Week 9&10: The global trading system – the GATT and WTO Flashcards
What are the types of interdependencies in National Autonomy?
- Sensitivity Interdependence: Changes in economic variables or policies in one country can significantly influence similar variables or policies in another country
- Highlights the interconnectedness of economies and the potential for ripple effects across the global economic system - Vulnerability Interdependence: The risk that political actors may exploit economic interdependencies for their own gain, potentially leading to manipulation or coercion in international relations
- Highlights the susceptibility of countries to external pressures or disruptions arising from their interconnectedness in the global economy
What is the logic of the market vs logic of the state?
The tension between market forces, driven by competition and efficiency, and state intervention, which aims to regulate markets and protect national interests
what is Absolute gains from cooperation?
- Focused on benefits that all parties leave from cooperation with
- Central idea: IT and cooperation can create a positive sum-game where all parties participating gain
- Main focus of international economists
- Theory of comparative advantage
What is relative gains from cooperation?
- Distribution of gains among countries
- How much a country gains relative to others, can influence power dynamics
- Mercantilist focus - cooperation is a zero-sum game where one’s gain is another’s loss
Why would a country avoid international cooperation?
- Because countries can be worried about the differences in their relative gains from cooperation (you gain more than I)
- Prisoners dilemma: with cheating we can end up better off, than with cooperation
What is Pareto Optimality?
- A state of resource allocation where no individual or group can be made better off without making another individual or group worse off
-Pareto efficiency implies that resources are allocated in the most economically efficient manner, but does not imply equality or fairness. - Represents an efficient allocation of resources where it’s impossible to improve one party’s situation without negatively impacting another’s
What is the two-level game?
Conceptualizes international negotiations as a process where leaders simultaneously negotiate both DOMESTICALLY (with their own constituents or interest groups) and INTERNATIONALLY (with other states or actors), aiming to achieve agreements that satisfy both levels of negotiations
What are the two central assumptions in the State centered approach?
- Under certain circumstances, trade policy can increase the total welfare of a society
- States can work independently from interest groups – therefore the state can have its
own goals to be achieved
How was the international Trading system before and around WWII?
- 19th century: the first trade agreements; bilateralism; Regionalism (German customs union)
- Interwar period: 1929 crisis: trade barriers are introduced to boost domestic economies –economic nationalism
Smooth Hawley Act (1930): Enacted by the US, imposed high tariffs on a wide range of imported goods, leading to a significant increase in trade barriers
Disruption of international trade – trade war emerged - Bretton Woods conference - 1944: Proposed the creation of the International Trade Organisation (ITO) to incorporate the unwritten rules and legislations of MNCs to avoid trade wars
Only the negotiations concerning monetary issues were entirely successful
What was the GATT?
- General Agreement on Tariffs and Trade:1947
- Agreement among the member nations to decrease trade barriers and place all nations on an equal footing in trading relations
- It didn’t include all economic sectors
- It was never intended to become an organization however in 1995 it turned into the WTO
Major principles of the GATT?
- Trade without discrimination
- Promoting free trade
- Binding and transparency
- Multilateral trade negotiation rounds
When was the GATT transformed into WTO?
January 1st, 1995
What is the WTO?
- Membership organization, 164 members, 97% of world trade
- Governs the conduct of trade relations among its members
- Applies the same rules of conduct as GATT
- Has a dispute settlement mechanism
- All its agreements are binding
What are the critics of the WTO?
- A symbol of globalization therefore used as a scapegoat for shortcomings of free trade
- Environmental concerns
- Damage to developing countries
- Non-democratic decision making
What are Retaliatory tariffs?
WTO mechanisms used for enforcing WTO rulings when a member country is found to be in violation of trade rules or agreements
What was the Doha round?
- 2001-2008
- The Doha Round is the latest round of trade negotiations among the WTO membership. Its aim is to achieve major reform of the international trading system through the introduction of lower trade barriers and revised trade rules.
