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11 03 Lecture Notes - Regulating globalization (WTO).docx

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Geography 3312A/B
Haroon Akram Lodhi

Regulating globalization: The World Trade Organization Block One We live in a world of wealth amongst a sea of poverty and inequality This was created by colonialism, challenged by developmental states, but reinforced by structural adjustment Globalization continues a process of reconfiguring global inequality in neoliberal ways But the management of this process has changed in the past 16 years Since the 1980s the IMF and the World Bank, through • SAPs • liberalization, de-regulation, privatisation, devaluation • PRSPs • in economic aspects, a SAP • social sector concerns added (spending on health and education is increased after being cut under SAPs) • concerns with ownership considered have shaped international development strategies for the last quarter century – and the process of globalization WTO We can now introduce the other major multilateral actor: the World Trade Organization (WTO) to get a better understanding… or something or whatnot. In 1995 the WTO replaced the General Agreement on Tariffs and Trade (GATT), founded in 1947, as the international organization regulating international trade (between countries and the terms and conditions that countries and companies follow) – a foundation of globalization – between economies The WTO is designed to monitor and organise (set terms and conditions that companies but also countries follow) world trade in an effort to foster free trade and create a level playing field (that everyone involved – countries and companies alike – have the same terms and conditions facing them – a small company in a developing country or a massive company have the same set up for what and how they can produce) for all those involved in international trade, whether they be domestic producers or TNCs International trade is promoted because, as a consequence of comparative advantage, (focuses on relative cost – you should be producing things for the lowest cost) countries that specialize (produce what you’re good at so you get a surplus and can export it to countries who don’t produce it and then have money to buy what you don’t/can’t produce and everyone, theoretically is better off) and trade should theoretically be wealthier than those countries that try and do everything themselves (autarky) Comparative advantage is based on specialization, so it seems. Farmer video th Formulated in the 19 century by David Ricardo, in this theory each nation has a cost advantage relative to other nations in the production of some goods The theory demonstrates that it would be to the relative benefit of all nations to focus on producing those goods for which they have the strongest comparative advantage and then trade with each other for the goods for which they do not have a comparative advantage This is because more becomes available for all – there are gains from trade It thus provides a rationale for laissez-faire and free trade: an unregulated market that operates as an efficient ‘invisible hand’ (will respond to what people want) because it responds accurately to undistorted market signals of supply and demand So the policy implication is to remove barriers to trade and state intervention in economic and social affairs within and between states in order to provide the greatest social gains for all The 153 members of the WTO (you don’t have to join – Russia is not involved) agree to the adoption of a common set of rules (so Chad and Canada have the same rules – regardless of country size) governing international trade, in order to facilitate the activities of producers of goods and services, exporters, and importers (Makes it easier not only for US products to be sold in Canada but for products from Chad to be sold in Canada and vice versa) Indeed, membership of the WTO involves agreeing to an extensive list of policies, laws and regulations that are removed from the control of national states, including investment promotion measures (how you try to promote companies to invest), intellectual property rights (who controls the knowledge of the company), and domestic regulations Nonetheless, the WTO is not an independent supra-national body like the IMF or the World Bank (they have executive management boards who make decisions and the members in theory may not like the decisions that are made) It does not have a powerful executive like the IMF and the World Bank Rather, the WTO is intergovernmental (doesn’t take decisions, but members agree on the basis of a consensus as to what the organization will do), with members adopting rules by consensus (Very small companies can veto – everyone is supposed to agree on decisions) It relies upon the goodwill of those who join the WTO, called contracting parties, to abide by the agreements that they have freely entered into The General Council of the WTO, which adopts rules, thus consists of representatives of all members Day-to-day affairs are however run by a Secretariat, that has a staff of 625 (includes catering and cleaning staff), whose Director-General is Pascal Lamy (compared to the IMF and the Bank who have 3000 and 10,000) Four General Principles Four general principles underpin the WTO Tariffs vs. Quotas 1. Any protection of their economy from international competition that members undertake will take the form of tariffs rather than quotas and non-tariff trade barriers (to protect your country, you have to use tariffs and not quotas.) • agricultural products exempt (to protect the agricultural sector of the country) • market disruptions exempted A tariff is a tax on imports, which therefore raises the price of the import (allows a market to work – you can bring in as many cars