World Trade Organization: Background and Bargaining

Question 1

Basic Principles of the GATT/WTO

Answer 1

1. Market liberalism
   
   • Asserts that an open or liberal international trade system raises the world standard of living
   • Every country would achieve a higher standard of living with trade than they could achieve without trade
   • The gains from trade are the greatest when goods can flow freely across borders unimpeded by government-imposed barriers
2. Non-Discrimination
   
   • MFN: prohibits governments from using trade policies to provide advantages to some countries and not others, so all WTO members have to treat all other members as their favorite trading partner
     -Two exceptions to MFN
     —> Governments can depart from MFN if the join a regional trade agreement (eg. NAFTA)
     —> Generalized System of Preferences allows advanced industrialized countries to apply lower tariffs to imports from developing countries
   • National Treatment: prohibits governments from using taxes, regulations, and other domestic policies to provide an advantage to domestic firms at the expense of foreign firms, so they must treat domestic and foreign goods similarly once they enter the domestic market

Question 2

Steinberg - Consensus-Based decision making

Answer 2

• Why would the WTO want to have consensus-based decision making, when some countries could get their way more easily if it was wighted or other voting scheme?
• This provides legitimacy so it encourages more countries to join because they would have more say in the policies
• Powerful states nonetheless have influence on decision making through other means, such as side-payments or issue linkage
• Criticisms: There are situations where agreements can reach a deadlock since smaller states will not concede (eg. Doha Round)

Question 3

Decision-Making Systems (Steinberg)

Answer 3

• “In the shadow of law”: bargaining power derived from substantive and procedural legal endowments
• “In the shadow of power”: legislative bargaining outcomes in international organizations is a function of interests and power

Question 4

Bargaining in the WTO

Answer 4

• Sovereign equality decision-making in the WTO
• Every member has the right to take part in all meetings, and introduce amendments
• A consensus decision requires no manifested opposition to a motion by any member present

Question 5

Why a Consensus Decision-Making Rule?

Answer 5

• To preserve legitimacy of the organization
• Relative market size as a source of bargaining power:
  - power of agenda setting
  - contextual issue linkage
  - best alternative to a negotiated agreement
• Shadow of power as an example of informal governance

Question 6

Least Developed Countries and the GATT

Answer 6

• LDCs were skeptical that trade could contribute to economic development
• GATT often seen as economic imperialism rather than an instrument to achieve economic growth
• LDCs pursued three mechanisms to increase economic growth:
  
  1. Commodity Price Stabilization: setting a price floor for commodities
  2. Financial transfers from developed countries
  3. Reduction of tariffs on primary commodities by advanced economies
• Only received two concessions
  - Three articles in the GATT focusing on LDCs, and Generalized System of Preferences

Question 7

De Jure vs. De Facto Depth

Answer 7

De Jure depth:
- no reciprocity
- entrants have no means of altering the market access
- the more valuable a country appears to export-oriented interests, the more likely they are to pressure governments into lower de jure depth and requirements imposed on the entrant

De Facto depth:
- decided by entrants after having bargained bound tariffs
- import-competing industries can push their governments to raise their Bound(post) tariffs as high as possible
- democratic institutions leave governments more vulnerable to such domestic industry pressure