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Lecture 3 Trade liberalization
The document discusses trade liberalization efforts from the Great Depression era to the present. It describes how the Smoot-Hawley Tariff Act exacerbated the Great Depression by sparking a trade war. In response, the Reciprocal Trade Agreement Act of 1934 started negotiating bilateral trade deals. After World War 2, the General Agreement on Tariffs and Trade was signed in 1947 to liberalize global trade, resulting in several negotiation rounds cutting tariffs. The World Trade Organization was established in 1995 as a permanent institution to oversee international trade, including dispute settlement. Criticisms of the WTO include undermining sovereignty and environmental/inequality concerns.
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Lecture 3 Trade liberalization
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- 2. 1. The GreatDepression, Smoot-Hawley Tariff Act & the Reciprocal Trade Agreement Act The Great Depression was the worst economicperiod in the US history
- 3. 1. The GreatDepression, Smoot-Hawley Tariff Act & the Reciprocal Trade Agreement Act The Great Depression Period – 1929-1939 Reason – stock market crashed Industrial production 47% GDP 30% US Banks – half collapsed Stock shares -1/3 of value Unemployment– ¼ of population
- 4. 1. The GreatDepression, Smoot-Hawley Tariff Act & the Reciprocal Trade Agreement Act The Great DepressionPeak, 1933– 24,9% unemployment rate 15 million Americans (125.6 million) 1939 - 19% jobless rate Domestic agriculture and industries cried out for help - protection
- 5. 1. The GreatDepression, Smoot-Hawley Tariff Act & the Reciprocal Trade Agreement Act The Great DepressionMore than 1.000 economists disagree withthe protectionism! The Smoot-Hawley Tariff Act, 1930
- 6. 1. The GreatDepression, Smoot-Hawley Tariff Act & the Reciprocal Trade Agreement Act The Smoot-Hawley Tariff Act was passed into law in June 1930 with the goal of protecting American farmers and other industries from foreign competition. It raised tariffs on foreign products by about 60% protecting around 20.000 US products!
- 7. 1. The GreatDepression, Smoot-Hawley Tariff Act & the Reciprocal Trade Agreement Act At least 25 countries respondedby increasing their own tariffs and even boycott Americangoods! In the next two years, US imports fell 40%. International trade declined drastically, resulting in a worldwide decline of 66%between 1929 and 1934
- 8. 1. The GreatDepression, Smoot-Hawley Tariff Act & the Reciprocal Trade Agreement Act The Great Depression inspired a great wave of Protectionismaround the World, beginning withthe Smoot-Hawley Tariff Act of 1930 in the US
- 9. 1. The GreatDepression, Smoot-Hawley Tariff Act & the Reciprocal Trade Agreement Act A change in direction! RTAA – Reciprocal Trade Agreement Act, 1934 President F. Roosevelt was authorized to negotiate bilateral trade tariffs reductions with other countries! The New Deal
- 10. 1. The GreatDepression, Smoot-Hawley Tariff Act & the Reciprocal Trade Agreement Act The RTAA, 1934 Over60 bilateral trade deals were negotiated under the RTAA The RTAA was the start of TRADE LIBERALIZATION!
- 11. 2. The GeneralAgreement on Tariffs and Trade - GATT After WorldWar 2
- 12. 2. The GeneralAgreement on Tariffs and Trade - GATT Bretton Woods Conference, 1944
- 13. 2. The GeneralAgreement on Tariffs and Trade - GATT Bretton Woods Conference, 1944 The IMF The WB The ITO The GATT = Monitor & Regulate the international fixed-exchange rate systems = Assist with loans for Reconstruction and Development = Regulates International trade – never come into existence! = signed in 1947, by 23 countries, was a legal multilateral agreement that aimed to minimize barriers to International trade, by eliminating or reducing tariffs, quotas and subsidies! The GATT was intended to boost economicrecovery after World War II through reconstructing and liberalizing global trade.
