The Institute for Domestic and International Affairs, Inc.

World Trade Organization Free Trade Zones

Director: Todd Zubatkin

© 2007 Institute for Domestic & International Affairs, Inc. (IDIA) This document is solely for use in preparation for Rutgers Model United Nations 2007. Use for other purposes is not permitted without the express written consent of IDIA. For more information, please write us at [email protected]

Introduction _________________________________________________________________ 1 Background _________________________________________________________________ 3 Regional Trade Agreements ________________________________________________________ 4 Customs Union ___________________________________________________________________ 5 Preferential Treatment_____________________________________________________________ 6 Problems with Regional Trade Agreements____________________________________________ 6 Notification and Review Problems ___________________________________________________ 7 The Effect of New FTAs on the Global Trading System__________________________________ 8 Earlier Efforts at Reform___________________________________________________________ 9

Current Status ______________________________________________________________ 10 Millennium Development Goals – Successes and Failures ___________________________ 12 Bloc Positions_______________________________________________________________ 13 Summary___________________________________________________________________ 16 Discussion Questions _________________________________________________________ 17 Works Cited ________________________________________________________________ 18 Appendix 1: The Millennium Development Goals __________________________________ 21 Appendix 2: GATT Article Twenty-four __________________________________________ 23 Appendix 3: GATS Article Five_________________________________________________ 26

Rutgers Model United Nations

1

Introduction There is a complex and critically important system of global trading rules that govern most of the trade between 150 separate states.1 The World Trade Organization (WTO), the primary governing body, establishes and enforces this system, and is responsible for the expansion of the global economy. It is designed to “help producers of goods and services, exporters, and importers conduct their business”.2 The rules and guidelines set forth by the WTO on trade are designed to be the only trade rules for the member states, but this is not the Multilateralism: the universal trading system, embodied in the [WTO], whose members trade with each other on a non-discriminatory basis.

reality as there are also free trade areas

Source: David Barry and Ronald C. Keith, “Introduction: Changing Perspectives on Regionalism and Multilateralism” in Regionalism Multilateralism and the Politics of Global Trade, ed. Donald Barry and Ronald C. Keith, 3 (Vancouver: UBC Press, 1999).

(FTAs)

interaction

all

which

alter

among

states.

The

existence of these trade agreements creates

a

debate

between

regionalism versus multilateralism. Free trade areas are an aspect of regionalism, which is where states band together in various ways to combat globalization.3 FTAs typically involve just a few states that agree to separate trade rules outside the confines of the WTO. The two types of FTAs are regional trade agreements (RTAs) and customs unions (CUs). In principle, these FTAs are both trade agreements among different states and cover specific areas of trade. FTAs range from fishing agreements, agricultural trade regulations, tariff reduction for all goods or to the extreme of the use a single currency to create a single market. Two pertinent examples of this type of agreement are the North American Free Trade Agreement (NAFTA) and the European Union (EU). Both of those trading zones offer their members incentives to trade with each other, and thereby a disincentive to trade 1

British Broadcasting Corporation, “Profile: World Trade Organization,” British Broadcasting Corporation, http://news.bbc.co.uk/1/hi/world/europe/country_profiles/2429503.stm (accessed March 12, 2007). 2 World Trade Organization, “What is the WTO,” World Trade Organization, http://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm (March 19, 2007). 3 “Profile: World Trade Organization”

Rutgers Model United Nations

2

with other states, altering the global trading market. Therefore, there are concerns of how FTAs such as these work within the multilateral system set up the WTO. The debate is not new since during the period when the global market was regulated only by the General Agreement on Trade and Tariffs (GATT), there was considerable debate. The GATT was amended to help ameliorate some of the problems caused by FTAs, however within the framework of the WTO.4 Essentially, the WTO represents multilateralism. The GATT was and now the WTO is fundamentally opposed to separate states granting most favored nation (MFN) Most Favored Nation (MFN): Most favored nation status. An agreement between two nations to levy tariffs on each other at rates as low as those levied on any other country. If one of these nations reduces tariffs on a third country, all of that nation’s MFN partners also receive that lower tariff rate.

