The World Trade Organization

Who are the participating countries in CAFTA-DR?

*Signed on August 2, 2005 Guatemala El Salvador Honduras Costa Rica Nicaragua Dominican Republic United States

Multi-Fiber Arrangement (MFA)

- AKA the Agreement on Textile and Clothing (ATC): governed the world trade in textiles and garments from 1974 through 2004, imposing quotas on the amount developing countries could export to developed countries. It expired on 1 January 2005.

What are the benefits of CAFTA-DR?

-Reciprocal Trade Agreement -80% of US exports will be duty-free -Better access to markets -Labor rights -Environmental protection

What GATT & WTO Does NOT Do

-Regulate international financial transactions and markets -Assist developing countries

What are some advantages of TPP?

-Removes red tape in customsUnder the agreement, customs officials will require fewer documents and adopt electronic pre-arrival processing and clearance of shipments. -Packages will move through TPP countries more quickly, with fewer customs holds and more reliable delivery to customers. -TPP works to raise standards across the trade region for combatting government corruption. -By requiring the adoption of anti-bribery and conflict-of-interest laws, the agreement works to ensure companies can compete fairly in each member country. -The agreement levels the playing field for private companies competing against government-run service providers. -The deal ensures that private companies providing services aren't regulated by a government entity that is also a competitor. -In addition, it bars governments from subsidizing state-run entities that are competing in competitive industries. -Many goods today are produced along complex value chains, and a tariff is applied to the gross value of a good each time it crosses a border. -TPP's tariff cuts - combined with its many other market-opening provisions - will take a lot of the cost, time and complexity out of trade

What GATT & WTO Does

-Rules for trade policy -Forum for negotiation (of both trade policies (tariffs) and rules) -Negotiations take place in "Negotiating Rounds"

What is dumping?

-Selling a product in another country below production cost -Results in a loss of market share in whatever country the goods are dumped

What is Government Red Tape?

-Studies show that 'red tape' is a chief obstacle to trade in poor countries. -Pointless regulations fosters the need to 'bribe' officials -This government corruption can adversely affect the reputation of that nation *Example: Haiti Takes 203 days to register a company

WTO Rounds: Negotiations on Tariffs

-Tariff cuts are negotiated between "principal supplier" country & "principal demander" country -Cuts are extended to all other members -Large countries dominate this process -Most recently, negotiations start with a formula for tariff cuts, then negotiate exceptions

Why does TPP Matter?

-The 12 countries that are currently part of the negotiations are all members of the Asia-Pacific Economic Co-operation (APEC). -They have a combined population of more than 650 million people. A free trade agreement could turn this into a potential single market for many businesses.

What does the TPP aim to do?

-The pact is aimed at deepening economic ties between these nations. -It is expected to substantially reduce tariffs, and even eliminate them in some cases, between member countries. -It is also expected to boost investment flows between the countries and further boost their economic growth.

What is Lobbying?

-The process of influencing government legislators -Carried out by paid professionals who communicate the political position of their employers

What are preferential trading agreements and are they good?

-They are established under which they lower tariffs with respect to each other but not the rest of the world. -It depends on whether they lead to trade creation or trade diversion.

Do small & poor countries lose in negotiation rounds?

-They need not lose, if they participate in the process -They benefit from the role of law: otherwise the large countries would be even more powerful -Grouping together, they can be also exert bargaining power -They may well lose if they do not participate: growth of trade may exclude -Developing nations represent 2/3rds of the members

What are Countervailing Duties used for?

-To offset the low dumping prices -A tariff increase that bring subsidized or dumped imports back into a normal price level -This type of action requires a WTO ruling

The Role of the WTO in the Apparel Industry

-Trade Protectionism -Free Trade

What are Primary Lobbying Vehicles?

-Trade Unions -Trade Associations: Are to management what unions are to the workers. *Example: American Apparel and Footwear Association (AAFA)

What effects have NAFTA made on the US apparel industry?

-US has experienced a decline in apparel workers since 1980 -Movement to offshore production has been primary cause -Between 1980 and 2002 US workforce dropped 56.6% -Since NAFTA the US has lost around 1 million jobs

NAFTA revisited - USMCA - what the US wanted

-US wants to lower trade deficit with Mexico -US wants Mexico to eliminate unfair subsidies -NAFTA needs to consider an e-commerce update -US wants a 5 year 'sunset' clause -US wants to update 'rule of origin' law to over the current 62% -In the past, Trump said he would like Mexico to end its value-added tax on U.S. companies. Trump claims that the VAT acts as a tax on US imports to Mexico. A VAT TAX is like a federal sales tax that's imposed on all companies in the supply chain. -US wants an end to the maquiladora program

Bottom Line

-WTO extends the Rule of Law to international commercial policies. As such, it protects small and weak countries from abuse by larger, more powerful ones.