- 14. 2. The GeneralAgreement on Tariffs and Trade - GATT GATT, 1947 The GATT instituted the Most-favored-nation (MFN) principle in tariff agreements among members. Once a country had negotiated a tariff cut with some other countries (usually its most important trading partners), this same cut would automatically applyto all GATT signatories.
- 15. 2. The GeneralAgreement on Tariffs and Trade - GATT There were 8 negotiation roundsunder the GATT Decisions are made by consensus: “Nothing is agreed until Everything is agreed”. Year Title Mainsubject countries 1947 Geneva Tariff reduction 23 1949 Annecy Tariff reduction 13 1951 Torquay Tariff reduction 38 1956 Geneva Tariff reduction 26 1960-61 Dillon Tariff reduction 26 1964-67 Kennedy Tariffs, Anti-dumping measures 62 1973-79 Tokyo Tariffs, Non-tariff barriers 102 1986-94 Uruguay Tariffs, nontariff barriers, services, intellectual property, dispute settlement, textiles, agriculture, creation of WTO 123 2001 Doha UNDER WTO - Agriculture, services, intellectual property, competition, investment, environment, dispute settlement 147
- 16. 2. The GeneralAgreement on Tariffs and Trade - GATT Tariff decreased – Quota increased! Quota decreased – NTBS increased! GATT, 1947
- 17. 3. The WorldTrade Organization- WTO The GATT was provisional! The GATT The WTO GATT had “contracting” partners! Dealt with trade of goods! The WTO and its agreements are permanent! The WTO has “members”! (164) Trade of goods, services, intellectual property! SAME AIM– Trade liberalization and lowering trade barriers! WTO, 1995
- 18. 3. The WorldTrade Organization- WTO The most important “power” of the WTO – DisputeSettlement Consultations Panel formation Appeals Resolution
- 19. 3. The WorldTrade Organization- WTO The WTO forecasts a 9.2%declinein the volume of world merchandise trade for 2020, followed by a 7.2%rise in 2021. These estimates are subject to an unusually high degree of uncertainty since they depend on the evolution of the pandemic and government responses to it. Latest WTO trade forecast
- 20. 3. The WorldTrade Organization- WTO Criticism of the WTO
- 21. 3. The WorldTrade Organization- WTO Criticism of the WTO
- 22. 3. The WorldTrade Organization- WTO Criticism of the WTO
- 23. 3. The WorldTrade Organization- WTO Criticism of the WTO The WTOis destroying the environment! The WTOis increasinginequality! The WTOhurts poor countries in favor of rich powerful nations The WTOundermines state sovereignty! Import duties are high! Maintenanceof agriculturedevelopment in developedcountrieswhiledeveloping countries are restrictedfrom opening their market The WTOis controlledby the larger nations!
- 24. Homework 1) Explain whathappened in the period between the Roaring Twenties and the Great Depression! 2) Why ITO has never come into existence? 4) List the main differences between RTAA – GATT- WTO! 3) There were several anti-WTO protests around the world. What are their main requirements?
Editor's Notes
- #3 https://saylordotorg.github.io/text_international-economics-theory-and-policy/s04-04-the-great-depression-smoot-haw.html
- #4 https://www.businessinsider.com/what-caused-the-great-depression
- #5 https://www.businessinsider.com/what-caused-the-great-depression https://www.investopedia.com/terms/g/great_depression.asp The Great Depression was the greatest and longest economic recession in modern world history. The American public began a frenzy of investing in the speculative market in the 1920s. The 1929 market crash wiped out a great deal of nominal wealth for individuals and businesses alike. Other factors including inactivity followed by overaction by the Fed also contributed to the Great Depression. Both Presidents Hoover and Roosevelt tried to mitigate the impact of the depression through government policies. Neither the government policies or the beginning of WWII can be single-handedly credited with ending the depression. Trade routes created during WWII remained open and helped the market recover.
- #6 https://www.businessinsider.com/what-caused-the-great-depression President Herbert Hoover signed the act into law on June 17, 1930, despite widespread opposition that included a petition signed by more than 1,000 economists urging him to veto it.