- The round faced numerous challenges and stalled due to disagreements among member countries over key issues such as agricultural subsidies, tariffs, and intellectual property rights, leading to prolonged delays and ultimately an impasse in negotiations
- During the Doha Round negotiations, various coalitions of countries formed to advance shared interests and priorities, often based on geographic proximity, economic similarities, or common development goals
What was the Doha development agenda?
Addressed accusations of developing countries but didn’t succeed much due to diverging interests and lack of compromise
What is the WTO plus?
Agreements on more specific things such as technical barriers to trade, environment, TRIM (Trade-Related Investment Measures) or services
What is WTO x?
Agreements not already in WTO addressing a broader array of modern and emerging trade-related issues
What is Economic integration?
- The process through which countries reduce trade barriers, coordinate their economic policies to facilitate the free flow of goods, services, capital and labor across borders
- Leads to the unification of two or more national economies into a regional trading arrangement
What are the types of regional trade agreements?
- FREE TRADE AREA:
- NAFTA
- Association of trading nations
- Ms agree to no tariffs among each other but make up their own trade restrictions against outsiders - CUSTOMS UNION:
- BENELUX
- Agreement among two or more trading partners
- MS agree to no tariffs among each other and uniform trade restrictions on others
- Encompasses just goods - COMMON MARKET:
- Beginnings of EU
- Group of trading nations
- Free movement of goods and services among MS as well as factors of production
- Common external trade restrictions against non-members - ECONOMIC UNION:
- EU today
- National, social, taxation and fiscal policies are harmonized and administered by a supranational institution - MONETARY UNION:
- Ultimate degree of economic union
- Unification of national monetary policies
- Acceptance of a common currency administered by a supranational monetary authority
What are the motivations for regional trade arrangements?
- Static effects of economic integration:
- Enhance productive efficiency
- Increase consumer welfare
- Increasing FDI - Dynamic effects of economic integration:
- Relate to long-term rates of growth
Difference between trade CREATION and trade DIVERSION:
Trade creation: occurs when more efficient producers within the region replace less efficient domestic producers, leading to increased trade and overall welfare gains
Trade diversion: occurs when less efficient producers within the region replace more efficient external producers, leading to trade shifting from lower-cost external sources to higher-cost internal sources, potentially reducing overall welfare gains
What are the political motivations for regional integration?
- The political (economic) dimensions of regional integrations: Formulating alliance and international rules
- Security reasons
- Political theories: integration, federalism, functionalism and intergovernmentalism
What is functionalism?
Integration among states occurs through cooperation in specific functional areas (e.g., trade, environment) leading to broader political integration
What is intergovernmentalism?
- Both a theory of integration and a method of decision‐making in international organizations, that allows states to cooperate in specific fields while retaining their sovereignty.
What is Autarch?
An economic situation where a country or a region aims to be self-sufficient and does not engage in international trade. Producing all necessary goods domestically
Talk about the history of regionalism:
- 19th century:
- German Customs Union
Monetary corporations - 1950s and 1960s:
- Mostly trade-focused regional goals
- Limited impact except in Europe - 1980s- emergence of new regionalism:
- Expansion beyond trade to finance and other areas
- Pursuit of broader regional objectives - Growth: Over 180 regional arrangements by the late 1990s
Describe the possible Third wave of regional trade:
- Goes beyond traditional free trade areas (FTAs)
- Non-regional - bi and multilateral FTAs
- Hybrid (combining traditional FTA and deepening the integration) or cherry-picking types (the practice of selectively incorporating certain elements or benefits from different types of trade agreements to create hybrid agreements)
- Megaregions - large-scale trade agreements that involve multiple countries across different regions, aiming to create extensive and comprehensive economic integration (ex. EU-MERCOSUR, EU-Canada, TTIP, RCEP, etc.)
What is Mega-regional trade?
Large-scale trade agreements that involve multiple countries across different regions, aiming to create extensive and comprehensive economic integration
Ex. EU-MERCOSUR, EU-Canada, TTIP, RCEP, etc.
