This is the first in a series of five lectures I am giving in 2014 at the University Pelita Harapan (UPH) Graduate School's Masters Program in International Trade, Investment and Competition (MTIC).

1. UPH MTIC Program | Introduction
to WTO Law
Globalization, Economic Integration and International Trade
Simon Lacey

2. Outline of this Presentation
2
1.
Rational of International Trade



1.
Three Simple Principles of Trade Policy



1.
Absolute Advantage, Comparative Advantage and Competitive Advantage
Gains from International Trade
Free Trade vs. Protectionism
A Tax on Imports is a Tax on Exports
Businesses are Consumers too
Trade Imbalances Reflect Capital Flows
Some Current Issues in International Trade




The Global Economic Crisis and International Trade
From Tariffs to … (a new generation of trade barriers)
Developing Countries and the Global Trading System
Preferential Trade Agreements : From Regionalism to Mega-Regionalism
www.simonlacey.net

3. Part 1
Rational of International Trade
 Absolute Advantage, Comparative
Advantage and Competitive Advantage
 Gains from International Trade
 Free Trade vs. Protectionism
www.simonlacey.net

4. Rational of International Trade
4
 Absolute advantage, comparative advantage and
competitive advantage
 Gains from international trade
 Free trade vs. Protectionism
www.simonlacey.net

5. Rational of International Trade
5
“It is the maxim of every prudent master of a family, never to attempt to make at home
what it will cost him more to make than to buy.
What is prudence in the conduct of every private family, can scarce be folly in that of
a great kingdom.
If a foreign country can supply us with a commodity cheaper than we ourselves can
make it, better buy it off them with some part of the produce of our own industry,
employed in a way which we have some advantage.”
Adam Smith in his 1776 book The Wealth of Nations
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6. Rational of International Trade
6

How do we know what to trade and what to make?

How do we evaluate Adam Smith’s “Cheapest Supply”?

Examine Advantage!
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7. Absolute Advantage
7

A country has an absolute advantage in the production of a good if it
can produce the SAME amount of the good with LESS input relative to
other countries.
OR

|
A country has an absolute advantage in the production of a good if it
can produce MORE of the good with the SAME amount input relative
to other countries.
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8. Comparative Advantage
8
 David Ricardo realised that Absolute Advantage is a limited case of a more general
theory called Comparative Advantage.
 It can be seen between two countries that even when one country has an absolute
advantage in both commodities, it could still be mutually beneficial for both countries
to specialise in 1 product and trade.
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9. Comparative Advantage
9
 According to the law of comparative cost advantage two countries can gain from
trade even if one of the countries is more efficient in producing both products.
 A country specializes in producing and exporting goods in which its comparative
advantage is greatest, or comparative disadvantage is the smallest.
 A country should import goods in which its comparative advantage is smallest or
comparative disadvantage is greatest
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10. Competitive Advantage
10


These attributes can include access to natural resources, such as high grade
ores or inexpensive power, or access to highly trained and skilled personnel
and human resources

New technologies such as robotics and information technology either to be
included as a part of the product, or to assist making it.

|
Competitive advantage occurs when an organization acquires or develops an
attribute or combination of attributes that allows it to outperform its
competitors.
The term competitive advantage is the ability gained through attributes and
resources to perform at a higher level than others in the same industry or
market
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10