- #7 https://www.investopedia.com/terms/s/smoot-hawley-tariff-act.asp President Herbert Hoover signed the act into law on June 17, 1930, despite widespread opposition that included a petition signed by more than 1,000 economists urging him to veto it.
- #8 No markets abroad. No demand at home. Small wonder that economic activity ground to a standstill. Soon, 25 countries had retaliated by increasing their own tariffs. As a result, international trade declined drastically, resulting in a worldwide decline of 66% between 1929 and 1934. Both U.S. exports and imports dropped substantially. http://mstartzman.pbworks.com/w/page/23761916/Hawley%20Smoot%20Tariff%20%281930%29%20%287%29
- #9 https://www.investopedia.com/terms/s/smoot-hawley-tariff-act.asp President Herbert Hoover signed the act into law on June 17, 1930, despite widespread opposition that included a petition signed by more than 1,000 economists urging him to veto it.
- #10 https://www.investopedia.com/terms/s/smoot-hawley-tariff-act.asp A Change in Direction In the 1932 elections, President Hoover was defeated by Franklin D. Roosevelt and both Smoot and Hawley lost their seats in Congress. On taking office, President Roosevelt began working to reduce the tariffs. Congress passed the Reciprocal Trade Agreements Act in 1934. That law transferred the authority for tariff policy to the White House, authorizing the president to negotiate with foreign heads of state for lower tariffs at both ends. https://saylordotorg.github.io/text_international-economics-theory-and-policy/s04-04-the-great-depression-smoot-haw.html By 1934, a new attitude accepting the advantages of more liberal trade took hold in the U.S. Congress, which passed the Reciprocal Trade Agreements Act (RTAA). The RTAA authorized the U.S. president to negotiate bilateral tariff reduction agreements with other countries. https://www.businessinsider.com/what-caused-the-great-depression When Franklin D. Roosevelt became President in 1933, he almost immediately started pushing through Congress a series of programs and projects called the New Deal. How much the New Deal actually alleviated the depression is a matter of some debate — throughout the decade, production remained low and unemployment high. But the New Deal did more than attempt to stabilize the economy, provide relief to jobless Americans and create previously unheard of safety net programs, as well as regulate the private sector. It also reshaped the role of government, with programs that are now part of the fabric of American society. Among the New Deal's accomplishments: Worker protections, like the National Labor Relations Act, which legitimized unions, collective bargaining, and other employee rights Public works programs, aimed at providing employment via construction projects — a win-win for society and individuals Individual safety nets, such as the Social Security Act of 1935, which created the pension system still with us today, and unemployment insurance
- #11 https://www.investopedia.com/terms/s/smoot-hawley-tariff-act.asp By 1934, a new attitude accepting the advantages of more liberal trade took hold in the U.S. Congress, which passed the Reciprocal Trade Agreements Act (RTAA). The RTAA authorized the U.S. president to negotiate bilateral tariff reduction agreements with other countries. In practice, the president could send his agents to another country, say Mexico, to offer tariff reductions on a collection of imported items in return for tariff reductions by Mexico on another set of items imported from the United States. Once both sides agreed to the quid pro quo, the agreements would be brought back to the United States and the Mexican governments for approval and passage into law. Over sixty bilateral deals were negotiated under the RTAA, and it set in motion a process of trade liberalization that would continue for decades to come. The RTAA is significant for two reasons. First, it was one of the earliest times when the U.S. Congress granted trade policymaking authority directly to the president. In later years, this practice continued with congressional approval for presidential trade promotion authority (TPA; aka fast-track authority) that was used to negotiate other trade liberalization agreements. Second, the RTAA served as a model for the negotiating framework of the General Agreement on Tariffs and Trade (GATT). Under the GATT, countries would also offer “concessions,” meaning tariff reductions on imports, in return for comparable concessions from the other GATT members. The main difference is that the RTAA involved bilateral concessions, whereas the GATT was negotiated in a multilateral environment. More on the GATT next.