trading status. The GATT and now the

Source: highered.mcgrawhill.com/sites/0072487488/student_view0/glossary.html

having hundreds of independent trading

WTO implemented the idea that all members were elevated to most favored nation relative to each other.5 Instead of

agreements that excluded certain states, the WTO, as designed, offers all states the opportunity to trade on an even playing field with even the largest, most competitive states. The WTO is in favor of this system because a multilateral trading system promotes development in all states, not just certain ones. A strong, more open trading world is believed by the WTO to maximize efficiency and maximize productivity. While the WTO believes that FTAs are a necessary part of trade, multilateralism is a better approach than regionalism. There has been an increasing number of free trade areas, and at the same time, growing support for multilateralism throughout the world. The reason for both is that states benefit from both FTAs and from multilateral trade agreements. While the fact that states wanting both may be contradictory, FTAs work within the framework of the WTO and work within the framework of the global trading market. The reasons for and against both of these ideas differ from different blocs of states, specifically developing and 4

Frederick M. Abbott, “The North American Integration Regime” in The EU, the WTO and the NAFTA, ed H.H.H Weiler, 175 (Oxford: Oxford 2000). 5 Kym Anderson, “Environmental and Labor Standards: What Role for the WTO?” in The WTO as an International Organization, ed Anne O. Krueger, 246 (Chicago: University of Chicago Press, 1998).

Rutgers Model United Nations

3

developed nations. There seems to be a general consensus in the global market worldwide that FTAs are beneficial when used properly and in conjunction with a strong multilateral trading system.6 The WTO, while recognizing that FTAs are necessary for global trade, wants to maintain its relevance. If the global economy is broken into separate FTAs again, similar to the situation under GATT, the WTO becomes a defunct institution. Therefore, the WTO has had to adjust to the growing number of FTAs and has run into a number of problems. The idea of FTAs is not merely a couple years old within the global trading system, since the GATT had the problem as well. The WTO has an institutional way of dealing with FTAs and that system is currently broken even though there have been attempts in the past to amend the system.7 Overall, this debate is on what is better for each individual state, the world economy, the WTO, and how to maximize the WTO’s role in making sure that the correct way to achieve the Millennium Development Goals (MDG), is possible.

Background The idea of preferential treatment for trade between states is not a new idea, nor one that was introduced with the inception of General Agreement on Tariffs and Trade, the WTO, or the extension of the WTO with the General Agreement on Trade Services (GATS) which brought the WTO into the realm of service trade.8 States that trade with one another under the WTO have worked under the assumption that multilateralism instead of bilateralism will lead to a greater economic development for all member states in the WTO.9 However, regional trade agreements have been increasingly prevalent in

6

Kym Anderson, “Future Agenda of the WTO” in From GATT to the WTO: The Multilateral Trading System in the New Millennium, ed. The WTO Secretariat, 23 (The Hague: Kluwer Law International, 2000). 7 World Trade Organization, Compendium of Issues Related to Regional Trade Agreements (World Trade Organization: 2002). 8 Abbott, 175. 10 World Trade Organization, “Growth in the volume of world merchandise exports and production, 2000-04,” World Trade Organization, http://www.wto.org/english/res_e/statis_e/its2005_e/section1_e/i01.xls (Accessed March 19, 2007).

Rutgers Model United Nations

4

recent years and will exceed four hundred in 2010 according to the WTO.10 From the creation of the GATT in 1947 to 1996, there were 145 regional trade agreements. From 1986 to 1991, the GATT was notified of five agreements but from 1992 to 1996 it was notified of sixty new agreements.11 Under WTO rules, RTAs are legal, but they pose an interesting conundrum for the WTO, its members and the general idea of universal most favored nation status for all members in the WTO in relation to each other.12 While there have been multiple global economic problems since the advent of the global trading system, the idea of multilateralism has increased productivity in the world.13 In fact, the global GDP has increased 2 per cent from 2000 to 2004.14 The position of the WTO is that the breakdown of the multilateral trading system into a fragmented global trading system of RTAs threatens the global economy, as small states will be at a disadvantage.15

