CHAPTER 10: THE GENERAL AGREEMENTS ON TARIFFS AND TRADE AND THE WORLD TRADE ORGANIZATION (vol.2)

In the post – World War II environment, countries came to realize that a major component of achieving any level of global peace was global cooperation—politically, economically, and socially. The intent was to level the trade playing field and reduce economic areas of disagreement, since inequality in these areas could lead to more serious conflicts. Among the initiatives, nations agreed to work together to promote free trade, entering into bilateral and multilateral agreements. The General Agreement on Tariffs and Trade (GATT) resulted from these agreements. In this section, you’ll review GATT—why it was created and what its historical successes and challenges are. You’ll then look at the World Trade Organization (WTO), which replaced GATT in 1995, and study the impact of both these organizations on international trade. While GATT started as a set of rules between countries, the WTO has become an institution overseeing international trade.

 

WTO's Trading System Principles
The trading system should be :

Without Discrimination

A country should not discriminate between its trading partners (giving them equally “most-favoured-nation” or MFN status); and it should not discriminate between its own and foreign products, services or nationals (giving them “national treatment”);

Freer

Barriers coming down through negotiation;

Predictable

Foreign companies, investors and governments should be confident that trade barriers (including tariffs and non-tariff barriers) should not be raised arbitrarily; tariff rates and market-opening commitments are “bound” in the WTO;

More Competitive

Discouraging “unfair” practices such as export subsidies and dumping products at below cost to gain market share;

More Beneficial for Less Developed Countries

Giving them more time to adjust, greater flexibility, and special privileges.

Source : “About the WTO”, www.wto.org

Regional Econamic Integration

Definition :

“Agreement between groups of countries in geographic region to reduce and ultimately remove tariff and non-tariff barriers t the free flow of goods, services and factors of production between each other.”

		Form of Economic Integration	Consist			Example
		Political Union	By encompassing both political and economic integration, the union effectively transforms itself into one country			North America Free Trade Agreement (NAFTA)
		Economic Union	Common market policy	+	Members more fully integrate their economies by coordinating their economic policies	Zollverein Mercosur Accord
		Common Market	Customs union policy	+	Members also eliminate barriers that restrict movement of factors of production among themselves	European Economic Area
		Customs Union	Free trade area policy	+	Members also adopt common trade policies toward nonmember countries	European Union
		Free Trade Area	Members remove tariffs and other barriers to international trade among themselves, however, each member may establish its own trade policies with nonmember countries			United State of America

The European Union                                                       

European Union Institutions Chart

The Council Of The European Union Chart

The Co-Decision Procedure

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 Other Regional Trading Blocs

Regional trade blocs are intergovernmental associations that manage and promote trade activities for specific regions of the world.

The EU (European Union) to create a common market known as the European Economic Area, which promotes the free movement of goods, services,  and capital among its member.

The North American Free Trade Agreement

The North American Free Trade Agreement implement in 1994 to reduce barriers to trade and investment among Canada and Mexico, and the United States, NAFTA builds on the 1988 Canadian – U.S . Free Trade Agreement.

NAFTA promises an increasing integration of the North American economics and investment opportunities increased for firms located in the three countries.

Negotiators from all three countries basically recognized the political sensitivity of certain issues and industries and chose to compromise on their treatment within NAFTA to ensure the agreements ratification. 

US and Canadian negotiators also was concerned that firm from non member countries might locate and very little transformation of product is undertaken. (Screwdriver plant)

NAFTA has benefited all three countries, although the gains have been more modest in Canada and the United States than most NAFTA advocates expected.

Other Free Trade Agreements in the Americas

Many other countries are negotiating or implement fee trade agreements on a bilateral or multilateral basis.

The Caribbean Basin Initiative

In 1983 the Unites States established the Caribbean Basin Initiative to facilitate the economic development of the countries of Central America and the Caribbean Sea. The Caribbean Basin Initiative (CBI), which acts as a unidirectional free trade agreement, permits duty free import into the United States of a wide range of goods that originate in Caribbean Basin countries, or that have been assembled there from U.S – produced parts.

The Central America-Dominican Republic Free Trade Agreement (CAFTA-DR).

The CAFTA-DR calls for the reduction of tariffs, non tariff barriers, and investment barriers in commerce among its members. Approximately 80 percent of U.S exports to and imports from these countries will immediately be duty-free as a result of CAFTA-DR or other existing trade treaties.

Free Trade Agreements In Centraland South America And The Caribbean

The Mercosur Accord

The Mercosur trade bloc's purpose, as stated in the 1991 Treaty of Asunción, is to allow for free trade between member states, with the ultimate goal of full South American economic integration. The trade bloc's "grand aspiration is to unify the Southern Cone and then all of South America in an economic bloc," says Katherine Hancy Wheeler, a research associate with the Council on Hemispheric Affairs. "It gives them more trading security." Brazil is the region's largest economy with a gross domestic product (GDP) of more than $2.2 trillion in 2012.

The population of Mercosur's full membership totaled more than 260 million people in 2011; including Venezuela, it has a collective GDP of $2.9 trillion and is the world's fourth-largest trading bloc after the European Union (EU), North American Free Trade Agreement (NAFTA), and the Association of South East Asian Nations (ASEAN). Whether any reduction in poverty can be linked directly to Mercosur trade policies is unclear.

Andean Community

The Andean Community is a trade bloc of five countries - Bolivia, Chile, Colombia, Ecuador and Peru.

To make them more competitive with the continent's larger countries. But, after first 20 years, the agreement was not succesful and the feography played a role in this failure.

In 1991, the Andean Community members agreed to reinvigorate their agreement and a year later, the members established a customs union that provided for phased elimination of tariffs among themselves on most good, acommon external tariffs, and harmonized regulations on capital movements, immigration and agriculture.

In 2005, Argentina, Brazil, Paraguay and Uruguay joined Andean Community as associate members.

In 2006, Venezuala withdrew from Andean Community.

Trade Arragements in the Asia Pasific Region

One of the longest standing is governed by the Closer Economic Relations Trade Agreement between Australia and New Zealand ( The Australia - New Zealand Agreement)

Have been trade rivals because they are both commodities producers and both enjoyed preferental access to the UK market.

After UK joined the EU, both countries lost their privileged status in the British market.

On January 1, 1983 after Trade Arrangements in the Asia Pacific Region closed, ANZCERTA or more simply CER took it to eliminated tariffs and NTBs between two countries.

CER strengths and fostered,links and cooperation in fields as diverse as investment,marketing the movement of people , tourism, and transport.

Association of Southeast Asian Nation  established in August 1967 to promote regional political and economic cooperation.

Its members were Brunei,Indonesia, Malaysia, Philippines, Singapore, Thailand, Cambodia, Laos, Myanmar and Vietnam.

To Promote intra ASEAN trade, members established the ASEAN Free Trade Area (AFTA) effective January 1, 1993. AFTA members promised to slash their tariffs to 5 percent or less on most manufactured goods by 2003 and on all goods by 2010.