- #12 At the beginning of the Great Depression in 1930, the U.S. Congress passed the Smoot-Hawley Tariff Act to protect American jobs and industries from foreign competition. This act raised U.S. tariffs on dutiable imports to nearly 60%. U.S. trading partners retaliated by raising their own tariffs on U.S. exports, with the result that international trade between the [warring] nations declined by half. The consensus among economists is that the Smoot-Hawley tariffs contributed significantly to the depth and length of the Great Depression. At the end of World War II, there was a consensus that tariffs were too high worldwide, and that tariff reductions could stimulate international trade and return the world to a thriving, peacetime economy. In the years after the Great Depression and World War II, there was a worldwide push to build institutions that would tie the nations of the world together. The United Nations officially came into existence in 1945. The World Bank, which assists the poorest people in the world, and the International Monetary Fund, which addresses issues raised by international financial transactions, were both created in 1946. The third planned organization was to be an International Trade Organization, which would manage international trade. The United Nations was unable to agree to this. Instead, the General Agreement on Tariffs and Trade (GATT), was established in 1947 to provide a forum in which nations could come together to negotiate reductions in tariffs and other barriers to trade. In 1995, the GATT was transformed into the World Trade Organization (WTO).
- #13 The Bretton Woods Conference, formally known as the United Nations Monetary and Financial Conference, was the gathering of 730 delegates from all 44 Allied nations at the Mount Washington Hotel, situated in Bretton Woods, New Hampshire, United States, to regulate the international monetary and financial order after the conclusion of World War II.[1] The conference was held from July 1 to 22, 1944. Agreements were signed that, after legislative ratification by member governments, established the International Bank for Reconstruction and Development (IBRD, later part of the World Bank group) and the International Monetary Fund (IMF). This led to what was called the Bretton Woods system for international commercial and financial relations. The Bretton Woods Conference had three main results: (1) Articles of Agreement to create the IMF, whose purpose was to promote stability of exchange rates and financial flows. (2) Articles of Agreement to create the IBRD, whose purpose was to speed reconstruction after the Second World War and to foster economic development, especially through lending to build infrastructure. (3) Other recommendations for international economic cooperation. The Final Act of the conference incorporated these agreements and recommendations. Failed proposals International Trade Organization The Bretton Woods Conference recommended that participating governments reach agreement to reduce obstacles to international trade.[11] The recommendation was later embodied in the proposed International Trade Organization (ITO) to establish rules and regulations for international trade. The ITO would have complemented the IMF and IBRD. The ITO charter was agreed on at the U.N. Conference on Trade and Employment (held in Havana, Cuba, in March 1948), but the charter was not ratified by the U.S. Senate. As a result, the ITO never came into existence. The less ambitious General Agreement on Tariffs and Trade (GATT) was adopted in its place. However, in 1995, the Uruguay Round of GATT negotiations established the World Trade Organization (WTO) as the replacement body for GATT. The GATT principles and agreements were adopted by the WTO, which was charged with administering and extending them. Failure in United States Congress The Charter never came into force, in part because in 1950 the United States government announced that it would not submit the treaty to the United States Senate for ratification. While repeatedly submitted to the US Congress, the charter was never approved. The most usual argument against the new organization was that it would be involved into internal economic issues.[6] On December 6, 1950 President Truman announced that he would no longer seek Congressional approval of the ITO Charter.[7] Because of the American rejection of the Charter, no other state ratified the treaty. Elements of the Charter would later become part of the General Agreement on Tariffs and Trade (GATT).