11. Applications of Comparative
Advantage
11
Should Tiger Woods Mow his own Lawn? (from Mankiw “Principles of Economics”, 2
nd
edition)
We know Tiger Woods is probably one of the best golfers of all time.
Let’s pretend, because he spends so much time walking around on grass, he can also mow grass faster than
almost anyone else.
But just because he can mow his lawn fast, does that mean he should?
Let’s say Woods can mow his lawn in 2 hours.
In that same time he could film a TV commercial for Nike and earn $10,000.
By contrast Woods’ neighbor, Forrest Gump, can mow Woods’ lawn in 4 hours. In that same 4 hours, he could
work at McDonald’s and earn $20.
In this example, Woods’ opportunity cost of mowing the laws is $10,000 and Forrest’s opportunity cost is $20.
Woods has an absolute advantage in mowing lawns, because he can do the work in less time.
Yet Forrest has a comparative advantage in mowing lawns, because he has the lower opportunity cost.
Rather than mowing his own lawn, Woods should make the commercial and hire Forrest to mow the lawn.
As long as Woods pays Forrest more than $20 and less than $10,000, both of them are better off.
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12. The Gains from Trade
12
 The above example highlights something economists refer to as the “gains
from trade”.
 Trade also provides benefits by allowing countries to export goods whose
production makes relatively heavy use of resources that are locally
abundant while importing goods whose production makes heavy use of
resources that are locally scarce.
 International migration and international borrowing and lending are also
forms of mutually beneficial trade.
 The international exchange of risky assets, such as stocks and bonds can
benefit all countries by allowing each country to diversify its wealth and
reduce the variability of its income.
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13. More Gains from Trade
13
 International trade increases both the incentives for not waging war and
the costs of going to war.
 International trade intensifies cross border contacts and exchange of
ideas, which can contribute to better mutual understanding, as well as
spur innovation.
 It has also been argued that open, international trade may also promote
a number of core values such as liberty, human rights, and democracy.
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14. Gains from Trade – Important Caveat
14
 While nations generally benefit from international trade, however, it is quite
possible that international trade may hurt particular groups within nations.
 This is because international trade has strong effects on the distribution of
income.
 International trade can adversely affect the owners of resources that are
“specific” to industries that compete with imports and cannot find
alternative employment in other industries.
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15. Free Trade Versus Protectionism
15
 Economic globalization in general and international trade in particular are blamed by
many for much that is wrong with the world today (hunger, child labor,
environmental pollution, cultural impoverishment)
 Is international trade beneficial to anyone other than multinational corporations, the
well-educated in developed countries and the privileged elite in developing
countries?
 Can economic globalization in general and international trade in particular be of
benefit to all humankind?
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16. Free Trade Versus Protectionism
16
 Most economist agree that countries can benefit from international trade.
 The theories of Adam Smith and David Ricardo are still the predominant
explanation for why countries, even the poorest, can and do benefit from
international trade.
 Economists in the 20th century have endeavored to refine and build on the classic
model.
 The refined models have confirmed the basic conclusions drawn from the Ricardo
model concerning the theory of comparative advantage and the gains from trade
via specialization
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17. Free Trade Versus Protectionism
17
Paul Samuelson, the 1970 winner of the Nobel Prize for Economics, noted that the
theory of comparative advantage was at once the most counter-intuitive and yet the
most compelling of economic theories. Samuelson stated that there is essentially
only one – albeit very powerful – argument for free trade:
“Free trade promotes a mutually profitable division of labor, greatly enhances the potential
real national product for all nations, and makes possible higher standards of living all over
the globe”
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18. Free Trade Versus Protectionism
18
 A 2001 Study by the World Bank showed that the developing countries that increased their
integration into the world economy in the 1980s and 1990s achieved higher growth in
incomes, longer life expectancy and better schooling.
 A 2000 WTO study, “Trade Income Disparity and Poverty” on the relationship between
