| Example: Nafta 1 = before NAFTA DCS Net: |
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Monday, April 02, 2012 |
II.
Efficient policymaking in global markets
D.
The least you should know
about The WTO
(last time: 1. little known facts)
2. Key provisions
a. provisions for nondiscrimination
(1) Most-favored-nation (MFN) clause: The Contracting Parties ... bound to grant to the products of other contracting parties treatment no less favorable than that accorded to products of any other country.
Advantages:
--generates more liberalization by extending benefits to all
Ex: negotiated benefits accrue to small
countries.
--avoids fragmentation into trading blocks.
--greater security during negotiations--prevents agmts from being
undermined by later side agreements
(2) National
treatment on taxation and regulation
Imported goods, once duties have been paid, must be given the same
treatment as like domestic products in relation to any charges, taxes, or administrative
or other regulations
Includes prohibition of domestic content requirements
Example: Chile taxes on alcohol. Had a special loophole for
pisco, violated WTO.
b. provisions for specific policies
| (1) | tariffs | |
| standard tariffs cannot exceed "bound rates" (WTO commitments) | ||
| allowable temporary
tariffs in cases of "material injury or threat of material injury" |
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| (1.1) | safeguard -- severe hardship from a trade concession | |
| (1.2) | anti-dumping duty -- offsets exporter dumping margin when export price is below "normal value" | |
| (i) P in exporter's home country (ii) Exporter's ATC |
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| (1.3) | countervailing duty -- offsets effects of exporter subsidies | |
| (2) |
quotas: no longer allowed |
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| (3) |
technical and
administrative regulations: |
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| (4) |
Measures to protect
human, animal or plant life |
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| (4.1) | be based on scientific evidence | |
| (4.2) | not discriminate between members (where identical or similar conditions prevail) | |
| (4.3) | "not constitute a disguised restriction on international trade" | |
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Example: trade restrictions by the EU against imports of food with genetically modified organisms |
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| (5) | subsidies | |
| (5.1) | red = prohibited --
example: export subsidies Tax rebates and exemptions for exports: generally prohibited "Tied aid": Foreign aid that must be used to purchase of domestic products: grants must be > 20% of aid Export credit subsidies OK but not lower than a specified interest-rate floor |
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| (5.2) | yellow = actionable -- example: production subsidy | |
| (5.3) | green = nonactionable Examples: environmental / R&D / disadvantaged regions Example: US trade restrictions against tuna imports caught without nets that protected dolphins |
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c. provisions for special treatment
(1) national security
(2) LDCs
--can promote infant industries
--can receive preferential access to
DC markets
(3) social regulation
Acceptable but must not
(i) "constitute a means of arbitrary
or unjustifiable discrimination"
(ii) "represent disguised
restrictions on international trade"
(4) Custom Unions
and Free-Trade Areas (Article XXIV of
GATT 1994)
Preferential trading agreements
--exempted from nondiscrimination provisions
--bilateral tariffs must be entirely
eliminated
Customs union: a free trade area with common tariffs
against nonmembers
Ex: EU
Free trade area: no tariffs between members; independent tariffs
against nonmembers
Ex: US: Caribbean Basin Initiative--1983 /
Israel / Nafta (1993)
Advantage?
--avoids free riders, so can promote more liberalization
Effects covered by customs union theory
Bilateral free trade agreements create trade-offs because of selective lowering of tariffs
(1) trade creation: a gain
(2) trade diversion: from lowest cost supplier to the preferrred
supplier--a loss
| Example: Nafta 1 = before NAFTA DCS Net: |
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Trade creation represents an efficiency gain from
increased consumption and reduced production
Trade diversion represents an efficiency loss
from replacing low-cost imports with higher cost imports
Economists prefer global trade liberalization to
ensure lowest-cost production, but
bilateral FTAs have been good second-best alternatives since:
(i) in practice, trade creation gains have
exceeded trade diversion losses
(ii) bilateral arrangements can be
stepping-stones to further liberalization
