The Global Trade Regime Today WTO Building Geneva

The Global Trade Regime Today WTO Building (Geneva, Switzerland) Lecture 10 – Thursday, 11 October 2011 J A Morrison 1

Last time, we discussed the GATT’s creation and its emergence as the cornerstone of the postwar trade regime. 2

Today, we’ll return to the RTAA and consider six or seven more explanations of its creation. (Just kidding. ) 3

Actually… Today, we’ll build on this foundation to explain and consider the global trade regime as it exists today. 4

Lec 10: Global Trade Regime Today I. From the GATT to the WTO II. Regionalism vs Multilateralism III. Doha: The Colonies Strike Back IV. Discussion Points 5

Lec 10: Global Trade Regime Today I. From the GATT to the WTO II. Regionalism vs Multilateralism III. Doha: The Colonies Strike Back IV. Discussion Points 6

I. From the GATT to the WTO 1. Why the move to the WTO? 2. Key Features of the WTO 3. Decision-making in the WTO 7

In the Marrakesh Agreement (1 January 1995), the GATT was displaced by the newly created World Trade Organization (WTO). For all practical purposes, the GATT was dead. Why? 8

On Tuesday, we saw how the “Provisional” framework of the GATT successively deepened, broadened, and formalized over the last half century that followed. 9

This raises a puzzle: If the GATT proved so resilient, flexible, and durable, why was it formally replaced by the WTO? Why wasn’t the GATT just revised and expanded as it had been in the past? 10

The WTO website reports that the GATT was not really killed by the move to the WTO: “The WTO replaced GATT as an international organization, but the General Agreement still exists as the WTO’s umbrella treaty for trade in goods, updated as a result of the Uruguay Round negotiations. Trade lawyers distinguish between GATT 1994, the updated parts of GATT, and GATT 1947, the original agreement which is still the heart of GATT 1994. Confusing? For most of us, it’s enough to refer simply to ‘GATT’. ” (http: //www. wto. org/english/thewto_e/whatis_e/tif_e/fact 5_e. htm) 11

The WTO just frames itself as an expanded version of the GATT. According to the WTO, the GATT just needed further expansion which the “umbrella” of the WTO would provide. 12

It’s certainly true that the WTO expanded the trade regime well beyond the parameters of the GATT. But the transition from the GATT to the WTO was not evolutionary like the previous revisions of the GATT… 13

The shift to the WTO was revolutionary. Here’s the story… 14

Remember this slide from Tuesday? It explained why the GATT was appealing. 15

Tokyo Troubles • Tokyo Round (1973 -1979) • Brazil, India, & Egypt threaten to block consensus • Infamous “Side Agreements” – Developing countries want exceptions: MFN treatment without signing all codes – GATT becomes “plurilateral” 16

US Response • US threatens to walk out • US will sign new agreements as part of “GATT-Plus” Regime ➔But the US eventually caved. 17

Why? 18

Barton, et al: the Cold War. (p 64 -66) 19

The situation, however, changed with the Uruguay Round (19861994). The Cold War had ended, and the bargaining position of the developed countries had increased considerably. 20

The Move to the WTO • 1990: US & EC agree to “single undertaking” in creation of WTO – All agreements must be accepted as 1 package • WTO is “legally distinct from the General Agreement on Tariffs and Trade, dated 30 October 1947. " • After creating WTO, US & EC withdrew from GATT 1947 21 – Effect: Developing countries need to sign onto the WTO to get access to the US & EC

WTO Website: “Trade lawyers distinguish between GATT 1994, the updated parts of GATT, and GATT 1947, the original agreement which is still the heart of GATT 1994. . . For most of us, it’s enough to refer simply to ‘GATT’. ” ➔Not if you’re a developing country!! 22

So, what set the WTO apart? 23

I. From the GATT to the WTO 1. Why the move to the WTO? 2. Key Features of the WTO 3. Decision-making in the WTO 24

General Agreement on Trade in Services (GATS) Mode Service Supplier Presence Mode 1: Cross-border supply Services supplied from one country to another (e. g. international phone Service supplier not calls) present within the Mode 2: Consumption Consumers or firms making use of territory of the member abroad services in another country (e. g. tourism) Mode 3: Commercial presence Foreign company establishes subsidiaries/branches in foreign country to provide services abroad (e. g. banks opening branches abroad) Mode 4: Presence of a Individuals travel to foreign country natural person to provide services in another (e. g. 25 fashion model or consultant) Service supplier present within the territory of the Member

Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) • Protection of copyrights and patents abroad – standards largely imported from US & EC • Software as copy-written • Limits on fair-use and other exceptions • National Treatment: Foreigners accorded same rights/opportunities as nationals 26

Agreement on Trade Related Investment Measures (TRIMs) Prohibited Activity Explanation Local Content Requirements (Article III: 4) Laws requiring purchase/use of domestic inputs or G&S Trade Balancing Requirements (Article III: 4; Article XI: 1) Laws requiring certain proportion of domestic/foreign inputs Foreign Exchange Restrictions (Article XI: 1) Restrictions on the availability of foreign exchange Export Restrictions (Article XI: 1) Restrictions on export of G&S 27

Limits of TRIMS • Mandates self-reporting • Exceptions for developing countries • Transition Period – Developed: 2 Years – Developing: 5 Years – Least Developed: 7 Years • “Buy American” provision of stimulus – US: we can choose how to spend tax money – EU, Canada, Brazil: We’ll see you in court! 28