as they want and consumers choose whether they want to pay the price) A quota is a restriction on the amount of a good that can be imported (you can only bring in 100 computers in 2011 – you cannot bring number 101) Typically, when a country joins the WTO their quotas are converted to tariffs • Small, rich countries tend to have very low tariffs – cannot produce everything they need so they need to import – Switzerland for example • Most developed countries have tariffs of less than 5 % - average • Turkey is notable for being a big developing country with very low tariffs, a consequence of 20 years of structural adjustment • Of the BRICs, China is most open to trade, and India the least • Russia has more quotas than tariffs because they’re not part of the WTO Reciprocity 2. Reciprocity obliges members that accept a tariff reduction by a trading partner to offer a comparable concession to the trading partner in return (if I cut my tariffs, my trading partners have to do the same – maybe not on the same things but they have to give me something) If I do something for you, you must do something for me (if you don’t, I can take you to a tribunal and they can fine you. This means if a large country like the US cuts a tariff, a small developing country has to do the same – not product for product) Non-discrimination/Most favoured nation 3. The contracting parties agree not to grant preferential treatment to another country or group of countries—non-discrimination, or most-favoured nation (MFN) status (treat everyone equally – you cannot say “I’m a Canadian and I like Cambodia so I’m going to favour them”) • free trade areas and customs unions with common external barrier exempt (like the European Union – they have one common tariff to the rest of the world) • dumping (selling below cost of production) gives an exemption (if a country is willing to sell to you for less than the price it cost to make the product – making a loss. People have said that China has been able to keep a low currency by dumping its products on the US and making things below the cost of production) • the Generalized System of Preferences discriminates in favour of exports to rich countries from poor countries, which enter tariff free (sounds like a good thing. It sounds like we should be able to give preference to Cambodia as Canadians – that’s the theory. In practice, the goods are typically ones that these countries don’t produce) Negotiations 4. Members agree to commit themselves to periodic multilateral negotiations designed to lower barriers to trade and thus promote freer trade (promotes an intensification of trade) Disputes However, unlike the GATT, the power of the WTO resides in its powerful dispute settlement mechanism, which can impose stringent fines (similar to the one used by NAFTA) A dispute arises when one country adopts a trade policy measure or takes some action that one or more fellow-WTO members consider as breaking WTO agreements (when a country does something and another country says it’s wrong – you’re breaking the rules) The WTO seeks prompt settlement of disputes, setting out in clear detail the procedures and the timetable to be followed in resolving disputes The General Council appoints a ‘panel’ to consider a dispute Rulings of the panel are automatically adopted unless there is a consensus in the General Council to reject a ruling (automatic acceptable unless they vote to reject it) The procedure resembles a court or tribunal, and for members the preferred solution is for the countries concerned to settle the dispute by themselves A very large share of the work done by the WTO is around disputes—developed countries dominate (the US and the European community dominate both the number of complaints filed and against) Example For example: on 17 December 2002 the US started ‘consultations’ with Canada regarding exports of wheat by the Canadian Wheat Board (CWB) and the treatment of wheat imported into Canada (The US thought that Canada was breaking the rules with regards to wheat) The US position: 1. the CWBs exclusive right to purchase and sell western Canadian wheat was inconsistent with Article XVII of the GATT 1994 2. Canadian rules that imported wheat cannot be mixed with domestic grain received by or discharged from elevators was inconsistent with Article III of the GATT 1994 Canadian law that…. 3. caps the maximum revenues that railways can receive on the shipment of domestic grain but not on the shipment of imported grain, and which 4. Give a preference for domestic grain over imported grain in government-owned railway cars, was inconsistent with Article 2 of TRIMS of the GATT 1994 The WTO appointed a panel Within 1 week, 18 countries sought to join the consultations, on the US side Following protracted legal arguments, on 21 July 2003 a preliminary ruling was issued by the panel, and it was circulated to the General Council on 6 April 2004 1. not established by the US (not adequately established) 2. inconsistent with WTO rules 3. inconsistent with WTO rules 4. not established by the US (not adequately established) The US appealed, and the original ruling was upheld (The irony: the government was trying to abolish the CWB anyway) Disputes The dispute settlement mechanism offers fertile ground for WTO critics: • each panel has 3 members with other jobs, including being ambassador to the WTO, appointed by national governments • they do not have to be lawyers, meaning they rely heavily on advice from the Secretariat • many practices are based on commercial arbitration (negotiation) procedures, not law, and those that are based on international public law follow Roman civil law, meaning that they are not bound to follow precedent • there are no appeals to the panel itself • the majority of hearings
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