1. Development of the World Trading System
Intellectual arguments for free trade:
Adam Smith and David Ricardo.
Free trade as government policy:
Britain’s (1846) repeal of the Corn Laws.
Back in the 18th century, most countries had barriers to trade with others
David Ricardo (member of British parliament)
Because they were the largest exporting nation, they tried to increase free trade because they would lost most if trade barriers went up
During next 80 years, Britain pushed free trade, but most countries would not participate)
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2. World War I to World War II 1918 - 1939
Great Depression
US stock market collapse
Smoot-Hawley (1930)
US had positive trade balance with world
Foreign response was to impose own barriers
US exports tumbled
1929 stock market collapsed and economy was in ruins
US response was to enact the Smoot-Hawley to try and protect jobs
They enacted huge tariffs on a wide variety of products to make consumers buy domestic and keep jobs at home
In actuality, this hurt jobs overseas, foreign countries responded with thei own barriers, we sold less abroad (we were the largest creditor nation in the world because we were selling so much) and the entire world slid further into depression
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3. General Agreement on Tariffs and Trade
WWII allies want international organization in trade arena similar to UN in political arena.
GATT proposed by US in 1947 as step toward ITO.
1948: Havana Conference.
Failed charter for the International Trade Organization.
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4. GATT
Multilateral agreement: objective is to liberalize trade by eliminating tariffs, subsidies, import quotas, etc.
Used ‘rounds’ to gradually reduce trade barriers.
If there is a violation, countries are asked to pressure the offending country into following the agreement
MFN means most favored nation, and it allows for export of goods under favorable terms
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5. Average Reduction in US Tariff Rates 1947 - 85
Index
Pre-Geneva
Tariff = 100
Figure 5.1
GATT Negotiating Rounds
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6. Uruguay Round Most comprehensive trade agreement in history.
Created the World Trade Organization.
Impacted:
Agriculture subsidies (stumbling block: US/EU).
Applied GATT rules to services and intellectual property.
Strengthened GATT monitoring and enforcement.
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7. GATT Criticisms Economic theories don’t fit the ‘real world’ model.
US global preeminence has declined.
Shift from cutting tariffs to eliminating non-tariff barriers angered countries.
‘National Treatment’ or ‘Most Favored Nation’ status results in inequalities.
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8. Impact of GATT Currently, >120 members.
Represents 90% of world trade.
9 of 10 disputes satisfactorily settled.
Tariff reduction from 40% to 5%.
Trade volume of manufactured goods has increased 20 times.
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9. World Trade Organization
Umbrella organization for:
GATT
Services
Intellectual property
Responsibility for trade arbitration:
Reports adopted unless specifically rejected.
After appeal, fail to comply can result in compensation to injured country or trade sanctions.
154 Rue de Lausanne, Geneva
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