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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:

Introduction l.jpg

  • 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 l.jpg
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 …

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  • The Doha Timetable

  • Agricultural Trade Barriers

  • Varieties of Trade Policy

  • Widening the WTO Mandate

  • Thinking the Unthinkable

  • Conclusion

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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”

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The Doha Timetable (cont.)

  • Still: some grounds for optimism?

  • History of past rounds:

    • Uruguay Round suspended in 1990

    • More generally: …

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The Doha Timetable (cont.)

  • Still: some grounds for optimism?

  • History of past rounds …

  • Fast-track authority for US President until 2007

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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)

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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)

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Effects of Tariffs and Quotas

  • Simplest case:

  • Small open economy

    i.e., world prices fixed

  • Partial equilibrium

    i.e., consider one industry in isolation

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Effects of a Tariff in a SOE (cont.)

Imports before tariff

(Home Supply and Demand curves)










World price unchanged; home price rises; imports fall

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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”]

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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

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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

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    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

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    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

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    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





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    • 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?

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    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