- #14 The Bretton Woods Conference, formally known as the United Nations Monetary and Financial Conference, was the gathering of 730 delegates from all 44 Allied nations at the Mount Washington Hotel, situated in Bretton Woods, New Hampshire, United States, to regulate the international monetary and financial order after the conclusion of World War II.[1] The conference was held from July 1 to 22, 1944. Agreements were signed that, after legislative ratification by member governments, established the International Bank for Reconstruction and Development (IBRD, later part of the World Bank group) and the International Monetary Fund (IMF). This led to what was called the Bretton Woods system for international commercial and financial relations. The Bretton Woods Conference had three main results: (1) Articles of Agreement to create the IMF, whose purpose was to promote stability of exchange rates and financial flows. (2) Articles of Agreement to create the IBRD, whose purpose was to speed reconstruction after the Second World War and to foster economic development, especially through lending to build infrastructure. (3) Other recommendations for international economic cooperation. The Final Act of the conference incorporated these agreements and recommendations. Failed proposals International Trade Organization The Bretton Woods Conference recommended that participating governments reach agreement to reduce obstacles to international trade.[11] The recommendation was later embodied in the proposed International Trade Organization (ITO) to establish rules and regulations for international trade. The ITO would have complemented the IMF and IBRD. The ITO charter was agreed on at the U.N. Conference on Trade and Employment (held in Havana, Cuba, in March 1948), but the charter was not ratified by the U.S. Senate. As a result, the ITO never came into existence. The less ambitious General Agreement on Tariffs and Trade (GATT) was adopted in its place. However, in 1995, the Uruguay Round of GATT negotiations established the World Trade Organization (WTO) as the replacement body for GATT. The GATT principles and agreements were adopted by the WTO, which was charged with administering and extending them. Failure in United States Congress The Charter never came into force, in part because in 1950 the United States government announced that it would not submit the treaty to the United States Senate for ratification. While repeatedly submitted to the US Congress, the charter was never approved. The most usual argument against the new organization was that it would be involved into internal economic issues.[6] On December 6, 1950 President Truman announced that he would no longer seek Congressional approval of the ITO Charter.[7] Because of the American rejection of the Charter, no other state ratified the treaty. Elements of the Charter would later become part of the General Agreement on Tariffs and Trade (GATT). What Is GATT? The General Agreement on Tariffs and Trade, or GATT for short, was drafted in 1947 as a provisional agreement to regulate international trade. However, the International Trade Organization (ITO), which was supposed to take the place of GATT, was never ratified. GATT was enforced from January 1, 1948 until December 31, 1994, when it was finally replaced by the World Trade Organization (WTO) on January 1, 1995. The General Agreement on Tariffs and Trade (GATT) was never designed to be a stand-alone agreement. Instead, it was meant to be just one part of a much broader agreement to establish an International Trade Organization (ITO). The ITO was intended to promote trade liberalization by establishing guidelines or rules that member countries would agree to adopt. The ITO was conceived during the Bretton Woods conference attended by the main allied countries in New Hampshire in 1944 and was seen as complementary to two other organizations also conceived there: the International Monetary Fund (IMF) and the World Bank. The IMF would monitor and regulate the international fixed exchange rate system, the World Bank would assist with loans for reconstruction and development, and the ITO would regulate international trade. The ITO never came into existence, however. Although a charter was drawn, the U.S. Congress never approved it. The main concern was that the agreement would force unwelcome domestic policy changes, especially with respect to wage and employment policies. Because the United States would not participate, other countries had little incentive to participate. Nonetheless, the United States, Britain, and other allied countries maintained a strong commitment to the reduction of tariffs on manufactured goods. Tariffs still remained high in the aftermath of the Depression-era increases. Thus, as discussions over the ITO charter proceeded, the GATT component was finalized early and signed by twenty-three countries in 1948 as a way of jump-starting the trade liberalization process. The General Agreement on Tariffs and Trade (GATT) was signed by 23 countries in October 1947, after World War II, and became law on Jan. 1, 1948. The GATT’s purpose was to make international trade easier. The GATT held eight rounds in total from April 1947 to December 1993, each with significant achievements and outcomes.6 In 1995 the GATT was absorbed into the World Trade Organization (WTO), which extended it.
