International trade policy and preferential trading Flashcards
International Institutions in the Field of Trade
-General Agreement on Tariffs and Trade (GATT)
-World Trade Organization (WTO)
historical development of attitudes towards trade
-In the 1930s, there was a huge escalation in retaliatory tariff protection involving many countries
-Post-1945 era of international trade agreements
-1947: General Agreement on Tariffs and Trade (GATT)
-1995: World Trade Organization (WTO)
-Since 2005: Crisis of the WTO and of the multilateral approach
GATT (date)
as begun in 1947 with 23
nations as a provisional international agreement.
Goal GATT
to avoid a repeat of the collapse of trade in the 1930s that worsened the Great Depression, fostered political mistrust and a more general breakdown of international cooperation.
Principles GATT
-National treatment (Imports must be given similar treatment on the domestic
market as domestically produced goods)
-Non-discrimination (Enshrined in the concept of most-favored-nation (MFN); every GATT member must treat every other member as it treats its most favored trading partner)
–> Some exceptions from these rules (like free trade agreements, or special treatment of developing countries) were allowed.
how GATT functioned
through trade rounds: Times when countries periodically negotiate
what happen in the 1950’s?
trade negotiations referred mainly to import tariff reductions.
what happens in middle 1960’s?
other issues referring to the non-tariff-based protectionism were included: dumping; subsidies, product standards, preferential state procurement, discriminatory administrative action, quotas on import
what happens in 1995?
The Uruguay Round established the World Trade Organization (WTO)
WTO
-Gatt
-Gats (General Agreement on Trade in Services)
-Trips (Trade-Related Aspects of Dispute Settlement Intellectual Property Rights)
-Dispute Settlement
WTO members
-164, accounting for about 98% of world trade
-meet every two years during ministerial conferences to set WTO policy objectives
goal WTO
provides a forum for countries to set mutually accepted, global rules of trade and allows for monitoring trade and national trade policies
5 WTO rules
- Reducing tariff rates through multilateral negotiations
-National treatment
-Non-discrimination
-Reciprocity (Any nations benefiting from a tariff reduction made by another country must reciprocate by making similar tariff reductions itself) - Binding tariff rates (A tariff is “bound” by having the imposing country agree not to raise it in the future)
- Eliminating non-tariff barriers:
-The general prohibition of quotas
-Existing quotas and export subsidies must be changed to tariffs - Disputes between member countries over bilateral trade issues should be settled through consultation with each other
5.Sanctions in case of unfair competition
The Benefits of a Rules-based International Trading System
-the same rules apply to all independently of the political and economic power of a national government
-It creates mechanisms for implementation and surveillance that foster predictability and reduces uncertainty for the private sector and governments
-It discourages unfair practices such as export subsidies and dumping products at below costs to gain market shares
-It creates a central forum for the negotiation of trade policy, which results in higher transparency and in lowering of trade costs
-Through the dispute settlement function, such a system further reduces trade policy uncertainty which should also stimulate trade flows.
WTO crisis
-Doha Development Round launched in 2001 is still uncompleted. Slow progress, quite difficult to form consensus (One member=one vote).
-deals still encompass a lot of protectionism in areas like agriculture.
-advanced economies critize the ability of WTO members to self-identify as “developing” countries in order to receive special treatment
-Non-trade issues (like data protection, environmental and labor standards) in trade deals are controversial
-The Trump administration (2016-2020) preferred bilateral approach to multilateralism: threats to withdraw the U.S, confrontation with China
Preferential trading agreements
make international exchange between the member states freer than trade with the rest of the world.
results WTO crisis
in countries seeking alternatives such as regional trade agreements or local bilateral deals which, in principle at least, violate the core tenet of the multilateral order: non-discrimination
2 major types of preferential trading:
-Reciprocal (regional) trade agreements (RTAs) between two or more partners.
-Unilateral trade preferences. Example: developed countries might grant preferential tariffs to imports from developing countries.