international trade and poverty concluded the evidence seems to indicate that trade
liberalization is generally a positive contributor to poverty alleviation, since it allows people
to exploit their productive potential, it assists economic growth, curtails arbitrary policy
interventions and helps to insulate against shocks in the domestic economy.
 A 2003 WTO study, “Adjusting to Trade Liberalization,” concluded that adjustment costs are
typically smaller and sometimes much smaller, than the gains from trade.
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19. Free Trade Versus Protectionism
19
 In its 2002 study “Rigged Rules and Double Standards: Trade, Globalization and
the Fight Against Poverty”, Oxfam stated:
“History makes a mockery of the claim that trade cannot work for the poor. Participation in
world trade has figured prominently in many of the most successful cases of poverty
reduction – and, compared with aid, it has far more potential to benefit the poor”
 According to Oxfam, since the mid 1970s rapid growth in exports has contributed
to a wider process of economic growth which has lifted more than 40 million
people out of poverty.
 Few question the potential of international trade to contribute to economic growth
and poverty reduction.
 However, trade is not a “magic bullet” for achieving development.
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20. Reasons and Excuses for
Protectionism
20
 Countries frequently intervene in international trade by adopting trade restrictive
measures.
 The most common reason is to protect a domestic industry and employment in that
industry from competition from imported products, foreign services or service
suppliers.
 Another reason for national decision-makers to pursue protectionist trade policies is
the infant industry argument.
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21. More Reasons and Excuses for
Protectionism
21
 A relatively new argument for national decision-makers to opt for trade
restrictions is the strategic trade policy argument.
 Trade-restrictive measures, and in particular, customs duties, have also been and
are still imposed to generate revenue for government.
 Governments also adopt trade restrictive measures for reasons of national
security and self-sufficiency
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22. Part 2
Three Simple Principles of Trade Policy
 A Tax on Imports is a Tax on Exports
 Businesses are Consumers too
 Trade Imbalances Reflect Capital Flows
From Douglas A. Irwin “Three Simple Principles of Trade Policy” The AEI Press, 1996
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23. A Tax on Imports is a Tax on Exports
23
 Any restrain on imports is equivalent to a tax on exports
 Any restraint on imports also acts, in effect, as a restraint on exports.
 When a government undertakes polices to expand the volume of exports, it cannot
help but to expand the volume of imports as well.
 This is because exports and imports are flip sides of the same coin
 Exports are necessary to generate the earnings to pay for imports
 Exports and imports are inherently interdependent, and any policy that reduces
one will also reduce the other.
 This truth has a long intellectual pedigree but is known today as the Lerner
Symmetry Theorem
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24. A Tax on Imports is a Tax on Exports
24
 What mechanisms specifically link a countrys exports and imports to one
another?
 The mechanisms can be complex and subtle, but focusing on the foreign
exchange market can perhaps illustrate what is going on.
 If Indonesia unilaterally reduces its tariffs on goods from Japan, for example, one
would expect Indonesian demand for Japanese goods to increase.
 In this case, consumers in Indonesia will (indirectly) have to sell IDR on the
foreign exchange market to purchase Japanese Yen.
 This tends to depress the value of the IDR in terms of the Japanese Yen, or
conversely, to raise the value of the Japanese Yen in terms of the IDR.
 The depreciation of the IDR tends to raise the price of Japanese goods in
Indonesia dampening demands for those goods.
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25. A Tax on Imports is a Tax on Exports
25
 But here is the flip side: even though Japan did not change its tariff on Indonesian
goods, Japan will now purchase more goods from Indonesia because the
depreciated IDR will tend to lower the price of Indonesian goods.
 In other words, the foreign exchange market is one mechanism that links exports
and imports to ensure that when a country unilaterally reduces its tariffs, its
exports increase as well.
 There is sufficient evidence of this symmetry to indicate that exports and imports
are unmistakably correlated: they rise and fall in lockstep.
 If a government undertakes policies that systematically reduce the volume of
imports, it also systematically reduces the volume of exports.
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26. Businesses are Consumers too
26

