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Law of the WTO Notes
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Notes from the “Law of the World Trade Organization” lessons given by Geert van Calster
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The law of the world tradeorganization
Materials:
- bundle core WTO text: cursusdienst
- OPEN boek: readers, notities,…
- practical questions + short essay
Lecture 1
private international economic law = international business law (arbitration, business finance, M&A,
…) IBL
public international economic law: free trade, investment law -> much more in treaties
WTL: trade, lack of trade (restricted measures from states) go back to Adam Smith
Adam Smith
founding father of capitalism
‘the wealth of nations’: trade theory
o collection of student notes
o what makes a nation wealthy?
cynical look at his own period: mercantilist period ‘Mercare’: period in
which all the nations in Europe will be trading all the time (opposite was
true)
period before Smith: no trading, not encouraged
wealth of nations = government wealth how rich is a nation?
o global wealth = ‘pie’-> distribution in large family, how get
bigger piece? be there fast
f.e. if UK wants to be wealthier than the rest, the
only way to do is, is by taking away a piece of wealth
from the rest
has nothing to do with welfare
measured in bullion: count the gold and silver you get more by
grabbing land from others,…
o at the end of that period: idea that adding value to materials and trading it (f.e.
textile industry in trade with Flanders) might want to export it
trade between England and Flanders (not between France) why? not seen
as a complete nation
o looks at micro-economics and tries to learn lessons from us
(baker: bakes bread, he has tools,… will sell bread to everyone, they pay him
money and from that money he will go buy shoes/…) absolute advantage
(specialization)
, requires that you trade (you need to sell your stuff and buy your stuff
from other people) -> didn’t exist in Smith’s time
why is a nation not doing something similar as the baker and
cobbler? specialization
o f.e. 2 states A and B
o o A o B
o textile o 100 o 50
o wine o 80 o 100
o
A makes 100 textile, B makes 50
A makes 80 wine, B makes 100
absolute advantage: A should produce textile, drop wine, export textile to
B and import wine from B
problem
here: both countries have an absolute advantage
reality: most states are ‘loser’ states nothing in Belgium, either
goods or services, that would fit in absolute advantage model
o o A o B
o textile o 100 o 50
o wine o 100 o 80
o
o model changes: B will still be worse than country A
o if you are a nation that doesn’t have an AA, you lose trading
power
o you grow pie by trading you grow wealth
Ricardo
Smith’s insights were valuable, but limit of problem from absolute advantage
‘comparative advantage’
o what nations should be trading isn’t the absolute advantage pie grows more if we
all trade on what we are comparatively speaking best in
marginal costs and benefits
o product/good/ services which you are marginally best at producing, marginally
least inefficient at producing
o advantage: all states by definition, even ‘loser’ states (despite reasons: government,
geographic, nature, bad luck,…: not good at producing stuff), would be at least the
least bad at something
textile: A makes 100, B makes 50
wine: A makes 100, B makes 80
A should be focusing on textile, B should be focusing on wine B is least
bad at producing wine
ONLY when listening to Ricardo
If listening to Smith: country A wouldn’t do it
you should trade because it is beneficial for that country: even if you are selfish, it is in your
interest to trade (even when you are better than that country)
pet industries: states from which you know would never be able to compete
, o subsidies for industries: much more generous in WTO than for the EU
=> 1810: still drives economic diplomacy, mainstream market integration
o not about charity, this is how you grow the pie
The invisible hand: Adam Smith
market mechanisms
baker and cobbler: bakers sell his bread to anyone, cobbler will sell to everyone prepared to
pay the price, in selling that product on the market will automatically add to the wealth of
the nation (by selfish act of selling your goods/services for profit) as ‘if let by an invisible
hand’, the pursuit of self-interest will automatically improve the wealth of the nation in which
you produce your goods
o intention is irrelevant to that outcome (doesn’t matter that they are selfish): by
selling their goods they will automatically add to the wealth of the nation
o interesting for capitalist model: all make money, shouldn’t be morally good
government intervention: if you will go regulate those things, it should be the government
regulating its, not market participants (not their task that they should regulate these non-
market things)
o government should deal with issues surrounding those mechanism , not the market
participants
now: corporate social responsibility (are corporations good? go the extra mile to care about
climate…)
o Smith wouldn’t believe in this at all
o ‘why should Shell have any say in international water policies?’ they shouldn’t, let
them make money, not their task/ responsibility opponents of corporate social
responsibility use Smith’s idea
reality: trade = global, economies are obligated
o f.e. Australia: what is the comparative advantage? Cole, raw materials, educational
services stuff will continue to stop being an advantage
= absolute advantage
will be a big challenge for Australia: fuels will come to an end, what will they
do?
o f.e. Russia: what is the comparative/ absolute advantage? Wood, oil, gas, raw
materials
o f.e. California: Tech, IT, wine lot of services
o f.e. France: wine, cheese, catering, tourism
o f.e. Vermont, Ohio, Belgium,…: most countries, you can create a comparative
advantage
if you have an absolute advantage same as the comparative advantage
if you don’t have an absolute advantage need to create one
o deregulation can be a comparative advantage: in terms of goods/production f.e. ask
Vietnam what the comparative advantage is, is called labour (deregulation in labour
standards)
challenge: what is the comparative advantage going to be?
o 1) even if you manage to identify it, what will you do?
often back to pet industries
o 2) you still need to act upon it
f.e. Germany: what are the gaps in the market?
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