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International Trade Policy: GATT, WTO

International Trade Policy: GATT, WTO. WTO and the environment The Committee on Trade and the Environment (CTE) holds discussions once or twice a year It is generally agreed that progress by the CTE in addressing issues related to the environment has been slow Why?

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International Trade Policy: GATT, WTO

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  1. International Trade Policy: GATT, WTO • WTO and the environment • The Committee on Trade and the Environment (CTE) holds discussions once or twice a year • It is generally agreed that progress by the CTE in addressing issues related to the environment has been slow • Why? • Because decisions by the WTO are made by consensus among the member countries • There is generally no consensus on trade/environment issues • If decisions cannot be reached by consensus, they can be reached by vote but contentious issues usually require a three-quarters majority or even unanimous vote

  2. International Trade Policy: GATT, WTO • WTO and the environment • What are the environmental issues on which it is difficult to reach agreement in the WTO? • Issues can be divided into three types: domestic pollution, transborder pollution and global pollution 1. Domestic pollution: pollution that is domestic in nature and does not spill over national boundaries. Richer countries tend to have higher environmental standards than poorer ones. Poorer countries operating in the same industry/sector may therefore have a trade advantage

  3. International Trade Policy: GATT, WTO • WTO and the environment 1. Domestic pollution (cont’d): One country might spend more on environmental controls in particular sectors than in another country and therefore the costs for firms in that sector would be higher. Therefore, the country with the lower environmental controls/standards would have a trade advantage over the other country. Can be seen as exploiting the environment for economic gain. However, is it not acceptable that different countries value their environment differently? Environmental diversity between countries is legitimate. Also, rich countries can afford to spend more on the environment – forcing poor countries to do the same would reduce their standards of living

  4. International Trade Policy: GATT, WTO • WTO and the environment 2. Transborder pollution: Pollution that spills over national boundaries. Does a country being damaged by pollution from another have the right to ban imports from that country? Is trade policy the right instrument to use for environmental issues? If a country imposed import restrictions due to transborder pollution the losses from reduced trade are likely to be far greater than the gains from less pollution

  5. International Trade Policy: GATT, WTO • WTO and the environment 3. Global pollution: Argument - the WTO could impose trade sanctions to reduce global pollution problems (e.g. ozone layer). But some countries could free ride by ignoring the agreements (bearing no costs) and yet get the benefits from low global pollution levels. The WTO then could impose trade sanctions against those free riders but this would be going against its overriding objective of free trade.

  6. European Union • Source: “International Economics: A European Focus”, Barbara Ingham (available in the library) Chapter 12 • If a country is a member of a trade bloc, like the European Union (EU), it does not have complete freedom imposing protectionist measures • The EU is an economically integrated area • Economically integrated area in an institutional sense • one without internal legal and administrative barriers that impede the free flow of goods, services, capital and people

  7. European Union • One fundamental significance of economic integration (free trade and free movement of labour and capital): the increase of actual or potential competition • Likely to lead to: lower prices, greater quality variation, wider choice, general impetus for change in the direction and intensity of innovation.

  8. Degrees of economic integration

  9. European Union • Guiding ideology: Avoiding another war and restoring peace and stability in Europe • European Union: the processes of economic and political integration have been linked from the start • European Coal and Steel Community (ECSC) (1951) – founded to preclude another French-German war (European security – main aim) • European Economic Community (EEC) Treaty (1957) strive for “an ever closer union among the peoples of Europe” • Implicit desire to pursue political integration via economic means

  10. Origins of the EU: European Coal and Steel Community (ECSC) - 1952 • France and Germany pooled control over their coal and steel industries • Promoted by Robert Schuman (French foreign minister) • Schuman’s proposal: two countries should place these industries under a supranational authority • Coal & steel: ‘commanding heights’ of an industrial economy

  11. Origins of the EU: ECSC (1952) • ECSC (1952) • France, West Germany, Italy, Luxembourg, Belgium and Netherlands • This created a free trade area for coal and steel • Price, trade and production in the hands of a ‘high authority’ • It enabled the six countries to protect their industries more from US competition • Greater output  reduce costs through greater economies of scale  increased competitiveness • From these small beginnings the EU developed • ECSC: showed co-operation under a supranational authority

  12. Origins of the EU: The Treaty of Rome (1957) • Situation: • Germany continued to grow substantially • It joined Nato and began to rearm • By 1955: coal and steel were no longer crucial sectors in Europe’s economy • ECSC – not enough to ensure another war did not occur • European leaders turned attention to further integration • June 1955: six nations of the ECSC met to start a process of further integration, leading to the signing of the Treaty of Rome in 1957

  13. Origins of the EU: The Treaty of Rome (1957) • Treaty of Rome (1957) • committed the six members to deep economic integration • established a customs union: phased withdrawal of all tariffs between the members and imposed customs tariffs on all goods coming into the community (completed in 1986) • Allowed provisions for free flow of goods, capital (capital market integration) and labour (free labour mobility) in the future between countries • Creation of a number of important institutions: European Commission, European Council of Ministers, European Parliament, European Court of Justice • Envisaged the creation of a number of common policies: Common Agricultural Policy, Competition Policy, Social Policy, Transport Policy, Regional Policy

  14. Origins of the EU: EEC (1958) • 1st January 1958: European Economic Community (EEC) came into existence after the signing of the Treaty of Rome (Treaty of Rome refers to the EEC treaty) • Non-EEC countries of Western Europe: seven formed the European Free Trade Association (EFTA) IN 1960 • Founders: Austria, Switzerland, Norway, Sweden, Denmark, Portugal and the UK • By mid-1990s: just two of these countries remained outside the EEC

  15. Enlargements of EEC (1973-1995) • 1973: Ireland, UK, Denmark • 1981: Greece • 1986: Spain, Portugal • 1995: Finland, Sweden, Austria → 15 member states

  16. Increasing the pace of economic integration • The EEC was nothing more than a customs union by the end of the 70’s. • By 1985: EU firms had duty free access to other nations but not free trade • Barriers: differing technical standards, regulations etc. • As the economic climate improved, JacquesDelors exploited the moment by proposing a very large step forward – the Single European Act

  17. Single European Act (SEA) • SEA signed in 1986 and came into force in 1987 • Committed member governments to remove all substantial barriers to trade by 31st Dec 1992: a genuine common market • Free movement of goods, persons, services and capital • It also allowed for the widening of Community responsibilities to include the environment, R&D, regional development and foreign policy. • It brought important institutional changes – unanimity to majority voting for single market issues

  18. The Maastricht Treaty (1992) • Formally called the Treaty on European Union was signed in Maastricht in 1992 • Among others things, it set out a detailed programme for Economic and Monetary Union (EMU) and laid down a timetable for the creation of a single currency by 2002: the Euro • The treaty also covered moves towards political and social union, and established a framework for co-operation in foreign policy between member countries

  19. EU Enlargement • 10 new members: • Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia, joined formally on 1 May 2004, • Applicant countries: • Bulgaria and Romania: part of the second wave of negotiations in February 2002 failed to accede in 2004 because they were not ready. They have now completed negotiations and are due to join the EU on the 1st January 2007 • Croatia and Turkey: negotiations open this year

  20. Topic 1 • What we have covered under topic 1 Topic 1: International Trade Theory and Policy • Interdependence and the gains from trade: production possibilities frontier, Theory of Comparative Advantage • Theory of Competitive Advantage • The Instruments of Trade Policy • Arguments for protection • Benefits of trade • GATT, WTO • EU: Free Trade Area, Customs Union

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