Chapter-2 The WTO and the World Trade System

Chapter-2 §

Chapter 2: The WTO and the World Trade System

1. What is World Trade Organization?

• WTO is a hub of an international political system under which government negotiation, enforcement, and revise rules to govern trade policies. There are 164 members according to 2020. The WTO provide a forum for trade negotiation, administers, the trade agreement that government conclude and provide a mechanism for resolve trade dispute.
• Between 1947 and 1994 the GATT

1. Two core principles stand at the base of the WTO

• Market liberalism: provides the economic rationale for the trade system. The market liberalism asserts that an open, liberal, international system which everyone gain from trade. The goods can flow freely across national borders by government imposed barriers.
• Nondiscrimination: ensure that each WTO member faces identical opportunities to trade with each other (equal treatment to all members)
  • This principal takes two specific forms:
    • Most-favored Nation (MFN): prohibits governments from using trade policies to provide special advantage to some countries and not to other.
    • National Treatment: prohibits government from using taxes, regulations, and other domestic policies to provide an advantage to domestic firms at the expense of foreign firms.

New Direction & New Challenges of WTO

• Membership increase and increasing sophisticated nature of trade issues.
• The emergence of the developing countries as a powerful bloc.
• Regional trade agreements; free-trade areas and customs union --- trade creation or trade diversion
• Emergence of non-trade organization: human rights, child labor, animal exploitation, consumer protection, environmental agreement etc
• Beyond the textbook
• US-China trade war
• Pandemic

What is hegemonic stability theory?

explains that the international system shifts between period of ‘open and liberal’ and ‘closed and discriminatory’ during periods without a hegemon or a transitional period.

Hegemons are so privilege as to be able to provide public goods that is non-exclusive and non-rivalrous even though there will be free riding.

World Trade Organization’s most influential actors?

• Developing Countries: through the G20 developing countries contested negotiations focusing on the West and not Asia. Developing countries focusing more on market liberalization now. (powerful inside WTO)
• NGOs: are powerful outside of WTO

What is the WTO’s decision making process?

The decision making process Intergovernmental Bargaining to liberalize trade involving many governments

How to liberalize trade:

• Tariffs: taxes
• Non-tariffs Barriers: quality regulations/requirements

Key Terms

• Customs Union: member governments eliminate all tariffs on trade between customs union members and impose a common tariff on goods entering the union from non-members.
• Dispute Settlement Mechanism: ensures that governments comply with the rules they establish by helping governments resolve disputes and by authorizing punishment in the event of noncompliance.
• The Doha Round: is an agenda for negotiations. It contained no details about the forms an eventual final agreement would take but instead explored areas of agreement and disagreement.
• Free Riding: describes situations in which individuals rely on others to pay for a public good.
• Free-Trade Area: governments eliminate tariffs on the other member goods, but each member retains independent tariffs on goods entering their market from non-members.
• Hegemon: is a country that produces a disproportionately large share of the world’s total output and that leads in the development of the new technologies.
• Hegemonic Stability Theory: is often advanced to explain why the system shift between periods in which it is open and liberal, and periods in which it is closed and discriminatory.
• Intergovernmental Bargaining: is the WTO’s primary decision-making process, and it involves negotiating agreement that directly liberalize trade and indirectly support that goal.
• Mega-Regional Agreement: which tended to focus heavily on trade liberalization, the mega-regional agreement seek deeper economic integration among their members. To achieve this goal, these agreements are both broader in scope and reach more deeply into domestic arrangements than prior agreements.
• Ministerial Conference: the highest level of WTO decision making. Meeting for 3 or 4 days, establish an agenda detailing the issue that will be the focus of negotiation and set a target date for the meeting.
• Non-tariff Barriers: are the negotiation that reduce and eliminate the barriers to market access.
• Public Good
• Non-excludability: once the good has been supplied, no one can be prevented from enjoying its benefits.
• Non-rivalry: consumption by one individual does not diminish the quantity of the good available to others.
• Regional Trade Agreement: is a trade agreement two or more countries, usually located in the same region of the world, in which each country offers preferential market access to the other.
• Tariffs: are taxes that governments impose on foreign goods entering the country.
• Trade Creation
• Trade Division