Учебное пособие: Regulation of international trade within the framework of the world trade organization (WTO)
Non-tariff trade barriers refer to all the other trade restriction measures other than tariffs, including import quota or licensing (automatic and non-automatic import licensing), voluntary export restraints, technical barriers to trade, sanitary and phytosanitary measures, anti-dumping, subsidies and countervailing measures, customs valuation, pre-shipment inspection, rules of origin, fees and formalities, etc.
Case - effects of non-tariff trade barriers: Voluntary Export Restraints on Japanese Automobiles to the US.
From 1977 to 1981, US automobile production fell by about one-third, the share of imports rose from 18 to 29 percent, and nearly 300,000 autoworkers in the US lost their jobs. In 1980, the Big Three US automakers suffered combined losses of 4 billion $US. As a result, the US negotiated an agreement with Japan that limited Japanese automobile exports to the US to 1.68 million units per year from 1981 to 1983 and to 1.85 million units for 1984 and 1985. Japan “agreed” to restrict its automobile exports out of fear of still more stringent import restrictions by the US. As a result of this agreement, US automakers reaped profits of about 6 billion $US in 1983, 10 billion $US in 1984, and 8 billion $US in 1985. Japan gained by exporting higher-priced autos and earning higher profits. The big loser was the American public, who had to pay substantially higher prices for domestic and foreign automobiles. It was estimated that the agreement resulted in a price 660 $US higher for US made automobiles and 1300 $US higher for Japanese cars in 1984, and the total cost of the agreement to US consumers was 15.7 billion $US from 1981 through 1984, and that 44,000 US automaker’s jobs were saved at the cost of more than 100,000 $US each, 2 or 3 times the yearly earnings of a US autoworker.
As the example above shows, neither tariffs nor non-tariff measures are reasonable or justified to be imposed on because of the high cost of trade protection practice. There are, however, still some fallacious or questionable arguments for trade protection.
Trade restrictions are needed to protect domestic labor against cheap foreign labor.
· Scientific tariff rates could make the price of imports equal to domestic prices and allow domestic producer to meet foreign competition.
· Protection is needed to reduce domestic unemployment and to cure a deficit in the nation’s Balance of Payments or trade deficit.
· Trade restrictions are needed to protect infant industries in developing countries and to acquire a comparative advantage in crucial high-technology industries in developed countries (Strategic Trade Policy).
The first three arguments are to be questions for students. Below, the fourth argument is conferred.
Infant-industry argument: A nation may have a potential comparative advantage in a commodity, but because of lack of know-how and the initial small level of output, the industry will not be set up or, if already started, cannot compete successfully with more established foreign firms. Temporary trade protection is then justified to establish and protect the domestic industry during its “infancy” until it can meet foreign competition, achieve economies of scale, and reflect the nation’s long-run comparative advantage. At that time, protection is to be removed. However, for this argument to be valid,
1) the return in the grown-up industry must be sufficiently high to offset the higher prices paid by domestic consumers of the commodity during the infancy period;
2) there is an objective standard to identify which industry or potential industry qualifies for this treatment;
3) there is a schedule to remove the protection.
Strategic trade policy: A nation can create a comparative advantage (through temporary trade protection, subsidies, tax benefits, and cooperative government-industry programs) in such fields as semiconductors, computers, telecommunications, and other industries that are deemed crucial to future growth in the nation. These high-technology industries are subject to high risks, require large-scale production to achieve economies of scale, and give rise to extensive external economies (a benefit to society at large, say, by training workers who then leave to work in other industries) when successful. Strategic trade policy suggests that by encouraging such industries, the nation can reap the large external economies that result from them and enhance its future growth prospects. Semiconductors (such as computer chips) and steel industry in Japan are a good example. Other examples are the Concorde supersonic aircraft and the Airbus in Europe. However, there are serious difficulties in carrying out this argument: 1) It is extremely difficult to choose the industries that will provide large external economies in the future and devise appropriate policies to successfully nurture them; 2) Since most leading countries undertake strategic trade policies at the same time, their efforts are largely neutralized, so that the potential benefits to each may be small; 3) When a country does achieve substantial success with strategic trade policy, this comes at the expense of other countries and so other countries are likely to retaliate.
All in all, trade production usually increases the commodity price, benefits producers and harms consumers and usually the nation as a whole. For example, it is estimated that removing all quantitative restrictions (QRs) on textile and apparel exports to the US would result in a gain of 11.92 billion $US for the US at 1984 prices. Removing QRs also leads to employment losses in the industry losing the QRs, but these employment losses are matched or more than matched by economy-wide employment gains. Removing QRs on exports of textile, automobiles, and steel to the US leads to a total welfare gain of 20.28 billion $US for the US. Also eliminating all tariffs on industrial products after the above QRs have been removed results in a further gain of 0.6 billion $US for the US. However, since producers are few and stand to gain a great deal from protection, they have a strong incentive to lobby the government to adopt protectionist measures. On the other hand, since the losses are diffused among many consumers, each of whom loses very little from the protection, they are not likely to effectively organize to resist protectionist measures. Thus, there is a bias in favor of protectionism. For example, the sugar quota raises individual expenditures on sugar by only a few dollars per person per year in the US. But with about 250 million people in the US, the quota generates more than 600 million $US in rents to the few thousand sugar producers in the US.
