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Introduction to the international trade regime

Introduction to the international trade regime. Free trade and development – the state of the debate Evolution of International Trade From GATT to WTO –the Emerging Global Trade Governance Werner Raza, werner.raza@akwien.at WT 2009/10.

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Introduction to the international trade regime

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  1. Introduction to the international trade regime Free trade and development – the state of the debate Evolution of International Trade From GATT to WTO –the Emerging Global Trade Governance Werner Raza, werner.raza@akwien.at WT 2009/10

  2. 1. Free trade and development – the state of the debate

  3. Trade Theory – the Classics (Smith, Ricardo) – a refresher • Adam Smith: absolute cost advantages as a foundation for the benefits of free trade. • Robert Torrens/David Ricardo: comparative cost advantage as a foundation for the benefits of trade • Illustration: Portugal und GB produce 100 units of Wine and Cloth each with a labor input of: Portugal Great Britain Wine 80 120 Cloth 90 100 • Comparative cost: Portugal uses 8/12 of Britain‘s labour input in producing the 100 units of wine, and 9/10 of the labor input of GB for producing 100 units of cloth  comparative advantage of P for wine  P specializes in producing wine • Cost advantage as a consequence of free trade (comparing free trade to autarchy): (a) 160 LU produce 200 Litres of wine Cost advantage of 40 LU (80+120= 200-160=40). (b) GB produces 200 metres of cloth with a labor input of 200.  additional cost of 10 LU compared to autarchy (90+100=190-200=-10).  Net-Labor Savings: 40-10 = 30. Portugal gains 10 LU (170-160=10), GB 20 LU (220-200= 20). • Conclusion: By specializing on the production of the good, where a country has a compararive cost advantage and subsequent trade of the surplus product, countries will gain in welfare. • Validity subject to assumptions • Perfect competition, • Constant returns to scale (with increasing/decreasing returns to scale  welfare losses (Graham‘s - Paradox) • Full mobility of capital and labor within countries, but no international mobility

  4. Measuring the Welfare Impact of Trade Liberalization – the Mainstream Approach • Standard H-O Theory: trade will increase total welfare of involved countries. Distributional implications: • Owners of abundant factors of production, which are used intensively in production, gain, owners of scarce factors loose • Overall welfare increase can be used to compensate loosers  Assessment of winners and loosers by way of partial equilibrium analysis and computable general equilibrium (CGE-models), respectively

  5. CGE-Models: basic characteristics • Multi-sector, multi-agent representation of interactions in an economy • Agents‘ behaviour: optimization (utility, costs, revenues) • No monetary variables included (P, r, exchange rate) • Database: Social Accounting Matrix of a specific reference year or benchmark period (input-output table, Nat. Acc. Statistics) • No estimation of parameters, but calibration to Social Accounting Matrix (SAM) • Basic assumptions of CGE-models: • All markets are assumed to clear, i.e. are in equilibrium (no excess demand for goods, production factors...) • Universal perfect competition (imperfect comp. can be introduced) • Typically no persistent unemployment, no persistent current account imbalance, no budget imbalance

  6. North-South Trading Barriers – Post-Uruguay Round

  7. Trade Liberalization Gains of the Doha Round – Aggregate Model Estimates (Agric. & NAMA) Note: Billion USD (% of global and DC GDP, Base year 2001) Explanatory Note „Likely Doha Scenario“ of World Bank: average agricultural tariff reduction of 44% by developed countries, 21% by developing countries; manufactured goods tariff reduction of 50% by developed countries, 33% by developing countries; No tariff reductions by LDCs; export subsidies are removed, domestic support reduced;

  8. Free trade theory – departures and objections • External effects, transport costs • Specialisation matters: • Problem of diminishing returns (Graham’s Paradox) • Declining Terms of Trade (Prebisch-Singer Thesis) • „Dutch Disease“ and Resource Curse Thesis Infant Industry Protection • Recent historical-empirical work shows: trade liberalization does not per se lead to economic growth and development (Chang, Rodrik, The Worldbank-IEG 2006) • Blackbox distributional impacts • Non-Trade-Arguments: national security, food sovereignty, cultural diversity

