Chapter 2 - WTO and the World Trade System Flashcards
What is the WTO
A hub were rules about trade policies are determined. It provides a forum for negotiations as well as dispute mechanisms.
On what principles is the WTO based?
1) Market liberalism: liberal trade raises welfare
2) Non-discrimination; equal
How is non-discrimination enshrined in the WTO?
It based on equal opportunities. The WTO has 2 sets of instruments
1) Most-Favoured Nation; prohibits of granting special grants (exceptions: trade and custom unions, General System of Preferences –> lower import tariffs for developing countries)
2) National treatment; prohibit advantages to domestic firms (via taxes, regulation etc)
What is the aim of trade liberalization
Alter policies that restrict cross-border flow of goods and services like tariffs and non-tariff barriers (health & safety regulation)
What is the procedure of the WTO to do so?
Via bargaining rounds: at the WTO Ministerial Conference. They set the Agenda regarding negotiations, produce outlines of an agreement and once conclusions is made follows ratification
How does the dispute settlement mechanism work?
Compliance is determined via an independent judicial tribunal. If guilty, a nation should alter its policy or pay compensation.
Is trade susceptible to free riding?
No due to hegemonic stability, which will make hegemon’s gains of trade so large that he will bear the full costs of creating the international rules
Which evolutions took place in international trade?
1) Emergence of developing countries as a large block
2) NGO’s as an actor, safeguard consumer and ecological interests
This complicates decision making (more parties).
Furthermore, different economic structures result in a different bargaining process (high-tech products & services vs labour-intensive production)
Why are effectiveness and legitimacy a concern for the WTO?
Concerns about the effectiveness of WTO negotiations highlight the need for reform that limits the number of governments actively participating in negotiations. One such proposal advocates the creation of a steering committee, with authority to develop consensus on trade issues.
Concerns about legitimacy highlight the need for reform that opens the WTO process to NGOs.
How are regional trade agreements a threat to the WTO?
Regional trade arrangements and the World Trade Organization Regionalism is one alternative that has gained particular appeal.
Regional trade arrangements pose a challenge to the WTO because they offer an alternative, and often more discriminatory, way to organize world trade.
What are regional trade agreements?
They provide preferential market acces via 2 options;
1) Free trade area: within the area no tariff, but independent tariffs on non-members
or
2) Customs union; free as well, but same tariffs for non-members
What were the 3 waves of RTA’s?
1) Latin-America FTA, EEC & Economic Community of West-Africa –> seek deeper economic cooperation in a region to promote peace and stability
2) Ex-USSR sought access and new ways to organize trade
3) Mega-regional agreements (TPP, TTIP) which seek deeper economic integration among members
Why did regional trade agreements advance?
1) desire to gain more secure access to market of trading partner
2) strong commitment to economic reform
3) increase of bargaining power in multilateral trade negotiations (pooling)
4) impasse Doha Round
Critique on RTA’s
Do they challenge or complement the WTO?
They liberalize trade but also institutionalize discrimination
Is the net result the creation of trade or trade diversion?