Economists since Adam Smith have always stressed the costs to consumers of various
trade restrictions.

Examples of trade restrictive policies which imposed huge costs on consumers were the
Multi Fibre Arrangement (MFA) in the textiles sector, and Vertical Export Restarins (VERs)
in the automobile sector.

The consumer cost of protection argument is, however, getting a bit worn out.

Jobs are also viewed as very important in the political arena.

If it comes down to saving a few hundred jobs in some industry or saving consumers a few
hundred dollars in income, the policy of import protection will win every time.

What’s more, producer interests are concentrated and thus well represented politically,
while consumers’ costs are spread over millions of households.
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27. Businesses are Consumers too
27
 But the producers versus consumers argument overlooks the fact that businesses
are consumers too.
 Business firms are, in fact, bigger consumers of imported products than
households.
 One can go down the list of trade policy interventions over the last few decades and
see that many of the commodities at issue constitute intermediate goods.
 Any trade intervention that raises the price of an intermediate good will at some
point adversely affect most households as final consumers.
 But the immediate adverse affect is on other downstream industries, and,
necessarily, employment in those industries.
 Example of US steel policy is an illustrative one. Other examples include sugar, and
Dynamic Random-Access Memories (DRAMs).
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28. Businesses are Consumers too
28
 By viewing imports not as final consumer goods but as inputs to domestic
production, policy makers can more clearly recognize that the issue is not so much
one of “saving” jobs but of “trading off” jobs between sectors.
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29. Trade Imbalances Reflect Capital
Flows
29
 Any analysis of trade imbalances must begin with the general balance of payments.
 The balance of payments is simply an accounting of a country’s international
transactions.
 One important lesson to remember in the context of the balance of payments is that it
always balances – that is, sums to zero.
 Two broad categories of transactions enter into the balance of payment:
– The current account , which records all trade in merchandise goods and services; and
– The capital account, which records all trade in assets, either portfolio or direct
investments
 Because the balance of payments always balances, a country running a current account
deficit must also have a counterbalancing capital account surplus.
 In other words, if a country is buying more goods and services from the rest of the world
than it is selling, the country must also be selling more assets to the rest of the world
than it is buying.
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30. Trade Imbalances Reflect Capital
Flows
30
•
•
Countries with current account deficits are effectively borrowing from or selling
assets to the other countries.
Countries with current account surpluses by contract, are buying assets from the
rest of the world, or using their savings to act as net lenders to other countries.
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31. Trade Imbalances Reflect Capital
Flows
31
•
•
•
•
There is a fundamental equation of international finance that relates this net
borrowing and lending activity to the current account:
Exports minus Imports = Savings minus investment
In other words, countries running trade surpluses (the value of their exports
exceeding the value of their imports) have domestic savings in excess of domestic
investment.
This “excess” savings, which is invested or lent abroad, manifests itself in a capital
account deficit, the counterpart of which is a current account surplus.
Countries with trade deficits can sustain greater domestic investment than
domestic savings because of the addition of foreign savings, which come in as a
capital account surplus or current account deficit.
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32. Trade Imbalances Reflect Capital
Flows
32
•
•
•
•
The powerful implication of this equation is that if a country wishes to reduce its
trade deficit, the gap between its domestic investment and its domestic savings
must be reduced.
Unless a country’s trade policies also affect its total savings or investment, those
policies will be ineffective in altering its balance of trade.
That is why simple observation shows us that some countries with open markets
run trade surpluses and others run trade deficits, while some countries with closed
markets run trade surpluses and others run trade deficits.
Those imbalances have everything to do with international borrowing and lending
and virtually nothing to do with commercial policies.
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33. Part 3
Some Current Issues in International Trade
 The Global Economic Crisis and International
Trade
 From Tariffs to .. (a new generation of trade
barriers)?
 Developing Countries and the Global Trading
System
 Preferential Trade Agreements : From
Regionalism to Mega-Regionalism
www.simonlacey.net

