Econ Trade Final

7/30/2019 Econ Trade Final

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1. Discuss the motives, nature and purpose of the original GATT (General Agreement on

Tariffs and Trade) and the extent to which this purpose was achieved in the first six rounds of

negotiations (through the mid-60's).

Following World War II, the victor nations sought to create institutions that would

eliminate the causes of war. Their principles were to resolve or prevent war through the

United Nations and to eliminate the economic causes of war by establishing three

international economic institutions.

The three institutions were: a) The International Monetary Fund (IMF), b) The World

Bank and c) The International Trade Organization (ITO). The 3 were known as the Bretton

Woods, referring to the New Hampshire resort were the agreement occurred. The economic

philosophy of these Bretton Woods institutions were classical economic neoliberalism.

(http://aic.ucdavis.edu/oa/Smith.pdf). The U.S. Congress did not object to the establishment

of the World Bank and the IMF but refused to agree to the ITO on the grounds that it would

cede too much sovereignty to an international body. Because the ITO was stillborn the

provisional agreement for the ITO, the General Agreement on Tariffs and Trade (GATT)

became the agreement and the organization for establishing and enforcing, through dispute

settlement, the international trade rules. The GATT was very successful in lowering tariffs,the then existing major barrier to free trade. The first five rounds of multilateral trade

negotiation succeeded in lowering tariff barriers substantially. This shifted protectionism to

non tariff barriers. The GATT accomplished these goals through multilateral negotiations and

dispute settlement. However the dispute settlement mechanism was very weak in that a

losing party could simply block the adoption of an adverse decision. The first six rounds

reduced average trade weighted tariff from 50 to 12%. Kennedy Round dealt with problems

of Developing Countries (special and differential treatment) Part IV, Art. 36-38. Tokyo Round

dealt with non trade barriers produced the antidumping and subsidies agreement and general

system on preferences

Following the 1930s, then, international trade was badly affected and various countries

imposed import restrictions for safeguarding their economies. As a result, there was a sharp

decline in the world trade. In 1947, 23 countries signed an agreement related to tariffs


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imposed on trade. This agreement is known as "GATT" (General Agreement on Tariffs and

Trade). Initially GATT was established like a temporary arrangement but later on it took the

shape of a permanent agreement. The General Agreement on Tariffs and Trade (GATT) was

signed in 1948 in Geneva. he headquarters of GATT are situated in Geneva. GATT was

signed by 23 countries in 1947 at Geneva. GATT was intially not an organization, but rathera treaty with a secretariat at Geneva.

GATT's objectives and motives surrounded the need to provide equal opportunities to

all countries in the international market for trading purpose without any favor. Its objectives

included the need to ensure better living standards in the world as a whole by promoting the

free flow and exchange of trade. Part of this objective included the motive to increase the

effective demand for real income growth and goods. In addition to these primary objectives,

GATT also introduced 'MFN' (Most Favoured Nation) clause. According to this, every member

country was considered an MFN country. According to the MFN clause then, any concession

given to any nation was automatically given to all the member countires.

While there were eight rounds in total of GATT negotiations that were held during its

existence, the first six rounds were related to curtailing tariff rates. The seventh round was

related to the non-tariff obstacles. The GATT was very successful in lowering tariffs, the then

existing major barrier to free trade. The first five rounds of multilateral trade negotiationsucceeded in lowering tariff barriers substantially. The first six rounds of the GATT occurred

at the following dates and locations: 1) Geneva (1947) , 2) Annency France (1949), 3)

Torquay, England (1951), 4) Geneva (1955-6), 5) Dillon (1960-2, 6) Kennedy (1964-7).

This shifted protectionism to non tariff barriers. The GATT accomplished these goals through

multilateral negotiations and dispute settlement. However the dispute settlement mechanism

was very weak in that a losing party could simply block the adoption of an adverse decision.

The first six rounds reduced average trade weighted tariff from 50 to 12%. Kennedy Round

dealt with problems of Developing Countries (special and differential treatment) Part IV, Art.

36-38. The tokyo Round dealt with non trade barriers produced the antidumping and

subsidies agreement and general system on preferences.


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3. Discuss the issues that drove President Reagan to propose the 8th ("Uruguay") Round in

the mid 80s, and the issues that caused this Round to fail, or nearly so. How did this near

failure lead to the failed 9th GATT Round (1st "WTO" Round).

