Contents

I. 1. 2. II. 1. 2. 3. III. 1. a. b. c. d. 2. 3. a. b. c. d. 4. Regionalism & Multilateralism ............................................................................... 2 Introduction: ....................................................................................................... 2 Definitions: ........................................................................................................ 2 WTO in brief: .......................................................................................................... 3 The result............................................................................................................ 3 The heart ............................................................................................................ 3 The goal.............................................................................................................. 3 Multilateral Trading System: ................................................................................ 5 Trade historical background .............................................................................. 5 1492-late 18th century: Mercantilist Era ......................................................... 5 Early 19th century 1914: The 19th century order.......................................... 5 1919 1939: Interwar period ......................................................................... 6 1947 now: Postwar system of GATT and WTO ......................................... 6 The history of MTS ............................................................................................ 7 Principles of MTS ............................................................................................ 14 1st principle: Market-based liberalism .......................................................... 14 2nd principle: Non-discrimination ................................................................. 14 3rd principle: Reciprocity .............................................................................. 14 4th principle: Incorporate domestic safeguard .............................................. 15 Components of MTS ........................................................................................ 16

REFERENCE ................................................................................................................ 17

I.

Regionalism & Multilateralism

1. Introduction: The literature on regionalism & multilateralism is burgeoning as economists and a few political scientists grapple with the question of whether regional integration arrangements (RIAs) are good or bad for the multilateral system as a whole. Are RIAs building blocks or stumbling blocks, in Bhagwatis (1991) memorable phrase, or stepping stones towards multilateralism? Regionalism & multilateralism switches the focus of research from the immediate consequence of regionalism for the economic welfare of the integrating partners to the question of whether it sets up forces which encourage or discourage evolution towards globally freer trade. The answer is we dont know yet. Since we value multilateral trading system, it is essential that we understand the definitions of the two approaches and to differentiate multilateralism from regionalism. 2. Definitions: Regionalism: Regionalism occurs when a small group of nations, typically on a regional basis, form a regional trading arrangement. Under this system, member nations agree to impose lower barriers to trade within the group than to trade with nonmember nations. Each member nation continues to determine its domestic policies, but the trade policy of each includes preferential treatment for group members. We can see typical examples as North America Free Trade Agreement (NAFTA), European Union (EU), Free Trade Area of the Americas (FTAA), Asia-Pacific Economic Cooperation (APEC), etc. Multilateralism: Multilateralism is a reciprocal reduction of trade barriers on a nondiscriminatory basis. Under the General Agreement on Tariffs and Trade (GATT) and its successor, the World Trade Organization (WTO), member nations acknowledge that tariff reductions agreed on by any two nations would be extended to all other members. Such an international approach encourages a gradual relaxation of tariffs throughout the world. And apparently nowadays WTO is the outstanding representative of multilateralism.

II.

WTO in brief:

WTO is the only international organization dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. 1. The result Assurance: secure supplies and greater choice of the finished products, components, raw materials and services More prosperous, peaceful and accountable economic world: risk of disputes spilling over into political or military conflict is reduced barriers between peoples and nations are broken down thanks to lowering trade barriers 2. The heart WTOs agreements are negotiated and signed by a large majority of the worlds trading nations, and ratified in their parliaments legal ground-rules for international commerce. contracts guaranteeing member countries important trade rights. a bound keeping governments trade policies within agreed limits to everybodys benefit. agreements helping producers goods and services, exporters, and importers conduct business. 3. The goal WTO aims at improving the welfare of the peoples of the member countries. People have different views of the pros and cons of the WTOs multilateral trading system. Indeed, one of the most important reasons for having the system is to serve as a forum for countries to thrash out their differences on trade issues. Individuals can participate, not directly, but through their governments. However, they must follow 2 main nondiscrimination principles: Most favored nation (MFN) and National treatment (NT) sub-principles. These principles are also the foundation of the multilateral trading system.

III.

