The World Trade Organisation
Bretton Woods:
plan to establish an international trade organisation
Background:
Great Depression in the 1930s
⇒ governments wanted to protect their national economies
through:
- tariffs
-
competitive currency devaluations
⇒ "beggar-thy-neighbour policies"
⇒vicious circle: retaliation by other countries
⇒ higher and higher tariffs and devaluations
⇒collapse of world trade
-
1946 first talks to set up an "ITO" (International Trade Organisation)
⇒ draft charter agreed upon at UN Conference on Trade and Employment in Havana in March 1948 -
but: In 1950 USA decided not to ratify it
- ⇒ ITO was dead!
Only surving part of the negotiations:
GATT:"General Agreement on Tariffs and Trade"
⇒ International forum for negotiating tariff reductions and solving trade disputes
but: no institution with legal personality and powers!
Principles
:
-
nondiscrimination
most-favoured-nation principle (Meistbegünstigungsklausel)
⇒If one country is granted a favour, this favour must be granted to all other WTO members, too. -
elimination/reduction of trade barriers (tariffs, quotas etc.)
Exceptions:
- agricultural products
- countries with balance-of-payment difficulties -
consultation among nations to solve trade disputes within the GATT framework
1947: 23 members
Main negotiation rounds:
Kennedy Round
(1964-1967):
- lowered average tariffs on industrial products to less than 10%
- anti-dumping agreement
- aid for developing countries
Tokyo Round (1973-1979):
- average tariff on industrial products down to 4.7%
Uruguay Round (1986-1994):
- cuts in import duties on tropical products (mainly from developing countries)
- revision of rules for settling disputes
- regular reports on Gatt members' trade policies
- agreements on almost all current trade issues (including services and intellectual property)
foundation of the WTO in 1995
⇒legal institution with the power to impose sanctions
WTO principles today:
trade without discrimination
→ most-favoured-nation principle
→ national treatment
⇒ imported and locally produced goods must be treated equally
promotion of free trade
theoretical background:
free allocation of resources (for production) leads to more prosperity for all:
i.e. if each country/region produces what they can produce best/most cheaply,
and then exchange the goods they produce, all countries will be etter off.
→ theory of comparative advantage
promotion of fair competition
encouragement of development and economic reform
Exceptions:
Protection against:
⇒ dumping
→ measures: e.g. extra import duty
⇒ certain subsidies in other countries
→ measures: e.g. extra import duty, domestic subsidizing
⇒ surging imports if domestic industry is seriously threatenend
(protectionary action only temporarily allowed)
→ measures: e.g. extra import duty, import quotas
The Doha round
Start in Doha, Quatar in 2001 (after the cancellation of the Seattle conference in 1999)
Purpose: Agreement on Doha Development Agenda
Key issues:
- farm subsidies
- access to markets for developing countries in developed countries
- export subsidies in developed countries
-
establishment of labour and environmental standards
-
"social dumping" by developing countries
i.e. unfair competition by developing countries
by denying their workers basic rights, decent wages
and working conditions -
"advantages" for developing countries through
lower environmental standards
-
"social dumping" by developing countries
The WTO secretariat
located in Geneva, with 630 staff, headed by a director-general
Responsibilities
-
administrative and technical support for WTO delegate bodies
(councils, committees, working parties, negotiating groups) - technical support for developing countries
- trade performance and trade policy analysis by WTO economists
- and other day-to-day work
Free Trade = Fair Trade ?
Theory: free trade benefits everybody (theory of "comparative advantage")
Problems:
→ there is no free trade
(in many cases, especially for agricultural goods)
e.g. EU:
- Latin American sugar cane producers have to compete with
subsidized European surplus sugar on the world market and are
not even allowed to export their products to Europe
→ unequal trade partners
- lack of infrastructure (roads, railways etc) in LDCs ? can't bring their goods to market
- high quality standards of industrial countries are hard to meet
⇒ almost no new trade followed when EU opened up its markets
for the poorest countries in 2001
→ not everyone is a winner:
theory of trade liberalization only promises that the country as a whole will benefit
⇒ the majority of citizens or some groups may well be worse off
→"infant industries": new industries in LDCs must be protected until they are strong enough
to compete with big MNCs
⇒ tariffs for such industries should be allowed
→ farmers in LDCs:WTO wants to reduce tariff protection for small farmers
→ key income because agricultural sector is very important in LDCs
Consequence: Developing countries should be treated differently
(widely accepted view now)
Proposals:
→developed countries (MDCs) should be allowed
to make exceptions from the WTO's "most favoured nation principle"
→ e.g. allow lower tariffs on imports from LDCs than from
MDCS (preferential treatment)
- LDCs should be allowed to impose tariffs on goods from MDCs
- rich countries should open up their markets to poorer ones
without reciprocity and conditionality (as the EU did in 2001)
- only countries on the same level should open up their markets to each other reciprocally
⇒equal conditions among equals instead of equal conditions for all
Subsidy problem:
rich countries are allowed to pay their farmers massive subsidies
(even export subsidies)
→ 2/3 of farm income in Norway and Switzerland come from subsidies (Japan: 1/2;
EU: 1/3)
→ $2 a day for the average European cow
→ 25.000 cotton farmers get $4 billion in subsidies
effects:
- increased production in MDCs
→ increased supply
on the world market depresses global prices
- producers in LDCs can't compete with subsidized goods from MDCs
→ increased poverty in DCs
Trade barriers are still around
e.g. through WTO sanctions:
→in case of a "surge" of imports tariffs are temporarily allowed
→measures against dumping: if a foreign country sells its products below cost
tariffs against that country are allowed
Non-tariff barriers, e.g.:
- technical barriers: specifications on size, shape, functions, performance
- patents, copyrights
- labelling (also: manuals, instructions)
- national regulations on health, safety, employment
- quotas
Patents
TRIPS: Trade - Related Aspects of Intellectual Property Rights
→ WTO agreement that forces countries to recognize patents and copyrights
Trade-Related Aspects of Intellectual Property Rights
→ monopoly rights for inventors
argument: higher prices are anincentive for innovation
Problems:
- high-priced medicines: people in LDCs can't afford it
-
patents can slow innovation
→ no competition:
- no need for innovation
- competitors are discouraged (no research, either) -
many innovations are the result of research in universities
and government-funded research centers, i.e. should be owned by the public -
attempts to expand the scope of intellectual property
e.g.- yoga positions
- genes
- patents on plants and animals (bio-piracy)
Proposals:
- medicines at cost to LDCs
- compulsory licenses to allow LDCs to produce drugs
- reduction of patent protection periods
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