an open, liberal, and highly stable global economy in which goods, capital, and labor flowed freely across borders 2) twentieth century; The United States exited World War II as an undisputed hegemon. It played the leading role in creating the GATT, and it led the push for negotiations that progressively eliminated barriers to trade. The result was the most rapid increase in world trade in history. -Hence, the two hegemonic eras are characterized by stable trade regimes and the rapid growth of international trade. The one instance of hegemonic transition is associated with the collapse of the world trade system. -The transition from British to American hegemony occurred in the early twentieth century. In 1820, the American economy was only one-third the size of Great Britain's. -By 1870, the two economies were roughly the same size. On the eve of World War I, the American economy was more than twice as large as Great Britain's (Maddison 2001, 261). -By the end of World War II, the United States produced almost half of the world's manufactured goods -During this transition, each looked to the other to bear the cost of reconstructing the global economy after World War I. The British tried to reconstruct the world economy in the 1920s, but lacked the resources to do so -The United States had the ability to re-establish a liberal world economy, but wasn't willing to expend the necessary resources. Consequently, the Great Depression sparked the profusion of discriminatory and protectionist trade blocs. As protectionism rose, world trade fell sharply -Hence, hegemonic transition has been associated with considerable instability of international trade these episodes are suggestive, they are too few to support strong conclusions about the relationship between hegemony and international trade. This empirical limitation is of more than pure academic interest, given the emergence of China and India as powerful forces in the global economy. China's emergence, in particular, raises questions about whether we are witnessing a hegemonic transition. Goldman Sachs estimates that China will overtake the United States in total economic production by 2027. Christopher Layne asserts that "economically, it is already doubtful that the United States is still a hegemon"