Multilateral Trading System:

1. Trade historical background

The 19th century order Mercant (early ilist Era 19th (1492 - century late 1914) 18th century)

Interwar period (1919 1939)

Postwar system of GATT and WTO (1947 now)

a. 1492-late 18th century: Mercantilist Era The mercantilist system was based on private property and the use of markets for the basic organization of economic activities. The main purpose of economic policy was to strengthen the national status. Thus, the government exercised much control over production, exchange, and consumption.Mercantilist states favored maintaining low wages, which would discourage imports, contribute to the export surplus, and thus swell the influx of gold.

b. Early 19th century 1914: The 19th century order The 19th century saw a major shift in nature and scope of bilateral trade treaties in the direction of more openness and liberalization. By the late 19th century, however, the momentum towards a more open, less preferential trading system was beginning to slow. The worldwide depression from 1873 to 1877 put pressure on more domestic protection and weakened the drive for access for foreign market. An even greater threat to trade openness and non-discrimination was the race among leading economic powers, including the United States, at the end of the 19th century and the beginning of the 20th century to settle up or expand their colonies and influence. A series of isolated trade war also broke out during this period, resulting in further strain within the trading system.

c. 1919 1939: Interwar period The recovery of the international trade and payments system after the First World War was slow and tentative. Some of trade blocs were defensive. Other blocs were more hostile. After 1936, Germany moved to create its own restrictive trade bloc as part of its drive for economic self-sufficiency and resource security. In 1934, the US Congress enacted the Reciprocal Trade Agreement Act.

d. 1947 now: Postwar system of GATT and WTO This was a period favorable for large advances to be made in international trade liberalization and cooperation. The Bretton Woods Conference in 1944 envisaged the creation of 3 new international economic institutions: IMF, WB, ITO. Countries returned to the provisional GATT agreement that had already been negotiated among 23 contracting parties in 1947 and which was to provide the foundation for an expanding multilateral trade system until it was subsumed by the WTO in 1995. Although there was shared vision about the post-war trading system - especially the need to lower tariffs and to discipline any forms of discrimination, Britain and the U.S clashed over how the new architecture could be reconciled with existing regional arrangements.

2. The history of MTS

Name of Period and round or number of Subjects and modalities meeting parties 1947 Gevena 23 countries

Outcome Creation of the GATT Conclusion of 123 agreements Concessions on 15,000 tariff items Tariff commitments on 5,000 items The elimination of trade barriers within Europe Another 8,700 tariff items added to the agreement Modest reductions, about 2/5 of international trade bound against tariff increases About 4,400 tariff concessions covering $4,9 billion of trade The Arrangement on Cotton Textiles, EEC proposal for a 20% linear cut in manufactured tariff rejected. Tariff reduction on industrial goods amounting an average cut of 38%, worth some $40 billion EEC proposal to conclude world commodity agreements for certain agricultural products came to nothing

Tariff: item-by-item offerrequest negotiations

1949 Annecy 33 countries 1950 Torquay 34 countries 1956 Geneva 22 countries

Tariff: item-by-item offerrequest negotiations

Tariff: item-by-item offerrequest negotiations

Tariff: item-by-item offerrequest negotiations

1960 Dibon 45 countries

Tariff: item-by-item offerrequest negotiations, motivated in part by need to rebalance concession following the creation of EEC

1963-1967 Kennedy 48 countries

Tariff: formula approach (linear cut) and item-bytem talks. Non-tariff measures: antidumping, customs valuation

 Agreements on custom valuation and dumping Some 33,000 tariff lines bound. The removal of all trade barriers faced by tropical products in developing countries The tariff reduction of far from 60% average originally envisaged 2 agreement and a proposal to establish a munltilateral agricultural framework. Voluntary codes of conduct agreed for all nontariff issues except safeguards. guards Average tariffs again reduced by one-third on average. The increase in binding of tariff. Cover agriculture trade in a substantive mannaer. The Agreements of textiles and clothing subjected to rules. Creation of WTO Introduction of strengthened disciplines in the field of trade remedies. New agreements on services and TRIPs Majority of Tokyo Round codes extended to all WTO Members. Negotiations and other work on non-agricultural

1973-1979 Tokyo 99 countries

Tariff: formula approach with exceptions. Non-tariff measures: antidumping, customs valuation, subsidies and countervail, government procurement, import licensing, products standards, safeguard, special and differential treatment of developing countries

