International Relations 101Section 2

Summer of 2012Faculty – Moushumi Shabnam (MuS)

Group Research Presentation

Multilateral Trade Negotiations and

Agreements Under GATT and WTO

Promoting Imperialism or Bolstering Development? The debate continues..

Globalization

• In modern world Globalization is considered to be one of the finest blessings when it comes to achieving economic growth, prosperity and bolstering pro-poor growth.

The dynamic process of globalization includes:

Increased internationalization of economic markets as reflected in trade and financial capital flows.

• Institutional changes in nation states which include modifications in policies.

Social changes in nation states.

• However, accelerated economic growth is just one dimension of this complex phenomenon- Globalization can lead to higher poverty, inequality between and within nation states and exploitation of labor.

• Conventionally free trade has been regarded as the best growth policy of developing and least developed nations instead of restricted trade.

• With the ideology of a positive relationship between free trade and economic growth, GATT was established in 1947, with 128 signatories and 23 original members.

• The main objective was to promote trade liberalization.

• GATT is a legal instrument that lays down rules and regulations that govern trade.

Why are rules needed to govern trade?

• To prevent unfair trade such as dumping.

• To involve the developing nations in world trade.

• To liberalize trade, that is remove all sorts of trade barriers like tariffs and quotas to increase economic growth and development in developing nations.

• These rules are negotiated in different rounds where each member country has a right to vote.

• There were in total 8 rounds under GATTGeneva Round (April 1946)Annecy Round (April 1949)Torquauy Round (Aril 1950)Geneva round II (January 1956Dillon Round (September 1961)Kennedy Round ( May 1964)Tokyo Round ( September 1973)Uruguay Round ( September 1986)

• The general GATT rules were Removal of all import quotas and import subsidies.Reduction of Tariff by all member countriesNondiscriminatory treatment to all nations.

• However, these rules were not applied properly, specially by the developed nations. There were several loop holes.

Violations of GATT Rules

• GATT rules were explicitly violated in trade in agriculture, textile and clothing.

• The DCs imposed Multi-fiber Arrangement (MFA ) on developing countries. This allocated system of quota restricted export of textile and clothing from developing countries.

• To restrict trade in agriculture for the developing countries and to bolster their own agricultural sector, the DCs imposed high tariff on agricultural imports from developing countries and also provided export subsidies-$47 billion in 10 years to their domestic farmers which ultimately led to dumping, severely hurting the balance of payments of developing nations.

• There were no rules governing trade in services and intellectual property rights.

• All these factors called for a reform.

• Hence in 1st January 1995, under the Uruguay Round, World Trade Organization was formed with 5 basic principles and 4 main rules.

The five principles of WTO

• Non-discriminatory.

• Safety Valves.

• Binding and enforcement of commitments.

• Transparency.

• Reciprocity.

Rules under Non discriminatory principle

• Most favored nation’s (MFN’s) treatment to all nations. This for example is called for the abolition of MFA.

• National treatment (NT). Any nation cannot differentiate between domestic product and imported product.

Rule under Binding and enforcement of Commitments

• Tariff must be reduced and bound against further increase to prevent Back Sliding.

• Domestic industries must be only protected by tariff and not by any sort of import quota.

• All rates of tariffs and other concessions must be recorded in the National Schedule of Concession saved in the database of WTO.

Safety valves were provided under 3 conditions

Non-economic reasons.Unfair trade.Economic reasons- infant industries are hurt and

BOp deteriorates.

• For victims of unfair trade, they were allowed to imposed anti-dumping and countervailing duties on top of normal duties.

Results of Uruguay Round

Agreement on Agriculture.

Issue of Market AccessIssue of Market Access

Agreement on Textile and Clothing.

Agreement on Agriculture

2 types of agricultural products: Tropical zone products Temperate zone products

• Significant Liberalization was achieved in Tropical zone products.

• Stricter barriers to trade was imposed on temperate zone products by DC’s through WTO.

• The DCs like the US and EU were imposing heavy tariffs and paying export subsidy to temperate zone products- violation of WTO law.

• The DCs in order to correct this infringement influenced the WTO to allow “Tariffication” of all agricultural goods.

• The result: One barrier was just replaced by another. Ultimately, there were no Liberalization and the DCs were the sole winners.

• The tariffied rate was 300% to 350%

• This allowed zero market access to the developing countries in case of temperate goods.

• The Export of developing countries diminished.

Agreement on Textile and Clothing

• Before UR, the DCs had MFA for restricting import of textile from the developing countries.

• Hence, the agreement of phasing out MFA in 4 stages within a transitional period of 10 years (1st January 1995 to 1st January 2005) was signed by all member countries.

4 Stages of Phasing out of MFA

• 16% of the products in 1995.

• 17% of the products at the end of 1998.

• 18% of the products at the end of 2002.

• 49% of the products by the 10th year, 2005.

This system of phasing out was benefiting the DCs in disguise.

• Most of the products were left to be integrated at the last moment.

• These products were of special export interest to the DCs, hence they were reluctant in reducing the tariff on these products.

• This once again favored the DCs leaving developing countries disadvantaged.

• During the UR, the DCs reduced tariff by 100% on products like pharmaceuticals, furniture, steel tools and others in which they had no comparative advantage and allowed the developing countries to freely export these.

• They pretended to help out the poor but actually they were just ripping off benefits for themselves.

WTO Supporting Imperialism.

• WTO has promoted capitalism and always given leeway to the DCs through its partial agreements.

• It has strengthened protection of Intellectual property rights to discourage technology transfer and to favor the non-state actors: the giant multinational corporations.

• WTO has always tried to implement a development model which the DCs think is right for LDCs, it is just an exploitation tool used by the clever DCs.

• WTO makes global rules that affect the policy space of developing countries which limit their option in dealing with poverty and inequality.

Why Developing countries are lagging behind?

• Weaknesses in negotiating strategies and poor leadership.

• Psychological factors that limit perceived prospects for success in negotiations.

• A very little market share of world imports (US and EU are the top consumers of world imports).

• Lack of financial assets.

• High dependence on DCs for aid and other assistance.

• Political and macroeconomic instability.

New emerging powers in trade.

• Brazil, India, China, Mexico, South Africa and Germany.

• Brazil, India, Germany and Japan for permanent seats on the United Nations Security Council (UNSC)

Recommendations

• Building coalitions with DCs.• Better coordination with the other developing

countries to strengthen their stand in MTNs.• Form Regional Trade Arrangements ,like

SAFTA.• Need to improve and strengthen the decision-

making machinery and institutions. • Get support from Multinationals Corporations.

THANK YOU!