Chapter 1 review

 Factors of production: goods, capital, labor movement

Hindrance/Barrier to factor of production is lower
 Cooperation of (macroeconomic) policies: increases

Aspects/Angle:
+ Global scale: Multilateralism <-> world community
+ Regional scale
+ Bilateral scale
 Interdependency: increase
 Sovereignty: circulate the national money.
 Chapter 2: WTO and multilateral trading
system
Learning objective
 Understand WTO principles and functions
 Explore WTO vs. regionalism
 Assess Doha Round & Bali Package
 Evaluate WTO’s strengths, weaknesses, and future role
History of WTO
 Brief history of WTO and its principles
 WTO and its efforts to enhance world trade system
 WTO and its new challenges
History of World Trade Organization
- In December 1947, at Havana conference (Cuba),
International Trade Organization (ITO) was set up
as a third world economic pillar alongside the IBRD
(World Bank) and International Monetary Fund.
- Constitution of ITO
- This attempt failed due to the withdraw of the US The inaugural session of the Preparatory
Committee charged with creating an
- 23 countries has joined the other negotiation which International Trade Organization- Church
House, London 1946
has known as the General Agreement on Tariffs and
Trade (GATT). GATT 1947
The first biggest trade agreement in modern history
History of World Trade Organization
 Bretton Woods conference in late 1945 in the US.
Rebuild the world economy after the WWII. → pillars (key components):
+ International Trade Organization (ITO)
+ International Bank for Reconstruction and Development → World Bank
+ International Monetary Fund
History of WTO
 For 47 years, GATT served as an ad-hoc international organization, taking
up some of the functions originally intended for the ITO.
GATT/WTO trade negotiation rounds
Round Year Participating Tariff Cut Subjects
Countries Achieved
Geneva 1947 23 21% Tariffs on manufactured goods

Annecy 1949 13 2% Tariffs on manufactured goods

Torquay 1950-51 38 3% Tariffs on manufactured goods

Dillon 1959-62 26 2% Tariffs on manufactured goods

Kennedy 1963-67 62 35% Tariffs on manufactured goods, anti-dumping

Tokyo 1973-79 102 33% Tariffs on manufactured goods, NTBs

Uruguay 1986-94 125 34% Tariffs, NTBs, services, IP, agriculture, textiles,
dispute settlement, creation of WTO
Doha 2001- ? 166 - Agriculture, services, IP, trade & investment,
competition rules, procurement, e-commerce,
environment; final deal mainly trade
facilitation
 200
700

100
500

0
600

300
800

400
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965

Trade in goods
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975

Trade in services
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
Cummulative RTAs notifictions

1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Cummulative RTAs in force

2005
2006
2007
2008
Regional trade arrangement by year of entry in force

2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Principles of WTO
 Trade without discrimination:
Most-favoured-nation (MFN): Under the WTO agreements, countries
cannot normally discriminate between their trading partners.
National treatment: Treating foreigners and locals equally
 Freer trade through negotiation
 Predictability: through binding and transparency. foreign companies,
investors and governments should be confident that trade barriers
(including tariffs and non-tariff barriers) should not be raised arbitrarily;
tariff rates and market-opening commitments are “bound” in the WTO;
Principles of WTO
 Non-discrimination
+ Most Favored Nations (MFN): countries cannot discriminate between
their trading partners
 Under Article I of GATT 1947, MFN requires that:
“any advantage, favour, privilege or immunity granted by any contracting
party to any product originating in or destined for any other country shall be
accorded immediately and unconditionally to the like product originating in
or destined for the territories of all other contracting parties”
If a GATT member lowers tariffs or grants trade benefits to one country, it
must extend the same treatment to all other GATT members.
Principles of WTO
Exception:
* Preferences within a free trade agreement that applies only to goods
traded within the group against goods from outside.
* Special access to markets that granted to developing countries.
* Barriers against products that are considered to be traded unfairly from
specific countries.
* Discrimination in services (but limited circumstances).
Principles of WTO
 Article III (National Treatment on Internal Taxation and
Regulation) from the GATT 1947:
 Article III:1
The contracting parties recognize that internal taxes and other internal
charges, and laws, regulations and requirements affecting the internal
sale, offering for sale, purchase, transportation, distribution or use of
products, should not be applied to imported or domestic products so as to
afford protection to domestic production.
Principles of WTO
 Article III:2
The products of the territory of any contracting party imported into the
territory of any other contracting party shall not be subject, directly or
indirectly, to internal taxes or other internal charges of any kind in excess
of those applied, directly or indirectly, to like domestic products.
 Article III:4
The products of the territory of any contracting party imported into the
territory of any other contracting party shall be accorded treatment no
less favourable than that accorded to like products of national origin in
respect of all laws, regulations and requirements affecting their internal
sale, offering for sale, purchase, transportation, distribution or use
Non-discrimination

+ National treatment: applied once a product, service or item of intellectual

property has entered the market.
For example: imported and locally-produced goods should be treated
equally — at least after the foreign goods have entered the market.