  9. Graham‘s Paradox Source: Reinert (2007)

  10. Commodity Prices (excl. oil) 1990-99

  11. Trade & Development – current state of the discussion Results and policy recommendations of the recent heterodox academic discussion (Chang 2002, Rodrik 2001, UNDP 2003, Stiglitz 2005, Shafaeddin 2005, Reinert 2007): • Trade Liberalization per se does not lead to more growth and welfare • Trade Liberalization must be integrated into systematic and long-term national industrialization strategy • Trade Liberalization should be sequenced and implemented gradually • Development of State Capacities and application of broad mix of economic policy instruments are important pre-requisites for success of economic development • Current international trade regime is too constraining for policy autonomy of DCs (insb TRIPS, TRIMS, GATS)

  12. Trade & Development – Tariffs (I) Quelle: Rodrik (2001)

  13. Trade & Development – Tariffs and State revenues (II)

  14. Effects of a tariff reduction on public finances in Sub-saharan Africa („Likely Doha Scenario“ of Taylor/von Arnim-Model 2006)

  15. 2. Evolution of International Trade

  16. Evolution of global trade

  17. Regional shares of global trade

  18. Stock of FDI 1980-2004

  19. FDI Flows 1980-2004

  20. GDP growth per capita 1980-2004

  21. And the winner is…Asia

  22. Personal income distribution1960-2001 Quelle: Enquete-Kommission Weltwirtschaft des Deutschen Bundestags, www.bundestag.de/gremien/welt/)

  23. Global Poverty 1980-2002

  24. Global poverty – regional distribution

  25. 3. From GATT to WTO – Structure, Functions, latest developments

  26. WTO: historical milestones • 1944-48:ITO –foundation ofInternational Trade Organisation via Havanna-Charta failed • 1948:GATT –provisional entering into force ofGeneral Agreement on Tariffs and Trade • 1948-1979: 7 rounds of tariff-reductions • 1986-93: Uruguay-Round negotiations • 1.1.1995: Foundation of WTO with 76 Member States

  27. GATT rounds of negotiations

  28. Since the Uruguay Round on the trade agenda: Agricultural products Textiles Patents, IPRs Services Dispute Settlement

  29. WTOMultilateral Agreements TRIPS Agreement on Trade-Related Aspects of Intellectual Property Rights GATT´94 General Agreement on Tariffs and Trade GATS General Agreement on Trade in Services

  30. WTO - organisational structure

  31. WTO: Recent Milestones • 1996: 1st Ministerial Conference in Singapore installs 3 Workings Groups: Trade & Competition, Public Procurement, Trade & Investment • 1997: Negotiations on liberalisation of telecommunication and financial services concluded within framework of GATS • 1998: 2nd Ministerial Conference in Geneva decides to deal with Electronic Commerce • 1999: 3rd Ministerial Conference in Seattle/USA – Conference fails • 2000: start of negotiations on agricultural trade and trade in services • November 2001: 4th Ministerial Conference in Doha (Quatar), Doha Development Agenda (DDA), new round of multilateral negotiations commence formally • September 2003: 5th Ministerial Conference in Cancun/Mexico, no agreement on negotiations on investment, competition, government procurement • July 2004: „Juli-Package“ – Agreement to continue Doha Negotiations • Dezember 2005: 6th Ministerial Conference in Hongkong, ends with minimal compromise over Doha-Negotiations • July 2006: negotiations suspended, • February 2007: resumption of negotiations

  32. Characteristics of the WTO Trade Regime: „Deep Integration“ • Long-term objective: Global Common Market via: • De-Regulation of national institutional specificities • Homogenisation and Standardisation, via the global implementation of a uniform set of institutions and regulations (TRIPS, GATS, TBT, SPS,GP, MIA) • Consequence: „golden straitjacket“ for national states, erosion of autonomous policy space

  33. Civil society critiques • Lack of transparency (negotiations in „green room“), unequal representation of MS in negotiations • Lack of democratic representation and accountability: • Preferential access of MNCs and employer‘s groups, • Government delegates do not represent interests of all stakeholders, principal-agent-problems

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