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NEKH71: Economic intregration > Part 2: Multilateral integration > Flashcards

Part 2: Multilateral integration Flashcards

1
Q

What is multilateral integration?

A

Non-discriminating economic integration

WTO

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2
Q

What three purposes does the WTO have?

A
  1. A negatiating forum for countries to lower trade barriers
  2. A set of rules (legally binding ex GATT)
  3. A forum for solving trade disputes.
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3
Q

Explain the main points of the WTO’s history:

1944-1994

A
  • 1944 Bretton Woods: start point in wanting an International Trading Org. ITO charter was ambitious
  • 1948: USA does not ratify - leading to the ITO falling apart (says something of USA as an econoic and political power)
  • 1947: Drafts of GATT are made. Though not as ambitious as ITO. 23 members
  • 1947-1994: GATT was the forum for international trade negotiations
  • 1986-1994: The Urugay rounds creating WTO.
  • 1995- today: WTO is the forum for miltilateral negotiations with rules as GATT, GATS and TRIPS (more ambitoius)
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4
Q

What are the components of structure in WTO?

2

A

Organizational structure:
- Ministeral conferance (every two years. most power)
- General council (12 times a year, run by ambassaders
- Comitees (Every commitee focuses on different thing
- Every enber country has right to have a representative in the room. (issue is money)
Structure of agreements’ (rules)
- GATT, GATS, TRIPS

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5
Q

What typ of decision-making do they have in WTO?

How?

A

Most common: CONSUNSUS= no country objects
-one country, one vote, tis can favour small countries but they usually have problems having represants in all votes.

2/3 votes when voting on accepting a new country as a member

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6
Q

Who can apply for a membership in the WTO?

A

Any country of seperate customs terretories wth full autonomy over trade policy

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7
Q

How does one become a member in the WTO?

A

(1. Become an observer)
2. Send letter to WTO Director General: “We want to join”
3. General Council establishes a working party to examine request
(this requires consensus, so if there is a menber countr that really does not want this country to join, they can have veto power)
4. Applicant describes trade plicy in a memorendum.
5. a) Multilateral negotiations, b) Bilateral negotiations
6. Working party agrees on finished negotiations.
7. General cuncil or ministeral Conferance votes
2/3 votes to pass

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8
Q

What is one recent “trend” in the WTO? How come?

A

The demands on applicants have increased heaviliy over time. Why: since the WTO relies on consenus to operate, accepting countries w. diffrent opinions osv
The members feel it is right for the new member to give before thay can take.

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9
Q

What are the 5 codes of conduct for WTO?

A
  1. Non-discrimination
  2. Reciprocity
  3. Enfoceable commitments
  4. Transparency
  5. Safety valves
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10
Q

Some of the codes of conduct contradict/ work against each other, how come?

A
  • non-discrimination can lead to free-riding, reciprocity can reduce that
  • Safety valves can restrict trade sometimes and this is then to secure markets w. market failures. This can be ineffective in an economic point of view, but it can serve other purposes.
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11
Q

how has the structure of WTO affeted its legitimacy, rules and cooperation?

A

By having minesteral conferences every other year its demand attention from the member countries and its populations so that it is’nt forgotten. This gives it legitimacy and upholds its rules. It is also positive for the cooperation and a way of upholding peace.

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12
Q

What are some useful critera to help understand a country’s influence in WTO?

A

Its share in world trade
Trade dependness/ openess
Ratio of exports and imports to gdp and absolute size of its market.

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13
Q

How does the prisoners dilemma relate to why countries trade?
How does WTO impact this game?

A

You can make an example with two countries (or trade regions) deciding wheter to trade or not.
Both choosing not to trade: bad for both
One choosing not to trade: Good for the country choosing not to trade
Both trading: good for both
We will then get a game with a dominant strategy where both choose not to trade and thereby lose.
With WTO countries can work against this dominant strategy by binding themselves to trade

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14
Q

What is the lock-in mechanism?

A

It is forseeing that a future version of a country may not want to argue for free trade (ex. Trump) and by commiting to free trade by WTO we can prevent that from happening.

