Unit Eight: The Global Trade Regime Dr. Russell Williams

  Essay due in class, Nov 12!!!!!!   Required Reading:

  Cohn, Ch. 7 & Cohn, Ch. 8 pp 222-239.

  Class Discussion Readings:   Weinstein and Charnovitz, “The Greening of the WTO,” Foreign

Affairs, Nov/Dec2001, Vol. 80 Issue 6, pp. 147-156.   Wallach and Sforza, “The WTO’s Environmental Impact,” in, Whose

Trade Organization? A Comprehensive Guide To the WTO, 2nd Edition (New Press, 2004).

  Outline: 1.  Introduction – Theorizing Trade 2.  Trade Concepts 3.  The GATT 4.  The WTO 5.  RTA’s and PTA’s 6.  Conclusions 7.  Further Reading 8.  For Next Time . . .

1) Introduction –Theorizing Trade

  Trade generates more political controversy then finance (?)   E.g. “Outsourcing” and the “Race to the Bottom”   E.g. Impact on development

  Globalization of Trade has been more systemically politicized   The “anti-globalization” movement vs. “Neo-liberal globalism”   The North vs South in the trade regime

  Trade patterns are becoming more conceptually challenging   MNC’s and “Intrafrim Trade” (1/3 of all trade occurs within firms)   Globalization or regionalization

Basic question – Why do states participate in the trade regime?   Or, why do states support the idea of “free trade”?

  Liberal explanations:   “Absolute Advantage” and “Comparative Advantage” . . . . Welfare

maximizing!   “Heckscher-Ohlin Theory”: Comparative advantage comes from

abundant factors of production, not labor per se   E.g. South will have advantage in labor intensive industries, north in capital

intensive . . .   “Stopler-Samuelson Theory”: Free trade benefits “abundantly endowed”

factors of production and those involved in those sectors of economy   E.g. In a resource dependent economy, free trade will be supported by

resource industries and workers, but not those groups who work in “under endowed” sectors of the economy

  Problems?   Liberal theories do not explain trade patterns very well . . .

  Intrafirm Trade   “Intraindustry Trade” – most trade occurs between states with similar

comparative advantages and factor endowments

  Liberal theories too economic – ignore politics of international trade?   Domestic political struggles over free trade   Role of interstate power (E.g. unilateralism of dominant states)

  Will require institutions to overcome collective action problems . . .

Basic question – Why do states participate in the trade regime?   Or, why do states support the idea of “free trade”?

  Realist explanations: Free trade unlikely outside of . . . .   Unequal or imperial relationships   Hegemonic Stability Theory

  Benefits of free trade must outweigh the “costs” of free trade must be

  Problems?

  “Strategic Trade Theory”: States can create comparative advantages   Foster competitiveness in desired sectors

  Mechanisms:   Protection for “Infant Industries”   Industrial Strategy – free trade when competitiveness has been achieved

  Problems?   If all states do this, there won’t be free trade . . . .

Basic question – Why do states participate in the trade regime?   Or, why do states support the idea of “free trade”?

  Historical Structuralist explanations: Free trade occurs because capitalist states are agents of exploitation   E.g. Gramscian Approaches – MNC/Capitalist class benefit from rules of

trade regime at expense of other classes   E.g. Dependency Theory – Free trade causes underdevelopment

  Comparative advantage = natural resource dependency   Declining terms of trade   Commodity price volatility

  Problems?

  Constructivist approaches?   Free trade is supported by liberal ideology and identities

  E.g. Regional free trade in the EU (Helge Hveem)

  Problems?

