1 ECONOMICS 3150B Fall 2015 Professor Lazar Office: N205J, Schulich

2 Lecture 22: December 3 Ch. 9

3 GATT GATT/WTO [General Agreement on Tariffs and Trade/World Trade Organization] –Key provisions Article 1: Nondiscrimination (MFN) – preferential trading arrangements violate this principle; NAFTA an example of preferential trading arrangement Article XXIV: allowances for customs unions and FTAs Article VI: Anti-dumping and countervailing duties – measurement issues and degree of market disruption Article XI: Elimination of quotas (except for balance of payments problems) – international system of quotas in textiles, proliferation of VERs, exploitation of escape clause Article XVI: countries must declare to trading partners export subsidies provided to particular firms Consultation to solve trade disputes – weak enforcement mechanism; US domestic laws supersede GATT, NAFTA

4 GATT GATT includes articles on anti-dumping (Article 6), countervail (Article 16) and escape clause (Article 19) –Dumping: export price below domestic market price (below cost of production or normal home market price) –Escape clause: temporary protection to limit imports causing serious injury to domestic producers –Countervail: tariffs to offset effects of subsidies –Problems: defining subsidies, determining existence of dumping, measuring degree of dumping, measuring injury, determining causation

5 Subsidies Prohibited subsidies –subsidies that require recipients to meet certain export targets, or to use domestic goods instead of imported goods –prohibited because they are specifically designed to distort international trade, and are therefore likely to hurt other countries’ trade. Actionable subsidies –complaining country has to show that subsidy has an adverse effect on its interests; otherwise subsidy permitted –agreement defines three types of damage they can cause: One country’s subsidies can hurt a domestic industry in an importing country They can hurt rival exporters from another country when the two compete in third market And domestic subsidies in one country can hurt exporters trying to compete in the subsidizing country’s domestic market.

6 Multifibre Agreement 1974 – allowed industrial countries to restrict imports of textiles and apparel products from developing countries Quotas periodically revised upwards Uruguay Round – developing countries negotiated end to system of import quotas, but MF did not expire until January 2005 –Exports from China increased sharply –Prices for many textile and apparel products dropped sharply

7 GATT 9 Rounds of multilateral trade negotiations – Kennedy, Tokyo, Uruguay and Doha rounds addressed NTMs as first 5 focused on tariffs only –Tokyo, Uruguay and Doha also attempted to extend trade rules to services and establish investment rules –WTO created to replace GATT secretariat Responsible for enforcement of agreement and dispute resolution More formal procedures with tighter deadlines –GATS (General Agreement on Trade in Services) –TRIPS (Agreement on Trade-Related Aspects of Intellectual Property

8 Doha Round July 2008 negotiations broke down after failing to reach a compromise on agricultural import rules Adoption of Bali Ministerial Declaration on Dec. 7, 2013 addressed bureaucratic barriers to trade Future of Doha Round continues to be uncertain Main areas of negotiations: agriculture, non-agriculture market access, services, intellectual property, trade and development, trade facilitation, dispute settlement understanding Critical issues: –Agriculture – domestic support for agriculture –Access to patented medicines – balance of interests between pharmaceutical companies that have patents and public health needs in developing countries –Special and differential treatment for developing countries

9 Agriculture Support Government support, 2008: % of gross farm receipts Canada: 13.0% Australia: 5.9% Brazil: 5.0% China: 8.6% EU27: 24.9% Japan: 47.8% Russia: 10.8% S. Korea: 51.7% Mexico: 13.1% Turkey: 24.5% US: 6.8%

10 Agriculture Support Tariff quotas: 43 WTO members currently have a combined total of 1,425 tariff quotas in their commitments nos. in brackets are quotas in each country: Australia (2) ; Barbados (36); Brazil (2); Bulgaria (73); Canada (21); Chile (1); China (10); Colombia (67); Costa Rica (27); Croatia (9); Czech Rep (24); Dominican Rep (8); Ecuador (14); El Salvador (11) ; EU (87); Guatemala (22); Hungary (70); Iceland (90); Indonesia (2); Israel (12); Japan (20); Korea (67); Latvia (4); Lithuania (4); Malaysia (19); Mexico (11); Morocco (16); New Zealand (3); Nicaragua (9); Norway (232); Panama (19); Philippines (14); Poland (109); Romania (12); Slovak Rep (24); Slovenia (20); South Africa (53); Switzerland (28); Thailand (23); Tunisia (13); United States (54); Venezuela (61)

