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RAVENHILL CHAPTER 5 resumen, Apuntes de Economía Política

Universidad Carlos III de Madrid (UC3M)Economía Política

Ravenhill chapter 5 International Political Economy

Tipo: Apuntes

2019/2020

Subido el 07/12/2020

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CHAPTER 5: THE EVOLUTION OF GLOBAL TRADE REGIME
INTRODUCTION
The world trade regime is today the most prominent example of cooperation between
countries in the entire international system. It consists in rules in which the goal is:
• To reduce the protectionism of national regulation
• To reduce the uncertainty and unpredictability of international trade relations
• To promote stability
TARIFFS are a form of trade regulation
– It is a source of government revenue
– Used to protect domestic producers from foreign competition
– Today, its importance is superseded by non-tariff measures/barriers
Trade agreements can serve as an effective means of trade liberalization
HISTORICAL ANTECEDENTS
By second quarter of 19th century, campaign for free trade had begun as part of a broader
effort of political reform in British society. In 1848, Corn Laws were repealed in Britain: the
laws had provided high protection to agricultural products. In 1860, Cobden-Chevalier Treaty
initiated a period of liberalized trade between the UK and Europe.
Between 1830s and 1870s, liberal commercial exchange flourished. It was dominated
economically by Great Britain.
–Britain was the leading creditor country in the world
–Free trade was a key facet of British commercial policy
Economic depression emerged after 1870 due to increasing competition and decline in prices
of exports: Protectionist policies returned and tariffs increased. This trend was
exacerbated by First World War and continued until after Second World War. Growing
nationalism until Second World War manifested in mercantilism, bilateralism, and competitive
exchange rate devaluations.
–In 1930, Smooth-Hawley Act in United States
• Increased US tariffs to historic levels
• Expanded the scope of tariff coverage
• Foreign countries retaliated with further protectionism
–Global trade declined and broke down after 1930
• World trade fell by about two-thirds by the mid-1930s
In 1934, Reciprocal Trade Agreements Act (RTAA) in the United States:
–A revolution in US and international trade policy
–RTAA empowered US President to lower/raise tariffs by up to 50% from Smoot-Hawley
levels when negotiating with other countries
oThis transferred tariff-setting policy from Congress to the Presidency
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CHAPTER 5: THE EVOLUTION OF GLOBAL TRADE REGIME

INTRODUCTION

The world trade regime is today the most prominent example of cooperation between countries in the entire international system. It consists in rules in which the goal is:

  • To reduce the protectionism of national regulation
  • To reduce the uncertainty and unpredictability of international trade relations
  • To promote stability TARIFFS are a form of trade regulation
  • It is a source of government revenue
  • Used to protect domestic producers from foreign competition
  • Today, its importance is superseded by non-tariff measures/barriers Trade agreements can serve as an effective means of trade liberalization HISTORICAL ANTECEDENTS By second quarter of 19th century, campaign for free trade had begun as part of a broader effort of political reform in British society. In 1848, Corn Laws were repealed in Britain: the laws had provided high protection to agricultural products. In 1860, Cobden-Chevalier Treaty initiated a period of liberalized trade between the UK and Europe. Between 1830s and 1870s, liberal commercial exchange flourished. It was dominated economically by Great Britain. - Britain was the leading creditor country in the world - Free trade was a key facet of British commercial policy Economic depression emerged after 1870 due to increasing competition and decline in prices of exports: Protectionist policies returned and tariffs increased. This trend was exacerbated by First World War and continued until after Second World War. Growing nationalism until Second World War manifested in mercantilism, bilateralism, and competitive exchange rate devaluations. - In 1930, Smooth-Hawley Act in United States _- Increased US tariffs to historic levels
  • Expanded the scope of tariff coverage
  • Foreign countries retaliated with further protectionism_ - Global trade declined and broke down after 1930 - World trade fell by about two-thirds by the mid-1930s In 1934, Reciprocal Trade Agreements Act (RTAA) in the United States: - A revolution in US and international trade policy - RTAA empowered US President to lower/raise tariffs by up to 50% from Smoot-Hawley levels when negotiating with other countries o This transferred tariff-setting policy from Congress to the Presidency

Implicitly accepted that tariff rates were a bilateral matter to be settled through negotiation, and not unilaterally. By 1939, US concluded 21 agreements. All agreements made on most- favoured nation basis :