34. The Global Economic Crisis and
International Trade
34
The global financial crisis which resulted from the collapse of the US subprime
mortgage market had a two-fold impact on trade flows:
A collapse in demand saw import demand and thus export flows decrease
significantly
The tightening of credit markets worldwide also led to a rise in the cost of
trade financing, which likewise had a chilling effect on trade flows
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35. Collapse in Worldwide Demand
35
 Demand for houses had tapered off as early as 2007 as mortgage credit began
to become more difficult to obtain
 The continuing stream of bad news coming from banks, financial institutions, the
stock market, and the deterioration in peoples’ wealth as well as the first job
losses that started to beset the financial sector, saw a collapse in demand for
other big-ticket items such as cars, but also discretionary consumer spending on
items such as electronics and even clothing.
 Retail sales for Christmas 2007 were marginally weaker than expected but by
Christmas 2008, they were markedly below previous years
 By the end of 2008 car sales had all but collapsed in many developed country
markets
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36. Collapse in Worldwide Demand
36
• Business travel had largely nose-dived by the second-half of 2008, having an impact on
the civil aviation sector and the global hotel industry
• The collapse in auto sales in developed country markets such as the US and Europe had
severe knock-on effects both for their domestic auto industries but also much further
afield in markets such as Japan, where Toyota announced its first ever corporate loss for
the 2008 financial year
• The downturn in demand for electronics and consumer goods had severe knock-on
effects in markets such as China, where many workers returning home for the Chinese
new year in January 2009 were being told not to bother coming back to work afterwards
• Even goods with relatively inelastic demand, such as textiles, saw a huge slowdown in
trade flows, with factories in places such as India, Bangladesh, Cambodia, and China,
being forced to lay off workers en masse.
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37. Chilling Effects on Trade Financing
37
 Trade is built on trust – that the goods you pay for will turn up; that the goods you
send to market will be paid for.
 But the fact that so many traded goods are shipped across continents and that
shipment can take days or weeks to arrive raises some problems about payment.
 How can sellers ensure a buyer will pay on time, or indeed at all, and what do they
do for cash in the meantime?
 A buyer's potential headaches include whether the right goods will turn up in the
right port, and at the right time
 In addition, the applicability of different national laws and currencies, with the
inherent exchange-rate risks, work together to compound the underlying hazards
involved in international trade transactions.
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38. Chilling Effects on Trade Financing
38
 Over 90 percent of all trade transactions involve some sort of short-term credit
financing
 The liquidity that such loans provide has underpinned recent growth in world
trade.
 Trade finance is widely considered one of the most secure modes of finance,
because the loans have a short maturity, their execution is relatively routine, and
the traded goods themselves can serve as collateral.
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39. Chilling Effects on Trade Financing
39
 Since the Asian financial crisis in the late 1990s the supply of trade finance has
become extremely sensitive to liquidity squeezes, such as the 2007/8 sub-prime
mortgage crises.
 The international financial crisis affected trade financing in two chief ways:
- First, the crisis exacerbated a shortage of liquidity to finance trade credit: the
gap between supply and demand in trade financing was estimated at US$ 25
billion at the end of 2008
- Second, the credit crunch and economic slowdown made banks averse to
financial risk.
 Put another way: "Nothing is moving because the trader doesn't want to take the
risk of putting cargo on the boat and finding that nobody can pay"
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40. The Rise in Protectionism
40