Regan and his administration had three major concerns before the Uruguay round ofthe GATT. The first concern was the high number of non-tariff barriers that encompassed the

global trade system. Even though world trade experienced low tariffs in nominal terms, the

non-tariff barriers still added up to a system of makeshift protectionism. This was negatively

affecting the ideology of free trade in practical terms as well as the U.S. Trade balance.

Second, the trade imabalance in the United States was extremely high. In 1986, the United

States trade imbalance ranked in at more than $156 billion. Robert Kuttner (1991) comments

in hisAtlantic Monthlypiece that this was partly the result of an overvalued dollar, which

priced many U.S. products out of world markets, but it also reflected the fundamental

asymmetry in the openness of different nations. The overriding concern at this time was that

the United States was, according to numbers, the most accessible or penetrable market in the

world. America took close to 57 percent of the total manufactured exports from the Third

World (compared to a meager 12 percent for Japan, for example) (Kuttner 1991). United

States officials were also greatly concerned because many domestic industries were losing to

foreign competition. Political pressures loomed from Congress at this time, with the intention

of inviting protectionist policies in the U.S. Economy. Trade officials in the Reaganadministration feared this would threaten America's credibility on the international scene as a

champion of liberal free trade and the major world power proponent of GATT (Kuttner 1991).

The Reagan Administration sought to address these problems in the Uruguay round.

They sought to talk with other countries in order to remove the barriers to free trade that

existed across the board that they considered to be covert. They sought to initiate more

transparency and equal treatment across the board for all economic players. The goal for the

Reagan administration was to improve the position and standing of U.S. Exporters' access to

foreign markets, to erode foreign protectionist measures and to imrpove the negative trade

imbalance (Kuttner 1991). The Urugua round began in 1986 at Punta del Este. and became

known as the Uruguay round (Kuttner 1991). At this round, the goal of the Reagan

Administration was to persuade other nations to accept a new negotiating agenda. It included

bringing all forms of "services"--banking, insurance, engineering, films, broadcasting, aviation,

and shipping--and also agriculture and textile trade under the GATT for the first time. It


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included, as well, working out common rules for the use of subsidies, a common

understanding of what constituted dumping, rules for the consistent protection of intellectual

property and for fair play on domestic-content and licensing requirements, and mechanisms

for beefing up the GATT's ability to enforce its own rulings. The agenda was utopian. It called

for nothing short of a common framework of global commercial law--a major delegation ofnational sovereignty--to be achieved in four years. In line with the usual procedures, working

groups in each functional area were to begin technical discussions immediately, a "midterm"

review by cabinet-level negotiators was set for late 1988, and the round was to be concluded

by 1990.

The politics attendant to the Uruguay round were difficult, domestically and

internationally. The domestic challenge for the Administration was to build a coalition of

economic interests--farmers, bankers, multinational corporations--that would be net winners if

the round succeeded. The international politics necessary for success was more complicated.

Most of the world's nations do not have America's appetite for ever freer trade as an end in

itself. Japan and, to a lesser extent, the European Community are relatively content with their

present blend of private capitalism and state-led mercantilism. The EC Commission considers

its Common Agricultural Policy essential to its emerging political union. The Japanese have

grown wealthy on chronic trade surpluses. Most Third World nations that have industrialized

have done so with heavy state involvement--through subsidies, limitations on imports, state

financing, and state-assisted piracy. Kuttner (1991) writes that Even though the UnitedStates was the world's most open market, and even though American firms were the primary

victims of foreign mercantilism, the logic of a U.S.-inspired trade round required the United

States to begin by offering concessions rather than making demands(167). U.S. demands

for the opening of foreign markets are generally more effective in quiet bilateral negotiations,

in which the United States is able to throw around its economic and political weight. But

multilateral negotiations are conducted in broad daylight, and the rituals of the GATT tend to

elevate small, poor nations to the same status as big, rich ones.

