Pos M. Hutabarat PhD Course # 14 Multilateral Trading System (WTO) Jakarta, 17 April 2007 Pascasarjana Ilmu Ekonomi Universitas Indonesia

Pos M. Hutabarat PhD TARIFF P Q Q1Q1 P1P1 SD Sw Pw Q2Q2 Q3Q3 Pt Q4Q4 Q5Q5 Pt = Pw (1 + t) ab c de f Deadweight loss area abc + def Consumption fall Production rise Import fall Gov.t revenue rise

Pos M. Hutabarat PhD Free Trade is better (general Equilibrium) auto rice Free tradeEI A a B C c b b = Equilibrium with tariff in country I a = Equilibrium free trade c = Equilibrium when country I and II form Economic Integration

Pos M. Hutabarat PhD Protest on Free Trade

Pos M. Hutabarat PhD How good is Free Trade?

Pos M. Hutabarat PhD TREND GLOBALIZATION  ECONOMIC GLOBALIZATION Globalization of Production Globalization of Market  GLOBALIZATION OF UNIVERSAL VALUES Law and Human Rights Consumer Protection Environmental Protection Globalization: international flow of ideas and knowledge, the sharing of culture, global civil society and global environment movement (Stiglitz, 2006)

Pos M. Hutabarat PhD ECONOMIC GLOBALIZATION  GLOBALIZATION OF PRODUCTION All countries can become production location of global products and services Location are determined by cost efficiency  GLOBALIZATION OF MARKET All countries can become marketing location of global products and services Prices are determined by market segmentation

Pos M. Hutabarat PhD ECONOMIC GLOBALIZATION  SHALLOW GLOBALISASI Economic integration through increasing flow of goods, labor and financial  DEEP GLOBALISASI Economic i ntegration through increasing Foreign Direct Investment (FDI) and increasing the role of MNC (both economic and politics)

Pos M. Hutabarat PhD SUPPORTED FACTORS FOR ECONOMIC GLOBALIZATION  Fast improvement of technology (support flow of goods, support transfer of production abroad, increase price elasticity)  Government Policies on International Cooperation (multilateral (WTO), regional (UE, NAFTA, AFTA), bilateral FTA Singapore-USA)  Liberalization of financial sector  Liberalization of people traveling

Pos M. Hutabarat PhD WORLD TRADE Year Value (US$ B)

Pos M. Hutabarat PhD Composition of World Trade (2004) Sector Nilai Share (US$ B) (%) Merchandise products ,0 Agricultural 783 8,8 Mining ,4 Fuels ,1 Manufactures ,8 Machinery&transports ,0 Textile&clothing 453 5,1 Services ,0 Transport ,6 Travel ,4 Others ,0

Pos M. Hutabarat PhD World Largest Exporters (2004) CountryExport Value Share (US$ B) (%) 1. Germany 914,8 10,0 2. USA 819,0 9,0 3. China 593,4 6,5 4. Japan 565,5 6,2 5. France 451,0 4,9 6. Netherlands 358,8 3,9 7. UK 345,6 3,8 18. Malaysia ,4 24. Thailand 97,7 1,1 30. Indonesia 85,6 0,9

Pos M. Hutabarat PhD WORLD TRADE TRIANGLE (now) E Europe Anzerta Asean JAPAN Korea China USA Canada S America EU Middle East Africa S Asia

Pos M. Hutabarat PhD WORLD TRADE TRIANGLE (future) Greater EU EAST ASIA NAFTA Latin America Africa East Asia ANZERTA

Pos M. Hutabarat PhD ASEAN IN EAST ASIA ASEAN CHINA JAPAN KOREA INDIA AUSTRALIA EAST ASIA OCEANIA

Pos M. Hutabarat PhD INDONESIA TOWARD GLOBALIZASION OF WORLD TRADE  MULTILATERAL IMF WTO World Bank  REGIONAL ASEAN 2003 APEC 2020 ASEM  BILATERAL FTA bilateral (Japan) Cross border (Malaysia, Philippines, Thailand, PNG, East Timor)