Since the crisis and the sluggish recovery, the WTO and an organization called Global
Trade Alert have published recurring reports on the upswing in protectionist measures.
The reports document a broad array of measures being implemented by many countries,
both developed and developing, to restrict imports and provide relief to domestic, importcompeting industries
In developed countries, most measures were originally part of stimulus packages
containing bail-out plans involving massive cash injections for domestic industries,
particularly the auto industry (jobs, industrial base, systemic importance in terms of
downstream components suppliers), as well as, of course, their banking industries
(systemic importance for the flow of credit)
There was also a corresponding rise in contingency protection measures in developed
country markets such as the US and the EU, as import competing industries turned to their
governments for import relief
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41. The Rise in Protectionism
41
 In developing countries, as job losses and economic hardship began to be felt,
governments also came under pressure to provide import relief from domestic
producers of import-competing products, either by using traditional means such as
raising applied tariff levels to or close to bound rates, the application of contingency
protection methods or by more stringent application of other barriers, such as
technical barriers to trade, sanitary and phytosanitary measures, import licenses etc.
 In some developing countries there was also another imperative behind efforts to
restrain imports, namely the need to provide relief to deteriorating balance of
payments situations, and relieve pressure on already stretched budget deficits.
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42. Examples of Protectionist Measures in
Developed Countries
42
 The following developed countries enacted bail-out programs of one kind or
another for their financial sectors:
– Australia, Austria, Belgium, France, Luxembourg, Canada, Demark, Finland, Germany,
Greece, Ireland, Italy, Japan, Netherlands, New Zealand, Portugal, Spain, Sweden,
Switzerland, United Kingdom, United States.
 The following developed countries enacted bail-out programs for their auto
industries or other industrial sectors
– Austria, Japan, Portugal, Spain, Canada, the United States
 The following developed countries enacted stimulus packages
– Australia, Canada, France, Germany, Hong Kong, Luxembourg, New Zealand, Chinese
Taipei, United Kingdom, United States
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43. More Examples of Protectionist
Measures in Developed Countries
43
• Canada - Imposition of antidumping duties or initiation of antidumping investigations by
on various products from China
• EC - Reintroduction of customs duties on imports of certain cereals; Antidumping
duties on imports of certain iron or steel fasteners from China; Definitive antidumping
duty on imports of certain plastics sacks and bags originating in China and Thailand;
• Chinese Taipei - Imposition of a volume-based special safeguard for dried day lilies;
Imposition of a volume-based special safeguard for other liquid milk; Schools and
colleges encouraged to buy local products. Local labour and local products to be given
priority in construction projects
• United States -Omnibus Appropriations Act 2009 (H.R. 1105) establishing that "none of
the funds made available in this Act may be used to establish or implement a rule
allowing poultry products to be imported into the United States from the People's
Republic of China; Same legislation which cancels funding for a test programme by the
US Department of Transportation which allowed cross border trucking services with
Mexico
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44. Protectionist Measures in Developing
countries
44
 The following developing countries enacted bail-out programs of one kind or
another for their financial sectors:
– Brazil, Jamaica, Korea, Latvia, Malaysia, Panama, Russian Federation, Trinidad and
Tobago
 The following developing countries enacted bail-out programs for their auto
industries or other industrial sectors
– China, Malaysia, Morocco, Romania
 The following developing countries enacted stimulus packages
– Brazil, China, Dominican Republic, India, Jamaica, Korea, Malaysia, Peru, Russian
Federation, Turkey, Uzbekistan
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45. More Examples of Protectionist
Measures in Developing Countries
45
 Argentina - Introduction of non-automatic import licensing requirements, covering
products such as: textiles, steel, metallurgical products, and tires; Introduction of
reference price covering around 1,000 imported products considered sensitive (i.e. auto
parts, textiles, TV, toys, shoes, and leather goods)
 China - Import ban on Irish pork; Anti-dumping investigation on terephthalic acid from
Thailand and Republic of Korea;
 Ecuador - Tariff increases on 630 tariff lines (accounting for 8.7% of total lines, covering
a wide range of goods, with a view to restore balance-of-payments
 India - Increase in import duties on a range of iron and steel products from 0% to 5%;
Introduction of licensing requirements for imports of certain steel products and auto
parts;
 Indonesia - New licensing, reporting, and pre-shipment inspection requirements on over
500 goods (food and beverages, toys, electronics, footwear, and garments).
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46. From Tariffs to ... (a new generation of
trade barriers)
46
•
•
•
When the General Agreement on Tariffs and Trade (GATT) was first negotiated in
1947, it was largely an instrument for achieving mutual tariff concessions
(reductions in tariff rates) and for preserving the market access opportunities that
those tariff cuts represented.
For about the first twenty years of its existence, the main work of the GATT was
admitting new signatories, and engaging in tariff negotiations, for the gradual
reduction of tariffs.
But in the 1960s, and then particularly in the 1970s, the GATT started to turn its
attention to non-tariff barriers.
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47. From Tariffs to ... (a new generation of
trade barriers)
47
•
•
•
•
Traditionally, there had always been a theoretical or dogmatic distinction made
between tariff barriers and non-tariff barriers.
The typical non-tariff barrier which traditionally formed the focus of the GATT
negotiations was the quota or quantitative restriction.
But in the 1960s and then particularly the 1970s, GATT negotiating rounds began
to focus on other types of NTB, like antidumping, subsidies, customs valuation
methodologies, import licensing procedures, technical barriers to trade.
In the Uruguay Round, yet other types of trade barriers become the focus of
negotiations, such as sanitary and phytosanitary measures, denial of intellectual
property protection, and, with services trade becoming subject to liberalization
commitments, regulations and laws that limited access to services markets, or
denied equal treatment to foreign services providers.
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48. From Tariffs to ... (a new generation of
trade barriers)
48
•
•
Today, there is a lot of discussion about making market access contingent on
adhering to certain standards in policy areas only indirectly related to trade, such
as labor standards, or environmental protection.
As tariffs come down as the result of more than 60 years of tariff negotiations, and
as the tariff as an instrument of trade protection loses its importance, one often
finds it being replaced by various measures, some of which are blatantly
protectionist, and others of which are more ambiguous in terms of their policy
objectives.
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49. Developing Countries and the Global
Trading System
49




