pos m. hutabarat phd course # 14 multilateral trading system (wto) jakarta, 17 april 2007...
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Pos M. Hutabarat PhD
Course # 14
Multilateral Trading System (WTO)
Jakarta, 17 April 2007Pascasarjana Ilmu EkonomiUniversitas Indonesia
Pos M. Hutabarat PhD
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
Pos M. Hutabarat PhD
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
Pos M. Hutabarat PhD
Protest on Free Trade
Pos M. Hutabarat PhD
How good is Free Trade?
Pos M. Hutabarat PhD
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)
Pos M. Hutabarat PhD
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
Pos M. Hutabarat PhD
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)
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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
Pos M. Hutabarat PhD
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
Pos M. Hutabarat PhD
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
Pos M. Hutabarat PhD
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
Pos M. Hutabarat PhD
WORLD TRADE TRIANGLE (now)
E Europe
Anzerta
Asean
JAPAN
Korea
China
USA
Canada
S AmericaEU
Middle East
Africa
S Asia
Pos M. Hutabarat PhD
WORLD TRADE TRIANGLE(future)
Greater EU
EAST ASIA
NAFTA
Latin AmericaAfrica
East Asia
ANZERTA
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ASEAN IN EAST ASIA
ASEAN
CHINA
JAPAN
KOREA
INDIA
AUSTRALIA
EAST ASIA
OCEANIA
Pos M. Hutabarat PhD
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)
Pos M. Hutabarat PhD
UN-HOLY TRINITY
World Bank
IMF WTO
TradeMonetary
Development
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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
Pos M. Hutabarat PhD
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
Pos M. Hutabarat PhD
Fields of Negotiation in WTO
1. Manufacturing goods2. Agriculture3. Services4. Rules5. New Issues (Trade facilitation,
Investment, Competition Policy, and Government Procurement)
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WTO ORGANIZATION
Ministerial Conference
General Council
Council forTrade in Goods
Council for Trade in Services
Council for TRIPs
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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)
Pos M. Hutabarat PhD
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)
Pos M. Hutabarat PhD
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
Pos M. Hutabarat PhD
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)
Pos M. Hutabarat PhD
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
Pos M. Hutabarat PhD
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%
Pos M. Hutabarat PhD
Tariffs Reduction (Developed Countries)
40%
30
20
10
1947 1962 1972 1987 1995 2007?
Pos M. Hutabarat PhD
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)
Pos M. Hutabarat PhD
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
Pos M. Hutabarat PhD
Tariff Curve (Tariff Rates in Developing Countries)
T1
T2
T3
Uruguay Round
Doha Round
Tariff rates
Time
TP
Political Acceptance Tariff
Tokyo Round
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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
Pos M. Hutabarat PhD
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
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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
Pos M. Hutabarat PhD
Subsidy Curve
S1
S2
S3
Uruguay Round
Doha Round
Subsidies
Time
SP
Political Acceptance Subsidies
Tokyo Round
Pos M. Hutabarat PhD
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
Pos M. Hutabarat PhD
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
Pos M. Hutabarat PhD
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
Pos M. Hutabarat PhD
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)
Pos M. Hutabarat PhD
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)
Pos M. Hutabarat PhD
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.
Pos M. Hutabarat PhD
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