Uruguay

1986-1994: 103 countries in 1986, 117 as end of 1993

Tariff: formula approach with exceptions. Non-tariff measures: all Tokyo issues, plus services, intellectual property, pre-shipment inspection, rule of origin, trade-related investment measure, dispute settlement, transparency and surveillance of trade policies

Doha

2001 105

Tariff: formula approach wih exceptions. Non-tariff

countries measures: trade facilities, as end of rules, services, environment 2007

tariffs, trade and environment, WTO rules such as anti-dumping and subsidies, investment, competition policy, trade facilitation, transparency in government procurement, intellectual property, and a range of issues raised by developing countries as difficulties they face in implementing the present WTO agreements.

*** A brief comparison between the Uruguay Round and the Doha Round Generally, both the two rounds generate crucial decisions and agreements that affect the whole trading system in the world as well as the global economy. However, each one led to different issues and the Doha Round, which happened after the Uruguay Round is, to some extent, the continuation of what has not been solved before. Therefore, to have a clearer insight into the main issues tackled and created from the two rounds, we shall have a brief comparison between them. In the negotiation framework In both rounds, the timetable for concluding the negotiations turned out to be unrealistically optimistic. The Uruguay Round was supposed to last four years. The Doha Round was supposed to be even shorterjust slightly more than three years. These deadlines were broken as a result of various crises that led to frequent interruptions and even temporary suspension of the negotiations. It is highly probable, though, that without these deadlines both rounds would have gone on for even longer. Considering the politically sensitive issues at stake and with the participation of more than 100 countries with vastly different development levels, interests and priorities, it is not a surprise that negotiations are protracted and come to a standstill from time to time. Dillon Round Kennedy Round Tokyo Round Uruguay Round Doha Round 1962-62 1964-67 1973-79 1986-94 20012 years 3 years 6 years 8 years Initially years planned for 3

Table : DURATION OF TRADE ROUNDS SINCE 1960s - Treatment of new issues: The big breakthrough came with the Uruguay Round and the Doha Round in the sense that their agendasat least initially also covered areas that previously had been unregulated in GATT/WTO. However, the way in which these new issues have been treated in these two rounds differs considerably.

Uruguay Round Frame work for trade and services TRIPS Creation of WTO (TRIMS) (PSI)

Doha Round Trade and investment Trade and investment Transparency in procurement Trade facilitation Trade and environment Aid for trade

government

In the Uruguay Round, the desire to create new frameworks and rules for services, and eventually for intellectual property as well, formed the core of the negotiations. Agriculture was of course one of the main subjects, but it could hardly be characterized as a new issue since several provisions in the GATT formally covered it. The issue of trade in services was the most innovative part of the agenda. The negotiations were mostly about creating a whole new framework with rules and instruments for liberalizing activities and regulations, which since the beginning of the GATT in 1948 had been kept totally outside the multilateral trade framework. Also, the TRIPS platform was even expanded during the course of the negotiations. The agreements on trade related investment measures (TRIMs) and pre-shipment inspection (PSI) included some new elements for the GATT system when they first were introduced. However, the final agreements could hardly be characterized as new as they mainly amounted to clarifying already existing obligations in the GATT. The handling of new issues is the factor that most distinguishes the Doha Round from the Uruguay Round. The Uruguay Round introduced comprehensive frameworks in trade in services and intellectual property into the world trading rules. In the Doha Round, the only truly new issues were eventually dropped. Why this difference? The main explanation is that the TRIPS and service agreements were strongly driven by a few MNEs and could muster support from a critical mass of the

more important countries. In contrast, the constituency for the three Singapore issues was either lacking or not strong enough. - Market access: The issue of increased market access has been a central component in all GATT rounds up to 1979. The approach to this issue has, however, been much broader in both the Uruguay Round and the Doha Round. This is due partly to the desire to tackle all forms of trade distorting measures (border protection, export subsidies and domestic support) in the agricultural sector and partly to the inclusion of trade in services.

