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Notes, ECON 4415, lecture 1: International trade institutions

Notes, ECON 4415, lecture 1: International trade institutions. Focus: Theory + institutions Reference: Hoekman and Kostecki (2001) Some parts ”should be known” Other parts: For your own interest Several internet sources www.nupi.no : Some relevant working papers. Important institutions.

JasminFlorian
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Notes, ECON 4415, lecture 1: International trade institutions

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  1. Notes, ECON 4415, lecture 1: International trade institutions • Focus: Theory + institutions • Reference: Hoekman and Kostecki (2001) • Some parts ”should be known” • Other parts: For your own interest • Several internet sources • www.nupi.no: Some relevant working papers

  2. Important institutions • The World Trade Organisation (WTO) • Regional and bilateral trade agreements • The OECD: For trade in services • IMF and the World Bank: Developing countries, adjustment programmes • UNCTAD: Opinion-shaping • Aid agencies: Trade-related aid

  3. Focus of lectures, institutional issues • This lecture: Aspects of WTO • Lecture 12: TRIPS • Lecture 13: Regional trade blocs • Lecture 14: Trade in services/GATS • Lectures 10-11: Trade and growth, relevant for trade policy issues • Various lectures: Welfare aspects

  4. Is free trade good for development? • Correlation between openness and growth • Correlation between trade and growth • But: Causality is complex • Support for the ”free trade story”, but not yet fully conclusive • Example: Growth in Europe and South East Asia

  5. Should developing countries liberalise? • New trade theory: More arguments for protection • Market access abroad is always good • Import protection may limit technology imports • Scope for autonomous industrialisation limited under ”globalisation” • Good reasons for gradual approach

  6. Trade liberalisation is linked to other policies • Institutions, macroeconomic policies • Technological capacity, education • Considerable evidence on ”threshold effects” • Hence trade liberalisation is no simple cure • Tariff revenues matter for poor countries • But: Trade seems to be good…

  7. WTO • Result of ”Uruguay Round” 1986-1994 • From 1.1.1995 • ”Umbrella” for three components: • GATT – General Agreement on Tariffs and Trade • GATS – General Agreement on Trade in Services • TRIPS – Trade-Related Aspects of Intellectual Property Rights • Common system for Dispute Settlement • Trade policy review mechanism • ”Single undertaking”: Most agreements binding

  8. GATT (1947..) • ITO (International Trade Organization) 1948 – never came about (US opposition) • GATT 1947 – provisional agreement • Tariff reduction + parts of ITO • Broader aspects (”UNCTAD-like” not included • 1947: 23 members, one half developing

  9. Negotiation rounds • 5 rounds 1947-61 • Kennedy Round 1964-67: Part IV on development • Tokyo Round 1973-79 (new agreements, development issues: ”enabling clause”) • Uruguay Round 1986-94 (WTO, services, agriculture, TRIPS, disciplines) • WTO (1995) = GATT + GATS + TRIPS • ”Doha development agenda” 2001-? • Seattle (1999), Doha (2001), Cancun (2003)

  10. WTO: 148 members (Melchior 2003)

  11. Implications of size • Global organisation (ex. Russia etc.) • Mainly based on consensus • More complex negotiations • Different interests, issue linkages • ”Green room” vs. plenary sessions • Difficult to create ”representative” bodies • ”Give and take” vs. ”UNCTAD method”

  12. Major principles of GATT/WTO • Non-discrimination 1: The Most Favoured Nation principle • Non-discrimination 2: National Treatment • Transparency • Forum for negotiations • Reciprocity • Member-driven organisation

  13. Major exceptions to equal treatment in WTO • Free trade agreements • Article XXIV of GATT, Article V of GATS • Textile trade restrictions, MFA • Trade preferences for developing countries • National treatment: Negotiated in GATS • Non-reciprocity for developing countries in negotiations • Anti-dumping

  14. Trade in goods: Major issues • Tariff negotiations • Anti-dumping and subsidies • Technical barriers to trade • TBT: Agreement on Technical Barriers to Trade • SPS: Agreement on Sanitary and Phytosanitary Measures • Trade in textiles • Trade in agriculture • More, see Chapter 2 H&K

  15. Tariffs, non-agriculture • Gradually reduced through negotiating rounds • GATT 1947 – around 40% • Currently – 3-4% for industrial countries • Still very important for developing countries • Manufactures: More than 2/3 of DC exports

  16. Too much liberalisation: Hardly the explanation of poverty?Tariffs on trade in goods after the Uruguay Round

  17. Importing region High-income Developing Exporting region High-income 0.8 10.9 Developing 3.4 12.8 Source: Hertel and Martin (2000), see H&K p. 43. Tariffs continued…

  18. Tariffs continued.. • Developing countries have higher tariffs • But: Industrial countries have higher tariffs for developing country products • Example: Textiles • ”Doha Round”: Formula approach + sectoral tariff elimination • DCs: Reject binding sectoral liberalisation

  19. Formulas • ”Swiss formula”: t1=at0/(a+t0) where t0 is the original tariff • Used in Tokyo Round • Upper bound = a • Current round: Modified formula, ”a” function of initial tariff level • Proportional cuts in mean tariffs, higher (lower) cuts for tariffs above (below) mean

  20. Tariffs versus income levels (Melchior 2003)

  21. Implications • Only weak correlation tariff/ income levels • Great dispersion among poor countries • Large gaps old vs. New members • Bound tariffs much higher than applied • Not a consistent system of non-reciprocity • Problem: How to differentiate between developing countries

  22. Special and Differential Treatment (SDT) • Chapter 12, H&K • 1960s: ”Part IV”, non-reciprocity, non-binding language • 1960s: GSPs, colonial background • 1971: Temporary ”waiver” from GSP • Tokyo Round: Enabling clause – made waiver permanent

  23. GSP • Industrial countries: Tariff preferences for DCs • EU, US: More differentiated approach • EU: Lomé waiver expires, FTAs instead • Norway: Extensive GSP for manufactured goods • But: Tariff liberalisation eliminates effect

  24. Problems with SDT • GSP is non-binding • The benefits of GSP are modest • GSP makes DCs more protectionist? • LDCs well-defined, DCs self-nominated • Differentiation between DCs difficult Possible solution: • More differentiation between DCs? • ”GSP-like” measures in other areas? • Binding rather than voluntary measures?

  25. ”Anti-preferences”: The textile regime of the WTO • Textiles: Still high tariffs • MFA (textile quota regime): Network of bilateral quota agreements 1974-- • To be phased out by January 2005 • Slow implementation, anger from developing countries • Will quotas be replaced by other restraints? • Other quotas: Eliminated in Uruguay Round

  26. Example: Norway’s textile quotas • Extremely protective around 1980, then gradually liberalised • When quotas were lifted, the share of developing countries increased from 32 to 65% in 4 years (Melchior 1994) • Big welfare loss due to quotas • Free trade with Western Europe • Today: Fully liberalised in Norway

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