2. Historical background of the WTO
The World Trade Organization, established on 1 January 1995, is the umbrella organization governing the international trading system. It oversees international trade agreements and provides the secretariat for GATT, based in Geneva.
The members of the WTO now account for well over 90% of the world’s trade and virtually all of its investment; by the end of 2005, the organization’s membership had increased to 149, from the 76 founding members of 1995. Nearly all the developed, and most of the developing countries, have joined.
The multilateral framework of international trade originated from the end of the World War II. The earlier experience with the Great Depression of the late twenties and early thirties, followed in its wake by the trade protection imposed by major trading nations, made governments aware of the need for a multilateral discipline in the field of international trade. This awareness assumed a new urgency with the devastation caused by the World War II and with the need for the expansion of international trade as an important tool for development and growth. The WTO’s origins can be traced back to the Atlantic Charter of 1941, developed by then US President Franklin Roosevelt and British Prime Minister Winston Churchill. In order to counter US isolationism, the principle of the Atlantic Charter was for an international trading system with equal access to trade for all nations. This was seen as a complement to an effective world political forum, the United Nations, established in 1946 with its permanent headquarters in New York City. The United States organized an international conference on trade and employment which resulted in the Havana Charter of 1948, in which it was proposed to establish the International Trade Organization (ITO). Twenty-three countries agreed to a set of tariff cuts and these were ratified by the GATT, which was set up as a transitory arrangement to be subsumed under the ITO. However, the ITO was never ratified because the US government announced in 1950 that it would not seek Congressional ratification of the Charter, and the GATT, though never intended to be an “organization”, continued for 47 years, until the WTO finally emerged in the last stages of the Uruguay Round to take on the role originally designed for the ITO. The WTO now stands with the World Bank and the International Monetary Fund as the third leg of the global economic system.
The Bretton Woods conference and the GATT.
In July 1944, a meeting of Allied ministers was held in Bretton Woods, New Hampshire, the US. The institutions created there remain at the core of the global economy today: IMF, World Bank. In December 1945, the US invited 14 countries to begin negotiations on liberalizing international trade. The negotiations were intended to create an International Trade Organization that would facilitate trading relations as Bretton Woods facilitated monetary relations and to implement quickly an agreement to reduce tariff levels. In March 1948, the draft charter for the ITO, known as the Havana Charter, was drawn up. This charter contained sections on employment and economic activity, economic development and reconstruction, restrictive business practices, inter-governmental commodity arrangements and subsidies. It was more wide ranging than the GATT, which focused on tariffs in manufactured goods. In negotiating the Havana Charter the US push for a pure free trade system was limited by its own internal commitment to agricultural protection. With echoes of the Senate’s refusal to endorse Woodrow Wilson’s effort to have the US join the League of Nations following the First World War, the US Congress refused to give its agreement to the ITO. More influential than isolationists in rejecting the agreements were liberal forces which heartily condemned concessions the US negotiators made to other countries. The GATT was actually created two years later to replace the abortive ITO. The original 23 GATT countries were among over 50 which agreed a draft Charter for an ITO - a new specialized agency of the UN. The Charter was intended to provide not only world trade disciplines but also contained rules relating to employment, commodity agreements, restrictive business practices, international investment and services.
The disastrous state of the global economy - especially the collapse of trade markets - contributed to the belief that the international system required greater management along liberal lines. It also convinced policymakers everywhere that a prosperous national economy was impossible without a well-designed international system. In an effort to give an early boost to trade liberalization after the World War II, and to begin to correct the large overhang of protectionist measures which remained in place from the early 1930s because of the Great Depression, tariff negotiations were opened among the 23 founding GATT contracting parties in 1946. The tariff concessions and rules together became known as the GATT and entered into force in January 1948.
Throughout its 48-year history, the GATT provided the structure for a global process of steady trade liberalization through eight “rounds” of multilateral trade negotiations sponsored by its Contracting Parties. In the first six Rounds, the focus was on the reduction of tariffs. The last two Rounds have covered wider areas (see table below).
The Uruguay Round Negotiations and establishment of the WTO.
