International Organization and International Relations Year 1 – Block 3 & 4
Week 3: International Organization 1-2
Lecture 5 – From the GATT to the WTO: The legalization of trade politics?
Lecture (p. 2-5)
Readings (p. 6-14)
Gutner – Chapter 9
Eagleton-Pierce – The competing kings of cotton
Lecture 6 – Free Trade Areas, Customs Unions, and the EU Common Market
Lecture (p. 15-18)
Readings (p. 19-23)
Pelkmans – Why the single market remains the EU’s core business
Howarth & Quaglia – Brexit and the battle for financial services
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Week 3 – Lecture 5: From the GATT to the WTO: The legalization of trade politics?
Lecture
How can we talk about legalization while there is a ‘trade war’ going on? Justification of the Trump
Tariffs is legally based: tariffs because of national security, injury for domestic industry, etc. However,
the subjects did not sit idle: retaliation from China, EU, Mexico and Canada. It has not ended,
however: Us threatens further tariffs on China; tariffs against cars from the EU (mainly against
Germany); US threatens punitive tariffs on Airbus subsidies, same from EU-side on Boeing subsidies.
Where is the WTO in this story? This does not look like a legalized system, but rather a politicized
system - where you can impose tariffs if it seems well for your own economy. The DSB (or DSM - M =
Mechanism) has received many more cases against the US in 2018: 19 against 1-6 in previous years.
So, apart from retaliatory measures, the damaged states did also file cases at the DSB: ‘if American
tariffs are declared illegal, we will stop with retaliatory measures’. It is not so certain that these cases
will be solved and settled soon, because the DSB itself is going through difficult times.
Making sense of commercial liberalization
Why free trade?
- Boosts competition and therefore companies’ competitiveness
- Welfare-enhancing:
- As Smith argues (very specifically against the mercantilist ideas of his time), every country
has its own specialization. If we make the product we are best and most productive at, and
we will buy other products from other countries, welfare will be increased. (division of
labour: specialise and benefit from trade)
- David Ricardo has extended this idea: it does not only apply to absolute advantages, but
also comparative advantages: even when state A is more efficient in producing a particular
product, you can still buy that product from another
- Intra-industry and brands: there is differentiation within sectors; each piece of cheese is not the
same as each other piece.
Are we all happy free-traders?
- Mercantilism; perspective always pops up again, in the form of protectionism/neo-mercantilism
- Promote exports, limit imports
- Maximise inflow of foreign exchange and precious metals (which can be done by
maximising export)
-> Smith argues that this is an illusion: you also have to gain by imports, which will result in
efficiency in the long-term
- Trade and economy are subordinate to national security
- Protect certain domestic groups: not all groups domestically gain from free trade
- Losers from trade! What do you do with them? They are voters, can have political influence.
Therefore, it is always tempting and important to moderate negative effects
- “Infant industries” argument (Alexander Hamilton, Friedrich List): development perspective;
start-ups that are just building up a high-tech firm, which might be pushed out of the market
by a prominent international player. Therefore, a state can opt to protect its “infant industry”
- Incentive to free-ride and “beggar-thy-neighbour”: we try to gain from our neighbours opening up
their borders and economy, while we do not do anything about liberalization - e.g. China vs. US. In
WTO, there is principle of reciprocity to address this: ‘if I do it (for you), you have to do it (for me)’.
-> It is the role of specific IOs to ensure collective gain against individual incentives to defect:
History of international trade organisations (just overview, don’t need to go into the details)
The origins of the global free trade regime
The origins go back to the time after WWII. This era (WWI, Great Depression + WWII) can be
characterised as the years of protectionism. All states were following “beggar-thy-neighbour”
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policies: profiting from other countries, while themselves undermining free trade by e.g. devaluating
currencies.
In the Havana Charter in 1948, a start was made with trade liberalization:
- Ambitious project to set up International Trade Organization (ITO)
- Strong influence of less developed countries: stabilizing currencies to ensure stable income
- Signed by 56 countries - but did never into force, because the US Congress refused to ratify
What remained was the General Agreement on Tariffs and Trade (GATT, 1947)
- Intended to be temporary agreement until creation of ITO, but eventually the GATT became
the principal ‘organization’: it was no organization, because no secretariat etc.
- It was not really fit for the task, however it performed surprisingly well: many huge
negotiation rounds (lasting multiple years) covering tariffs, antidumping measures.
- More and more members (from 56 to 123 in the end) and widening and deepening of the
subjects covered: first 5 rounds exclusively about tariffs, later also: antidumping measures,
NTBs, services, intellectual property, dispute settlement, agriculture and textiles.
