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University of Oxford Department of Economics and Said Business School Masters in Financial Economics 2006-2007 International Trade Negotiations : GATT & WTO © J.P. Neary 2006. Prof. J. Peter Neary Department of Economics, University of Oxford Room 257, Manor Road Building; Tel.: 271085

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University of OxfordDepartment of Economics and Said Business SchoolMasters in Financial Economics 2006-2007International Trade Negotiations:GATT & WTO© J.P. Neary 2006

Prof. J. Peter Neary

Department of Economics, University of Oxford

Room 257, Manor Road Building; Tel.: 271085

email: [email protected]

This file:

  • Doha:
  • Central Command in the Iraq War
  • Doha trade round: becalmed?
  • Background
  • Bretton Woods 1944:
  • IMF, IBRD (World Bank) and ITO
  • ITO rejected by U.S. Senate: “GATT” instead
  • Successive trade “rounds”: 8 from 1947-1993
  • 9th Round: The “Doha Development Round”
digression bluff your way in international trade theory
Digression[Bluff Your Way in International Trade Theory]
  • Trade is important
  • Trade arises from differences between countries
  • Ricardo (1817): “Comparative Advantage”
  • Trade is good for everyone
  • Well, almost …
  • Stolper-Samuelson (1941): Distributional conflicts inevitable
  • Still potentially good for everyone: if compensation takes place
  • (e.g. trade adjustment assistance)
  • Trade arises between similar countries
  • Intra-Industry Trade: Dixit-Norman/Krugman et al. (1980)
  • “Strategic Trade Policy” may justify subsidising large firms
  • Well, not really …
  • Brander-Spencer (1984)
  • Consensus: Economists cautiously in favour of free trade
  • BUT: Politicians and general public more sceptical …
  • The Doha Timetable
  • Agricultural Trade Barriers
  • Varieties of Trade Policy
  • Widening the WTO Mandate
  • Thinking the Unthinkable
  • Conclusion
the doha timetable
The Doha Timetable
  • 1993: Uruguay Round: GATT => WTO
  • 1999 (Nov.): Seattle …
  • 2001 (Nov.): Doha Development Agenda
  • 2003 (Sept.): Review of progress at Cancun
  • 2005 (Jan.): Conclusion of the Round

LDC disillusionment

September 11

US steel tariffs, farm subsidies; no CAP reform

Intermediate deadlines missed; Cancun a flop

Negotiations suspended after failed Genevameeting, July 2006

Doha round: “definitely between intensive care and the crematorium”

the doha timetable cont
The Doha Timetable (cont.)
  • Still: some grounds for optimism?
  • History of past rounds:
    • Uruguay Round suspended in 1990
    • More generally: …
the doha timetable cont10
The Doha Timetable (cont.)
  • Still: some grounds for optimism?
  • History of past rounds …
  • Fast-track authority for US President until 2007
the answer lies in the soil
The Answer Lies in the Soil
  • “A” is for Agriculture …
  • Agriculture is different
  • Owner-managers with sector-specific capital
  • Disproportionate political influence
  • US versus EU: A huge gap
  • US wants tariffs cuts (its tariffs are low)
  • EU with very high farm subsidies could cut them if US does too
  • Many other DC’s have high protection (Japan, S. Korea, Norway)
  • LDC’s want market access, though not into their own markets
  • Poorest LDC’s unlikely to gain
  • c.f. Panagariya (2005)
varieties of trade policy
Varieties of Trade Policy
  • 1. Tariffs:
  • Average tariffs low in DCs
  • BUT: non-uniform
  • Tariff peaks and tariff escalation
  • Formula versus commodity-by-commodity approaches
  • 2. Quantitative Restrictions:
  • Quotas and “Voluntary Export Restraints” (VER’s)
  • Uruguay Round: To be phased out - by 2005 (i.e., back-loaded)
effects of tariffs and quotas
Effects of Tariffs and Quotas
  • Simplest case:
  • Small open economy

i.e., world prices fixed

  • Partial equilibrium

i.e., consider one industry in isolation


Effects of a Tariff in a SOE (cont.)

Imports before tariff

(Home Supply and Demand curves)










World price unchanged; home price rises; imports fall


Effects of a Tariff in a SOE (cont.)











  • Home consumers lose: a+b+c+d [Consumer Surplus]
  • Home producers gain: a [Producer Surplus]
  • Government gains: c [Tariff Revenue]
    • Remainder: b+d [“Deadweight Loss”]
effects of tariffs and quotas cont
Effects of Tariffs and Quotas (cont.)
  • Effects of a Quota:
  • Identical in a competitive small open economy
  • Difference: Government does not get revenue directly
  • Who does?
    • “Pure” quota: Licenses auctioned competitively, so government gets all the rent

(Tariff and quota fully equivalent in this case)

    • “Pure” VER: Exporters get all
    • VER plus tariff: Tariff retains part of the rent
  • With home monopoly, quota allows home firm to charge higher prices
    • Good for the home firm, very bad for consumers
varieties of trade policy cont
Varieties of Trade Policy (cont.)
  • 3. Anti-Dumping Duties:
  • A valuable safety valve?
      • [Ethier (2002)]
  • Or an excuse for permanent protection?
  • DC’s, especially US, favour them
  • LDC’s opposed, though increasingly use them
  • Discretionary
widening the wto mandate
Widening the WTO Mandate
  • 1. Environmental and Labour Standards:
  • Coalition of principle and protectionism
  • Fine, but not as part of a trade deal
  • 2. Competition Policy:
  • Leave to domestic competition authorities?
  • Cross-border mergers?
  • International cartels?
  • 3. TRIPS:
  • [“Trade-related Aspects of Intellectual Property Rights”]
  • Drugs: Access to old versus R&D into new
  • Waiver for LDC’s?
  • “Essential” versus “lifestyle” drugs
  • 2-tier pricing
thinking the unthinkable
Thinking the Unthinkable
  • Alternatives to Multilateralism:
  • Regionalism
    • Divert attention
    • Divert trade
    • Not comprehensive
  • No Dispute Settlement Mechanism
  • Excluding LDC’s from Openness
    • Openness is (mostly) good for you
    • GATT/WTO: Mercantilism => Multilateral liberalisation
trade creation and diversion
Trade Creation and Diversion
  • Trade Creation: 2=SP, 3=SP+t
  • Reduced tariffs on partner lead to more imports
  • Trade Diversion: 1=SW, 2=SP, 3=SW+t
  • Selective tariff reduction  Imports from partner replace those from rest of world





  • The outlook:
  • Jan 2005 deadline? No
  • 2007 deadline? Doubtful
  • A deal?
  • Maybe …
  • The catch:
  • Will the US accept a limited deal?
  • Will the EU (a.k.a. France) accept cuts in agricultural protection?
  • Do DC’s want a deal?
links and further reading
Links and Further Reading
  • Neary, J.P.: "Europe on the road to Doha: Towards a new global trade round?,” CESifo Economic Studies, 50:2, Summer 2004, 319-332.
  • Panagariya, A. (2005): The World Economy