The seeds of the Uruguay were sown in November 1982 at a Ministerial meeting of GATT members in Geneva. Though the meeting stalled on the issue of agriculture, the work program formed the basis of the Uruguay negotiation agenda. With four more years of exploring and clarifying issues and painstaking consensus-building, Ministers met again in September 1986, in Punta del Este, Uruguay. The negotiation was expected to be completed in four years. In December 1990, however, disagreement on the nature of commitments to future agricultural trade reform led to a decision to extend the round. For the following three years, the negotiations lurched continuously from impending failure to predictions of imminent success. Several deadlines came and went; farm trade was joined by services, market access, anti-dumping rules and the proposed creation of a new institution as the major points of conflict. It took until 15 December 1993 for every issue to be finally resolved. On 15 April 1994, the deal was signed by Ministers from most of the 125 participating governments at a meeting in Marrakesh, Morocco. The agreements of the Uruguay came into force on 1 January 1995.
3. Reasons for replacing the GATT by the WTO
There is popular belief, that the WTO replaces the GATT. In fact, the WTO did not replace the GATT. An amended GATT remains as one of the legal pillars of the world’s trade and, to a lesser extent, investment systems. The other pillars, set up in the Uruguay Round’s Marrakesh agreement of 1994, include the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). So, what has been replaced is not the GATT as an international agreement but the GATT as an international organization. In other words, GATT as an international agency no longer exists. It has been replaced by the WTO. But, GATT as an agreement still exist, and has been updated. The updated GATT is called GATT 1994, and the replaced GATT is called GATT 1947. The GATT always dealt with trade in goods, and it still does. It has been incorporated into the new WTO agreements, living alongside the GATS and the TRIPs.
As a matter of fact, the 1986 Ministerial declaration of Punta del Este, containing the agenda and objectives for the Uruguay negotiation, did not include any explicit call for a new charter or organization. Despite this hesitancy, however, by 1990 there was considerable discussion of the need for an improved organizational structure for effective implementation of the Uruguay results. The first public call for a world trade organization to be established was a proposal by the Canadian Government in early 1990. The Canadian proposal built on the work of Professor John Jackson (Hessel E. Yntema Professor of Law at the University of Michigan) and others at an informal meeting in Geneva in 1989. It was then incorporated into the “Dunkel Text” of 1991 (Arthur Dunkel was then the GATT Director General), which eventually became the final text of the Uruguay Round adopted at Marrakesh in April 1994. In approving the Uruguay Round on its “fast track” system, the United States insisted on the name World Trade Organization, rather than the European Community’s preference for Multinational Trade Organization.
The GATT has undertaken eight “rounds” of multilateral trade negotiations, which have achieved major cuts in tariffs and, since the 1970s, some reductions in related non-tariff barriers to trade. The latest round, the Uruguay Round, lasted seven years, as its agenda broadened to include trade in services and intellectual property, and a revised system of dispute settlement mechanisms.
In spite of the remarkable success during its nearly five decades of history, the GATT system was being increasingly challenged by the changing conditions of international economic activity, including the greater ‘interdependence’ of national economies, and the growth in trade in services. Anxiety developed that the GATT was too handicapped to play the needed role of complementing the Bretton Woods system as the “third leg”, alongside the IMF and World Bank. Problems and ‘birth defects’ included.
Provisional application and Grandfather rights exceptions embraced by the Protocol of Provisional Application. The GATT was designed to be a multilateral trade and tariff agreement and would depend on the ITO for its organizational context and secretariat services. The GATT never definitively came into force; instead it was legally applied by a Protocol of Provisional Application originally designed to last until the ITO came into force. Grandfather clause provided that the rules in Part III of the GATT 1947, which essentially dealt with non-tariff trade measures, need be applied only to the extent that they were not inconsistent with legislation in effect when a country acceded to the GATT.
There were exceptions from GATT rules for textiles, agriculture, regional trading groups, developing countries and safeguards to prevent serious injury to domestic producers.
Another reason for the need to reform GATT was ambiguity about the powers of the Contracting Parties to make certain decisions. The GATT dispute settlement process had two major weaknesses. The first was the ability of a Contacting Party to veto the process at numerous stages. A dissatisfied party could block the creation of a panel, block adoption of the report by the Council or fail to undertake the obligations outlined in the report. The second problem was that even if the country accepted a panel report in question, it could choose to keep the offending policy, leaving the injure party to suspend benefits in kind. The dispute then fell back on to unilateral action by the aggrieved party. The party which had its complaint supported by a panel would have to undertake retaliation through its own domestic legislation. This could take the form of tariffs or suspension of trade benefits to the offender. Offenders were not sanctioned; they just had benefits of equal value withdrawn by the complaint. The unilateral nature of the process raised serious problems for the whole system. The countries able to take unilateral measures tended to be the economically powerful such as the US, Japan and the EU. Smaller states were less likely to take action against the giants because they feared a trade war that would cost them dearly. One of the purposes of having an international legal framework for trade is to facilitate relations based on rules rather than power. Law should restrain powerful states from abusing their economic power to the cost of smaller states. Since the GATT process relied so heavily on unanimity, this goal was difficult to achieve.