The Doha Round was only launched after developing countries were reassured that it would
be all about their interests, and the Round was even named the Doha Development Round.
The word “development” appears some 36 times over the course of the 10-page Ministerial
Declaration which formally sets out the Round’s work program.
Developing countries have scored some victories in the eight years since the Round has
been ongoing, including the jettisoning from negotiating mandate, of a number of newer
issues they were hostile to (trade and investment, trade and competition), as well as securing
various Aid for Trade commitments from developed countries.
If the Round were to be concluded more or less with what was agreed by 2008, it would still
achieve a considerable degree of trade liberalization, at least locking in much of the
(unilateral) liberalization that has ensued since the end of the Uruguay Round.
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50. Developing Countries and the Global
Trading System
50


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
A look at the results of the 2013 Bali Package shows that developing countries have done
well in keeping the WTO focused on their perceived needs as opposed to the additional
market access openings and trade liberalization that many developed countries have been
pressing for since the start of the Round.
However the Decision Public Stockholding for Food Security Purposes arguably is a step
back for agricultural trade liberalization, since it gives countries broader discretion to breach
hitherto agreed ceilings on trade-distorting domestic support.
The declaration on cotton still fails to property address the main problem, which remain the
trade-distorting subsidies provided to US cotton growers.
Finally one could argue that developing countries have allowed themselves to be distracted
from the really important issues at stake during Doha, which were the elimination of export
subsidies and improvement of market access terms for agricultural products generally.
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51. Developing Countries and the Global
Trading System
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Whereas some developing countries, such as Brazil, India, and to a certain extent China,
have been relatively vocal in pressing for the consideration and inclusion of their needs in
any final settlement, many other developing countries need to become more proactive
Despite the fact that developed countries seem to wield considerable influence at the
WTO, the truth is that it is the WTO, of all the institutions of the global economic
architecture, which affords developing countries the best chances of having their views
heard and their needs considered.
The negotiating agenda at the WTO tends to be determined by export interests more than
anything, i.e. by the most efficient producers of any given products. Thus efficiency
considerations tend to weigh out in most debates, to the detriment of other considerations,
such as equity, social justice, etc.
Developing countries have admittedly become much better at advocating their interests at
the WTO, but in order to determine the agenda, they need to become more efficient
producers of more products and services.
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52. Preferential Trade Agreements : From
Regionalism to Mega-Regionalism
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One definition of a preferential trade agreement:
A trade pact between countries that reduces or eliminates tariffs and other trade restrictions on
certain goods and services, whereby only those countries or territories that are parties to the
agreement may benefit from such preferential market access.

Arguably the most important exception to MFN and sanctioned by GAT Art. XXIV and
GATS Art. V subject to the understanding that their net effects are trade liberalizing.

Ongoing discussion as to whether they are a benefit or a curse to the multilateral trading
system
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But really these are nothing new, and the GATT also had to cope with a major challenge to
its core principle of non-discrimination when the process of European economic
integration got started with the 1957 Treaty of Rome.
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53. Preferential Trade Agreements : From
Regionalism to Mega-Regionalism
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54. Preferential Trade Agreements : From
Regionalism to Mega-Regionalism
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55. Preferential Trade Agreements : From
Regionalism to Mega-Regionalism
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56. Preferential Trade Agreements : From
Regionalism to Mega-Regionalism
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57. Preferential Trade Agreements : From
Regionalism to Mega-Regionalism
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58. Preferential Trade Agreements : From
Regionalism to Mega-Regionalism
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59. Preferential Trade Agreements : From
Regionalism to Mega-Regionalism
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It is clear that trade and investment liberalization is now taking place outside of the
WTO to a degree probably not possible between 159 Members.
The rise in Mega Regionals such as TTP and TTIP raise the systemically important
question of whether the rules agreed under these frameworks will ultimately be
imposed on US and EU trading partners who have otherwise resisted such rules at
both the WTO and under bilateral FTAs.
This is significant because many of these rules go considerably beyond trade and
involve deep-rooted reform of domestic regulations across a wide ambit of
government policies.
Whatever one thinks of this process, the onward march of trade and investment
liberalization involving behind-the-border reform seems to be an unstoppable force,
which developing countries probably need to stop resisting and start harnessing for
their own domestic economic development agendas.
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60. Thank You
UPH MTIC Program | Introduction
to WTO Law
Globalization, Economic Integration and International Trade
Simon Lacey