3. International Trade: the WTO and the EU’s Single Market Flashcards
what is Adam Smith’s theory, as a Classical Trade Theories
a free trade theory
idea of absolute advantage suggests that countries should produce and trade goods they can make more efficiently than others.
what is Ricardo’s theory, as a Classical Trade Theories
a free trade theory
comparative advantage argues that even if one country is more efficient at producing all goods, it should still specialize in what it produces at the lower opportunity cost and trade for the rest.
-> trade is beneficial when each country specializes in producing goods with the lowest opportunity cost.
what is the key idea of Smith and Ricardo’s theories?
Division of labor allows economies to specialize in efficient sectors, increasing overall productivity and wealth.
arguments in favor of free trade (=countries allow goods and services to move across borders without government-imposed restrictions)
*Division of labor allows economies to specialize in efficient sectors, increasing overall productivity and wealth.
*Most economic theories suggest that free trade increases efficiency, growth, and consumer choice.
*allows countries to allocate resources where they are most productive, leading to higher overall economic output.
arguments against (or for limited) free trade
*Infant Industry Argument: Some industries need protection in their early stages to develop competitive strength before being exposed to global competition.
Governments may use tariffs or subsidies to support these industries until they can compete internationally.
>free trade=less competition and incentives (pcq gros écrasent les petits so no new)
*Distributional Consequences & Political Pressures: Free trade creates winners and losers—some industries or workers may suffer from international competition.
>Political pressure for protectionism can arise, especially from affected industries or labor groups.
*Protectionism in Times of Crisis: During economic crises, countries may impose trade barriers to protect domestic industries, leading to beggar-thy-neighbor policies that harm global trade (economic strategy in which a country tries to improve its own economic situation at the expense of others).
how to ensure Commitment from all participating states to Free Trade:
To maintain a stable free trade system, participating countries need:
*Shared rules and monitoring mechanisms to ensure fair play and prevent cheating.
*Long-term cooperation and predictability to build trust among nations.
*Enforcement measures to discipline non-cooperative behavior, ensuring collective benefits.
def of free trade
an economic policy in which governments impose minimal or no restrictions on the import and export of goods and services. It allows for the unrestricted exchange of goods across borders without tariffs, quotas, or other trade barriers. The goal of free trade is to maximize economic efficiency by enabling countries to specialize in producing goods and services in which they have a comparative advantage.
how is achieved free trade internationally?
Free trade is typically implemented through agreements between countries or through international organizations (IOs) that work to reduce trade barriers.
what are the different types of trade barrier to remove to achieve free trade?
- Border Barriers:
-Tariffs (taxes on imported goods that make foreign products more expensive).
-Quantitative Restrictions (limits on the amount of a good that can be imported (e.g., quotas)). - Non-Tariff Barriers (NTBs):
-Import Licensing (requiring businesses to obtain special permission to import goods).
-Regulations (Product Standards: Rules about safety, quality, and labeling that can restrict foreign products).
what are the different forms of trade agreements
- Free Trade Agreement (FTA):
-No tariffs or quotas on trade between member countries.
-Each country sets its own trade policies with non-members.
-Example: NAFTA (now USMCA), ASEAN Free Trade Area. - Customs Union
-No tariffs or quotas on trade within the union.
-Members adopt a common external trade policy (same tariffs on imports from non-members).
-Example: European Union (before it became a single market), MERCOSUR. - Common Market = Customs Union + Free Movement of Factors of Production
In addition to a customs union, it allows:
-Free movement of labor (workers can move freely across borders).
-Free movement of capital (money and investments can flow without restrictions).
-Requires harmonization of regulations to ensure equal competition.
-Example: European Single Market.
what are the Origins of the Global Free Trade Regime (the WTO)
- Protectionism and the Collapse of International Trade
- Early Attempts to Regulate Trade
- The Creation of the World Trade Organization (WTO)
explain protectionism and the collapse of international trade as the first step of the origine of the Free trade regime
Great Depression & WWII: These crises led to widespread protectionism, where countries imposed high tariffs and trade restrictions to shield their economies. This severely hurt global trade and economic cooperation.
explain early attempts to regulate trade as a step of the origine of the Global Free trade regime
*Havana Charter (1948): Proposed the creation of the International Trade Organization (ITO) to oversee global trade.