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15
Q

How does lobbying act in the political economy?

A

Since there are few companies that gain from trade barriers, they have money to spend on lobbying while the large amount of losers (consumers) only lose little but the final amount is larger. But they don’t have incentives to lobby for trade -> problem with collective action.
Solution: In negotiantions, countries offer their own liberalization to motivate other countries to do the same. Easier to trade when you know you have someone to trade with.

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16
Q

What three trends have we had in negotioation rounds since GATT?

A
  • More countries joining over time
  • More issues being covered
  • Rounds lasting longer periods of time
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17
Q

What happened in Doha round and how is this a risk for WTO?

A

Doho round was an ambitious round that didn’t reach consensus leading to is being declered dead
This is worrysome since the negotiation is a core purpose of WTO

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18
Q

What are plurilateral agreements?

A

Groups of WTO members to agree on rules and issues that are not covered by the WTO
(All WTO rules apply to all me,bers!)
Can be solutions to difficult negotiations but it goes agains the non-discrimination policy

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19
Q

What the 5 steps for disspute settlement?

A
  1. Consulations: Misunderstanding? easy solution?
  2. Request for a panel: After 60 days, a panel is created and this must be approved by the original compliants. Panel has diffrent experts in trade. Panel is established by Dispute Settlement Body (DSB)
  3. Panel at work: objective assessments of facts and make a report to the DSB
    4a) adoption of report 4b) appeal: Case is sent to apppellate Body (AB) and they say if report is valid and then we go to 4a.
  4. Implementation: Within a reasonable period of time, otherwise punishment and new dispute settlement case.
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20
Q

What does GATT stand for?

A

General agreement on Tariffs and Trade

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21
Q

What for rules does GATT contain?

A
  1. Nondiscrimination
  2. Tariffs as the principle only allowed instrument
  3. Tariffs are binding
  4. Other policies cannot go against the principle on non discrimination or agreements about market access.
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22
Q

What is an important note when talking about GATT?

A

It does not say “don’t regulate trade” but more that IF you regulate trade, here are some rules

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23
Q

What does the MFN mean and what does it imply?

What does it apply to (economic measures)?

A

Most Favored Nation: Part of non-discrimonation policy that says that “a product in one member country cannot be treated any less favourably than a “like” product originating from any other country”
=> Market access: WTO-members must treat all member coutries as well as their most favoured trading partner.
Applies to tariffs, restrictions etc

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24
Q

What are the exceptions for MFN?

A 
Regional integration (as it is based on discrimination)
Non-reciprocal preferences for developing countries
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25
Q

What does national treatment contain?

What does is cover/not cover?

A

It says that “foreign goods cannot -once they have paid tariffs and other border measures- be treated less favourably than like or directly compretetive products produces domestically”
=> countries cannot discrimnate against foreign goods with domestic policies.

Covers almost all domestic policies ex. taxes and regulations. Does not cover subsidies or government procurement (supply)

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26
Q

What are the rules on Tariffs?

Exceptions?

A

in principle, tariffs are the only plicy instruments allowed by GATT.
Rules: 1) Follow MFN 2)Tariffs should be bound (GATT article 3) This creates a tariff ceiling so tha tcountries can “predict worst case scenario”
Exceptions: Agricultural goods.

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27
Q

What is the diffrence between a bound tariff and applied tariff?

A

A bound tariff is the tariff that is the maximum allowed level of tariff.
Applied tariff is the actual level of tariff that a coutnry has at border

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28
Q

What is a tariff schedule?

A

Every country has a tariff schedule and it is a list of goods with their respective tariff levels.

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29
Q

What is Binding overhang?

implications of binding overhang?

A

Binding overhang is the gap between the applies tariff and the bound tariff
Implications: Negotiationg on tariffs usually refer to bound tariffs and not applied.
countries have flexibility in their applied tariffs.

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30
Q

What does MD, MS and XS stand for?

A

MD= import demand, MS=import supply, XS=export supply

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31
Q

What are the assumptions when doing a tariff analysis?