For the new round to begin at all, the United States had to offer Third World nations

diplomatic offerings including the option of freer exports of textiles and farm products to the

rich markets of the United States and Europe. It also had to offer relief from retaliation tactics

it had formerly used as a way to pry open foreign markets. In return, the United States hoped

to persuade Third World nations to run their economies more in the American image--to allow

foreign banks entry, to privatize state-subsidized industries, to get rid of domestic-content


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requirements, and to offer U.S.-style patent protection. This logic caused the identified villain

of the round to become the European Community, with its protected agriculture. Japan, by far

the most protectionist of the major industrial nations, kept a very low profile and enjoyed

something of a free ride. The round progressed with increasing pressure on United States,

especially from Third World nations. Opposing countries put pressure on the United States torevise such policies as textile quotas, to open farm markets, and to change policies that were

hindering imports in steel. India and other poor nations also sought to expand the definition of

services to include labor services. In other words, sought the free immigration of low-wage

workers attached to foreign construction companies.

Uruguay consisted of 15 working groups. Kuttner (1991) argues that little progress

was actually made during this round. In most of the fifteen working groups scant progress

was made. In the intellectual-property area the working group agreed only to an incomplete

and vague set of principles. At the same time, Mexico and Chile were persuaded to adopt

U.S.-style patent protection by U.S. trade officials who employed the old-fashioned method--

threatening retaliation if they refused. By the time the round ended, major industries that had

been expected to be key supporters, such as the pharmaceutical and telecommunications

industries, considered the intellectual-property proposals worse than nothing (Kuttner 1991).

The round ended with the working group on subsidies and dumping far from

agreement. Many nations view regional, industrial, and environmental subsidies as legitimate

tools of economic development. The United States, in principle, argues that "trade-distorting"subsidies should be prohibited. The complicated part of this proposal is the fact that in a

sense all subsidies distort trade, because they cause products to be priced differently from

the way they would have been priced in the absence of the subsidy. The United States

sponsored what it called a "traffic light" system. Some subsidies, such as environmental ones,

would be permitted while others, such as explicit export subventions, would be prohibited.

Yellow-light subsidies could be challenged if they seemed to distort trade.

Negotiators also never could agree on either a precise test or an enforcement

mechanism--but several nations pressed the United States to get rid of its own anti-dumping

laws in exchange for this minimal move toward global standards. The group working on freer

trade in financial and other services also failed to agree on a common framework. American

negotiators belatedly realized that freer trade in telecommunications, as long as it left foreign

state telecom monopolies intact, would provide foreign producers with freer access to the

U.S. market without adequately opening foreign markets. European nations and others, citing


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"cultural" concerns, refused to provide free access to American films and TV programs. Nor

was there much progress in dealing with the covert ways in which some nations coerce U.S.

manufacturers to produce overseas as a condition of doing business.

4. Discuss and evaluate the validity of the arguments that despite fairly low tariffs on

"final" or "finished" goods, there is still a significantly steep "effective" tariff tampering global

free trade.

At the very outset, the World Trade Organisation (WTO) mandated as having one of its

central aims to freeing up trade. In negotiation rounds, however, concerns have arisen over

effective barriers to free trade. Aside from fairly low tariffs on finished goods, effective tarrifs

still exist in the form of non-tariff measures (NTMs). Together, these influences are seen as

negative barriers to the promotion of free trade, particularly from developed countries' point of

view.

Non-Tariff Measures (NTMs). NTMs are defined as encompassing any measures

(public or private) other than usual tariffs to liberalise international trade flows (Kaplan 1996).

Consequently, in practice, most of the NTMs have been criticised to be impediments to

international trade, increasing the price of both imports and import-competing good.

Therefore, favouring domestic over foreign supply sources by obliging importers and foreign

exporters to charge higher prices or limit the volume of imports. Accordingly, there are

various types of Non-Tariffs Measures, for instance, Kaplan (1991) has put forward a broad

classification of NTMs, identifying five categories, below are an illustration of these NTMs.

These measures constitute prohibitions like quotas, quantitative restraint (QRs) on

imports with exports restraint agreement (ERAs), voluntary export restraints (VERs), non-

automatic licensing, import authorisation and States trading or sole import monopolies.