**- Slowed the negotiation process but extended the impact of the agreements more widely

  • Flow of international trade increased
  • Public opinion became increasingly more supportive of free trade
  • Experience in trade liberalization would become useful after the Second World War THE GATT** US was in a preponderant position for the first two decades of post-WW II period. American values that were imparted on the international trade system
  • Trade liberalization
  • Multilateralism
  • Legal approach to international trade relations Although US approach prevailed on most issues, the trade regime has always been based on a negotiated consensus. An agreement to establish an International Trade Organization (ITO) was concluded in 1948. o ITO was meant to complement the World Bank and IMF o But US Congress failed to rectify the agreement o International community had to fall back on the General Agreement on Trade and Tariffs (GATT) General Agreement on Trade and Tariffs (GATT) _1. A multilateral contract embodying trade rules negotiated in 1947
  1. It provided a structure for the regulation of the international trade system
  2. It was partly a mechanism to ensure that countries do not reintroduce protectionism once tariffs were lowered
  3. It was never intended to function as an international organization_ GATT principles, rules and norms - Principle of non-discrimination
  • This is a cornerstone of the international trade system
  • Article I: most-favored nation principle o Addressed external discrimination
  • Article III: national treatment o Addressed internal discrimination - Prohibition against quantitative and other non-tariff restrictions to trade (Article XI)
  • No restrictions other than duties/tariffs
  • All restrictive measures were to be converted to tariffs GATT principles, rules and norms (cont.) - Reciprocity
  • Derided by economists as countries that unilaterally reduced tariffs would realize economic benefits

US argued it was necessary to expand the GATT regime to keep it relevant in a changing world economy Developing countries argued that they did not have the capacity to negotiate on an equal footing on these issues

- Further liberalization in textiles and agricultural products, which were of particular importance to developing countries **Negotiations on services

  • Services** are “processes in which skills and knowledge are exchanged in order to meet a particular consumer need” o E.g. engineering consulting, financial intermediation, tourism, legal advice - By late-1980s, services accounted for over half of GDP of developed countries - Services were negotiated separately from goods - Global services market is essentially protectionist due to different regulatory objectives & standards o One important obstacle to trade in services is the reluctance to grant foreign firms the right to establish and do business in domestic markets - Key task for negotiators: how to incorporate GATT principles of transparency, national treatment and reciprocity in a conceptually new area? - General Agreement on Trade in Services (GATS) o Code of principles providing international standard of treatment Other new issues Investment
  1. Investment was seen to be interchangeable with trade
  2. Investment reinforces the effects of trade liberalization
  3. There was considerable regulation by national authorities, in particular in “sensitive” industries
  4. Negotiation of a multilateral investment agreement failed but agreement was reached on Trade-Related Investment Measures (TRIMs) Trade-Related Aspects of Intellectual Property Rights (TRIPs)  Producers of high-tech products and pharmaceuticals sought to internationalize the intellectual property protection that they enjoyed in their home countries  Developing countries viewed TRIPs as a potential barrier to trade, e.g. monopolies granted to pharmaceuticals  Developing countries acquiesced on this issue as they felt their losses were compensated by gains elsewhere in the overall accord Developing countries Developing countries have been marginal players for most of the history of GATT. GATT focused mainly on trade (not economic development) and tariff reduction (which was in conflict with the policy of import-substitution industrialization). Although initially reluctant to participate in the Uruguay Round, developing countries became its greatest supporters from 1991 onwards. Developing countries put pressure on US and EU to settle their differences

Why did developing countries change their position? Developing countries benefitted from two underlying principles of the Uruguay Round  Single undertaking: all issues of the negotiation were treated as a single package, with no exceptions  Consensus: agreement required the passive support of all participants Therefore, economic advantages were found in agreements on agriculture, textiles and clothing. Also benefits from institutional agreements (the strong dispute settlement mechanism and the creation of the WTO). Market-based economic reforms introduced in many developing countries in the 1980s encouraged their governments to look more favourably on the market- based principles and objectives of the GATT  The Uruguay Round Agreement represented the most far- reaching commitments made by developing countries in the international trade regime The various agreements reached at the Uruguay Round expanded the rules of the international system of trade. New issues (e.g. services) were brought under multilateral rules for the first time. The agreements advanced the rules-based, as opposed to power-based, nature of trade relations. THE DSU A formal, integrated dispute settlements system (DSU) was established. The DSU was improved under WTO from its GATT predecessor in a number of ways a) How panels were convened b) How panel decisions were adopted c) Scope and mechanics of dispute settlement d) Introduced obligation on member countries to use DSU, and not unilateral measures, to resolve disputes The DSU has been frequently used

- In about the first five years of operation, there were some 193 member complaints on 151 distinct trade issues Outcome of DSU process is legally binding - However, it is usually impossible to oblige a powerful country to implement an adverse decision that it is determined to ignore The complexity & costs of mounting litigation at the WTO are onerous for developing countries. THE WTO Created in agreements of the Uruguay Round. Came into existence on 01 January 1995. The creation of the WTO reinforced the role of trade in international economic relations. The WTO