Uruguay Round

Doha Round

- Tariffs for agricultural and industrial - Tariffs for agricultural and industrial products with special arrangements for products with tropical special arrangements for environmental and natural resource-based products, products - Export and other agricultural products subsidies tropical products and cotton for - Export subsidies products with for agricultural

- Quotas: phasing out of the MFA and prohibition against all grey zone measures; replacing agricultural quotas and variable levies with tariffs and tariff rate quotas

special arrangements for cotton - Other subsidies (domestic support) for agricultural products with special arrangements for fish

- Other product specific nontariff - Other product specific non-tariff measures for industrial products, measures for industrial products with including tropical and natural resource- special arrangements for environmental based products products - Liberalization of trade in - Liberalization of trade in services with services special arrangements for environmental services

Agriculture has been the central market access issue in both rounds with the ministers committing themselves to substantial reductions of both border protection and agricultural support. On export subsidies, the Doha platform is more specific and ambitious than the corresponding one in the Uruguay Round. The Doha Declaration talks about reducing, with a view to phasing out, all forms of export subsidies. Both rounds formulated the terms of reference for

the liberalization of tariffs and non-tariff measures for industrial products in more or less similar terms, namely the elimination or reduction of these types of barriers. In the Uruguay Round, negotiators chose a pragmatic approach to accomplish this in the tariff field, with average formula cuts for some products and item by item negotiations for other areas. In the Doha Round, it was not until the Hong Kong meeting in 2005 that an agreement was reached to use. the so-called Swiss formula for reducing and harmonizing tariff levels for industrial products. The formula should in principle apply to each and every product. In this respect, the goal of the Doha Round is considerably more ambitious than that of the Uruguay Round where the participating countries could make average reductions and so shield the most protected products from tariff cuts. - Special and differential treatment: Special and differential treatment (SDT) of developing countries has manifested itself in different ways in the Uruguay Round and in the Doha Round. For example, before the Uruguay Round, developing countries had some de facto SDT by not being required to bind as high share of their tariffs as the developed countries. As already mentioned, the round reduced this policy space as the developing countries increased their binding coverage quite considerably. In the TRIPS agreement there was, despite demands from the developing countries, no permanent differentiation between developed and developing countries. Both the Subsidies and the TRIMs agreements reduced the degree of informal SDT that countries felt they had in order to carry out their industrial policies. In contrast, the Doha agenda emphasizes the importance of SDT. The strong pressure for this from the developing members should be seen against the background of the decision in the Uruguay Round to multilateralize all existing and future agreements in the WTO. The actors - Individual countries: In both rounds, the United States and the European Union have been the main players. In the beginning of the Uruguay Round, the US was in the drivers seat with the EU as a somewhat reluctant passenger. However, the EU became more and more engaged during the course of the negotiations. After the conclusion of the Uruguay Round, the EU has been more proactive, both in the discussions leading up to the Doha meeting and in the actual negotiation phase, and sees itself as having taken over the leading role from the US. One of the big changes in the Doha Round is that there are virtually no bystanders compared to the situation in earlier rounds when many countries tended to be followers. From a democratic point of view, this must be

considered to be a good thing despite the fact that the positions of these countries have become less predictable. - Country Coalitions: One striking difference between the two rounds is the number of coalitions or alliances between different countries. As can be seen from Table, the coalitions were relatively few in the Uruguay Round but have proliferated in the Doha Round. Uruguay Round Non-issue specific coalitions: Doha Round Non-issue specific coalitions:

Caf au Lait/De la Paix group, Nordic ASEAN, CARICOM, G90 (ACP Group, countries, African Group, LDC Group), Small and ASEAN Vulnerable Economies, Like Minded Issue-specific coalitions: Group, Cairns Group, Morges Group (agriculture), Recently Acceded Members, non-G6 etc. Pacific Group (safeguards), Victims Group Issue-specific coalitions: (anti-dumping), Rolle Group (services), Cairns Group, Cotton-4, G10, G11, G20, ITCB G33, NAMA11, Friends of Fish, (textiles and clothing), etc. Antidumping etc. What has characterized the Doha Round is the emergence of various coalitions and alliances among the developing countries. One difference between the Uruguay Round and the Doha Round stands out clearly. The coalitions in the present round are looser and generally more defensive. The loyalty among members shifts depending on the issues. Some countries are members of several groups. For example, Indonesia is a member of not only ASEAN, but also of G33, G20 and the Cairns Group. The members of the G20 barely agree among themselves on agriculture and not at all on other issues. They have also failed to reach a common opposition on non-agricultural market access (NAMA) issues, where only a part of the group appears as NAMA 11. Thus, it is far too early to pinpoint the alliances that will drive the negotiations to a conclusion if they exist at all.