- The first of January 1995 marked the birth of the WTO
The WTO
Principles and procedures
- Basic GATT principles
- Principle of non-discrimination:
1. Most-favoured nation principle: strange name, but it is precisely about not having
a favoured nation; what you apply to one nation, you should apply to all other
nations: we multilateralise all bilateral agreements.
2. National treatment principle: after entering the territory of a state, imports must
be treated like domestic products.
- Principle of reciprocity
- Principle of transparency: there are reviews being done to see whether states are following
and abiding to the treaties
- Principle of progressive liberalization: eliminating barriers to trade
- How it works:
- Decision-making by consensus: which is quite challenging with all its members
- “Principal suppliers” procedure
- Eliminate quantitative restrictions, replace with tariffs, reduce tariffs. Tariffs are easily
comparable, so if only tariffs are addressed, it is relatively easy to fix
- Detailed “tariff schedules” per member after each negotiation round: very specific what
countries are allowed; these are very extensive, large and detailed documents
-> trade lawyers are needed very much to find your way through ‘this jungle’; the more
resources you have in this regard (intellectual or economic), the better your position and the
more power you have within the WTO
The WTO - An overview
- The main agreements within or consisting the WTO:
- General Agreement on Tariffs and Trade (GATT): trade in goods
- General Agreement on Trade in Services (GATS): trade in services; more difficult to
compare, because it is about who provides the service and who receives the service - one of
the two needs to move to the other. It is more about how European banks for example can
do business in Australia. Difficult to regulate and contested subject, e.g. freedom of
movement for labour in EU
- Trade-related Aspect of Intellectual Property Rights (TRIPs)
- Additional agreement on specific products groups: agriculture, textiles and clothing
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- Also, agreement on legitimate barriers to trade: anti-dumping, subsidies and countervailing
measures, safeguards, technical barriers to trade, import licensing procedures
-> one topic causes the next; this overview shows the widening of the scope of the WTO
- Trade-related Investment Measures Agreement
- Plus so-called “plurilaterals”:
- Civil aircraft, government procurement, dairy products, bovine meat
Legalisation and power in trade
The Dispute Settlement Mechanism
- Under GATT:
- Positive consensus (incl. parties to dispute) to create panel, accept panel report and
authorize countermeasures. Every single member state had veto power
-> under these circumstances, it was a very slow, highly politicised process!
- Under WTO:
- Stage 1: consultations between parties to dispute (up to 60 days)
-> useful stage: “negotiating in the shadow of law”, many disputes are solved in this stage
- Stage 2: Panel stage - panel of experts, nominated by DSB (up to 6 months)
- Stage 3: Appeal - Permanent Appellate Body (up to 90 days)
-> entirely new stage that did not exist under the GATT; a second level of jurisdiction
-> adoption of reports, countermeasures and the nomination of a panel stage by negative consensus:
only if all states are against, the adoption reports, countermeasures etc. will be stopped
-> it remains difficult, but there is no police. It is based on the assumption that states are willing to
accept the decisions of the WTO
Legalisation under WTO and its problems
- Legalisation: combination of “obligation [rules], precision [precise definitions] and delegation
[delegation of tasks and authority from states to a court]”
- Constitutionalisation (?): scholars accepting this view see a very fundamental set of rules that would
govern governance, but according to many, this does go a step too far
- Empowering members?
- Where do the rules come from?
- We would like to see rules and law as neutral, while that is not always the case: e.g.
Gutner’s criticism of the “one country, one vote” principle
- Dominant players (?): dominant players dominate the system, but also the rule-making. This
can explain why agricultural policies were excluded from the GATT scope, because it was in
the interest of the dominant states
- Issue of Power - see Eagleton-Pierce
- Rather than only compulsory power consider also: productive power (“shapes knowledge
and discourse”: right use of language, frames - this makes that even weaker states can gain
some power), institutional power (ability to use institutional settings and mechanisms to
one’s advantages, e.g. advantage of US (many resources: financially, intellectually; lawyers)
to use DSB
- See also core-periphery ideas
- Division developed vs. developing countries
Not so rosy outlook for the WTO - Three factors that make the outlook not so rosy:
- Doha development round: started in 2002, de facto dead. New dynamics with more assertive
emerging countries: harder for advanced, industrial countries to push through their interests
- New wave of preferential agreements:
- Most famously TPP and TTIP - ABC, “Anyone but China”?
- But also EU since 2006 Global Europe Strategy: South Korea, Singapore, Vietnam, Canada
(CETA), Japan
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