Pos M. Hutabarat PhD Course # 14 Multilateral Trading System (WTO) Jakarta, 17 April 2007...

Pos M. Hutabarat PhD

Course # 14

Multilateral Trading System (WTO)

Jakarta, 17 April 2007Pascasarjana Ilmu EkonomiUniversitas Indonesia


TARIFF

P

QQ1

P1

SD

SwPw

Q2 Q3

Pt

Q4 Q5

Pt = Pw (1 + t)

a b

c

d e

f

Deadweight lossarea abc + def

Consumption fall

Production rise

Import fall

Gov.t revenue rise


Free Trade is better(general Equilibrium)

auto

rice

Free tradeEI

A

a

B

C

c

b

b = Equilibrium with tariff in country I

a = Equilibrium free trade

c = Equilibrium when country I and II form Economic Integration


Protest on Free Trade


How good is Free Trade?


TREND GLOBALIZATION

ECONOMIC GLOBALIZATION Globalization of Production Globalization of Market

GLOBALIZATION OF UNIVERSAL VALUES Law and Human Rights Consumer Protection Environmental Protection

Globalization: international flow of ideas and knowledge, the sharing of culture, global civil society and global environment movement (Stiglitz, 2006)


ECONOMIC GLOBALIZATION

GLOBALIZATION OF PRODUCTION All countries can become

production location of global products and services

Location are determined by cost efficiency

GLOBALIZATION OF MARKET All countries can become marketing

location of global products and services

Prices are determined by market segmentation


ECONOMIC GLOBALIZATION

SHALLOW GLOBALISASI Economic integration through increasing flow of goods, labor and financial

DEEP GLOBALISASI Economic integration through increasing Foreign Direct Investment (FDI) and increasing the role of MNC (both economic and politics)


SUPPORTED FACTORS FOR ECONOMIC GLOBALIZATION

Fast improvement of technology (support flow of goods, support transfer of production abroad, increase price elasticity)

Government Policies on International Cooperation (multilateral (WTO), regional (UE, NAFTA, AFTA), bilateral FTA Singapore-USA)

Liberalization of financial sector Liberalization of people traveling


WORLD TRADE

Year Value (US$ B)

1870 401900 1051920 1901950 2901970 1 5001980 2 0301990 3 4801995 5 1202000 6 3402003 7 2902004 9 123


Composition of World Trade (2004)

Sector Nilai Share(US$ B) (%)

Merchandise products 8 907 100,0Agricultural 783 8,8Mining 1 281 14,4

Fuels 993 11,1Manufactures 6 570 73,8

Machinery&transports 3 474 39,0Textile&clothing 453 5,1

Services 2 125 100,0Transport 500 23,6Travel 625 29,4Others 1 000 47,0


World Largest Exporters(2004)

Country Export Value Share(US$ B) (%)

1. Germany 914,8 10,02. USA 819,0 9,03. China 593,4 6,54. Japan 565,5 6,25. France 451,0 4,96. Netherlands 358,8 3,97. UK 345,6 3,818. Malaysia 126.5 1,424. Thailand 97,7 1,130. Indonesia 85,6

0,9


WORLD TRADE TRIANGLE (now)

E Europe

Anzerta

Asean

JAPAN

Korea

China

USA

Canada

S AmericaEU

Middle East

Africa

S Asia


WORLD TRADE TRIANGLE(future)

Greater EU

EAST ASIA

NAFTA

Latin AmericaAfrica

East Asia

ANZERTA


ASEAN IN EAST ASIA

ASEAN

CHINA

JAPAN

KOREA

INDIA

AUSTRALIA

EAST ASIA

OCEANIA


INDONESIA TOWARD GLOBALIZASION OF WORLD TRADE

MULTILATERAL IMF WTO World Bank

REGIONAL ASEAN 2003 APEC 2020 ASEM

BILATERAL FTA bilateral (Japan) Cross border (Malaysia,

Philippines, Thailand, PNG, East Timor)


UN-HOLY TRINITY

World Bank

IMF WTO

TradeMonetary

Development


Objectives of GATT/WTO

1. Expanding production and trade2. Raising standard of living and

income3. Ensuring full employment4. Optimal use of the world’s

resources(a) sustainable development and the need to protect and preserve the environment(b) to ensure that the developing countries, especially the least developed countries secure a better share of the growth in international trade


Main Principal of GATT/WTO

1. Protection of the domestic industry by tariff only

2. Tariff should be reduced and bound against further increases

3. Trade follow Most Favored Nation clauses

4. National Treatment5. Dispute Settlement Mechanism


Fields of Negotiation in WTO

1. Manufacturing goods2. Agriculture3. Services4. Rules5. New Issues (Trade facilitation,

Investment, Competition Policy, and Government Procurement)


WTO ORGANIZATION

Ministerial Conference

General Council

Council forTrade in Goods

Council for Trade in Services

Council for TRIPs


MINISTERIAL CONFERENCE

1. Singapore, 1997 (good)

2. Geneva, 1998 (good, some demo)

3. Seattle, 1999 (failed)

4. Doha, 2001 (good)

5. Cancun, 2003 (failed)

6. Hong Kong, 2005 (good)


Negotiation Process in WTO

1. Voting rights (one vote for each member, but most decision were decided in green room)

2. Daily Negotiation is conducted in Geneva for all committee (manufacture, agriculture, services, RTA, IPR, etc)

3. General Council Meeting monitor all negotiation process of all committee (every 3 months)

4. Accession of new members decided in Ministerial Conference (but the country must negotiate one by one, initial rights)


WTO Negotiation Round

1. Uruguay Round (1986 – 1994)

Starting from Ministerial Meeting in Punta del Este, Uruguay, September 1986 and ending in Ministerial Meeting in Marrakech, Morocco 1994