Trade Liberalization through Negotiation

 WTO members commit to progressively lowering trade barriers (tariffs,

quotas, subsidies) through rounds of multilateral negotiations.
 The idea is not immediate free trade, but gradual liberalization to make
trade more predictable and open.
Predictability and Transparency
 Members “bind” their tariffs: once a maximum tariff rate is agreed, it
cannot be raised without negotiation and compensation.
 WTO requires members to publish their trade regulations and notify
changes.
 This gives businesses and governments stability and confidence in trade
relations.
Promoting Fair Competition
 WTO rules try to ensure a level playing field by discouraging unfair
practices like dumping (exporting below cost) or providing harmful
subsidies.
 Anti-dumping duties and countervailing measures are allowed under
strict conditions.
 Intellectual property protection (TRIPS) and rules on services (GATS) also
contribute to fair competition.
Encouraging Development and Economic
Reform
 Special and differential treatment (SDT) is given to developing and least-
developed countries.
 They may receive longer timeframes to implement commitments,
technical assistance, and better market access.
 This principle recognizes that integration into the global trading system
must be inclusive and supportive of development needs.
Structure of WTO

Source: WTO (2021)

Functions of the WTO
 Administering WTO agreements
 Providing a forum for trade negotiations
 Dispute settlement mechanism
 Monitoring and reviewing trade policies
 Assisting developing and least-developed countries
 Cooperating with other international organizations
Function 1: Administering WTO
Agreements
 The WTO manages and oversees the implementation of multilateral trade
agreements covering goods (GATT), services (GATS), and intellectual
property (TRIPS).
Function 2: Providing a Forum for
Negotiations
 The WTO serves as a permanent platform where members negotiate trade
liberalization, new agreements, and updates to existing rules.
 Example: the Uruguay Round, Doha Development Agenda.
Function 3: Dispute Settlement
 The WTO provides a rules-based system for resolving trade disputes
between members through panels and the Appellate Body.
 Ensures predictability and prevents trade conflicts from escalating into
political disputes.
Function 4: Monitoring Trade Policies
(Transparency)
 Members must notify the WTO of changes in trade policies.
 The WTO conducts Trade Policy Reviews (TPRs) to ensure openness and
compliance.
Function 5: Building Capacity for
Developing Countries
 Through technical assistance and training, the WTO helps developing
and least-developed countries (LDCs) participate effectively in global
trade.
 Includes longer transition periods and special treatment in agreements.
Function 6: Cooperation with Other
International Organizations
 The WTO collaborates with the IMF, World Bank, and other bodies to
ensure global economic policy coherence.
WTO - Decision
 All major decisions are made by the membership as a whole:
- By Ministers (who meet at least once every two years)
- By Ambassadors (who meet regularly in Geneva)
- By Delegates (who meet regularly in Geneva)

 Decisions are normally taken by CONSENSUS

 WTO rules are outcomes of negotiations among WTO members
 WTO is a consensus-based organization
WTO and its roles in multilateral trading
system
Step 1: Application
 The interested country submits a formal application to the WTO General
Council.
Step 2: Working Party Formation
 A Working Party (group of WTO members) is established to examine the
application.
Step 3: Fact-Finding and Memorandum
 The applicant provides a Memorandum on the Foreign Trade Regime
describing all trade and economic policies.
 WTO members review and ask detailed questions.
Step 4: Negotiations
 • Multilateral negotiations: rules and commitments are discussed (e.g.,
alignment of domestic laws with WTO agreements).
 • Bilateral negotiations: applicant negotiates with individual WTO
members on market access for goods and services.
Step 5: Working Party Report and Protocol
 Results are compiled into a Working Party Report and a Protocol of
Accession summarizing the applicant’s commitments.
Step 6: Approval
 The WTO General Council or Ministerial Conference adopts the accession
package.
Step 7: Ratification
 The applicant country ratifies the Protocol domestically.
 Thirty days after notifying the WTO, the country becomes a full member.
Recent context of economic integration
 In the late 1980s and early 1990s, a series of events led analysts to focus on
the systemic effects of regional integration. For example, the creation of
NAFTA, Single European Market. There are big concerns about the
conflict between regionalism and WTO.
 The obstacles in Doha Round have posed the big issue how to save the
WTO and at the same time, try to avoid building a dual international
trading system
 The stalemate of the Doha Round has reflected the problematic issues of
system by WTO
WTO and Economic Integration
 • WTO = multilateral framework
 • Regional blocs = partial liberalization
 • Can act as:
 - Building blocks – encourage global liberalization
 - Stumbling blocks – fragment world trade
WTO vs. Regionalism
 • EU, NAFTA, ASEAN often go beyond WTO rules
 • Risk of trade diversion and exclusive clubs
 • WTO Article XXIV: allows regional agreements if no extra barriers
against outsiders
WTO & RTAs
 RTAs actually support the WTO?
 GATT (Article 24 & 5) allow WTO members to conclude RTAs as a special
exception, provided certain strict criteria are met.
 In the WTO, RTAs are defined as reciprocal trade agreements between
two or more partners. They include FTAs & CUs.
 Some of these rules have paved the way for agreement in the WTO.
⇒ Agreements should help trade flow more freely among the countries in
the RTA without barriers being raised on trade with the outside world.
WTO & RTAs (continued)
 RTAs seem to violate the WTO’s principle?