5 major types of RTA
-Partial trade : Free trade in the outputs of one or a few industries
-Free-trade area: Free trade in outputs (goods and services)
-Customs union: Free-trade area plus a common external tariff for nonmembers
-Common Market: Customs union plus free movement of inputs (capital and labor)
-Economic union (common market plus substantial harmonization of economics policies, including possibility a common currency)
Prominent regional trade agreements
-EMU
-GCC
-TTP
-ASEAN
(slide 158)
WTO allows for RTA (2 reasons)
-Members should eliminate (substantially) all internal barriers to trade
-External trade barriers should not be increased on average
trade diversion (due to RTA): short-run effects
The removal of trade barriers within the RTA enables a higher-cost producer from the member country to increase its exports by crowding out a lower-cost producer from outside the RTA. Welfare losses due to trade diversion are less likely when a) there is relatively small cost difference between goods produced within and outside the union or b) when the abolition of the tariff leads to a large reduction in the price of goods imported from other members of the RTA.
trade creation (RTA): short-run effects
The removal of trade barriers allows greater specialization according to comparative advantage. Imported goods are cheaper than domestically produced. In return, the country can export goods in which it has a comparative advantage.
Trade based on economies of scale increases
medium to long-run (dynamic) effects of the RTAs
Positive
-Internal economies of scale may occur
− External economies of scale may occur due to improvements in the infrastructure within the RTA (better roads, railways, financial services, etc.)
− Regional clusters of growth are facilitated
− Increased competition may stimulate efficiency and innovation, as well as lead to a more rapid spread of technology
− Increased bargaining power with rest of world can improve terms of trade
medium to long-run (dynamic) effects of the RTAs
Negative
-Integration may encourage greater oligopolistic collusion, thus keeping prices high.
− It may encourage market concentration through mergers and takeovers and increase monopoly power.
− Large companies may become bureaucratic and inefficient (diseconomies of scale), but powerful enough to get governmental subsidies
− Regional unemployment might increase leading to a high income gap
− Costs of administering the union may be high
− Increasingly, RTAs include liberalization of services as well as commitments in services
rules, investment, competition, intellectual property rights, electronic commerce, environment and labor. This could give rise to regulatory confusion and implementation problems as traders struggle to meet multiple sets of trade rules.
Trade policy
common external tariffs, a network of bilateral trade agreements with individual countries and regions across the world (e.g. Mediterranean basin, USA, Canada)
Common Agricultural Policy (CAP)
common high prices, interventions or buy up of surpluses, direct income support
Competition policy
common rules and regulations applying to companies operating in more than one member state
Regional policy
grants to firms and local authorities in relatively deprived regions of the Union
EU policies
-Trade policy
-Common Agricultural Policy
-Competition policy
-Regional policy
-Harmonisation of taxes
-Social policy
-Environmental policy
-Migration policy
-Monetary and exchange rate policy
Harmonisation of taxes
VAT is the standard form of indirect taxation, upper and lower limits on the VAT rates, code of conduct to prevent countries providing tax breaks which unfairly distort investment decisions, common rules on energy taxation
Social policy
Common standards for all cover minimum rules on working conditions, collective redundancy, part-time and temporary work, health and safety at work, maternity and parental leave, equal pay for equal work, and protection against sexual harassment.
Environmental policy
the carbon dioxine emissions trading system, limits on the amount of carbon dioxide emitted by industries
Migration policy
Schengen Area, Common European Asylum System
Monetary and exchange rate policy:
19 member states with euro (2022); euro is supposed to be eventually adopted by all members states (except Denmark)
Four freedoms
(I) people, (2) goods, (3) services and (4) money can all move around freely
EU (single market non complete)
lack of harmonization of national technical standards; discrimination in public purchase of goods (mainly telecommunication, pharmaceutics, railway equipment, cars etc.), professional or academic degrees awarded by one member state are not recognized by certain other member states
–> gaps in particularly in services
Brexit