2. Doha Round (2001 – 2007?)

Starting in Ministerial Meeting in Doha, Qatar, November 2001. For Doha round, WTO has conducted 3 Ministerial Meeting


The Results of Uruguay Round (1)

1. Tariff reduction

(a) Developed Countries cut a third of tariff rate(b) Developing Countries reduced all tariff line to maximum average 40% (Indonesia average 37% bound rate, but actual rate only 16.4%)

2. Elimination of Non Tariff Barriers (NTB)/Conversion to tariff: elimination of all quota, monopoly, and other NTB’s (Indonesia eliminated quota and monopoly of Bulog on rice import, and skim milk import rules 1 : 1,6)

3. Tariff binding

Bound all tariff lines, except for developing countries, unbound maximum 5% from tariff lines

4. Elimination of Quota for Textile and Apparel in 2005 (MFA)


The Result of Uruguay Round (2) (average tariff of manufacture goods, DC)

Industries Pre UR Post URAll products 6.2% 3.7%Fish and fish products 6.1 4.5Wood, pulp, paper, furniture 3.5 1.1Textile, clothing 15.5 12.1Leather, rubber, footwear 8.9 7.3Metals 3.7 1.4Chemicals, photograph 6.7 3.7Transport equipment 7.5 5.8Electrical 6.6 3.5Mineral and precious stone 2.3 1.1


The Result of Uruguay Round (3)(average tariff of manufacture goods)

Pre UR Post UR

Developed Countries 6.2% 3.7%Developing Countries 20.5% 14.4%(Indonesia year 1995 16.4%

2005 7.8%


Tariffs Reduction (Developed Countries)

40%

30

20

10

1947 1962 1972 1987 1995 2007?


DOHA ROUND (manufacture goods)

1. Tariff reduction(a) General (Swiss formula, with larger coefficient for developing countries)(b) Sectoral liberalization

2. Conversion of non-advalorem to advalorem3. Elimination of all non-tariff barriers (NTB’s)4. Bound all tariff lines5. Flexibility for developing countries (time frame

and coefficient)


DOHA ROUND (sectoral liberalization)

Bicycles Chemicals Electronics/electrical equipment Footwear Fish Forest products Gems and jewelery Pharmaceuticals and medical equipments Raw material and sporting goods Textiles and apparels Auto and auto parts


Tariff Curve (Tariff Rates in Developing Countries)

T1

T2

T3

Uruguay Round

Doha Round

Tariff rates

Time

TP

Political Acceptance Tariff

Tokyo Round


Agriculture Negotiation

1. Domestic Supports: Elimination of all subsidies (time frame, bands, blue box and green box)

2. Export Competition: Elimination of export credits, exporting state enterprises, food aid

3. Market Access (band, special products, sensitive products, special safeguard mechanism)

4. Cotton : Reducing subsidies on cotton


Share of Agriculture on Total Trade (%)

0

5

10

15

20

25

30

35

40

1950-59 1960-69 1970-79 1980-89 1990-99 2000-05

Share


Agriculture Subsidies

Country US$ Billion % Output

1998 20011998 2001

EU 116 105 45 35

USA 47 95 22 21

Japan 49 59 63 59

Canada 3 5 16 17

Swiss 5 4 73 69

All Industrial C 225 311 37 31


Subsidy Curve

S1

S2

S3

Uruguay Round

Doha Round

Subsidies

Time

SP

Political Acceptance Subsidies

Tokyo Round


Indonesia Interest on Agriculture

1. Domestic Supports

Elimination of all subsidies will increase market access of Indonesian products to heavily subsidized countries

2. Export Competition

Elimination of export credits, exporting state enterprises, food aid will increase competitiveness of Indonesian products in domestic market and in some foreign markets


Indonesia Interest on Agriculture

3. Market Access (a) Special Products

Indonesia and other developing countries (G-33) proposed on SP (Special Products), minimum reduction of tariff, self determination

(b) SSM (Special Safeguard Measures)

4. Cotton

Indonesia support fair trade for cotton


Trade in Services

Services mode: Supply of services from one country to other

countries Supply of services in one country by consumer of

other countries Supply of services through commercial presence Supply of services through presence of natural

person

Under Doha Negotiation: Improvement of Mode 1 – 4 Schedule of commitments Request and Offer Mechanism


Trade Related Aspects of Intellectual Property Rights (TRIPs)

WTO wants to rule member countries for trading of Knowledge Base Products (KBP) to protect them from illegal sale/distribution.

Most of the agreement in WTO already under jurisdiction of WIPO (World Intellectual Property Right Organization).

All WIPO members must review their law and rules to implement WIPO agreement. As member of WIPO Indonesia has revised it laws (copyright, trade marks, industrial design, and patents)


Trade Related Aspects of Intellectual Property Rights (TRIPs)

Under Doha Round, negotiation mostly in the field of:

1. TRIPs and Public Health : allow only for production and distribution of medicine for contaminates diseases, but only for country which has capacity (Brazil and India)

2. Geographical Indications : protection of wine and spirit (mostly EU, but developing countries proposed other goods such as Java Coffee, Bras Pati)


Trade and Environment

WTO wants member countries to protect the environment from excessive extraction of the earth.

Under Doha Negotiation:

1. Reducing trade barriers of environmental goods and services such as air filter, catalytic converter, or consultancy service wastewater management.

2. Eliminate fisheries subsidies which can be environmentally damaging if too many fishermen catching too few fishes.


World Trade and Economy (Growth, before and after Uruguay Round)

Year GDP Trade

1985 – 1994 (%) 2,64 7,151995 – 2004 (%) 2,58 6,53

Sources: from various publication

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