A

Two countries: Home and Foreign
Perfect competition
Constant returns to scale

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32
Q

What is the diffrence between border price and domestic price?

A

Dom. Price= price facing DOMESTIC producers and consumers

Border price= Price paid by home for imports = the price faced by foreign exportes

33
Q

How do you derive the MD and XS curve in a setting where Home has higher price (no trade) and face an price decrease, Foreign has a low price (no trade) and faces a price increase?

A
  • We have an empty graph in middle of Home and foreigns graphs(P Y-axis, Q X-axis)
  • Home has P(autarky) -> pin this in empty Graph at intercept of Y-axis -> price decrease -> supply wont meet demand -> pin new price P’ at Q where we have (demand-suplly) -> draw line between pins to find MD
  • Do the same for forgein but here we will get a supply surplus (supply-demand) -> draw line to find XS
34
Q

In a case with free trade and no tariff what will the import and export curves imply?

A

Thas the import supply for Home = export supply for Foreign.

35
Q

When is prie and quantity in equilibrium when we have free trade?

A

when MS=MD

36
Q

How do we denote price and quantity at free trade?

A

P(ft) M(ft)

37
Q

What will happen in a MS/MD-diagram where we have Home (large importer) and Foreign (RoW who exports) and Home imposes a MFN tariff
Initial situation: free trade

A

Free trade -> MS=XS, domestic price = border price -> Home imposes specific tariff T -> MS shifts up by T (MS=XS +T) -> MD does NOT change ->
Effects:
Domestic price goes up
Imported quantity goes down
Border price goes down
Home prod goes up
Home consumption goes down -> imports go down
Domestic price foreign: same as border price in Home
Foreign prod down
foreign consumption up

38
Q

When doing economic analysis and looking a effects (not welfare) What are we looking at?

A
  • Domstic price home
  • Imported Q
  • Border price
  • Home production
  • Home consuption
  • Domestic price Foreign
  • Foreign production
  • Foreign consumption
  • Exports and imports
39
Q

What will the welfare effects be if a Large country (Home) imposes a tariff?

A 
Home: the domestic price will go up
Consumer surp: -(a+b+c+d)
Producer surp: +a
Government revenue: +(c+g)
Net welfare eff: g-(b+d)
Ambiguous result, depend
Foreign: The border price will go down 
Consumer surp: +a*
Producer surp: -(a*+b*+c*+d*)
Gov rev: nothing 
Net welfare eff: -(b*+c*+d*)
Welfare falls

World net: g-(b+d)-(b+c+d*)
The welfare in world will fall

40
Q

When a large country imposes a tariff, what will happen to its welfare? (only words)

A

The large country imposing tariff may gain or lose welfare, depends on size

41
Q

What are the risks with imposing a tariff?

A

It might lead to retaliation from the country

42
Q

How do we construct a tariff analysis for a small country?

A

The MS curve (import supply curve) will be horizontal!

The small country imposes a tariff: P* becomes P*+T. This new price will cross the MD curve higher up -> imports go down

43
Q

What is a subsidy?

A

It is a kind of policy that has a direct impact on government budget and affects the production of goods ex. direct payments, tax concessions, soft loans

44
Q

How will a subsidy analysis look for a small country where the initial situation is that we have free trade and we import D1-S1
What happens when Government use domestic subsidy?
What happens to domestic demand, domestic production and imports?

What are the welfare conclusions?

A

Producers will now be paid s for every unit they produce -> producers will therefore be able to produce more than they could before -> The supply curve will shift downwards by s -> new equilibrium where the import demand gets smaller

Remember: the domestic price will unchanged

Demand: unchanged
domestic production: goes up
Imports: Goes down

Welfare: Subsidys lower overall welfare

45
Q

Tariffs vs Subsidys?

A

Subsidys are less distortive than tariffs and are more visable. It is easier to see how much money is spent on subsidies in a budget than it is to know what the tariff levels are for every good etc

46
Q

Explain what technical regulations and product standards are:

A

Product standards:
a description of characteristics that a product can have. Voluntary and not covered by WTO rules.

