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The Role of the GATT

Goal: to promote a free and competitive international trading environment benefiting efficient producers

Accomplished by sponsoring multilateral negotiations to reduce tariffs, quotas, and other nontariff barriers

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Most Favored Nation (MFN) Principle

Sought to ensure that international trade was conducted on a nondiscriminatory basis

Requires that any preferential treatment granted to one country must be extended to all countries– If the US cut the tariff on imports of British

trucks to 20%, it also had to reduce tariffs on imported trucks from all other members to 20%

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Exceptions to the MFN Principle

Members permitted to lower tariffs to developing countries without lowering them for more developed countries– Generalized system of preferences in

U.S. Tariff Code Regional arrangements promote

economic integration (e.g., EU and NAFTA)

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World Trade Organization (WTO)

Headquartered in Geneva, Switzerland Began January 1, 1995 Included 146 members and 30 observer

countries as of June 2003

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Goals of the WTO

Promote trade flows by encouraging nations to adopt nondiscriminatory, predictable trade policies

Reduce remaining trade barriers through multilateral negotiations

Establish impartial procedures for resolving trade disputes among members

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Differences between WTO and GATT

GATT focused on promoting trade in goods; WTO’s mandate includes – trade in goods – trade in services – international intellectual property protection– trade-related investment

WTO’s enforcement powers are stronger

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Figure 10.2 The WTO’s Principles of the Trading System

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WTO Challenges

The Cairns Group Multifibre Agreement General Agreement on Trade in Services

(GATS) Agreement on Trade-Related Aspects of

Intellectual Property Rights (TRIPS) Trade-Related Investment Measures

Agreement (TRIMS)

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Enforcement of WTO Decisions

Country failing to live up to the agreement may have a complaint filed against it

WTO panel evaluates complaint If found in violation, the country may be

asked to eliminate the trade barrier If country refuses, WTO will allow

complaining country to impose comparable trade barriers on the offending country

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The WTO’s success in lowering trade

barriers has attracted protests. Many

believe the WTO ignores the impact of its policies on human

rights, the environment, and the

wages and job security of workers

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Forms of Economic Integration

Free Trade Area Customs Union Common Market Economic Union

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Figure 10.3 Forms of Economic Integration

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European Union (EU)

Most important regional trading bloc 15 member countries 377 million population Total GDP $7.9 trillion 10 additional members in 2004

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Creation of EU

Motivated by desires of war-weary Europeans to promote peace and prosperity through economic and political cooperation

Treaty of Rome, 1957– France– West Germany– Italy– Benelux Nations (Belgium, the Netherlands,

and Luxembourg)

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Map 10.1 The European Union

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Governing Organizations of the EU

The Council of the European Union The European Commission The European Parliament The European Court of Justice

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Three Pillars of the Maastricht Treaty

A new agreement to create common foreign and defense policies among members

A new agreement to cooperate on police, judicial, and public safety matters

The old familiar European Community, with new provisions to create an economic and monetary union among member states

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Components of the Treaty for Europe (Treaty of Amsterdam)

A strong commitment to attack the EU’s chronic high levels of unemployment

A plan to strengthen the role of the European Parliament by expanding the number of areas that require use of the co-decision procedure

Establishment of a two-track system

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Treaty of Nice

Effective February 2003 To reduce the risk of political gridlock

as the number of members increase, – reduced number of areas where

unanimity is required for Council approval

– adjusted number of votes assigned to each Council member

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Map 10.2 Free Trade Agreements in Central and South America and the Caribbean

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Trade among Andean Pact members has been

hindered by rough terrain of the Andes Mountains

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Map 10.3 The ASEAN Members

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Map 10.4 Asia-Pacific Economic Cooperation Initiative (APEC)

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Map 10.5 Free Trade Agreements in Africa