Outline for 10/22: International Trade II Gravity Model of Trade US Trade Partners

1. Outline for 10/22: International Trade II Gravity Model of Trade US Trade Partners Global Trade IGOs ITO GATT WTO Regional Trading Arrangements (RTAs)

2. The Gravity Model of Trade and Economic Geography Force of gravity = ( mass1* mass2 ) / distance2 Amount of international trade = (GDP1* GDP2) / distance between them Open book to pp. xxii-xxiii (Map of the World) In what regions of the globe would we expect to see a lot of trade? In what regions of the globe will trade be very difficult? Who would we expect to be the United States’ major trading partners?

3. US Trade Partners ExportsImports Canada China Mexico Canada China Mexico JapanJapan England Germany Trade deficit China Mexico Japan Germany Saudi Arabia Does this fit the gravity model logic?

4. International Trade Organization (ITO) Proposed at Bretton Woods conference in 1944 2 major parts 1. rules about free trade (GATT) 2. rules about foreign direct investment, specifically rights for host countries Havana Charter signed in 1948 US Senate refused to ratify in 1950, objected to rules about foreign direct investment

5. General Agreement of Tariffs and Trade (GATT) Set of rules about what constitutes free trade Based on principle of non-discrimination Most Favored Nation (MFN) National Treatment Lots of exceptions Generalized System of Preferences (GSP) Domestic Safeguards Regional Trading Arrangements (RTAs)

6. Expansion of the GATT (1) • Width (number of member-states) vs. Depth (what it covers) • Why might there be a tradeoff between these 2 dimensions? • Initially limited in both dimensions • Width – starts with only 23 member-states • 2. Depth • Product areas covered – manufactured goods only • Forms of trade protection covered – tariffs only

7. Expansion of the GATT (2) Expanded in a series of trade rounds Name Start Length Countries Subjects discussed Geneva 1947 7 mos. 23 tariffs Annecy 1949 5 mos. 13 tariffs Torquay 1950 8 mos. 38 tariffs Geneva II 1956 5 mos. 26 tariffs Dillon 1960 11 mos. 26 tariffs Kennedy 1964 37 mos. 62 tariffs and anti-dumping Tokyo 1973 74 mos. 102 tariffs, NTBs Uruguay 1986 87 mos. 123 tariffs, NTBs, intellectual property rights agriculture, services, textiles, creation of new WTO Which dimension came first? Width or Depth? Any pattern between length and # of countries?

8. World Trade Organization (WTO) • Signed in 1994 at the end of Uruguay Round, ratified in 1995. • Structure • 1. Secretariat in Geneva, led by Director-General (currently Roberto Azevedo) • 2. Ministerial Council (meets every 2 years) • 1st Singapore 1996 • 2nd Geneva 1998 • 3rd Seattle 1999 • 4th Doha 2001 • 5th Cancun 2003 • 6th Hong Kong 2005 • 7th Geneva 2009 • 8th Geneva 2011 • 3. General Council • 4. Dispute Settlement Body • 5. Appellate Body

9. Have the GATT/WTO been effective? • Yes – increased trade and decreased tariffs post-WWII • No – trade gains uneven and tariffs being replaced by NTBs • Doha Round • Began in 2001 • Southern countries want free trade in agriculture and textiles • Northern countries want greater intellectual property rights protection • and free trade in services • Currently at an impasse • Lots of criticism directed at the WTO • Too strong – Dispute Settlement Body • 2. Too weak – unanimity requirement in the Ministerial Council

10. Regional Trading Arrangements (RTA) as an Alternative to Global Free Trade What is an RTA? Is it Discriminatory? Examples? RTA expansion Increase in # of RTAs (~200 registered with the WTO) Increased size within existing RTAs EU (6 →9 → 10 → 12 → 15 → 25 → 27) US-Canada FTA → NAFTA → Free Trade Area of the Americas