Prohibitions may generally or specifically apply to arms and munitions, military equipments

except imported to armed forces, drugs except when imported to health authorities or

scientific purposes, plants or animals especially, the endangered species. Thus, if certain

standards are met with, the imports may be prohibited. Quotas are restricts the quantity or

value of imported goods, which are set for a specific time period and are modified over times

(Kaplan 1996). Non-automatic licensing is more expressly a way to administer conditional

prohibitions or quotas. VERs are usually informal export restraint arrangements (ERAs)


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between an exporter and an importer whereby the former agrees to restrict, for a certain time

period, the exports of certain goods to the market of the imports to shun the imposition of

import quotas. They are often industry-to-industry arrangements, but Governments can be

involved on a more or less formal basis. States trading or import monopolies are processes

whereby only the government agency has the right to trade or grants that right to a privatemonopolies. These measures can be further subdivided into tariff-type or para-tariff

measures and price NTMs. These include customs surcharges, domestic charges levied on

imports, variable levies, anti-dumping duties, countervailing duties, additional charges.

Variables levies are special charges on imports of some goods in order to increase their price

of domestic target price. Anti-dumping duties are charges imposed on goods from specific

trading partner or partners to counterbalance the effect of dumping. Countervailing measures

are imposed on goods to offset the effect of bounty or subsidy obtained directly or indirectly

on the production (Kaplan 1996).

Other price measures constitute of voluntary export price restraints, government

procurement procedures, where a price preference is attributed for domestic products. As

such, the computation of the price preference is made to determine the outcome of public

tenders for the supply of products to government agencies (Kaplan 1991). Additionally, other

measures under this category raise the cost of imports including deposit requirement (without

interest payments), special regulations on foreign exchange and use of credit for imports.

These measures include automatic licensing and imports surveillance, typically appliedto track imports levels preventing import surges. Moreover, there are price surveillance and

investigations, anti-dumping and countervailing investigations. Yet, these are viewed as

having a harassing of chilling effect on imports. The main measures include production and

export subsidies and export prohibitions and taxes. Hence, subsides may apply to support

domestic production, particularly, in the agricultural sector or be used as a tool of the

industrial policy in developing or developed countries. These bounties may be used for

services such as, transport, finance needed for the marketing or production. Exports may

also be banned for reasons of products are deemed harmful or amount to a security risk.

Also, export prohibitions and taxes are mainly applied to conserve natural resources like rare

tropical timbers.

Non-Tariff Measures (NTMs) in most cases appear to be applied for legitimate reasons.

The question remains however, is whether NTMs really do meet the purpose of the WTO in

freeing up international trade or have instead been hampering the flow of trade among


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countries. In my view, the answer to this question is no. The imposition of most of the NTMs

were found to be rather a barrier to trade.

There are some specific types of NTMs that directly impact on imports of countries, like

the para-tariff measures, variables levies, dumping/countervailing duties (investigation and

undertakings), import surcharges and deposits, imports surveillance, non-automatic licenses,some price control measures and voluntary export restraints, these NTMs are viewed as

having the pronounced restricting impacts on imports. Kaplan (1996) argues that

countervailing investigations may themselves cause a reduction in imports. Also, a survey

was carried out to spot and understand the negative impact of NTMs and was found that an

initial finding of the ongoing survey indicate that NTMs effects varies from countries, for

instance, in Burkina Faso 70% of interviewed companies reported that NTMs strongly affect

their daily operations, compared to only 24% in Hong Kong (China) (Kaplan 1996, p. 167).

From the perspective of an individual company, NTMs can prove to be barriers to

trade as well. Companies may not know about the requirements and the regulations may be

so stringent the company cannot abide by them without making significant modification to its

production processes or the cost to comply with these measures may be prohibitive, where

companies have to test its products in third party country or be forced to show and translate

some health certificates which cause delays and expensive compliance processes. Hence,

these procedural obstructions include restrictions from administrative burden to time delays to

lack of legal protection in home country, export destination and transit countries.Another downside of NTMs in the way they affect imports is that most of the time, the

import requirements set differ among countries, hence, causing further obstructions for both

importers and exporters to deal at international level. It can then be argued that the

differences in import requirements between importing countries affect the competitiveness of

exporters, where the latter must have the capacity of complying with the regulations and

standards at global level. Yet, differing standards and regulations are very often costly. Hence,

below is an illustration of how differing NTMs may hamper trade.