Pos M. Hutabarat PhD UN-HOLY TRINITY World Bank IMFWTO TradeMonetary Development

Pos M. Hutabarat PhD Objectives of GATT/WTO 1.Expanding production and trade 2.Raising standard of living and income 3.Ensuring full employment 4.Optimal use of the world’s resources (a) sustainable development and the need to protect and preserve the environment (b) to ensure that the developing countries, especially the least developed countries secure a better share of the growth in international trade

Pos M. Hutabarat PhD Main Principal of GATT/WTO 1.Protection of the domestic industry by tariff only 2.Tariff should be reduced and bound against further increases 3.Trade follow Most Favored Nation clauses 4.National Treatment 5.Dispute Settlement Mechanism

Pos M. Hutabarat PhD Fields of Negotiation in WTO 1.Manufacturing goods 2.Agriculture 3.Services 4.Rules 5.New Issues (Trade facilitation, Investment, Competition Policy, and Government Procurement)

Pos M. Hutabarat PhD WTO ORGANIZATION Ministerial Conference General Council Council for Trade in Goods Council for Trade in Services Council for TRIPs

Pos M. Hutabarat PhD MINISTERIAL CONFERENCE 1.Singapore, 1997 (good) 2.Geneva, 1998 (good, some demo) 3.Seattle, 1999 (failed) 4.Doha, 2001 (good) 5.Cancun, 2003 (failed) 6.Hong Kong, 2005 (good)

Pos M. Hutabarat PhD Negotiation Process in WTO 1.Voting rights (one vote for each member, but most decision were decided in green room) 2.Daily Negotiation is conducted in Geneva for all committee (manufacture, agriculture, services, RTA, IPR, etc) 3.General Council Meeting monitor all negotiation process of all committee (every 3 months) 4.Accession of new members decided in Ministerial Conference (but the country must negotiate one by one, initial rights)

Pos M. Hutabarat PhD WTO Negotiation Round 1.Uruguay Round (1986 – 1994) Starting from Ministerial Meeting in Punta del Este, Uruguay, September 1986 and ending in Ministerial Meeting in Marrakech, Morocco Doha Round (2001 – 2007?) Starting in Ministerial Meeting in Doha, Qatar, November For Doha round, WTO has conducted 3 Ministerial Meeting

Pos M. Hutabarat PhD The Results of Uruguay Round (1) 1.Tariff reduction (a) Developed Countries cut a third of tariff rate (b) Developing Countries reduced all tariff line to maximum average 40% (Indonesia average 37% bound rate, but actual rate only 16.4%) 2.Elimination of Non Tariff Barriers (NTB)/Conversion to tariff: elimination of all quota, monopoly, and other NTB’s (Indonesia eliminated quota and monopoly of Bulog on rice import, and skim milk import rules 1 : 1,6) 3.Tariff binding Bound all tariff lines, except for developing countries, unbound maximum 5% from tariff lines 4.Elimination of Quota for Textile and Apparel in 2005 (MFA)

Pos M. Hutabarat PhD The Result of Uruguay Round (2) (average tariff of manufacture goods, DC) IndustriesPre URPost UR All products 6.2% 3.7% Fish and fish products Wood, pulp, paper, furniture Textile, clothing Leather, rubber, footwear Metals Chemicals, photograph Transport equipment Electrical Mineral and precious stone

Pos M. Hutabarat PhD The Result of Uruguay Round (3) (average tariff of manufacture goods) Pre URPost UR Developed Countries 6.2% 3.7% Developing Countries20.5%14.4% (Indonesia year % %

Pos M. Hutabarat PhD Tariffs Reduction (Developed Countries) 40% ?