3. Principles of MTS To specify how governments are to treat each other and what types of trade policy measures they can and cannot use, governments created a set of rules governing policies toward the foreign direct investments made by multinational corporations. All the rules divides into 4 principles providing the foundation upon which the multilateral trade system is based.

a. 1st principle: Market-based liberalism This is the broadest of these principles. According to market-based liberalism, the liberalization of international trade is a desirable objective because free trade raises all countries standards of living. We will examine the logic behind this claim in greater detail in the next section. For now it is sufficient to note that this principle provides the justification for an international institution oriented toward the creation and maintenance of a liberal trading system.

b. 2nd principle: Non-discrimination The principle of non-discrimination is contained in Article I of the GATT, which states 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. Stripped of the legal terminology, Article I requires each member of the WTO to treat all other WTO members as well as it treats its most-favored trading partner. For example, under this principle of Most Favored Nation (MFN) the United States cannot impose lower tariffs on goods it imports from Brazil than it imposes on the goods it imports from other countries. If the U.S. wants to reduce the tariffs it imposes on goods it imports from Brazil, it must extend these same tariff rates to all other members of the WTO. The WTO does allow some exceptions to the principle of non-discrimination. Under the Generalized System of Preferences advanced industrialized countries can grant preferential treatment to imports from developing countries. Governments can also extend preferential treatment to countries with which they enter free trade areas or customs unions. These exceptions aside, non-discrimination is a fundamental principle of the multilateral trade system.

c. 3rd principle: Reciprocity The multilateral trade system is based on the principle of reciprocity. Reciprocity ensures that any trade concessions made by governments through the multilateral

bargaining are mutually beneficial. When one country agrees to reduce tariffs on imports from a second country, it has the right to expect the other country to make tariff concessions of equal value in return. For example, if the United States offers to reduce its tariffs on steel imported from Brazil, Brazil must offer to reduce tariffs on goods it imports from the United States, say computers rather than offer a reduction on something that the U.S. does not produce, such as coffee (except for a little bit of Hawaiian Kona). The principle of reciprocity, therefore, attempts to ensure that the concessions that each country makes in the multilateral trade negotiations are equaled by the concessions it gains from its trading partners.

d. 4th principle: Incorporate domestic safeguard Finally, multilateral trade rules incorporate domestic safeguards. Domestic safeguards are escape clauses that allow governments to temporarily opt out of commitments they have made when changes in the domestic or international [economy] mean that compliance would seriously undermine the well-being of part or all of their population (Finlayson and Zacher 1985, 290). For example, during the late 1990s and early 2000s, the world price of steel fell sharply, resulting in a surge of steel imports into the United States. This import surge hurt American steel producers who lost markets to foreign producers. The safeguards incorporated in the WTO allow the United States to raise tariffs on imported steel temporarily to protect American steel producers from these imports. Governments cannot resort to such safeguards without first undertaking an intensive investigation, however, to determine whether the difficulties experienced by a domestic industry are in fact a result of a sudden import surge. In other words, even though multilateral rules allow governments to opt out of their commitments for short periods, they limit their ability to do so.

4. Components of MTS

REFERENCE

1. Alan Winters, Regionalism versus Multilateralism, The World Bank, November 1996 2. The World Trade Organization, Seminar on Regional Trade Agreements and the WTO, 14 November 2003 <http://www.wto.org/english/tratop_e/region_e/sem_nov03_e/background_obj_e .htm> 3. The World Trade Organization, 10 common misunderstandings about the WTO. < http://www.wto.org/english/thewto_e/whatis_e/10mis_e/10m00_e.htm> 4. The World Trade Organization, Multilateral Trading System- past, present and future. < http://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr01_e.htm> 5. The World Trade Organization, The Doha Round Text and Related Documents, 2009. 6. The World Trade Organization, World Trade Report 2007.