Trading Bloc Definitions Free Trade Areas – members remove tariffs & quotas between themselves, but retain whatever restrictions each member chooses with non-member countries (some provision usually made to prevent imports coming into the zone via the easiest route) Customs Unions – like FTA but also common external tariffs & quotas with non-members Common Market – like customs union, but also have common taxation, laws on production, employment, etc, free movement of labour, absence of special treatment by members toward their own domestic industries (EU not quite here yet – may never be)

Trading Bloc Definitions cont’ Trade Creation – consumption shifts from high-cost producer to low cost producer – specialisation leads to comparative advantage winning the trade battle Trade Diversion – consumption shifts from lower-cost producer to a higher-cost producer (reducing world efficiency) – eg. if tariff exists on all imports of wool, and New Zealand is the lowest cost producer, then UK will import from New Zealand. But once customs union created, no tariff on Irish wool so it bears a cheaper price tag, even though Irish may be higher cost producers – loss to world efficiency as UK chooses Irish wool. Dumping: – the practice of selling products for below the cost it is sold at in the domestic market – usually for the purpose of attempting to push out competition or just to get rid of extra stock

The World Trade Organisation – Historical Context Objective: “to help trade flow smoothly, freely, fairly, and predictably”  officially began 1995 – successor of General Agreement on Tariffs and Trade (GATT) (created after WWII to address harmful protectionist policies of early 20th C – esp. during the depression)  based on comp. advantage & mutual benefit of free trade – negotiations are “multilateral” – not “bilateral” (an offer of reduction in tariffs by one country should be met by all other)  negotiations for the new WTO started in ‘The Uruguay Round’ lasted until 1994 – each “round” tackles a particular form of protectionism  another round of talks launched Seattle broken up without any agreement – fierce demonstrations  3rd round attempted in Doha, Quatar in 2003 but poorer countries pulled out – focus on agriculture and developing countries; meanwhile USA & EU making no changes to subsidies – deals unlikely

WTO – Key Areas of Regulation  Agriculture: highly protected - first step to remove non-tariff barriers (eg. Quotas)  Textiles: quite protected due to increasing competition from poorer countries  Services: US particularly worried about abuse of patents, etc in developing countries - undercutting & stealing intellectual property

Roles of the WTO 1.assisting settlement of disputes between conflicting countries with advisors & mediators 2.policing agreements through dispute settlement – judgements by specially-appointed independent experts 3.policy review – constant assessment of existing agreements, their effectiveness and their transparency 4.work with developing countries – looking for increased participation of these countries in global trading system 5.technical assistance – training officials from over 100 countries in matters relating to international trade

Potential Conflict Between WTO & Trading Blocs  barriers go up between members & non-members  members trading can lead to trade diversion – less efficiency  weaker countries may not be excluded from larger markets  trading bloc rules may prevent members from pursuing potential benefits of trade with non- members  if trade becomes concentrated in these zones, WTO may become obsolete or powerless

Evaluating the WTO  WTO role particularly important during times of world recession (countries tempted to look inward and ↑ protectionism)  General reduction in world tariffs may be more due to groups of countries recognising mutually beneficial trade rather than through action of the WTO (states tend to operate in their own interests)  Some poorer countries were allowed to join even with high tariffs in place (eg. India) whereas other are still blocked (eg. China & Russia)  Special exemptions for “economic emergency” give convenient cover for predatory tariffs (eg. USA steel tariff)  Many countries have replaced tariffs with non-tariff barriers to trade (eg. Exports subsidies & import regulations) – this is harder to combat  Anti-globalisation protestors view the global marketplace as the source for poverty and inequality as the rich countries MNC’s get richer without the poor countries being able to benefit