Part 10 - WTO-membership and trade liberalization

Question 1

What are the two main forms of trade liberalization?

Answer 1

1. Multilateral trade liberalization

2. “Bilateral” trade liberalization

Question 2

Multilateral trade liberalization:

Answer 2

Trade liberalization between all members of the GATT/WTO.

Question 3

„Bilateral“ trade liberalization:

Answer 3

Regional Trade Agreements (RTAs) between two trading partners or several trading partners.

Question 4

Goal for both types of trade liberalization:

Answer 4

Reduction or elimination of tariff and non-tariff trade barriers, but while
− Multilateral trade liberalization is always welfare-enhancing,
− Bilateral trade liberalization is not necessarily welfare-enhancing due to its discrimanatory nature&raquo_space; RTAs might lower welfare.

Question 5

International Trade Organization (ITO) was foreseen to become the international institution for trade after World War II. TRUE OR FALSE?

Answer 5

TRUE&raquo_space; Havana Charter signed in March 1948, but never ratified by the United States and consequently any other country.

Question 6

Explain how General Agreement of Tariffs and Trade (GATT) started:

Answer 6

Separate negotiations, including parts of the Havana Charter, led to the General Agreement of Tariffs and Trade (GATT), which took effect in 1948.
• 23 founding countries.
• Permanent secretariat in Geneva, but not an international organization by that time.
• It was a forum where members gathered and tried to hammer multilateral trade.
• Several trade rounds with the eighth and last one successfully concluded (the Uruguay Round) in 1994.
• Legally binding upper-bound limit to tariffs by members.

Question 7

The establishment of World Trade Organization (WTO) was in:

Answer 7

1995

Question 8

Important institutional change when WTO was established:

Answer 8

• became an International organization.
• dispute Settlement Mechanism(DSM):
1. More formal and structured procedure for trade disputes.
2. Faster and no veto right for involved parties any longer.
3. Steps: Consultations, panel establishment, panel report, appelate body.

Question 9

The ninth major round of world trade negotiations (Doha round) was very successful (so far).

TRUE OR FALSE?

Answer 9

FALSE&raquo_space; Note that ninth major round of world trade negotiations (Doha round) has failed (so far).

Question 10

WTO negotiations address trade restrictions in at least three ways:

Answer 10

1. reducing tariff rates
2. binding tariff rates
3. eliminating non-tariff barriers

Question 11

Reducing tariff rates through multilateral negotiations:

Answer 11

− For instance, average tariff fell from 6.3 to 3.9 percent in the Uruguay Round.
− Two important sectors, agriculture and clothing, also (partly) liberalized.

Question 12

Binding tariff rates:

Answer 12

A tariff is “bound” by having the imposing country agree not to raise it in the future above this upper ceiling.

Question 13

Eliminating non-tariff barriers:

Answer 13

Quotas and export subsidies are changed to tariffs because the costs of tariff protection are more apparent and easier to negotiate.
− Subsidies for agricultural exports are an exception.

Question 14

Key Principles of the WTO:

Answer 14

• Most favored nation (MFN) principle: One of the cornerstones for multilateral trade liberalization and GATT/WTO law.
 
• National treatment principle: Non-discrimination between domestic products and imports from WTO-members.
 
• Regulations on Non-tariff barriers to trade (NTBs) are not allowed to create unnecessary barriers to trade. - instance: product standards - there must be a need to inform consumers about the product standards.

Question 15

Most favored nation (MFN) principle:

Answer 15

One of the cornerstones for multilateral trade liberalization and GATT/WTO law:

• Non-discrimination between imports from different WTO-member countries.
• Obligation to extend advantages „unconditionally“ to all members.
• The country which is the recipient of a treatment must receive trade advantages as the „most favored nation“ by the country granting such treatment.

Question 16

Important Exceptions to WTO‘s Key Principles:

Answer 16

1. Regional Trade Agreements (RTAs)
2. Temporary Barriers to Trade (TBTs)
3. National security exception

Question 17

Regional Trade Agreements (RTAs)

Answer 17

are an important exception to Most favored nation (MFN) principle

Question 18

Temporary Barriers to Trade (TBTs)

Answer 18

are permitted temporarily by WTO, when certain conditions are fulfilled:
• Anti-dumping duties(in case of unfair pricing).
• Countervailing duties (in case of trade distorting subsidies). – so if illegal subsidies have been used
• Global safeguard measures (in case of sudden surges in imports that might endanger the industry)

Question 19

National security exception:

Answer 19

It allows WTO-members to breach their WTO obligations for purposes of national security.
• It is very controversial that the United States have recently referred to this clause to increase tariffs on steel and aluminum.
• Similar exceptions to protect human, animal and plant life.