Regional Trade Agreements The debate of regional trade agreements is a multidimensional issue that involves a number of terms that must be understood. A regional trade agreement is one where a small number of states, often in the same geographic area, enter into a trade agreement that gives all members of the agreement preferential treatment relative to other states.16 In short, states party to a given RTA agree to give their trading partners special treatment in terms of tariffs and subsidies, relative to states that are not part of the RTA. As an example, the North American Free Trade Agreement affords special trading relationships among Mexico, Canada, and the United States, that are not offered to the European 10

World Trade Organization, “Lamy warns bilateral agreements are not the “easy way out” from the suspended talks,” World Trade Organization, http://www.wto.org/english/news_e/sppl_e/sppl46_e.htm (accessed January 1 2007). 11 Gilbert R. Winham, “Regionalism and the Evolving Global Trade System” in Regionalism Multilateralism and the Politics of Global Trade, ed. Donald Barry and Ronald C. Keith, 54 (Vancouver: UBC Press, 1999). 12 Abbott, 175. 13 Georgetown University, “The Asian Financial Crisis of 1997–1998: Adapting U.S. Intelligence and PolicyMaking to the Challenges of Global Economics,” Georgetown University, http://isd.georgetown.edu/Asian_Financial_Crisis_WG_Report.pdf (accessed January 28, 2007). 14 “Growth in the volume of world merchandise exports and production, 2000-04” 15 Peter Gallagher, The First Ten Years of the WTO 1995-2005 (New York: Cambridge University Press, 2005), 83. 16 William D. Coleman and Anthony Perl, “Globalization, Regionalism, and the Analysis or Domestic Public Policy,” in Regionalism, Multilateralism and the Politics of Global Trade, ed. Donald Barry and Ronald C. Keith, 71-72 (Vancouver: UBC Press, 1999).

Rutgers Model United Nations

5

Union or other states. The WTO however, believes that multilateral trade is a better way to conduct world trade instead of a large number of separate agreements in that it involves all nations of the world, not just specific ones.17 Most compellingly, regional trade agreements are often seen as opportunities for powerful developed states to maintain their advantage over smaller states. When the United States, for example, approaches a county like the Gambia, their position as a global trading power encourages the Gambians to offer favorable trading relationships, as the Gambians are eager to trade on the U.S. market. Not all regional trade areas or customs unions are legal under the rules of the WTO, however.18 The rules state that these extra-WTO agreements must: stipulate greater liberalized trade opportunities than those already in existence in the WTO, repeal a great number of trade barriers between participating states, cover trade in the aggregate sense and must not work for particular outcomes and states not a party to the agreement must not be worse after the agreement goes into effect.19

Customs Union A customs union is very similar in ideology and practice as a FTA. It is, however, a more specific form of an FTA that neither takes into account all areas of trade, nor does it necessarily mean that the trade is free. A customs union is where a small number of states enter into an agreement where all of their tariffs are equal for the same product or products; it is a tariff agreement that affords no state a trade advantage. A customs union is similar to an RTA in that it facilitates trade by creating uniformity in the methods of trade within a set group of states. Often in customs unions, the participating states have the same external policies towards each other such as the same tariffs on certain goods, but exclude the same internal policies such as import quotas. This creates a strange legal 17

Bhargirath Lal Das, The World Trade Organisation: A Guide to the Framework for International Trade (New York: Zed Books Ltd., 1999), 28. 18 See Appendix two for full text of the GATT article twenty four and Appendix three for full text of GATS article five. 19 Michael Hart, “A Matter of Synergy: The Role of Regional Trade Agreements in the Multilateral Trading Order” in Regionalism Multilateralism and the Politics of Global Trade, ed. Donald Barry and Ronald C. Keith, 48 (Vancouver: UBC Press, 1999).

Rutgers Model United Nations

6

situation within the WTO because the trade rules between different states can have different relationships within the same CU.20

Preferential Treatment The idea of preferential treatment is another cornerstone of the WTO and essential to the understanding the challenging nature of RTAs. Preferential treatment was one of the core ideas of the original multilateral trading system when the GATT elevated all states that signed the treaty to MFN status.21 Before the GATT, states throughout the world would grant each other MFN status to signify special benefits such as bilateral tariff reduction and decreases in import costs. Article I of the WTO agreement establishes that all states who are members of the WTO afford the status of most favored nation to every other member. With the advent of FTAs however, preferential treatment has not disappeared, and in fact has generated a veritable second tier of trading partnerships throughout the trading sector. States that are able to reach favorable agreements are at an advantage over those without strong relationships.