*Failure of the ITO: The U.S. and other key players rejected it, so the plan collapsed.
*What remained: The General Agreement on Tariffs and Trade (GATT) (1947):
-Intended as a temporary agreement.
-Focused on reducing tariffs but lacked strong institutional structures.
-Left out key sectors like agriculture and textiles.
-Trade negotiations happened in multilateral “rounds”
explain creation of the WTO as a step of the origine of the Global Free trade regime
*Uruguay Round (1986–1994) led to the formation of the WTO, officially established on January 1, 1995.
*WTO Key Features:
-166 members today, with a secretariat in Geneva.
-Unlike GATT, WTO covers goods, services (GATS), and intellectual property (TRIPs).
-Doha Round (2001–present) stalled, due to disputes between developed and emerging economies.
what are the 2 features that show that WTO is an int organisation
-Decision-making by consensus: All members participate in councils and committees.
-Power asymmetry: Larger economies (e.g., US, EU, China) have more influence due to market size and resources.
what are the ideas of the WTO that are from the GAAT
*Non-discrimination: Countries cannot favor some trading partners over others.
-> Most-Favoured Nation (MFN): If a country gives a benefit to one trading partner, it must extend it to all WTO members.
-> National Treatment: Imported goods must be treated like domestic goods once inside a country.
*Other Principles: Reciprocity, transparency,…
who said that WTO was a legalized institution
(Abbott et al., 2000):
“Obligation (binding rules), precision (clear guidelines), and delegation” (independent dispute resolution).
what are the main agreements of the WTO
GATT – Trade in goods.
GATS – Trade in services.
TRIPs – Intellectual property.
Sectoral agreements: Agriculture, textiles, civil aircraft, etc.
Regulation of barriers: Anti-dumping, anti-subsidies, countervailing measures.
compare the dispute settelment process btwn the GATT and the WTO
-Under GATT (pre-1995):
Required positive consensus (all, including the accused, had to agree to act).
Led to slow and politicized decision-making.
-Under WTO (post-1995):
Uses negative consensus (decisions are automatically adopted unless everyone, including the complainant, rejects them).
Faster and more legally binding process.
how WTO dispute settelment works
- Consultations – Countries try to resolve disputes diplomatically.
- Panel stage – A panel of trade experts reviews the case.
- Appeal stage – The Permanent Appellate Body reviews legal aspects.
- Enforcement – If a country does not comply, the WTO allows countermeasures (e.g., retaliatory tariffs).
who is referred to as a “trade superpower” and why
EU) is a major player in global trade, often referred to as a “trade superpower” because of its economic size, influence in trade negotiations, and its highly integrated Common Commercial Policy (CCP).
how is organised the Eu membership in the WTO
All EU Member States (MS) are WTO members individually.
The EU itself is also a WTO member, meaning it negotiates as a single bloc.
not the case under GATT (pre-1994), where only individual European states participated.
what are the caracteristics of the EU tade policy/ decision making within the WTO?
*The Common Commercial Policy (CCP) gives the EU exclusive competence over trade policy.
*The European Commission negotiates trade deals on behalf of all member states, based on a mandate agreed by member states.
*The EU has a single set of trade rules for imports into the EU (common tariffs, regulations, etc.).
*Decisions are made by Qualified Majority Voting (QMV) in the Council of the EU:
55% of member states must approve, representing 65% of the EU population.
what are the internal contestations faced by the EU while taking decisions in the WTO?
internal tensions on trade policy:
*Free Trade vs. Protectionism:
-Some countries (e.g., Germany, the Netherlands) favor free trade and global market openness.
-Others (e.g., France, Italy) push for more protectionist policies to safeguard domestic industries (especially agriculture and manufacturing).
*Intra-EU Politics: Trust Issues with the European Commission
-> They fear losing national control over sensitive economic sectors.