- #15 https://www.investopedia.com/terms/g/gatt.asp ne of the key achievements of the GATT was that of trade without discrimination. Every signatory member of the GATT was to be treated as equal to any other.7 This is known as the most-favored-nation principle, and it has been carried through into the WTO.8 A practical outcome of this was that once a country had negotiated a tariff cut with some other countries (usually its most important trading partners), this same cut would automatically apply to all GATT signatories. Escape clauses did exist, whereby countries could negotiate exceptions if their domestic producers would be particularly harmed by tariff cuts.9 Most nations adopted the most-favored-nation principle in setting tariffs, which largely replaced quotas. Tariffs (preferable to quotas but still a trade barrier) were in turn cut steadily in rounds of successive negotiations. https://www.youtube.com/watch?v=27J3CByXKow&feature=emb_logo If state A grants better conditions to products from state B, it immediately and unconditionally has to accord that same, more preferable treatment, to all WTO members. It is “multilateralized”. Unconditionally. Most-Favored Nation Most-favored nation (MFN) refers to the nondiscriminatory treatment toward identical or highly substitutable goods coming from two different countries. For example, if the United States applies a tariff of 2.6 percent on printing press imports from the European Union (EU, one World Trade Organization [WTO] country), then it must apply a 2.6 percent tariff on printing press imports from every other WTO member country. Since all the countries must be treated identically, MFN is a bit of a misnomer since it seems to suggest that one country is most favored, whereas in actuality, it means that countries are equally favored. The confusion the term generates led the United States in the 1990s to adopt an alternative phrase, normal trade relations (NTR), for use in domestic legislation. This term is a better description of what the country is offering when a new country enters the WTO or when a non-WTO country is offered the same tariff rates as its WTO partner countries. As such, these are two ways to describe the same thing: that is, MFN ≡ NTR.
- #16 https://saylordotorg.github.io/text_international-economics-theory-and-policy/s04-05-the-general-agreement-on-tarif.html The GATT consists of a set of promises, or commitments, that countries make to each other regarding their own trade policies. The goal of the GATT is to make trade freer (i.e., to promote trade liberalization), and thus the promises countries make must involve reductions in trade barriers. Countries that make these commitments and sign on to the agreement are called signatory countries. The discussions held before the commitments are decided are called negotiating rounds. Each round is generally given a name tied either to the location of the meetings or to a prominent figure. There were eight rounds of negotiation under the GATT: the Geneva Round (1948), the Annecy Round (1950), the Torquay Round (1951), the Geneva II Round (1956), the Dillon Round (1962), the Kennedy Round (1967), the Tokyo Round (1979), and the Uruguay Round (1994). Most importantly, the agreements are reached by consensus. A round finishes only when every negotiating country is satisfied with the promises it and all of its negotiating partners are making. The slogan sometimes used is “Nothing Is Agreed Until Everything Is Agreed.” https://courses.lumenlearning.com/wm-microeconomics/chapter/the-role-of-the-gatt-in-reducing-barriers-to-trade/ https://www.investopedia.com/terms/g/gatt.asp Notice that the early rounds of GATT talks took a relatively short time, included a small number of countries, and focused almost entirely on reducing tariffs. Since the 1970s, however, rounds of trade talks have taken years, included a large number of countries, and an ever-broadening range of issues.
- #17 Notice that the early rounds of GATT talks took a relatively short time, included a small number of countries, and focused almost entirely on reducing tariffs. Since the 1970s, however, rounds of trade talks have taken years, included a large number of countries, and an ever-broadening range of issues. The sluggish pace of GATT negotiations led to an old joke that GATT really stood for Gentleman’s Agreement to Talk and Talk. The slow pace of international trade talks, however, is understandable, even sensible. Having dozens of nations agree to any treaty is a lengthy process. GATT often set up separate trading rules for certain industries, like agriculture, and separate trading rules for certain countries, like the low-income countries. There were rules, exceptions to rules, opportunities to opt out of rules, and precise wording to be fought over in every case.