WTO Rounds: Negotiation on Rules

-Groups of countries draft changes, then persuade others -Large countries dominate

What is the 'Yarn Forward'- Rule of Origin?

-If a wool shirt made in Canada from fabric woven in Canada of wool yarn produced in Argentina would not be considered originating since the yarn does not originate within a NAFTA country. -If, however, Argentine wool fiber was imported into Canada and spun into wool yarn, which was then used to produce the wool fabric, the shirt would be considered originating.

Describe the history of the increase in PTA's?

-In 1990, there were only about 70 PTAs in force. -By 2010 the number of PTAs in force was close to 300. -The average WTO member is party to 13 PTAs. -One half of the PTAs currently in force are not strictly "regional". Two thirds of all PTAs in force are between developing countries, about a quarter are between developed and developing countries, and the remainder between developed countries only.

WTO's Most Basic Principles

-MFN (Most Favored Nation): Each member country should treat all members as well as it treats its "most favored nation. The US now terms this "Normal Trade Relations" -National Treatment: Once a product or seller has entered a country, it should be treated the same as products or sellers that originated inside that country *many exceptions apply to both

History of World Trade Organization

-Mid 1940's -Meeting in Bretton Woods, New Hampshire -GATT= General Agreement on Tariffs & Trade

What the USA got...

-Nafta required automakers to produce 62.5 percent of a vehicle's content in North America to qualify for zero tariffs. -The new agreement raises that threshold, over time, to 75 percent. -Factories must pay a minimum of $16 an hour in average salaries for production workers. -US has eliminated threatened tariffs to cars from Mexico and Canada -Mexico easier for workers to form and join labor unions. -American financial services companies get better access to Canadian and Mexican markets -Intellectual property protections of American pharmaceutical companies selling prescription drugs in Canada.

What is NAFTA?

-North American Free Trade Agreement between Canada, United States, & Mexico -Went into effect in 1994 -Liberalizes trade among these three nations -Eliminates most tariffs and barriers

Trans-Pacific Partnership (TPP)

-One of the most ambitious free trade agreements ever attempted. -A free trade deal between 12 countries. -These are Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, United States, Singapore and Vietnam. -Taiwan the Philippines Laos Colombia Costa Rica, Indonesia are interested. -Bangladesh and India have also been mentioned as a possible candidate.

Are the 'mega' PTA's undermining WTO?

-PTA's are becoming larger and include a greater % of the worlds economy. -It is easier to negotiate with fewer partners than with 164 -PTA's may become so big that they constitute a form of WTO

What's happening now with the TPP?

-President Trump has pledged to renegotiate all trade agreements. -Has to be ratified by Congress and Senate - currently unlikely to pass. Years of wasted negotiating! -Today!! Trump administration has abandoned the TPP

How can/do governments manipulate trade?

Government subsidies: Makes it possible for a firm to sell their products at a lower price in domestic markets and still make a profit

Methods of Protectionism

-Protectionism is the economic policy of restraining trade between states -Tariffs on imported goods - import duty -Restrictive quotas- designed to discourage imports and prevent foreign take-over of domestic markets and companies.

What are the Impacts of Yarn Forward Rule of Origin?

-88% of Vietnams apparel export uses Chinese or S Korean fabrics. -In order to take advantage of duty free status the yarn has to originate in a TTP member -Vietnam has begun investing in fabric manufacturing to capture greater added value in the supply chain.

What are provisions in the apparel industry?

-90% of goods traded would be tariff free in 10 years (2004) -Textiles and apparel had a 15 year transition to tariff free -Quotas removed immediately -No restrictions on foreign investment -Environmental standards to be upheld -Health and safety in workplace to be upheld -'Yarn Forward' Rule of Origin - only clothing made from yarns originating in NAFTA countries can be shipped duty free.

What can Labor Unions Provide?

-Advocates for the betterment of their members. -Better pay -Better working conditions -Better protection of jobs

Exceptions to MFN

-Countries can set up a free trade agreement that applies only to goods traded within the group — discriminating against goods from outside. -They can give developing countries special access to their markets. -A country can raise barriers against products that are considered to be traded unfairly from specific countries. -In general, MFN means that every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners.