Technical regulations:
a legally binding requirement decided by government, that goods have to have cartain haracteristics in order to enter market

47
Q

What are some motives for enforcing technical regulations?
What are some examples of TRs?

What can become an issue with countries having diffrent TRs`?

A
  • protecting the environment, protecting health of citizens
  • Though it can also be that they have protectionistic agenda, this is a problem for the WTO

Examples: that cars ust have seatbelts, cigarette packages must have warning lables
labels showing exact contents of product.

Problem can be that a firm has to accomodate to loads of diffrent regulations, making it ore difficult to have increasing returns to scale. Also takes more resources to “prove” that the good is fulfilling reguirements

48
Q

What are sanitary and phytosanitary measures?
Examples?
Goals?
What are the rules of SPS?

A

special subset of TRs that specifically aims to protecting human, animal and plant health.

Examples: having goods come from a disease free area, treatmnt and processing, max levels of pesticide residue

Goals:
algae spread killing trees, TTIP

Rules:

  • should not discriminate
  • not allowed to disguise protectionism
  • be based on thernational standards(science)
49
Q

What is trade facilitation?
What type of information can this be?
What are the issues with trade procedures

A

Trade facilitation is the aim of making trade proedures less frictional and more harmonizing.

Info:

  • Worth of product
  • Procedure of product
  • Characteristics of product
  • Type of product.
  • Does product follow TRs and SPS

Issues:

  • There ia a lot of inforation to be collected.
  • Sometimes it is not easy to understand what information they want (difficult terms etc)
  • Long waiting times (goods mght go bad)
  • Paperwork takes time, therefore a cost
50
Q

What are some examples of trade facilitation in practise?

A
  • Do not ask for information that is not needed
  • digitalizing
  • simplifying forms
  • Easy to find regulations online
  • collecting info ahead of time
51
Q

If we compare two scenarioes: tariff libeariztion and trade facilitation, what will the changes in welfare be in each scenario?

Starting point is small importing country with either a tariff or inefficent trade procedures that are equivilent to the same size of the tariff.

A

removing tariff/ trade facilitation will lead to domestic price decreasing from Pw+T to Pw

Tariff liberalization:

  • Import quantity will rise
  • PS will decrease
  • CS will increase
  • Gov. Rev will decrease to no revenue

Trade facilitation:

  • PS will decrease
  • CS will increas
  • Gov revenue will be unchanged

-> nwt welfare effect will be higher for trade facilitation

52
Q

Why is trade facilitation becoming more popular?

A

Because increased trade flows yields economic growth, Since some countries still rely on tariff revenue, this is a way for them to increase trade flows, but still get the revenue.

53
Q

What are safeguards and exeptions?

Why are safeguards needed?

A

It is rules that specify under which circumstances a government can withdraw from a their normal obligations in order to protect some overriding interest

  1. Savety vales
    under certain circumstances it might be difficult for the government to live up the trade agreements, this gives them a legal way of bringing back trade barriers without creating a trade war.
  2. If there are no safeguards and exceptions, countries might not sign agreements in the first place.
    - > This gives some flexibility
54
Q

What are some examples of safeguards in GATT?

A

Temporary:
- Emergency protection (Article XIX GATT) temporary protection where imports threaten to cause serious injury to domestic producers.

  • Anti-dumping (Article VI GATT): Measure to offset dumping i.e when firms charge a lower price in export market than in home market.
  • Counterveiling duties: Measures to offset the effect of other countries’ subsidies

Permanent:
- General Exceptions (Article XX GATT): Measures may be takes with with non-economic objectives as long as they are discriminatory and are not protectionism in disguise.

  • National security exeption (Article XXI GATT): Allows intervention based on national security considerations.
55
Q

Why are emergency protection typically not used?

A

Because they have to be non-discriminatory, exporting countries should be compensated
These cases also tended to lose in the Dispute settlement system.

56
Q

What is dumping?

Why dumping?

A

It is when a firm sells a product for a smaller price than the “normal Value” in export market. Normal price being the domstic price.

