WTO (L6) Flashcards
Why do we need a WTO?
- Facilitate world trade (specialisation according to comparative advantage & competition induced efficiency, EOS)
- Prevent spread of protectionism - many governemnts use protectionism to protect powerful domestic firms who will help vote for them to stay in office. (Lobbying)
- Settle disputes - experts hired to review + give recommendations. If complaint accepted, sanction is country A can implement higher trade barriers against country B. (US-CHINA dispute)
- Protects infant industries - who need time to develop technology + grow. Without WTO, they could never grow as they can’t face competition from dominating countries.
Principles of the WTO? (6)
- Non-discrimination: same treatment for all members (MFN) all member countries hold the same tariff for every other country.
- Transparency – use tariffs (you know how much you will be charged) not administrative barriers (Delay products, check products in customs)
- Reduce trade barriers progressively
- Multilateral/negotiate, not unilateral actions – if there’s a problem, talk about it don’t make a unanimous decision
- Fair trade – no dumping (putting price < AC), hurting your market to take control over another country’s market
- Special and differential treatment for developing countries (DC)
How to members negotiate tariffs?
Members bind import tariffs as a % for each product
what are bound tariffs?
maximum level of tariff you promise to set, never going above that.
what is a binding overhand?
the gap between a bound tariff and an applied tariff
how does the binding overhand differ in developed vs developing countries?
small for developed countries, big for developing countries
why do developing countries have a big binding overhand?
When they’re negotiating bound tariffs with members. they need some room to protect themselves. But they still charge their applied tariff lower to avoid hostility.
How is membership formed in the WTO?
by negotation. start bilaterally with main trade partners. then multilaterally.
WTO works by c_______s
consensus. one country can block an agreement.
Is the WTO a success: YES points
- helped trade grow
- its a respected institution
- helped avoid protectionism rise in economic crisis
Is the WTO a success: NO points
- rules are abused
- not much reform in agricultural sector
- doha round stalled since 2008
- rapid growth in bilateral agreements
- existing massive trade imbalances
what did rose 2004 papre detect?
used data to see if WTO increased trade or not, and found no impact.
Challenged by later researchers, if you use a non-parametric approach or exclude oil trade then you can find a positive effect.
What does article 24 say?
You can form FTA if you:
- form it quickly
- cover substantially all trade of particpants
- can’t raise trade barriers against non member but you can keep them there
Is RTA a stumbling block for WTO?
Yes:
- Region trade groups hurt the WTO as world markets would be divided into trade blocks (NAFTA, EU). It could lead to future conflicts between them.
- Bhagwati’s spaghetti bowl effect: Many trade agreements make trade rules very complex and less transparent. It hurts globalisation at a multilateral level.
Are RTA’s a steppingstone for the WTO?
Yes,
-
They can provide experience for the WTO to apply for harder issues such as service trading.
Due to having 100 countries, WTO can have a hard time reaching an agreement, but with regional groups like the EU, it’s eaier to form an agreement to get some experience for the WTO to learn frm. - Can avoid protectionist countries holding up global liberalisation. As WTO is consensus.
- Optimists argue that bhagwati’s spaghetti bowl could turn into open trade.
