GEOG 216 Lecture Notes - Lecture 32: North American Free Trade Agreement, Free-Trade Area, World Trade Organization
13 Jun 2018
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Lecture 29- Global trade institutions and agreements
Outline
• International Trade Policy: A Brief History
o From GATT to WTO
• Regional Trade Agreements
o Free Trade Areas
▪ North American Free Trade Agreement (NAFTA)
▪ Customs Union
o Common Markets
• The latest Free Trade Agreements
Historical background
• Prior to WWII, most trade agreements bilateral, when countries traded with
each other each countries would negotiate with each other on commodity
per commodity tariffs (very tedious)
• High levels of trade/output in early 20th century
o Black Tuesday, new york stock exchange crumbles
• Economic depression in 1930s, nation-states respond with protectionist
policies (moving back following the collapse) that worsen the slowdown
o Senators, congressman thinking about what to do: protectionism
o Smoot-Hawley Tariff Act in US: tariffs raised on over 20,000 imported
goods → retaliation and boycott of the USA: trade war and tariffs start
to rise → worsens the depression, exports are restrained, recovery is
slow
o 1944, eventual victors of WWII, led by US and UK, meet at Bretton
Woods to reshape postwar structure of world trade and international
finance
Bretton Woods
• BW sets institutional basis of postwar global era
• Principal objectives= stabilize international financial situation and
rebuild war-damaged economies (Europe, Japan)
• 2 main institutions established:
o International Bank for Reconstruction and Development (later
the World Bank) 1945/6
o International Monetary Fund (overseeing financial flows and
regulating flows across borders)
▪ Need for )nternational trade organization that never actually
saw the light of day
• Some are frustrated by this, decide to take matters into their own hands:
GATT signed in 1947 (Geneva, Switzerland)
The GATT
• General Agreement on Tariffs and Trade (GATT, 1947): 23 member
countries, mostly developed countries
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o Countries (i) reduce trade barriers through multilateral
negotiations (bilateral to multilateral: multiple countries not
country-by-country basis) and (ii) agree no to raise them
unilaterally, no single country can decide not go by these rules
o Operates through rounds of negotiations, setting an agenda in terms
of binding tariffs (towards trade liberalization) and administrative
reforms
o Not formal institution more of a provisional agreement that functions
trough rounds of trade negotiations, it is binding after it has been
agreed on
• Pre-1960s, GATT focused on trade between developed countries, wanting to
include more developing countries. With development of UNCTAD (United
Nations Conference on Trade and Development (1964), focus on developing
country access,
o Also geopolitical considerations (i.e. most favored nation status as a
barrier to communism), economics becomes a weapon
Important ones:
• Kennedy trade round: used to look at commodity by commodity basis, with
Kennedy round, process is simplified in terms of reducing trade barriers
• Tokyo trade round: introduces negotiations having to do with the rules of
how countries subsidize various industries, recognizing how government
policy can subsidize
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• Uruguay trade round: Intellectual property right, look on tariffs on services,
and at end of this round, GATT is formally replaced by the WTO
Tariffs really drop by the time we get to the WTO
As of 2016, 164 countries part of WTO
From GATT (not formal) to WTO (formal)
• At the end of the Uruguay Round in 1994, GATT succeeded by the World
Trade Organization (WTO)
• How different is the WTO from the GATT?
• The WTO
o Is a full-fledged international organization headquartered in Geneva
(vs. GATT= provisional agreement)
o Includes rules on trade in services
o Defines intellectual property rights (TRIPs, trade-related aspects
intellectual property rights)
o (as a dispute settlement mechanism tribunal, if some believe they
are being treated/taxed/subsidized unfairly. For example, in
aerospace industry, Brazil they went in front of tribunal and WTO
found both countries benefit from unfair subsidies.
Doha Round (latest WTO negotiation): question of agriculture
• Negotiations begin in 2001. Most contentious issue to emerge = agriculture
• Goal: reduce government support of agricultural products (mainly in
developed economies, Japanese dairy benefits of 140% subsidy from the
government for example)
• In addition to disputes between governments, NGOs and other civil society
actors get involved seeking to influence the decision made by the WTO (labor
standards, environmental issues, patents)
• Cancun WTO negotiations, Doha round deal breaks down and again
in 2008, no one can agree (Geneva), developed countries backtrack on their
pledges, promise to lower subsidies but back home lots of manifestations and
so they back away from their promises.
• Bali Package (2013): reduce trade (and administrative) barriers. Stay tuned!
Regional trade agreements (1)
• Attempts to liberalize trade over smaller groups of countries include:
I. Free trade agreements (less comprehensive)
II. Customs unions
III. Common markets (includes more commonalities)
• I. Free trade area (FTA): least comprehensive of the three
o Allows for tariff-free trade among member countries, but leaves
each country free to design its own policy with respect to non-
member countries
o The North American Free Trade Agreement NAFTA is the worlds
largest free-trade area (1994), currently being renegotiated, US: more
and more protectionist policies, throwback to the 9s, plus ça
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
International trade policy: a brief history: from gatt to wto, regional trade agreements, free trade areas, north american free trade agreement (nafta, customs union, common markets, the latest free trade agreements. Woods to reshape postwar structure of world trade and international finance: bw sets institutional basis of postwar global era, principal objectives= stabilize international financial situation and. Nations conference on trade and development (1964), focus on developing country access: also geopolitical considerations (i. e. most favored nation status as a barrier to communism), economics becomes a weapon. Important ones: kennedy trade round: used to look at commodity by commodity basis, with. Tariffs really drop by the time we get to the wto. As of 2016, 164 countries part of wto: at the end of the uruguay round in 1994, gatt succeeded by the world. Doha round (latest wto negotiation): question of agriculture: negotiations begin in 2001.