Why?
Because prices in domestic market is higher than world price, ratehr than price in export market bein too low
Though it can also be predatory dumping: setting low prices in export market to drive out existing domestic firms out of business and then take a monopoly power

57
Q

What is predatory dumping?

A

setting low prices in export makret to drive out existing firms and then taking a monopoly position in that market.
Though this implies that they have to be able to prevent re-entry which makes this difficult for it to work in practise

58
Q

Is dumping allowed?

A

It is not banned by WTO but countries are allowed to impose anti-dumping tariffs which are discriminatory

59
Q

What rules are there in the WTO regaarding anti-dumping?

A

Anti-Dumping Agreement (AD agreement)
To impose an AD, country need to show:
- dumping is taking place
- import competing idustry is suffering “material injury”
- Injury is caused by dumping and not other factors

60
Q

What is wrong with anti-dumping?

A

It can work as a loophole for countries to break rules.
Investigations that may lead to AD are very complicated and non-transparent which can lead to incentives to “finding” dumping.

61
Q

What are counterveiling duties?
When can CVDs be used and not?
What is something negative with CVDs (welfare)

A

They are retliatory tariffs aimed at countries thar use subsidies. They only target certain countries.

Can’t be used against subsidies that target non-economic rationale ex. education, income support (non-actionable subsidies)

Can be used against subsidies that injure a country’s domestic industry (actionable subsidies)

The welfare of consumers will probably decrease

62
Q

What type of agreement is article XX and what does is say?

A

Article XX in GATT = general exeptions and is a permanent measurethat may be taken for “non-economic objectives.
- Protection of public morals, health and safety of human and plant lives, to secure compliance with other GATT rules, prevent import goods produced in prisons, conserve natural exhaustable resources
THOUGH this must always be non-discriminating

63
Q

GATS Article I: what four modes of supply do we have?

A
  1. Cross-border trade: Services suppliead from one country into another ex. exchange students
  2. Consumption abroad: Consumers from one country travel to another country to consume servce ex. turism
  3. Commercial presence: Supplier of service establishes plant abroad (FDI)
  4. Presence of natural persons: Services are supplied by nationals of one cpuntry in the territory of another ex. guest lecture via zoom.
64
Q

What kind of barriers to trade do we have in GATS?

A

Visa fees, Entry or exit taxes,

Policies and regulations:

  • prohibitions or quotas
  • subsidies for domestic providers
  • non-recognition of services bought abroad ex degrees
  • discriminatory standards demanding higher quality for imported services
  • Disriminatory access to distrubution networks ex train tickets
65
Q

What does GATS cover?

A
  • Does not define what a service is but it has Article I with 4 odes of supply
  • does not apply to services provided bu governments or measures regarding citizenships, residence or employment on permanent basis
  • Does cover FDI
66
Q

What are three important articles of GATS and what do they say?

A

MFN (Article II): General commitment

National Treatment (Article XVII): Specific commitment meaning that it only applies to service sectors listed in country’s individual schedule

Market Access (ARTICLE XVI): specific commitment
these barries are prohibites:
- limitations in number of services
- limitations of value of transactions
- limitations on foreign capital
- limitations on natural persons
67
Q

What is GATT article I?

A

MFN

68
Q

What is GATT article XXIV?

A

The exception for regional integration

69
Q

What is GATT article III?

A

national treatment

70
Q

What is GATT article II?

A

Tariffs should be bound

71
Q

What is GATT article XIX?

A

Emergency protection

72
Q

What is GATT article VI?

A

Anti-dumping and CVDs

73
Q

What is GATT article XX?

A

General exeptions

74
Q

What is GATT article XXI?

A

National security exeption

75
Q

What is GATS article I?

A

Definition of four modes of supply

76
Q

What is GATS article II?

A

MFN

77
Q

What is GATS article V?

A

Exeptions to MFN: econoig integration

78
Q

What is GATS article XVII?

A

National treatment

79
Q

What is GATS article XVI?

A

Market access

NEKH71: Economic intregration (4 decks)

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