- #18 https://www.qsstudy.com/business-studies/different-rounds-of-gatt-and-wto https://courses.lumenlearning.com/wm-microeconomics/chapter/trade-policy-organizations-and-agreements/ https://www.wto.org/english/thewto_e/whatis_e/what_we_do_e.htm The WTO is run by its member governments. All major decisions are made by the membership as a whole, either by ministers (who usually meet at least once every two years) or by their ambassadors or delegates (who meet regularly in Geneva). Decisions in the WTO are generally taken by consensus of the entire membership. The highest institutional body is the Ministerial Conference, which meets roughly every two years. A General Council conducts the organization's business in the intervals between Ministerial Conferences. Both of these bodies comprise all members. Specialised subsidiary bodies (Councils, Committees, Sub-committees), also comprising all members, administer and monitor the implementation by members of the various WTO agreements. https://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr_e.htm Goods It all began with trade in goods. From 1947 to 1994, the GATT was the forum for negotiating lower tariffs and other trade barriers; the text of the GATT spelt out important rules, particularly non- discrimination. Since 1995, the Marrakesh Agreement Establishing the WTO and its annexes (including the updated GATT) has become the WTO’s umbrella agreement. It has annexes dealing with specific sectors relating to goods, such as agriculture, and with specific issues such as product standards, subsidies and actions taken against dumping. A recent significant addition was the Trade Facilitation Agreement, which entered into force in 2017. Services Banks, insurance firms, telecommunications companies, tour operators, hotel chains and transport companies looking to do business abroad enjoy the same principles of more open trade that originally only applied to trade in goods. These principles appear in the General Agreement on Trade in Services (GATS). WTO members have also made individual commitments under the GATS stating which of their service sectors they are willing to open to foreign competition, and how open those markets are. Intellectual property The WTO’s Intellectual Property Agreement contains rules for trade in ideas and creativity. The rules state how copyrights, patents, trademarks, geographical names used to identify products, industrial designs and undisclosed information such as trade secrets – “intellectual property” – should be protected when trade is involved.
- #19 The Dispute Settlement Process Disputes are handled by the Dispute Settlement Body (DSB). The DSB works like a committee that meets regularly to discuss any issues countries may have with respect to each other’s trade policies. The DSB is comprised of one representative from each member country. When they meet, countries have the right to object to the trade policies of another country. However, they cannot object to anything or everything; instead, a country can only object to an unfulfilled promise with respect to one or more of the WTO agreements. In these cases, a member country (the complainant) is allowed to register a dispute with the DSB against another member country (the defendant). Resolution of a dispute follows these steps: Consultations. The DSB first demands that the appropriate government representatives from the complainant country and the defendant country meet to discuss the dispute. They must do this within a strict timetable (less than sixty days) and hopefully will be able to resolve the dispute without external intervention. Panel formation. If the countries return to the DSB at a later session and report that the consultations failed, then the complainant may ask the DSB to form a panel. A panel consists of three to five independent trade law experts who are hired expressly to make a judgment about the particular dispute. The DSB chooses the panelists in consultation with the disputing countries, or the panelists are chosen by the director-general if the countries cannot agree. The panel is generally given about six months to decide whether the defendant violated some of its promises, whereupon it reports its decision to the DSB. Since a panel report can only be rejected by consensus, no country has veto power over DSB adoption of a report. Thus all panel reports become official decisions. But the process doesn’t yet end. Appeals. Either country can appeal the decision given in the panel report. A request or appeal sends the issue to an appellate board comprised of three judges drawn from a set of seven, each of whom has a four-year term. As in the U.S. court system, appellate arguments must be based on points of law relating to legal interpretations but cannot consider new evidence or retry the case. As with the original panel reports, appellate decisions are almost automatically adopted by the DSB. Resolution. If the appellate board concurs with a panel decision that a defendant country has violated some of its WTO agreement commitments, there are two paths to resolution: Compliance. In the preferred outcome, the defendant country complies with the ruling against it and changes its laws as needed to conform. Sometimes compliance may take time because of delays in a legislative process, so normally the defendant will be given time to rectify the situation. In the process, the country will be expected