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 :

1. nondiscrimination
   most-favoured-nation principle (Meistbegünstigungsklausel)
   ⇒If one country is granted a favour, this favour must be granted to all other WTO members, too.
2. elimination/reduction of trade barriers (tariffs, quotas etc.)
   Exceptions:
   - agricultural products
   - countries with balance-of-payment difficulties
3. 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

 

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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