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Chapter 7 - The multilateral trade and investment framework. The main goals of this chapter are to: Provide a history of the development of the current world trading system, leading to a better understanding of the current international trade framework; explain the functioning, the achievements and the problems faced by the General Agreement on Tariffs and Trade (GATT); outline the new features of the World Trade Organisation (WTO).
Chapter The multilateral trade and investment framework Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–1 Lecture plan • • • • • • • • • • Brief history of trade GATT creation and impact on world trade Basic principles of GATT The Uruguay Round results Post-Uruguay Round progress: basic telecommunications; information technology; financial services The World Trade Organisation (WTO) WTO’s dispute settlement The next WTO round UNCTAD Progress to date in FDI liberalisation Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–2 Ancient trade • One of the oldest economic activities • First cities and trade (about 6000 BC): Mesopotamia (Babylon); Northern China; India; Central America • Trade between urban centres (e.g Mesopotamia, Egypt and the Eastern Mediterranean) grew food, cotton, timber, domesticated animals • Greek city states e.g Athens and Sparta (around 500 BC) expanded trade Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–3 Ancient trade • The Roman Empire(300BC-400AD) – emphasised business – – – – – Pax Romana(The Roman Peace) Common coinage Systematic law and administration Central market locations/Cities Excellent communication system • Other city-nations and tribes joined the empire and agreed to pay tributes and taxes • The fall of the Roman empire(5th century Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: AD) An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–4 Trade under European feudalism (c.700–c.1500 AD) • After fall of Roman Empire (476 AD), decline in urban life/trade for about 500 years • Closed-state economy pursuing self-sufficiency • 11th century AD, revival in export trade: Italy, Low Countries,German Hanse towns • East–West trade: Europe importing: spices, rice, oranges, dyes, cotton and silk; Western European merchants exporting: timber, arms, woollen clothing • Trading associated practices (e.g banking, double-entry bookkeeping, bills of exchange, tariffs and commercial organisations) introduced in 15th and 16th century Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–5 Industrial Era Trade (1750–1945) • • • • • England led world in industrialisation and trade (‘the workshop of the world) US and Western European countries followed a few decades later Development of urban/trade centres in Asia, Africa and L America largely result of colonial expansion by industrial powers Decline of international trade between the two wars due to Great Depression (1929–33) and strong protectionism in the US, UK, France 1913–1950 period had lowest average economic growth since 1820; also the only period over 250 years where trade slower than production Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–6 GATT (the General Agreement on Tariffs and Trade) • Signed on 30 October 1947 by 23 nations • Came into force on January 1948 • rounds of multilateral trade negotiations • World Trade Organisation established on January 1995 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–7 GATT negotiating rounds No of parties 6186 2000 3485 1990 1985 1625 1947 23 1949 13 1950–1 38 1956 26 1960–2 45 1964–7 62 1973–9 99 1986–94 117 2002–05 144E 1947 Geneva Annecy Torquay Geneva Dillon Kennedy 7.Tokyo Uruguay Doha Value of world trade($USb) 1979 1973 1963 155 Years 575 Round 1000 2000 E = Feb.2002 Source: adapted from various GATT/WTO publications Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 3000 4000 5000 6000 US$ Billion 7–8 7000 Impact of GATT on industrial tariff rates 30 Average tariff % 25 20 Germany Japan United States 15 10 1950 1990 2000 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–9 % Weighted tariff rates for the farm sector in selected countries and regions, %, 1997 50 45 40 35 30 25 20 15 10 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–10 GATT: basic principles • Trade without discrimination – most favoured nation clause • Protection only through tariffs – quantitative restrictions prohibited • Stable basis for trade – tariff bindings • Special treatment for developing countries – principle of non-reciprocity Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–11 The Uruguay Round results • Increase in incomes – world income up by US$510 billion by 2005 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–12 The Uruguay Round results • Industrial tariff reductions – developed countries to reduce tariffs by 40% * average tariff will range from 1.7% (Japan) to 4.8% (Canada) – developing countries reductions * India, S.Korea and Singapore by > than 50% – transition economies reductions * Poland down by 38% (average at 9.9%) Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–13 The Uruguay Round results cont • Removal of quantitative restrictions – textile and clothing restraints under MFA to be phased out in steps between January 1995 and January 2005 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–14 The Uruguay Round results cont • Increased industrial tariff bindings – developed countries from 78 to 99% – developing countries from 21 to 73% – transition economies from 73 to 98% Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–15 Post-Uruguay Round progress • Basic telecommunications – Negotiations successfully concluded in Feb.1997 with 69 governments agreeing to wide-ranging liberalisation measures The agreement came into force in Feb 1998 • Information technology – In March 1997, 40 governments agreed to cut customs duties on IT products beginning on July 1997 and eliminating tariffs altogether on trade amounting to some US$600 billion p.a • Financial services – The agreement came into force in March 1998, when 70 governments agreed to open their financial services sectors, covering more than 95% of trade in banking, insurance, securities and financial information Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–16 World Trade Organisation vs GATT • More global (prospective membership: 150) • Wider scope: services, intellectual property, investment • Full-fledged international organisation in its own right • Appellate body Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–17 World Trade Organisation vs GATT cont • Administers a unified package of agreements to which ALL members are committed • Improved GATT rules plus a lot more • Reverses policies of protection in ‘sensitive areas’ Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–18 WTO disputes • As of 31 Dec 2000, WTO examined 200 trade disputes compared with 196 by GATT in 50 years – US: 60 complaints – EU: 50 complaints • Hormone-treated beef (US–EU); US won • Banana war (US + Central American Banana producers vs EU); US won • Howe leather (US + Canada vs Australia; Australia lost (See end of chapter Case, p.173) • Lamb exports to the US (Australia + NZ); Australia and New Zealand won (See case p.166) Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–19 WTO’s rulings encourage developing countries • Encouraged by WTO’s tougher system, developing countries started to use the settlement procedures more than under GATT – Costa Rica and India won cases against the US on textile exports to the US – In 2003 India topped the list of ‘anti-dumping initiations’ with a number of 46 actions out of a total of 231 – China had a number of 83 initiations of antidumping measures over 2000 to mid 1994 – Over same period: Mexico (14), Indonesia (12) Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–20 The Doha Round • • • The Declaration of Doha (Qatar) in November 2001, set January 2005 as date for completing all but two negotiations Seven negotiating bodies: (1) agriculture; (2) services; (3) non-agricultural market access; (4) rules; (5) trade and environment; (6) geographical indications for wines and spirits; (7) reform of Dispute Settlement Understanding ‘The risk is that the new round (and so the entire multilateral system ) could collapse under the weight of too many contentious issues’ (The Economist) Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–21 United Nations Conference on Trade and Development (UNCTAD) • Permanent United Nations agency established in 1964 • No executive power • Convenes a meeting every four years • Forum for examining North–South issues in trade, finance and development Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–22 Liberalisation of FDI • OECD, UNCTAD, WTO • In 1995 OECD initiated talks between its members with the purpose of drafting a Multilateral Agreement on Investment (MAI) • Talks broke down primarily because the US refused to sign the agreement; too many exceptions would weaken its powers • Not achievable in the foreseeable future Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7–23 ... expanded trade Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7 3 Ancient trade. .. 15th and 16th century Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7 5 Industrial... 1995 Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea 7 7 GATT negotiating rounds