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).
Trang 1Copyright 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
Chapter 7 The multilateral trade and investment framework
Trang 2Copyright 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
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
Trang 3Copyright 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
• 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
Trang 4Copyright 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. 7–4
– 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 AD)
Trang 5Copyright 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
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.
Trang 6Copyright 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
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
Trang 7Copyright 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 (the General Agreement on
Tariffs and Trade)
• Signed on 30 October 1947 by 23 nations
• Came into force on 1 January 1948
• 8 rounds of multilateral trade negotiations
• World Trade Organisation established on
1 January 1995
Trang 8Copyright 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. 7–8
GATT negotiating rounds
1973 1979 1985 1990 2000
US$ Billion
E = Feb.2002
Source: adapted from various
GATT/WTO publications
Trang 9Copyright 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
Impact of GATT on industrial tariff rates
Trang 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
Weighted tariff rates for the farm sector
in selected countries and regions,
%, 1997
0 5 10 15 20 25 30 35 40 45 50
Trang 11Copyright 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
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
Trang 12Copyright 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
• Increase in incomes
– world income up by US$510
billion by 2005
Trang 13Copyright 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
• 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%)
Trang 14Copyright 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.
• Removal of quantitative restrictions
– textile and clothing restraints under MFA to be phased out in 4 steps
between 1 January 1995 and
1 January 2005
Trang 15Copyright 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
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%
Trang 16Copyright 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
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 1 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.
Trang 17Copyright 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
Trang 18Copyright 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
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’.
Trang 19Copyright 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 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).
Trang 20Copyright 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
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
anti-dumping measures over 2000 to mid 1994.
– Over same period: Mexico (14),
Indonesia (12)
Trang 21Copyright 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
The Doha Round
• The Declaration of Doha (Qatar) in November 2001,
set 1 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).
Trang 22Copyright 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
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
Trang 23Copyright 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
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