2) Trade Concepts:   Trade “Barriers”:

  “Tariffs”   “Non Tariff Barriers (NTB)”

  E.g. Quotas   E.g. Product standards

  “Voluntary Export Restraints (VER)”

  Trade “Safeguards”:   “Anti-Dumping Duties (ADD)”

  Used to combat unfair “dumping” – selling products at predatory prices

  “Countervailing Duties (CVD)”   Used to combat unfair “subsidies”

  Types of trade agreements:   “Free Trade Agreement”: Reduce/remove trade barriers   “Customs Union”: Reduce/remove trade barriers +

common external trade barriers   “Common Market”: Reduce/remove trade barriers +

common external trade barriers + internal mobility   E.g. labour and investment mobility

  “Economic Union”: Reduce/remove trade barriers + common external trade barriers + internal mobility + policy harmonization

  In the real world agreements often mix and match these provisions

  Most don’t go far beyond a “Free Trade Agreement”

  “Regional/Preferential Trade Agreement (RTA & PTA)”   E.g. Bilateral free trade agreements

3) The GATT:  Created after failure of ITO and Havana Charter - “Stopgap”

intended to reduce trade barriers amongst “contracting parties”

 Informal organization – no permanent secretariat   Instead, the OECD, G-7 and “Quad” determine agenda etc.

  E.g. Tokyo Round (1973-1979) – key dispute was Agriculture vs. NTB’s

 Organized into a series of “MTN” Rounds:   Geneva Round (1947) Uruguay Round (1982-1993)

Principles:  “Liberalization” and “Reciprocity”  “Non-discrimination”:

  “Most Favored Nation (MFN)”   “National Treatment”

 Safeguards allowed – leads to many unresolved disputes . . .

 GATT was successful:  Reductions in Tariffs were steep amongst developed countries  Trade grew faster then economy

 However, by the 1980s no one was happy with GATT  Difficulty of managing NTB’s  Agriculture  MFN and “free riding”  American Unilateralism  LDC demands for “special and different” treatment regarding development

  Claim: GATT widening gap between rich and poor nations

4) The WTO: Origins – Why a formal institution?

  GATT was failing as centerpiece of trade regime   E.g. Dispute resolution system ineffective at preventing unfair use of

trade remedies   During long, long, long Uruguay Round US and Canada(!)

demanded a more formal organization   Enforce rules   More effectively deal with problem issues

Organization:   Director General   “Ministerial Conference”: Regular political level meetings separate

from ongoing MTN’s   Controls agenda etc. - Theoretically all states are represented (?)

  Trade Policy Review Body = More transparency   Dispute Settlement Body = System of enforcement   Larger, permanent secretariat in Geneva   New principles: the “Single Undertaking” & “beyond the border”

trade liberalization

WTO Content:   Traditional “border” provisions”

  GATT agreement to reduce tariffs   General prohibition against quotas   Safeguards – Subject to Dispute Settlement Panel challenges

  Beyond the border provisions:   “Trade Related Investment Measures (TRIMs)”:

  Bans “performance requirements” stipulations on FDI   “Trade related Intellectual Property (TRIPs)”:

  Requires states to create patent and copyright protections systems to prevent “theft” of MNC’s intellectual property

  E.g. Prescription Drugs   E.g. Agricultural technology/seeds

  “General Agreement on Trade in Services (GATS)”:   Liberalizes investment barriers in services industries – rights of

establishment for foreign firms   E.g. Banks, media companies and other service providers

WTO Procedures:   Theoretically “one country, one vote” – good for south???   However, in practice” . . . .

  Consensus in Ministerial Conference   Negotiations often marginalized weaker states (E.g. The Green

Room)   Consensus = ?????

  Negative consensus in disputes   Means that dispute rulings set by trade panelists are binding on

states unless all agree to put the decision aside =states not in control of “new law”(!)

WTO Problems:

  “DC/LDC” Disputes:   Rules: Weaker states have found new decision-making procedures

worse then GATT – rules they don’t control are now automatically binding

  Issues: Wide gap in agenda for current negotiations   South: Agricultural liberalization and relaxed TRIPS   North: More TRIPS, TRIMS and GATS

  Declining US hegemony   US and EU not able to coordinated current agenda

=Collapse of the Doha Round

  Preferential treatment of MNC’s rights   E.g. Dispute rulings = Dead dolphins, dead turtles, cancer causing

beef, starving farmers and no national culture . . . .