to report its progress regularly to the DSB. Suspension of concessions. Sometimes a country refuses to comply with a ruling or it takes longer than the complainant is willing to wait. In this case, the complainant country is allowed by the DSB to suspend some of its previous concessions toward the defendant country. It works like this: Since it has been shown that the defendant has not lived up to all of its previous promises, the complainant is now allowed to rescind some of its own trade-liberalizing promises, but only toward the defendant country. To be fair, the rescission must have an effect on the defendant that is approximately equal in value to the cost imposed by the defendant’s violations. Overall, the WTO dispute process has worked reasonably well. The cases brought, because they are often targeted to narrow industries, do not affect a huge amount of international trade. Nonetheless the existence of a forum in which to register disputes and a mechanism for resolving them (one that includes some penalties for violations) has had a notable effect of reducing the risk of international trade. Traders know better what to expect from their trading partners because their partners have committed themselves to particular trade policies and to a resolution mechanism in the event of noncompliance. In a sense, then, it is true that the WTO agreements restrict the freedom of a country to set whatever trade policy it deems appropriate for the moment. That loss of sovereignty, though, is designed to prevent countries from choosing more destructive protectionist policies—policies that are very seductive to voters, especially in an economic crisis. If successful, the WTO could prevent a reoccurrence of Smoot-Hawley and its aftermath both now and in the future. Dispute settlement The WTO’s procedure for resolving trade conflicts under the Dispute Settlement Understanding is vital for enforcing the rules and therefore for ensuring that trade flows smoothly. Governments bring disputes to the WTO if they think their rights under the WTO agreements are being infringed. Judgements by specially appointed independent experts are based on interpretations of the agreements and individual members' commitments. The system encourages members to settle their differences through consultation with each other. If this proves to be unsuccessful, they can follow a stage- by-stage procedure that includes the possibility of a ruling by a panel of experts and the chance to appeal the ruling on legal grounds. Confidence in the system is borne out by the number of cases brought to the WTO – more than 500 cases since the WTO was established compared with the 300 disputes dealt with during the entire life of the GATT (1947-94).
- #20 https://www.wto.org/english/news_e/pres20_e/pr862_e.htm
- #24 https://www.investopedia.com/investing/what-is-the-world-trade-organization/ Free Trade, but at What Cost? The anti-WTO protests we have seen around the world are a response to the consequences of establishing a multilateral trading system. Critics say the after-effects of WTO policies are undemocratic because of the lack of transparency during negotiations. Opponents also argue since the WTO functions as a global authority on trade and reserves the right to review a country's domestic trade policies, national sovereignty is compromised.15 For example, regulations a country may wish to establish to protect its industry, workers or environment could be considered barriers to the WTO's aim to facilitate free trade. A country may have to sacrifice its own interests to avoid violating WTO agreements. Thus, a country becomes limited in its choices. Moreover, brutal regimes that are pernicious to their own countries may inadvertently be receiving concealed support from foreign governments who continue, in the name of free trade, to do business with these regimes. Unfavorable governments in favor of big business, therefore, remain in power at the cost of a representative government. One high-profile WTO controversy has to do with intellectual property rights and a government's duty to its citizens versus a global authority. One well-known example is HIV/AIDS treatments and the cost of patented medicines.16 Poor countries, such as those in South America and sub-Saharan Africa, simply cannot afford to buy these patented drugs. If they were to buy or manufacture these same drugs under an affordable generic label, which would save thousands of lives, these countries would, as members of the WTO, be in violation of intellectual property rights agreements and subject to possible trade sanctions. The Bottom Line Free trade fosters investment into other countries, which can help boost the economy and eventually the standard of living of all countries involved. As most investment flows from the developed and economically powerful countries into the developing and less-influential economies, there is, however, a tendency for the system to give the investor an advantage. Regulations that facilitate the investment process are in the investor's interest because these regulations help foreign investors maintain an edge over local competition. As several countries, including the United States, strengthen their protectionist stance on trade, the future of the World Trade Organization remains complex and unclear.
- #25 Little help: https://corporatefinanceinstitute.com/resources/knowledge/economics/protectionism/