WTO Decision Making

-Decisions by consensus: all countries must agree, at ministerial meetings -In practice, large and rich countries dominate this process. They first agree among themselves. (This done in "Green Room"). Then seek consensus based on that

What are the drawbacks to PTA's?

-Environment, Safety and Labor Regulations are Undermined: Free trade does not allow for environmental labor or safety regulations that might limit profits. -Sovereign Governments Cannot Make their own Decisions about their Market: Free trade does not afford governments the sovereignty to provide support or subsidies to some industries or to tax foreign goods.

WTO Today

-Established Jan 1, 1995 -Members: 164 -Most recent: Afghanistan 2016 -Including China (as of 2001) -Not including: Iran, Iraq, & N. Korea -Headquarters: Geneva, Switzerland

Preferential Trading Agreements

-Established by nations under which they lower tariffs with respect to each other but not the rest of the world. -The GATT-WTO, through the principle of non-discrimination called the "most favored nation" (MFN) principle, prohibits such agreements. *The formation of preferential trading agreements is allowed if they lead to free trade between the agreeing countries.

Why would you sell below production costs?

-Establishes market share -Form of inventory control -Provides domestic employment -Lower the price of the product in the world market

Doha Round

-Focus on helping developing countries join the global marketplace -focus on reducing import tariffs -The Doha round negotiators represent each of the WTO's 164 members, most but not all of which are countries

What is the Maastricht Treaty of Europe?

-Formed in 1992 with 12 European countries -Total membership is now 25 countries -Transformed these countries into the European Union, forming one economic market and one common currency (the Euro) -Opened up and simplified trade among member nations *The EU is the largest exporter, the largest importer of goods and services, and the biggest trading partner to several large countries such as the United States, China and India

International Negotiations and Trade Policy

-Free trade can be established among several WTO members as follows: A free trade area allows free-trade among members, but each member can have its own trade policy towards non-member countries. *Example: The North American Free Trade Agreement (NAFTA) creates a free trade area. -A customs union allows free trade among members and requires a common external trade policy towards non-member countries. *Example: The European Union (EU) is a full customs union.

WTO's 3 Parts

-GATT (Still exists, as largest part of WTO) -GATS= General Agreement on Trade in Services TRIPs Agreement= Trade Related Aspects of Intellectual Property Right

What are export subsidies?

-Government pays firm to export their goods -This supports growth of a domestic industry *Example: US, Australia, EU, and China have all been accused of this.

What are 3 advantages of NAFTA?

1. Quadrupled Trade Between 1993-2017, trade between the three members quadrupled from $297 billion to $1.17 trillion. 2. Lowered Prices Lower tariffs also reduced import prices. That also lessened the risk of inflation and allowed the Federal Reserve to keep interest rates low. 3. Increased Economic Growth NAFTA boosted U.S. economic growth by as much as 0.5 percent a year. The sectors that benefited the most were agriculture, automobiles, and services.

WTO 3 Main Proposes

1. To help trade flow as freely as possible as long as there are no undesirable side effects 2. To serve as a forum for trade negotiations among the community of trading nations 3. To settle trade disputes among member nations

What are 3 Disadvantages of NAFTA?

1. U.S. jobs were lost. Since labor is cheaper in Mexico, many manufacturing industries withdrew part of their production from the high-cost United States. 2. U.S. Wages Were Suppressed Not all companies in these industries moved to Mexico. But some used the threat of moving as leverage against union organizing drives. 3. Mexico's Farmers Were Put Out of Business The 2002 Farm Bill subsidized U.S. agribusiness by as much as 40 percent of net farm income. When NAFTA removed trade tariffs, companies exported corn and other grains to Mexico below cost. Rural Mexican farmers could not compete.

In what years did the govt. subsidize cotton and then sold on the world market?

2005-2010

Trade Embargoes

A nation may stop trade with another nation in a certain product, if it suspects of dumping goods.

Regionlization

Both US and Central American firms are regionalizing Highway integration throughout the region Central American Countries are working together

Do PTA's circumvent the WTO's principle of trade non-discrimination?

Despite the proliferation of PTAs, 84% of world merchandise trade still takes place on a non-discriminatory most-favored nation (MFN) basis

Trade Creation

Occurs when the formation of a preferential trading agreement leads to replacement of high-cost domestic production by low-cost imports from other members.

Trade Diversion

Occurs when the formation of a preferential trading agreement leads to the replacement of low-cost imports from non members with higher-cost imports from member nations. *EX UK lamb imports from NZ

What is the status of the negotiations?

The agreement was reached on October 5th 2015 Negotiations had been taking place since 2005

Who pays for these subsidies?

The taxable population ultimately