11 Agriculture Support Special safeguards: 39 WTO members currently have reserved the right to use a combined total of 6,156 special safeguards on agricultural products nos. in brackets show how many products are involved in each case : Australia (10); Barbados (37); Botswana (161); Bulgaria (21); Canada (150); Colombia (56); Costa Rica (87); Czech Rep (236); Ecuador (7); El Salvador (84); EU (539); Guatemala (107); Hungary (117); Iceland (462); Indonesia (13); Israel (41); Japan (121); Korea (111); Malaysia (72); Mexico (293); Morocco (374); Namibia (166); New Zealand (4); Nicaragua (21); Norway (581); Panama (6); Philippines (118); Poland (144); Romania (175); Slovak Rep (114); South Africa (166); Swaziland (166); Switzerland-Liechtenstein (961); Chinese Taipei (84); Thailand (52); Tunisia (32); United States (189); Uruguay (2); Venezuela (76)

12 GATT –As Tariffs , NTMs  because D for protection constant –NTMs higher cost form of protection –Canada essentially bystander in MTNs – EU, US and Japan dictated outlines of agreements

13 NTMs Various bureaucratic or legal issues that could involve hindrances to trade: import licensing; rules for valuation of goods at customs; pre- shipment inspection, rules of origin

14 GATT Difficulties in reducing NTMs –Definition of subsidies –Escape clause provisions –Dispute settlement mechanism with effective enforcement – market power of different countries –Trade-offs: Problems in measuring concessions –North-South issues: need to develop economies –Agriculture sector and political importance of farmers Major problem for Doha Round

15 TRIMs Trade-related investment measures agreement –applies only to measures that affect trade in goods –recognizes that certain measures can restrict and distort trade, and states that no member shall apply any measure that discriminates against foreigners or foreign products (i.e. violates “national treatment” principles in GATT) –outlaws investment measures that lead to restrictions in quantities (violating another principle in GATT) –Among list of TRIMs agreed to be inconsistent with these GATT articles: measures which require particular levels of local procurement by an enterprise (“local content requirements”); measures which limit a company’s imports or set targets for the company to export (“trade balancing requirements”). Countries must inform fellow-members through the WTO of all investment measures that do not conform with the agreement

16 Dispute Settlement Dispute settlement is central pillar of the multilateral trading system, and the WTO’s unique contribution to the stability of the global economy Without a means of settling disputes, the rules-based system would be less effective because the rules could not be enforced WTO’s procedure underscores the rule of law, and it makes the trading system more secure and predictable System is based on clearly-defined rules, with timetables for completing a case –First rulings are made by a panel and endorsed (or rejected) by the WTO’s full membership –Appeals based on points of law are possible.

17 Dispute Settlement How long to settle a dispute Approximate periods for each stage of a dispute settlement procedure are target figures –60 days - Consultations, mediation, etc –45 days - Panel set up and panellists appointed –6 months - Final panel report to parties –3 weeks - Final panel report to WTO members –60 days - Dispute Settlement Body adopts report (if no appeal) –Total = 1 year (without appeal) –60-90 days - Appeals report –30 days- Dispute Settlement Body adopts appeals report –Total = 1y 3m (with appeal)

18 Dispute Settlement Recent WTO disputes: Japan v. Brazil: certain measures concerning taxation Viet Nam v. Indonesia: safeguard on certain iron & steel products Japan v. South Korea: import bans and testing and certification requirements for radionuclides Russia v. EU: cost adjustment methodologies and certain anti-dumping measures on imports from Russia Russia v. Ukraine: anti-dumping measures on ammonium nitrate China v. EU: measures affecting tariff concessions on certain poultry meat products Indonesia v. US: ant-dumping & countervailing measures on certain coated paper from Indonesia Taipei v. Indonesia: safeguard on certain iron & steel products South Korea v. US: anti-dumping measures on certain oil country tabular goods from Korea EU v. US: conditional tax incentives for large civil aircraft Pakistan v. EU: countervailing measures on certain polyethylene terephthalate from Pakistan

19 Dispute Settlement Recent WTO disputes: EU v. Russia: tariff treatment of certain agricultural and manufacturing products Brazil v. Indonesia: measures concerning the importation of chicken meat and chicken products Canada v. China: anti-dumping measures on imports of cellulose pulp from Canada Taipei v. Canada: anti-dumping measures on imports of certain carbon steel welded pipe from the customs territory of Taiwan Indonesia v. EU: anti-dumping measures on biodiesel form Indonesia EU v. Russia: anti-dumping duties on light commercial vehicles from Germany and Italy US v. Indonesia: imports of horticultural products, animals and animal products New Zealand v. Indonesia: imports of horticultural products, animals and animal products Russia v. EU: certain measures relating to the energy sector EU v. Russia: measures on the importation of live pigs, pork and other pig products from the EU Russia v. EU: cost adjustment methodologies and certain anti-dumping measures on imports from Russia

20 GATT and US Trade Laws US contingency protection legislation – countervail, anti-dumping, escape clause and unfair trade (S. 301) –First three deal with imports, unfair trade deals with exports as well –US definitions of injury and causation differ from spirit and letter of GATT –Unfair trade not part of GATT – trade panel has found S. 301 to violate GATT Issue of sovereignty for US