Dispute Settlement Understanding (DSU) • Dispute Settlement Body (DSB) – WTO “Court” -- Decides trade disputes – DSB = Entire body of WTO – Appellate Body: Select 7 on 4 -year Terms • Dispute Settlement Process 29 – Consultation: states attempt to resolve dispute – Panel & Expert Reviews ➔Panel Report: Decision – Loser has option for Appellate Review – Implementation – Retaliation for Non-implementation

How does the WTO make decisions? How does the WTO vote? 30

I. From the GATT to the WTO 1. Why the move to the WTO? 2. Key Features of the WTO 3. Decision-making in the WTO 31

Formally, the WTO makes all decisions by consensus (unanimous decision). (Article IX) Dispute Decisions can be overturned only by reverseconsensus--meaning all states (including the winner of the dispute) vote to overturn the decision. 32

What is the implication of this? 33

What is the implication of this? = 34

Well, actually, not so much. This is what really happens. . . 35

WTO Policy The “Green Room” -Director General’s Private Conference Room Ghana 36 Cameroon Fiji Haiti

The developing countries don’t get invited up into the “Green Room. ” They have to stay downstairs, in the corridor, waiting for the “big” countries to set the agenda. 37

Remember the Canadians’ twostep plan in which a “nucleus” agrees on policy and generalizes it to the other members? We’re still doing that. . . 38

“Power-Based Bargaining” • Quad Countries: US, EU, Japan, & Canada – Set agenda – Dominate Green Room Caucus • Unequal resources for handling disputes • Strong countries intimidate weak countries • Developed countries threaten to abandon and remake regime – E. g. “GATT-Plus” 39

Lec 10: Global Trade Regime Today I. From the GATT to the WTO II. Regionalism vs Multilateralism III. Doha: The Colonies Strike Back IV. Discussion Points 40

On Tuesday, we discussed the essential disagreement between GB and the US over the matter of Imperial Preference. The US wanted a multilateral trade regime; and GB wanted to preserve its right to organize Preferential/Regional Trade Agreements (PTAs/RTAs). 41

GB was ultimately pressed to phase out Imperial Preference. But the pattern of allowing PTAs persisted. 42

Despite the MFN principle, Article XXIV allows for PTAs. These are sometimes called “Article XXIV exceptions. ” 43

This raises two key questions: 44

(1) Effect on Trade • Do PTAs increase or divert trade? – Increase: PTAs foster trade that would not otherwise exist – Divert: PTAs capture trade that would otherwise take place with nonmembers of the PTA 45

(2) Effect on Trade Policy • Do PTAs encourage additional liberalization? – PTAs as Stepping Stones: Once states experience the benefits of liberalization, they are more likely to liberalize multilaterally – PTAs as Alternatives: Why would Canada need to trade with the US when it has a great thing going with the British Empire? 46

Lec 10: Global Trade Regime Today I. From the GATT to the WTO II. Regionalism vs Multilateralism III. Doha: The Colonies Strike Back IV. Discussion Points 47

48

So the WTO radically expanded liberalization to include services, investment, and intellectual property. 49

Who does that serve? Who has a comparative advantage in the production of those domains? 50

The Developed World--“The North. ” 51

November 2001 brought the start of the latest round of trade negotiation. This round was launched in Doha, Qatar at the insistence of the developing countries. 52

It brings us the Doha Development Agenda. 53

Of course, Doha has brought further expansion and deepening of the GATS, TRIPS, and TRIMS agreements. 54

But the major focus has been on agriculture. 55

Since GATT 1947, agriculture has always been the exception to the rule of trade liberalization. Agriculture has been heavily managed in both developed and developing countries. 56

Developing countries conjecture, however, that agricultural liberalization would play to their comparative advantage--particularly since they have been exposed to increased competition in other sectors as a result of the WTO. 57

But talks have stalled repeatedly. And there is talk that “Doha has failed. ” 58

What gives? 59

First, recognize that food is different. 60

Food is Different • Food is a real necessity, a security issue • Undifferentiated product ➔fierce competition • Considerable health & safety concerns • Sustainability & carbon footprint • Plausible cultural arguments for management • Well-entrenched interest groups 61

So, what is going to happen? Will Europe ease the Common Agricultural Policy (CAP)? Will the US stop subsidizing farmers? 62

Here are two potential alternative stories. . . 63

(1) 1846 All Over Again • Developed world will realize its comparative advantage • Developed world will seek resolution with developing world • Leaders in developed countries will find creative ways to “sell” the policy to agrobusiness 64

(2) 1994 All Over Again • Developed world will realize its powerful advantage • Developed world will choose to dominate developing world • Leaders will find a way to conclude Doha with moderate “liberalization” on agriculture and increased liberalization on services, IP, &c. 65

Lec 10: Global Trade Regime Today I. From the GATT to the WTO II. Regionalism vs Multilateralism III. Doha: The Colonies Strike Back IV. Discussion Points 66

Positive Questions • What do we expect will be the results of the Doha Round? • Does the WTO matter? Is the WTO itself trade-creating or trade-diverting? • Will PTAs undermine the Multilateral Regime? 67 67

Normative Questions • Should we press for liberalization at all? • What should be our preference hierarchy in the global trade regime? – – Development Equality Stability “Sustainability” -- short-term versus long-term benefits and our discount rate • Should the WTO be the cornerstone of the global trade regime? • Should we remedy the “democratic gap”? If so, how? 68 • How else should we reform the WTO?