On the other hand, certain NTMs are found to be rather broad in nature like

Certification and Standards testing. In some cases, these restrictions impose too wide

barriers and as a result these kind of NTMs may effectively restrict imports. This is because

(usually) imported products are found to be not in accordance with the level of class

established by the countries. Therefore, the question that surfaces is what repercussion the

new certification requirements would have on the small-scale producer-exporters in


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developing countries? (Kaplan 1996) As a consequence, either, they abandon the market or

adapt to these regulations, which may lead to a rise in price of the products thereby being

less competent to trade. Hence abiding by these stringent rules becomes a complex situation

for importers as well as exporters.

NTMs are often criticised as a ways of national protection to elude trade liberalisationresulting from decline of tariffs. In my view, NTMs may be justified under the provisions or the

exceptions provided under the various multilateral agreements governing international trade.

On the other hand, certain NTMs are not justified under any of these legal provisions are

usually termed as non tariff barriers (NTBs). Unjustified NTMs can deform the prices and

quantities of goods and services traded at international level (Kaplan 1996). For all exporters

and importers, predominantly in developing and least developing countries, such conditions

have disproportionably high adverse outcomes on their ability to supply markets; it impacts on

their competitiveness and on their ability to actually enter markets. Regulations and

standards are normally established in the rulings of domestic agri-food production. As such,

they have a significant impact on import conditions of these goods. Generally, they address

issues on information problems and externalities linked with the societal concerns. Yet, in

determining the agri-food trade system, standards and regulations may cause conflicts

between importing and exporting countries, as import regulations always impact on exporters

possibilities to engage in trade. Furthermore, the use of some NTMs are found to be rather

hindering flow of trade due to being too strict, wide allowing countries to set quality level ofimports to the highest possible standards, thus, these issues prohibits importations of a

number of products, hence, causing significant impacts on trade. As such, below is an

example showing how NTMs applied in India are considerably hampering the flow of

agricultural imports.

NTMs do not only negatively impact on trade, but some NTMs are also viewed as

being crucial and beneficial to trading (Kaplan 1996). Also, the majority of NTMs aim to

protect health (human, plants and animals) and in addition some NTMs may promote and

establish trust among trading partners. Accordingly, NTMs like Sanitary and Phytosanitary

(SPS) measures, though, contain some drawbacks as discussed above, but are still very

important in promoting sound trading internationally, where defected, low quality products are

banned, hence resulting in the enhancement of consumers safety. Theses NTMs ensure that

the imported goods meet the domestic requirements and enable countries to protect

themselves from the imports of noxious and contaminated products.


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NTMs like Intellectual Property Rights (IPR) protections are a much discussed and

important part of international trade as well. Use of patents, trademarks and copyrights,

geographical indications, industrial designs are of utmost importance in further enhancing

trade. Also, its effective use of knowledge contributes greatly in making the national economic

prosper. Consequently, most of NTMs are viewed as impeding trade, yet, an important part ofthe institutional framework of a country is having an adequate and effective Intellectual

Property Protection. Thus, the common opinion is that in order to be competitive to trade

globally, countries must make provisions for strong IP protection (Kaplan 1996). Hence, it can

be argued not all NTMs have adverse effect on trade but there are some like IP protections

that rather underpin international trade and also motivate firms to be more involved in

research and development projects, since they are secured and receive strong protections

(Kaplan 1996).

Since, certain NTMs are seriously causing obstruction to trade, one of the solutions to

evade these impediments are to decrease the number of NTMs acting as barriers to trade.

Thus, by removing NTMs most likely to hinder trade, transacting globally will be further

boosted and improved. My conclusion is that non-tariff measures have both positive and

negative impact on international trade, where NTMs can be used as tools for consumer

protection and regulation of domestic markets but on the other hand, viewed as obstacles to

trade. Consequently, the challenge is to apply these measures without imposing barrier to

trade, that is, NTMs is crucial for trading as long as trade is not hampered by these measures.


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Bibliography

Bethlehem, D. L. (2009). The Oxford handbook of international trade law. Oxford:

Oxford University Press.

Kaplan, E. S. (1996).American trade policy: 1923-1995. Westport, Conn: Greenwood Press.

Kuttner, R. (1991) Another great victory of ideology over propserity.Atlantic Monthly.

EbscoHost.

MacRae, D. et. al. (January 01, 2009). The place of the WTO in the international system.

Oxford Handbook of InternationalTrade Law, 54-75.

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