Question 20

Every since the WWII the US tariff rates have declined

TRUE OR FALSE?

Answer 20

TRUE

Question 21

In average the US import tariffs rate are bellow

Answer 21

10% with the exception of the current trade war

Question 22

The WTO is based on a number of agreements:

Answer 22

• General Agreement on Tariffs and Trade (GATT) covers trade in goods.
• General Agreement on Tariffs and Services (GATS) covers trade in services (e.g., insurance, consulting, legal services, banking).
• Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) covers international property rights (e.g., patents and copyrights).
• Agreement on the Application of Sanitary and Phytosanitary Measures (the “SPS Agreement”) sets out rules on how governments can apply food safety and animal and plant health measures.

Question 23

Overall, the empirical results on the trade effects of the GATT/WTO are mixed but rather negative

TRUE OR FALSE?

Answer 23

FALSE&raquo_space; Overall, the empirical results on the trade effects of the GATT/WTO are mixed but rather positive

Question 24

Seminal paper by Rose (2004) on trade effects of GATT/WTO.

Answer 24

• Trade gravity model for 175 countries and 50 years.
• Standard control variables.
• „An extensive search reveals little evidence that countries joining or belonging to the GATT/WTO have different trade patterns from outsiders [..]”
• But strong empirical evidence for Generalized System of Preferences (GSP).

Question 25

Subramanian and Wei (2007): WTO promotes trade but unevenly. Stronger trade promotion:

Answer 25

* For industrialized countries. * When both partners liberalized trade. * For sectors affected by trade liberalization.

Question 26

How different is the WTO from the GATT?

Answer 26

• Full-fledged international organization. • WTO‘s Dispute Settlement Mechanism (DSM) maybe most important reform of the Uruguay Round. − More formal and effective settlement procedure. − Panel of experts and fixed deadlines: Cases (usually) no longer than 15 months. − Trade disputes cannot be „dragged on“ indefinitely. − It is not possible to simply “veto” against a ruling. − WTO itself has no enforcement power, but can grant right to retaliate (though very, very few cases get into this stage)

Question 27

WTO’s Dispute Settlement Mechanism

Answer 27

In the beggining there is the idea that consultation and mediation might settle the trade dispute in an early stage. If not successful at the latest after 45 days a panel is set up and the judges will have to rule on the case. The WTO’s DSM provides a clear institutional framework for trade disputes. Approximate periods are targeted figures. Countries can settle their disputes themselves at any stage.

Question 28

United States of America and European Union are most frequent participants in trade disputes at WTO’s DSM. TRUE OR FALSE?

Answer 28

TRUE

Question 29

How is the access of poor countries to WTO's DSM?

Answer 29

Many poor countries have never turned to WTO’s DSM so far due to the high legal costs associated and difficulty to enforce rulings against larger economies  WTO does not enforce any claims for “winner of case”.

Question 30

What are famous examples of dispute cases:

Answer 30

Several cases on Boeing and Airbus between the United States and European Union on illegal subsidies.

Question 31

Who Represents the EU in WTO Negotiations?

Answer 31

The European Union and their 27 EU Member States are members of the WTO.   The European Commission negotiates on behalf of the EU and authorized by the Council.   The European Commission regularly informs the European Parliament of key WTO issues.   When an agreement is negotiated at the WTO, the EC needs the formal authorization of the Council and European Parliament to sign the agreement on behalf of the EU.

Question 32

What are some reasons developments of global governance of trade?

Answer 32

 Strongly driven by the U.S administration: • The seven standing members of the appellate body are elected by consensus of all WTO-members for four-year terms.   • The United States blocked the appointment of new AB members since 2017 to force negotiations addressing US concerns regarding procedural and systematic issues.   • The terms of two of the remaining three AB members has ended in Dec. 2019. Hence, the minimum requirement of two members is currently not fulfilled and the AB will remain inoperative until the appointment of new AB members is made.   • Due to that deadlock, dispute settlement end at the panel stage, resembling how dispute settlement used to work during the GATT era.