 WTO agreements recognize that under some circumstances, setting up a

CU or FTA would violate the WTO’s principle of non-discrimination.

 All WTO members now have an RTA in force.

 Over the last two decades, the number of regional trade agreements has
been on the rise — WHY?
Building Blocks: Growth & Market
Expansion
 • Regional integration fosters economic growth and openness.
 • Serves as an incubator for firms to expand in larger markets before facing
full global competition.
Building Blocks: Political & Policy Benefits
 • Exporters gain influence, pushing governments toward more liberal
trade policies.
 • Trade rules and barriers can be adjusted more quickly within a smaller
group than through multilateral negotiations.
Building Blocks: Competition & Bargaining
Power
 • Domestic monopolies lose influence due to increased competition.
 • Integration strengthens the group’s bargaining position with external
partners and competitors.
Building Blocks: Domino Effect & Shared
Gains
 • Integration may expand outward, spreading liberal trade practices
(‘domino effect’).
 • Non-discriminatory measures within the group create benefits for all
members.
Stumbling Blocks: Trade Diversion &
Complexity
 • Regional integration may harm third countries through costly trade
diversion.
 • Preferential trade agreements weaken the multilateral system (‘eating
away’ at WTO rules).
 • Simple global trade rules are replaced by a complex ‘spaghetti bowl’ of
overlapping regulations.
Stumbling Blocks: Lobbying & Policy
Distortions
 • Industry-specific lobbies push for protection and distort production
location.
 • These groups resist further trade liberalization.
 • Policymakers’ time and energy shift from global to regional concerns.
Stumbling Blocks: Higher Costs &
Inefficiencies
 • Multiple rules of origin and enforcement raise production, transaction,
and trade costs.
 • Administrative burdens increase due to inconsistent regional rules.
 • ‘Tyranny of small differences’ complicates trade further.
Stumbling Blocks: Power & Trade Conflicts
 • Strong regional blocs may exploit monopoly power and improve their
own terms of trade.
 • Risk of conflicts and ‘trade wars’ between blocs.
 • Deeper integration may add protection in previously open sectors.
Stumbling Blocks: Impact on Multilateral
Negotiations
 • Major players (e.g., US, EU) often tied to discriminatory regional deals.
 • Example: EU’s CAP reflects reluctance toward full free trade.
 • Regional deals may slow or block new multilateral agreements, as some
countries benefit from existing discriminatory arrangements.
The Doha Round
 Launched in 2001 (Doha Development Agenda)
 Goals: agriculture, services, IP, environment
 Outcome: deadlock, failure to reach consensus
 Significance: limits of multilateralism
Bali Package (2013)
 First WTO multilateral deal since 1995
 Focus: Trade Facilitation Agreement (TFA)
 Simplify customs, reduce red tape
 Limited scope
WTO’s Crisis
 Slow progress on negotiations
 Disputes over subsidies, agriculture, IP
 Rising protectionism after 2008 crisis
 Enforcement role under stress
Mega-Regional Deals
 TPP, TTIP, RCEP → WTO-extra rules
 Cover investment, labor, digital trade
 Threat: bypass WTO, parallel rule-making
 WTO risks irrelevance
WTO and Small States
 Principles vital for small economies
 Protects them from dominance of large partners
 Ensures legal equality in disputes
WTO vs. New Issues
 • Slow on digital economy
 • Climate change & sustainability
 • Labor standards
 • State-owned enterprises
WTO: Strengths
 • Only global trade governance body
 • Dispute settlement mechanism
 • Predictability and stability
 • Universal membership → legitimacy
WTO: Weaknesses
 • Consensus decision-making = gridlock
 • Struggles with non-tariff barriers
 • Vulnerable to great power politics
 • Overshadowed by regional mega-deals
Conclusion
 • WTO faces serious challenges
 • Regionalism supportive and disruptive
 • Future depends on adaptation, negotiation revival
 • Still cornerstone of multilateral trade but under pressure