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 uponat 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"

no institution with legal personality and powers!

International forum for negotiating tariff reductions and solving trade disputes

but:

Principles:

1. nondiscrimination most-favoured-nation principle (Meistbegünstigungsklausel)

If one country is granted a favour, this favour must be granted toall 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:

most-favoured-nation principle

national treatment

imported and locally produced goods must be treated equally

promotion of free trade

promotion of fair competition

encouragement of development and economic reform

trade without discrimination

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 better off.

theory of comparative advantage

Exceptions:

Protection against:

dumping

certain subsidies in other countries

surging imports if domestic industry is seriously threatenend (protectionary action only temporarily allowed)

measures: e.g. extra import duty

measures: e.g. extra import duty, domestic subsidizing

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 countriesby denying their workers basic rights, decent wagesand working conditions

"advantages" for developing countries throughlower 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

Theory: free trade benefits everybody

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

(theory of "comparative advantage")

= Fair Trade?

Consequence: Developing countries should be treated differently

(widely accepted view now)

- 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)

Proposals:

- 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

- LDCs should be allowed to impose tariffs on goods from MDCs

equal conditions among equals instead of equal conditions for all

WTO wants to reduce tariff protection for small farmers

key income because agricultural sector is very important in LDCs

farmers in LDCs:

Subsidy problem:

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

increased poverty in DCs

- producers in LDCs can't compete with subsidized goods from MDCs

rich countries are allowed to pay their farmers massive subsidies (even export subsidies)

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 costtariffs 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:

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