3: International Negotiations And Preferential Trading Agreements (Up To FC21 FOCUS) Flashcards
Why do we need an international organisation for trade?
Explain in terms of prisoners dilemma and the outcome
Prisoners dilemma: best outcome is free trade, but each country would choose protection if it takes the other country’s policy as given. (Since incentive to deviate to protect), so both end up protected.
So both better off if both free trade, but unstable since there is incentive to deviate (if one country chooses to protect, earn 20 instead of 10)
So what does free trade require
International coordination through agreements
Advantages of negotiation (2)
Gets exporters to support free trade if they believe export markets will expand.
Can avoid trade wars where each country enacts trade restrictions
1st benefit of negotiation:
Gets exporters to support free trade if they believe export markets will expand.
Name example
E.g US removes import quota on Japanese cars (benefitting Japan car producers) , Japan removes import tariff on US high-tech goods.
So both US and Japanese consumers and exporters support the deal for free trade, offsetting opposers (import competing groups: the US car producers and Japanese tech producers who will be negatively impacted by free trade)
Rounds of negotiations : Geneva 1955 (largest)
Length of negotiation
How many countries
Value of tariff concessions
Largest tariff removal:
5 months, 26 countries, close to $2.5bn tariff concessions (removed)
(This was under GATT, changed to WTO following Uruguay round)
8th Uruguay : what happened
Led to WTO
WTO functions (3)
Sets trading rules
Negotiating forum
Settles trade disputes (through dispute settlement procedure)
WTO is based on a number of agreements (3)
General Agreement on Tariffs and Trade (GATT): covers trade in goods.
General Agreement on Tariffs and Services (GATS): covers trade in services
Agreement on Trade-Related Aspects of Intellectual Property: e.g patents and copyrights
3 ways WTO addresses loosen trade restrictions
Reduce tariffs
Binding tariffs - agree to not raise it in future
Eliminating NTBS - quotas and export subsidies are switched to tariffs, since tariffs are easier to negotiate. (Only subsidies for agricultural exports remain)
5 Key principles/values of GATT/WTO
Non-discrimination: any tariff cut with one WTO partner should be extended to all partners (exceptions: PTA’s, developing countries/if goods unfairly traded)
Reciprocity: concessions should be reciprocated
National treatment: imports treated same as domestic products (customs duty technically does not violate this since NT only applies once product has entered the market!)
Special and differential treatment (SDT): for developing countries e.g longer time periods for implementing commitments
Safeguards: temporary exemption from rules in cases of market disruption
Suspiciously timed trade disputes have occurred.
What are they lined to
Trade disputes linked with electoral timings = more likely to file before re-elections, and involve industries involved in swing states of US.
So shows trade disputes may only be driven for political reasons
We saw earlier agricultural subsidies are the only exception to NTBS not being swapped to tariffs.
Do the agricultural subsidies in rich countries hurt poor countries
Yes: subsidies lower world price of products; thus making it harder to compete
What is the MFN clause of WTO
B) exception to this
Most favoured nation clause: non discrimination:
Each country in WTO promises that all countries will pay tariffs no higher than the nation that
pays the lowest i.e the same!
B) if they strike preferential trading agreements! (Topic focus!)
Preferential trading agreements is an exception to MFN.
When else can countries deviate from MFN (charge different tariffs for countries)
Countries can give developing countries special access (S&D treatment for developing countries)
Countries can raise tariff for unfairly traded products
GATT/WTO allow for preferential trading agreements given (3)
Preferences are 100%
There is a timeline for achieving free trade
It does not increase protection against the RoW (just lowers for the specific other party)