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Prof. J. Peter Neary Department of Economics, University of Oxford Room 257, Manor Road Building; Tel.: 271085 email:

University of Oxford Department of Economics and Said Business School Masters in Financial Economics 2006-2007 International Trade Negotiations : GATT & WTO © J.P. Neary 2006. Prof. J. Peter Neary Department of Economics, University of Oxford Room 257, Manor Road Building; Tel.: 271085

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Prof. J. Peter Neary Department of Economics, University of Oxford Room 257, Manor Road Building; Tel.: 271085 email:

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  1. University of OxfordDepartment of Economics and Said Business SchoolMasters in Financial Economics 2006-2007International Trade Negotiations:GATT & WTO© J.P. Neary 2006 Prof. J. Peter Neary Department of Economics, University of Oxford Room 257, Manor Road Building; Tel.: 271085 email: peter.neary@economics.ox.ac.uk http://www.economics.ox.ac.uk/members/peter.neary/neary.htm This file: http://www.economics.ox.ac.uk/members/peter.neary/said.ppt

  2. Introduction • Doha: • Central Command in the Iraq War • Doha trade round: becalmed? • Background • Bretton Woods 1944: • IMF, IBRD (World Bank) and ITO • ITO rejected by U.S. Senate: “GATT” instead • Successive trade “rounds”: 8 from 1947-1993 • 9th Round: The “Doha Development Round”

  3. Digression[Bluff Your Way in International Trade Theory] • Trade is important • Trade arises from differences between countries • Ricardo (1817): “Comparative Advantage” • Trade is good for everyone • Well, almost … • Stolper-Samuelson (1941): Distributional conflicts inevitable • Still potentially good for everyone: if compensation takes place • (e.g. trade adjustment assistance) • Trade arises between similar countries • Intra-Industry Trade: Dixit-Norman/Krugman et al. (1980) • “Strategic Trade Policy” may justify subsidising large firms • Well, not really … • Brander-Spencer (1984) • Consensus: Economists cautiously in favour of free trade • BUT: Politicians and general public more sceptical …

  4. Plan • The Doha Timetable • Agricultural Trade Barriers • Varieties of Trade Policy • Widening the WTO Mandate • Thinking the Unthinkable • Conclusion

  5. The Doha Timetable • 1993: Uruguay Round: GATT => WTO • 1999 (Nov.): Seattle … • 2001 (Nov.): Doha Development Agenda • 2003 (Sept.): Review of progress at Cancun • 2005 (Jan.): Conclusion of the Round LDC disillusionment September 11 US steel tariffs, farm subsidies; no CAP reform Intermediate deadlines missed; Cancun a flop Negotiations suspended after failed Genevameeting, July 2006 Doha round: “definitely between intensive care and the crematorium”

  6. The Doha Timetable (cont.) • Still: some grounds for optimism? • History of past rounds: • Uruguay Round suspended in 1990 • More generally: …

  7. The Doha Timetable (cont.) • Still: some grounds for optimism? • History of past rounds … • Fast-track authority for US President until 2007

  8. The Answer Lies in the Soil • “A” is for Agriculture … • Agriculture is different • Owner-managers with sector-specific capital • Disproportionate political influence • US versus EU: A huge gap • US wants tariffs cuts (its tariffs are low) • EU with very high farm subsidies could cut them if US does too • Many other DC’s have high protection (Japan, S. Korea, Norway) • LDC’s want market access, though not into their own markets • Poorest LDC’s unlikely to gain • c.f. Panagariya (2005)

  9. Varieties of Trade Policy • 1. Tariffs: • Average tariffs low in DCs • BUT: non-uniform • Tariff peaks and tariff escalation • Formula versus commodity-by-commodity approaches • 2. Quantitative Restrictions: • Quotas and “Voluntary Export Restraints” (VER’s) • Uruguay Round: To be phased out - by 2005 (i.e., back-loaded)

  10. Effects of Tariffs and Quotas • Simplest case: • Small open economy i.e., world prices fixed • Partial equilibrium i.e., consider one industry in isolation

  11. Effects of a Tariff in a SOE (cont.) Imports before tariff (Home Supply and Demand curves) S p pW+t pW Imports after tariff D Q World price unchanged; home price rises; imports fall

  12. Effects of a Tariff in a SOE (cont.) S p pW+t a c d b pW D Q • Home consumers lose: a+b+c+d [Consumer Surplus] • Home producers gain: a [Producer Surplus] • Government gains: c [Tariff Revenue] • Remainder: b+d [“Deadweight Loss”]

  13. Effects of Tariffs and Quotas (cont.) • Effects of a Quota: • Identical in a competitive small open economy • Difference: Government does not get revenue directly • Who does? • “Pure” quota: Licenses auctioned competitively, so government gets all the rent (Tariff and quota fully equivalent in this case) • “Pure” VER: Exporters get all • VER plus tariff: Tariff retains part of the rent • With home monopoly, quota allows home firm to charge higher prices • Good for the home firm, very bad for consumers

  14. Varieties of Trade Policy (cont.) • 3. Anti-Dumping Duties: • A valuable safety valve? • [Ethier (2002)] • Or an excuse for permanent protection? • DC’s, especially US, favour them • LDC’s opposed, though increasingly use them • Discretionary

  15. Widening the WTO Mandate • 1. Environmental and Labour Standards: • Coalition of principle and protectionism • Fine, but not as part of a trade deal • 2. Competition Policy: • Leave to domestic competition authorities? • Cross-border mergers? • International cartels? • 3. TRIPS: • [“Trade-related Aspects of Intellectual Property Rights”] • Drugs: Access to old versus R&D into new • Waiver for LDC’s? • “Essential” versus “lifestyle” drugs • 2-tier pricing

  16. Thinking the Unthinkable • Alternatives to Multilateralism: • Regionalism • Divert attention • Divert trade • Not comprehensive • No Dispute Settlement Mechanism • Excluding LDC’s from Openness • Openness is (mostly) good for you • GATT/WTO: Mercantilism => Multilateral liberalisation

  17. Trade Creation and Diversion • Trade Creation: 2=SP, 3=SP+t • Reduced tariffs on partner lead to more imports • Trade Diversion: 1=SW, 2=SP, 3=SW+t • Selective tariff reduction  Imports from partner replace those from rest of world 3 2 1 D

  18. Conclusion • The outlook: • Jan 2005 deadline? No • 2007 deadline? Doubtful • A deal? • Maybe … • The catch: • Will the US accept a limited deal? • Will the EU (a.k.a. France) accept cuts in agricultural protection? • Do DC’s want a deal?

  19. Links and Further Reading • http://www.brettonwoods.com/ • http://www.wto.org/ • Neary, J.P.: "Europe on the road to Doha: Towards a new global trade round?,” CESifo Economic Studies, 50:2, Summer 2004, 319-332. • Panagariya, A. (2005): The World Economy

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