Pos M. Hutabarat PhD DOHA ROUND (manufacture goods) 1.Tariff reduction (a) General (Swiss formula, with larger coefficient for developing countries) (b) Sectoral liberalization 2. Conversion of non-advalorem to advalorem 3.Elimination of all non-tariff barriers (NTB’s) 4.Bound all tariff lines 5.Flexibility for developing countries (time frame and coefficient)

Pos M. Hutabarat PhD DOHA ROUND (sectoral liberalization)  Bicycles  Chemicals  Electronics/electrical equipment  Footwear  Fish  Forest products  Gems and jewelery  Pharmaceuticals and medical equipments  Raw material and sporting goods  Textiles and apparels  Auto and auto parts

Pos M. Hutabarat PhD Tariff Curve (Tariff Rates in Developing Countries) T1T1 T2T2 T3T3 Uruguay Round Doha Round Tariff rates Time TPTP Political Acceptance Tariff Tokyo Round

Pos M. Hutabarat PhD Agriculture Negotiation 1.Domestic Supports: Elimination of all subsidies (time frame, bands, blue box and green box) 2.Export Competition: Elimination of export credits, exporting state enterprises, food aid 3.Market Access (band, special products, sensitive products, special safeguard mechanism) 4.Cotton : Reducing subsidies on cotton

Pos M. Hutabarat PhD Share of Agriculture on Total Trade (%)

Pos M. Hutabarat PhD Agriculture Subsidies CountryUS$ Billion% Output EU USA Japan Canada Swiss All Industrial C

Pos M. Hutabarat PhD Subsidy Curve S1S1 S2S2 S3S3 Uruguay Round Doha Round Subsidies Time SPSP Political Acceptance Subsidies Tokyo Round

Pos M. Hutabarat PhD Indonesia Interest on Agriculture 1.Domestic Supports Elimination of all subsidies will increase market access of Indonesian products to heavily subsidized countries 2.Export Competition Elimination of export credits, exporting state enterprises, food aid will increase competitiveness of Indonesian products in domestic market and in some foreign markets

Pos M. Hutabarat PhD Indonesia Interest on Agriculture 3. Market Access (a) Special Products Indonesia and other developing countries (G- 33) proposed on SP (Special Products), minimum reduction of tariff, self determination (b) SSM (Special Safeguard Measures) 4.Cotton Indonesia support fair trade for cotton

Pos M. Hutabarat PhD Trade in Services Services mode:  Supply of services from one country to other countries  Supply of services in one country by consumer of other countries  Supply of services through commercial presence  Supply of services through presence of natural person Under Doha Negotiation:  Improvement of Mode 1 – 4  Schedule of commitments  Request and Offer Mechanism

Pos M. Hutabarat PhD Trade Related Aspects of Intellectual Property Rights (TRIPs) WTO wants to rule member countries for trading of Knowledge Base Products (KBP) to protect them from illegal sale/distribution. Most of the agreement in WTO already under jurisdiction of WIPO (World Intellectual Property Right Organization). All WIPO members must review their law and rules to implement WIPO agreement. As member of WIPO Indonesia has revised it laws (copyright, trade marks, industrial design, and patents)

Pos M. Hutabarat PhD Trade Related Aspects of Intellectual Property Rights (TRIPs) Under Doha Round, negotiation mostly in the field of: 1.TRIPs and Public Health : allow only for production and distribution of medicine for contaminates diseases, but only for country which has capacity (Brazil and India) 2.Geographical Indications : protection of wine and spirit (mostly EU, but developing countries proposed other goods such as Java Coffee, Bras Pati)

Pos M. Hutabarat PhD Trade and Environment WTO wants member countries to protect the environment from excessive extraction of the earth. Under Doha Negotiation: 1. Reducing trade barriers of environmental goods and services such as air filter, catalytic converter, or consultancy service wastewater management. 2. Eliminate fisheries subsidies which can be environmentally damaging if too many fishermen catching too few fishes.

Pos M. Hutabarat PhD World Trade and Economy (Growth, before and after Uruguay Round) YearGDP Trade 1985 – 1994 (%)2,64 7, – 2004 (%)2,58 6,53 Sources: from various publication