Ch. 2 The World Trade Organization and the World Trade System

GATT

General Agreement on Tariffs ad Trade

Free Trade Area

Government's eliminate tariffs on other members goods, but each member retains individual tariffs on goods entering their market from Non-members and impose common tariff on goods entering the union from non-members -by providing a tariff-free market to some countries and not others they're inherently discriminatory although this violates GATT, its allowed as long as the level of protection imposed against non-members is no higher than the level of protection applied by the counties prior to forming the arrangement. -Free Trade agreements make up the majority of RTA's Ex: NAFTA

Regional Trade Arrangement (RTA)

between two or more countries, usually located in the same region of the world, in which each country offers referential market access to the other. -2 Basic Forms: 1. Free Trade Area 2. Customs Union Trade agreements in which tariffs discriminate between members and nonmembers. 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.

1. Market Liberalism

-Asserts that open/liberal international trade system raises the world's standard of living -every country-how rich or poor- enjoys a higher standard of living with trade than it can achieve without trade. -gains from trade are greatest - for each country- when goods can flow freely across national borders unimpeded by government imposed barriers.

Rapid Growth of RTA's reflect a # of factors:

-Collapse/disintegration of Soviet Union -RTA's emerged as a solution to pressing trade problems in a rapidly changing economic environment. -emphasize a countries desires to gain more access to a market of an important trading partner -Government's use RTA's to convince foreign partners that they will maintain open markets and investor- friendly policies.

International Bargaining

-WTO's primary decision making. All WTO rules are created by governments through this. -the process through which governments negotiate the agreements with which they regulate their interaction in the global economy.

World Trade Organization

-located in Geneva, Switzerland -International political system under which governments negotiate, enforce, and revise rules that government trade policies -153 countries -about 635 staff -provides a forum for trade negotiations, administers trade agreements that governments conclude, provides a mechanism through which government can resolve trade disputes. 2 core principles: 1. Market Liberalism 2. Nondiscrimination

1. Most Favored Nation (MFN)

-prohibits the government from using trade policies to provide special advantages to some countries and not to others. -ex: the U.S. cant apply lower tariffs on goods from Brazil (a WTO) than it applies on goods from other WTO members. -all countries have = access to foreign markets on = terms.

Exceptions to MFN:

1. Free Trade Area 2. Generalized system Preferences

Public Good

1. Non-Excludability - once the good has been supplied, no one can be denied from enjoying the benefits. 2. Non- Rivalry - Consumption by one individual does not diminish the quantity of the good available to others.

Hegemon

A Country that produces a disproportionately large share of the worlds total output and that leads in the development of new technologies.

Dispute Settlement Mechanism

A quasi-judicial tribunal that is used to resolve trade disputes between WTO member governments. -ensures governments comply with rules they establish -ensure compliance by helping governments resolve disputes and by authorizing punishment in event of non-compliance -enforcement of its decisions by punishment

Hegemonic Stability Theory

Explain why the system shifts between periods in which it is open and liberal and periods where its closed and discriminatory. A model that hypothesized 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.

Free Riding

Individuals rely on others to pay for a public good.

Customs Union

Member governments eliminate all tariffs on trade between Customs Union members and impose a common tariff on goods entering the union from non-members (Ex: EU)

NGO's

Non Governmental Organizations

2. National Treatment

Prohibits governments from using taxes, regulations, and other domestic policies to provide an advantage to domestic firms at the expense of foreign firms. (ex: U.S. cant establish on fuel efficiency Standard for foreign cars and another for domestic cars.) -(whatever you set domestically you're okay with requiring the same thing for foreign exports)

Tariffs

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

Ministerial Conference

The highest level of WTO decision making. they draw top-level officials together for a three- or four-day session at least once every two years. Typically used to establish an agenda for forthcoming negotiations or bridge remaining differences in ongoing negotiations.

2. Generalized System Preferences (GSP)

allows the advanced industrialized countries to apply lower tariffs on developing countries. (kinda a welfare system to trade)

2. Nondiscrimination

ensures each WTO country faces identical opportunities to trade with other WTO members. 2 forms: 1. MFN (Most Favored Nation) 2. National Treatment

1. Free Trade Area

or customs union (ex: NAFTA, EU)

Nontariff Barriers

such as health and safety regulations, government purchasing practices and many other government regulations.