The document outlines the evolution of trade theory, highlighting key contributors like Adam Smith and David Ricardo, and the impact of factor endowments on gains from trade. It discusses the history of U.S. trade policy, the establishment and rules of the GATT, and the multilateral trade negotiations from the 1947 Geneva Round to the present Doha Round. Key issues in these negotiations include tariffs, subsidies, and intellectual property rights.

1. Y669 International Political
Economy
September 14, 2010

2. Pioneers of Trade Theory
• Adam Smith, The Wealth of
Nations (1776) – first defense of
free market policies
• David Ricardo, Principals of
Political Economy and Taxation
(1817) - introduced theory of
comparative advantage

3. Graphical Version of Ricardian
Theory

4. Heckscher-Ohlin Model
• Basic model: two countries, two goods, two
factors of production (Ricardo only had one)
• Differences in factor endowments lead to “gains
from trade”
• Both countries will be better off if they specialize
in producing goods which require a relatively
abundant factor and then trade with another
country
• For maximum benefit, the other country should
have a very different factor endowment

5. Let’s Play the Trade Ruler
Game!
• http://nobelprize.org/educational_games/economi

6. History of U.S. Trade Policy
• Smoot-Hawley Tariff of 1930
• Depression High Tariffs
• FDR (espec. Cordell Hull) favors free trade
for post WW2 period
• 1947 -- Congress rejects
International Trade Organization treaty
proposed initially at Bretton Woods
• The GATT becomes the main trade regime

7. Overall Tariff Levels and
Trade/GNP, 1850-1990

8. Source: International Monetary Fund, Direction of Trade
Statistics Yearbook
(various years).
Figure 3-2. Growth in World Exports, 1958-2006,
in Billions of Current Dollars

9. Figure 3-3. Trade/GDP in the US, Britain, Germany,
France, and Japan, 1960-2006, in Percentages
Sources: World Bank, World Development Indicators 2001 CD-ROM (Washington,
D.C.: World Bank, 2001): OECD.Stat, http://stats.oecd.org/.

10. Main Rules of the GATT
• Nondiscrimination among members of the
GATT
– most favored nation (MFN) principle
– tariffs must be adjusted to reflect MFN levels
• Participation in multilateral trade
negotiations to lower tariffs and
nontariff barriers
A tariff is a tax that is charged on the
value of imported goods.

11. Multilateral Trade Negotiations
• 1947 Geneva
• 1949 Annecy
• 1950 Torquay
• 1956 Geneva
• 1960-61 Dillon
• 1962-67 Kennedy
• 1973-79 Tokyo
• 1986-93 Uruguay
• 2000- Doha
Biggest tariff reductions occurred in the Kennedy Round.
Tokyo Round began discussions of non-tariff barriers.
Uruguay Round established the basis for the World Trade
Organization.

12. Main Issues in the Tokyo Round
• Tariffs
• Conflict resolution; dispute settlement
• Nontariff barriers:
– subsidies
– government procurement
– standards
– custom valuation
– licensing

13. Example of a Subsidies Dispute:
Airbus vs. Boeing
This is
a Boeing
777
This is an Airbus 300
Latest WTO ruling (video)

14. Main Issues in the Uruguay
Round
• Agriculture (mainly subsidies)
• Trade in Services
• Trade-related Intellectual Property (TRIPs)
• Trade-related Investment Measures
(TRIMs)
French farmers
protesting the
Maastricht Treaty
inEurope.

15. Multilateral Trade Negotiations:
The Doha Round
• Begun in early 2000
• Major conferences so far:
– 2001 Doha (Qatar)
– 2003 Cancun
– 2004 Geneva
– 2005 Hong Kong
– 2006 Geneva
– 2007 Potsdam
– 2008-9 Geneva Pascal Lamy calls time out
on Doha Round in 2006

16. Main Issues in the Doha Round
• Timing of implementation of Uruguay
Round agreements, espec. Agriculture,
services, regional agreements,
TRIPs/TRIMs
• Reductions in agricultural subsidies and
textile/apparel tariffs in the rich
industrialized countries