Outline for 10/22: International Trade II Gravity Model of Trade US Trade Partners Global Trade IGOs ITO GATT WTO Regional Trading Arrangements (RTAs)

The Gravity Model of Trade and Economic Geography Force of gravity = ( mass 1 * mass 2 ) / distance 2 Amount of international trade = (GDP 1 * GDP 2 ) / distance between them Open book to pp. xxii-xxiii (Map of the World) In what regions of the globe would we expect to see a lot of trade? In what regions of the globe will trade be very difficult? Who would we expect to be the United States major trading partners?

US Trade Partners ExportsImports CanadaChina MexicoCanada ChinaMexicoJapan EnglandGermany Trade deficit China Mexico Japan Germany Saudi Arabia Does this fit the gravity model logic?

International Trade Organization (ITO) Proposed at Bretton Woods conference in major parts 1. rules about free trade (GATT) 2. rules about foreign direct investment, specifically rights for host countries Havana Charter signed in 1948 US Senate refused to ratify in 1950, objected to rules about foreign direct investment

General Agreement of Tariffs and Trade (GATT) Set of rules about what constitutes free trade Based on principle of non-discrimination Most Favored Nation (MFN) National Treatment Lots of exceptions Generalized System of Preferences (GSP) Domestic Safeguards Regional Trading Arrangements (RTAs)

Expansion of the GATT (1) Width (number of member-states) vs. Depth (what it covers) Why might there be a tradeoff between these 2 dimensions? Initially limited in both dimensions 1.Width – starts with only 23 member-states 2. Depth Product areas covered – manufactured goods only Forms of trade protection covered – tariffs only

Expansion of the GATT (2) Expanded in a series of trade rounds NameStart LengthCountries Subjects discussed Geneva19477 mos.23 tariffs Annecy19495 mos.13 tariffs Torquay19508 mos.38 tariffs Geneva II19565 mos. 26 tariffs Dillon mos.26 tariffs Kennedy mos.62 tariffs and anti-dumping Tokyo mos.102 tariffs, NTBs Uruguay mos.123 tariffs, NTBs, intellectual property rights agriculture, services, textiles, creation of new WTO Which dimension came first? Width or Depth? Any pattern between length and # of countries?

World Trade Organization (WTO) Signed in 1994 at the end of Uruguay Round, ratified in Structure 1. Secretariat in Geneva, led by Director-General (currently Roberto Azevedo) 2. Ministerial Council (meets every 2 years) 1 st Singapore nd Geneva rd Seattle th Doha th Cancun th Hong Kong th Geneva th Geneva General Council 4. Dispute Settlement Body 5. Appellate Body

Have the GATT/WTO been effective? Yes – increased trade and decreased tariffs post-WWII No – trade gains uneven and tariffs being replaced by NTBs Doha Round Began in 2001 Southern countries want free trade in agriculture and textiles Northern countries want greater intellectual property rights protection and free trade in services Currently at an impasse Lots of criticism directed at the WTO 1.Too strong – Dispute Settlement Body 2. Too weak – unanimity requirement in the Ministerial Council

Regional Trading Arrangements (RTA) as an Alternative to Global Free Trade What is an RTA? Is it Discriminatory? Examples? RTA expansion Increase in # of RTAs (~200 registered with the WTO) Increased size within existing RTAs EU ( ) US-Canada FTA NAFTA Free Trade Area of the Americas