5) RTA’s/PTA’s:

RTA’s/PTA’s of growing importance . . .

 Market trend: Intra-regional trade growing faster then global trade = Regionalization of economy

 Political Trend: Many RTA’s concluded in last 20 years = Regionalism in some instances . . . .

Explanations for regional agreements:  Realists

 RTA’s more likely then a successful global trade regime  Regional powers will take advantage of weaker neighbors

 Liberals  RTA’a are a poor second choice to the WTO, however regionalism may be a necessary step towards trade liberalization   Benefits:

  Regional liberalization is politically easier (?)   Pre-existence of economic regionalization (e.g. for geographic

reasons)   Existence of cross border values and identities

  Risks: “Trade diversion”= will undermine benefits of comparative advantage and create inefficiency

Explanations for regional agreements:  Historical structuralists, constructivists and feminists . . . .

 RTA are likely to reflect class interests of economic elites  E.g. entrench MNC’s rights relative to citizens

Key RTA’s:  European Union . . .

 NAFTA (1994) . . . Background (1986-1994)  Many provisions go beyond GATT principles at that time

  Comprehensive free trade, nut no common external tariff   Requires “Rules of Origin”

  System of dispute resolution   Investment rights – Chapter 11   Energy!

 MERCOSUR (1991)  Argentina, Brazil, Paraguay, Uruguay and associate members Chile (1996) and Bolivia (1997)

  Customs Union with deep tariff cuts – ended IS in these countries   Agreement hurt by “asymmetries of power” and financial problems

 FTAA

 ASEAN & APEC

RTA Debates:

Are RTA’s undermining global trade regime?  RTA’s are allowed under WTO Article 24 = “open regionalism”   Only a threat of high common external tariffs emerge   To date RTA’s don’t increase protectionism

Are RTA’s a response to declining US power?  The US has been a major signatory to RTA’a and PTA’s

  Used to create new principles in trade regime   E.g. NAFTA WTO investment rights

Is regionalization/regionalism different from globalization?

6) Conclusions: The trade regime is widely thought to be in “crisis” . . .

Serious institutional problems:   Collapse of the Doha Round   New protectionism after financial crisis   Proliferation of regional trade agreements   Can the trade regime mange conflict amongst states?

Serious political problems   Widespread political opposition to “beyond the border” trade

liberalization   E.g. The “New Constitutionalism”   E.g. Demands for environmental, labor and social clauses

  Can the WTO reform its political agenda?

Further Reading: On institutional challenges:

  Michael Hart and Bill Dymond, “Special and Differential Treatment and the Doha ‘Development’ Round,” Journal of World Trade, 37-2 (April 2003), pp. 395-415.

  Brian Hocking, “Changing the Terms of Trade Policy Making: From the ‘Club’ to the ‘Multistakeholder’ Model,” World Trade Review, 3-1 (2004), pp. 3-26.

  Theodore H. Cohn, Governing Global Trade: International Institutions in Conflict and Convergence, Ashgate, 2002.

On policy challenges:   Sumner J. La Croix and Denise Eby Konan, “Intellectual Property

Rights in China: The Changing Political Economy of Chinese-American Interests,” World Economy, 25-6 (June 2002), pp. 759-788.

  Trish Kelly, “The WTO, the Environment and Health and Safety Standards,” World Economy, 27-2 (February 2004), pp. 131-151.

For Next Time: Unit Nine: Multinational Corporations and the Global

Economy (November 17 & 19)

  Required Reading:   Cohn, Ch. 9.

  Class Discussion Readings:   Debora Spar and David Yoffie, “Multinational Enterprises and the

Prospects for Justice,” Journal of International Affairs, Vol 52, Issue 2, (Spring 1999), pp. 557-582.

  Stephen McBride, “Reconfiguring Sovereignty: NAFTA Chapter 11 Dispute Settlement Procedures and the Issue of Public-Private Authority,” Canadian Journal of Political Science, Vol. 39(4) (2006), pp. 755-775.