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Terms in this set (53)

- on January 1, 1995, the day on which the Uruguay Round took effect, GATT was transformed into the World Trade Organization. This transformation turned GATT from a trade accord into a membership organization, responsible for governing the conduct of trade relations among its members. The WTO agreement requires that its members adhere not only to GATT rules, but also to the broad range of trade pacts that have been negotiated under GATT auspices in recent decades. This undertaking ends the free ride of many GATT members. The WTO is a full-fledged international organization, headquartered in Geneva, Switzerland. The WTO has a far wider scope than the old GATT, bringing into the multilateral trading system, for the first time, trade in services, intellectual property, and investment. The WTO also administers a unified package of agreements to which all members are committed; in contrast, the GATT framework included many side agreements (Ex. antidumping measures and subsidies) whose membership was limited to a few nations. Moreover, the WTO reverses policies of protection in certain "sensitive" areas, including agriculture and textiles, that were ore or less tolerated in the old GATT. The WTO oversees the implementation of the tariff cuts and reduction of nontariff measures agreed to in the negotiations. It is also a watchdog of international trade, regularly examining the trade regimes of individual members. In its various bodies, members flag proposed or draft measures by others that can cause trade conflicts. Members are also required to update various trade measures and statistics, which are maintained by the WTO in a large database. Under the WTO, when members open their markets through the removal of barriers to trade, they "bind" their commitments. Therefore, when they reduce their tariffs through negotiations, they commit to bind the tariff reduction at a fixed level negotiated with their trading partners beyond which tariffs may not be increased. The binding of tariffs in the WTO provides a stable and predictable basis for trade, a fundamental principle underlying the operation of the institution. However, a provision is made for the renegotiation of bound tariffs. Currently, virtually all tariff rates in advanced countries are bound, as are about 75% of the rates in less-developed countries.
• Settling Trade Disputes- a major objective of the WTO was strengthening the GATT mechanism for settling trade disputes. It guarantees the formation of a dispute panel once a case is brought and sets time limits for each stage of the process. The decision of the panel may be taken to a newly created appellate body, but the accused party can no longer block the final decision. The dispute-settlement issue was especially important to the U.S. because this nation was the most frequent user of the GATT dispute mechanism.
o Venezuela and later Brazil challenged the U.S. before the WTO because they believed that imported gasoline was being unfairly discriminated against. The WTO found the U.S. guilty and was forced to revise its environmental laws.
• Does the WTO Reduce National Sovereignty? - Simply put, WTO agreements do not preclude the U.S. form establishing and maintaining its own laws or limit the ability of the U.S. to set its environmental, labor, health, and safety standards at the level it considers appropriate. However, the WTO does not allow a nation to use trade restrictions to enforce its own environmental, labor, health, and safety standards when they have selective and discriminatory effects against foreign producers.
o Economists generally agree that the real issue raised by the WTO is not whether it decreases national sovereignty, but whether the specific obligations that it imposes on a nation are greater or less than the benefits the nation received form applying the same requirements to others (along with itself). Simply put, economists generally contend that the WTO puts some constraints on the decision making of the private and public sectors. But the costs of these constraints are outweighed by the economic benefits that citizens derive from freer trade.
• Should Retaliatory Tariffs Be Used fro WTO Enforcement? - Critics contend that the WTO's dispute-settlement system based on tariff retaliation places smaller countries, without much market power, at a disadvantage. Simply put, although a small country could decide to impose retaliatory tariffs to teach a larger trading partner a lesson, it will find such behavior relatively more costly to initiate than its larger trading partner because it cannot obtain favorable movements in its terms of trade. Therefore, the limited market power of small countries makes them less likely to induce compliance to WTO ruling through retaliation. However, the problems smaller nations face in retaliating are the opposite of the special benefits they gain in obtaining WTO concessions without being required to make reciprocal concessions.
o Some maintain that the WTO's current dispute-settlement system should be modified. For example, free traders object to retaliatory tariffs on the grounds that the WTO's purpose is to reduce trade barriers. Instead, they propose that offending countries should be assessed monetary fines. However, it would be very difficult to place monetary value on violations and to collect from offending governments.
• Does the WTO Harm the Environment? - a central concern of those who have raised the profile of this issue in the WTO is that there are circumstances where trade and the pursuit of trade liberalization may have harmful environmental effects.
o Harming the Environment- Two main arguments are made as to how trade liberalization may harm the environment. First, trade liberalization leads to a "race to the bottom" in environmental standards. If some countries have low environmental standards, industry is likely to shift production of environment-intensive or highly polluting products to such pollution havens. Worse, trade-induced competitive pressure may force countries to lower their environmental standards, thus encouraging trade in products creating global pollution. Poorer nations may place a higher priority on the benefits of production relative to the benefits of environmental quality than wealthy nations. Moreover, developing nations may have greater environmental capacities to reduce pollutants by natural processes (such as Latin America's rain forest capacity to reduce carbon dioxide in the air) than do industrial nations that suffer from the effects of past pollution. A second concern of environmentalists about the role of trade relates to social preferences. Some practices may simply be unacceptable for certain people or societies, so they oppose trade in products that encourage such practices. During the 1990s, relations between environmentalists and the WTO clashed when the WTO ruled against a U.S. ban on imports of shrimp form countries using nets that trap turtles. Indeed, critics maintained that the free-trade policies of the WTO contradicted the goal of environmental quality.
o Improving the Environment- on the other hand, it is argued that trade liberalization may improve the quality of the environment rather than promote degradation. First, trade stimulates economic growth, and growing prosperity is one of the key factors in societies' demand for a cleaner environment. Second, trade and growth can encourage the development and dissemination of environment friendly production techniques as the demand for cleaner products grows and trade increases the size of markets. International companies may also contribute to a cleaner environment by using the most modern and environmentally clean technology in all their operations. Although there is no dispute that in theory intensified competition could give rise to pollution havens, the empirical evidence
o Suggests that it has not happened on a significant scale. The main reason is that the costs imposed by environmental regulation are small relative to other costs considerations. So this factor is unlikely to be at the basis of relocation decisions. Other factors such as labor costs, transportation costs, and the adequacy of infrastructure are much more important. For all the talk of a race to the bottom, there is no evidence of a competitive lowering of environmental standards.