Problems with Regional Trade Agreements There are a number of topics and distinctions that make up the regional trade agreement debate in the WTO. The complexities range from notification, implementation of RTAs and CUs, legal questions of authority and the massive web of inter-related bilateral trade agreements that thwart, in the view of the WTO and the vast majority of its members, the goal of a global free trade multilateral trade zone.22 Another major problem is that the trade rules are outdated. The rules, laid out in the GATT’s Article XXIV, worked well in the 1940s and 1950s when international trade was primarily a tariff based political idea, but the modern world is now much more complex. As stated by the Organization for Economic Cooperation and Development (OECD), “regional and global integration no longer lend themselves to the type of clear-cut separation embodied in

20

Bhargirath Lal Das, 24-25. Ibid., 15. 22 Compendium of Issues Related to Regional Trade Agreements. 21

Rutgers Model United Nations

7

[the] GATT article twenty-five: both are facets of the same effort to accommodate the growing complexities of economic interdependence against the diversity of social preferences.”23

Notification and Review Problems One of the most significant complications that exists with the usage of RTAs and CUs is the notification, review, and authorization of these RTAs. The WTO, requires that all members notify and offer for review any regional trade agreements. This process is very slow and states are implementing agreements before the WTO has a chance to offer its ruling. Even worse, the committee will not, even under the most conservative estimates, be able to handle the increasing case load. In the past, notification would sometimes occur after the participating states started implementing their FTA, thereby circumventing the WTO and limited its effectiveness in dealing with multilateral trade functions. Although the WTO has agreed to restructure this process, limited progress has been made.24 RTAs are to be reported to the WTO for a variety of reasons, not least of which is to ensure they are in continued accordance with the multilateral framework that comprises the foundation of the WTO. While it is important that the WTO is informed of any new RTA relationships, the members also require this information for their own trade relations so they can adjust to the new trade rules.25 The status of actual RTAs within the WTO further adds to the debate due to their legal situation, voting and their legitimacy in the WTO. The European Union (EU) is an RTA and yet is a member of the WTO, both as a singular body, and as individual member states. This existence of the EU in the WTO would seem to undermine the WTO’s mission to rescind regional trade agreements. The WTO Dispute Settlement Body is also set up to handle disputes between its members, but the EU has a court whose role is to do the same among its own membership. The question then arises of which body has 23

Michael Hart, 27. Compendium of Issues Related to Regional Trade Agreements, 5. 25 Abbott, 175 24

Rutgers Model United Nations

8

ultimate jurisdiction since both the EU and its members are members of the WTO.26 Since the WTO recognizes NAFTA, the hierarchy of legality between NAFTA and the WTO is also in question, even thought it has no similar mechanism for disputes. With this ambiguity, the legitimacy of the need for an international organization such as the WTO is put into question.27

The Effect of New FTAs on the Global Trading System While the structure of notification, review, approval and continued reporting of these RTAs to the WTO is a problem, a developing concern with the increasing number of FTAs is how they will affect the global market. As there are hundreds of bilateral trade agreements, the WTO is faced with weaving through a complex web of often superseding agreements. The recent upsurge in bilateral RTAs could portend the end of the WTO since states can no longer afford only to be members of the WTO for trade benefits. States need to make their own FTAs to compete globally and will thus negotiate their own treaties with states particularly within their geographic region.28 These agreements amount to more preferential treatment of specific states as opposed to the multilateral, equal treatment for all WTO members. The significant number of regional trade agreements that exist all interact with each other, both in current trade practices and in future negotiations for FTAs and multilateral trade agreements. For example, a bottle of wine sold by France to the United States is affected by the North American Free Trade Agreement, but also by a detailed bilateral trade agreement between the U.S. and France. On the one hand, Canadian winemakers expect to have no tariffs when selling its own wine in the United States, but faces competition from French wine being sold there with virtually no trade-imposed sanctions.

This competition

adjusts the global market through price, labor costs, and foreign exchange rates, among a host of other variables. Taking into account that there are more than one hundred RTAs 26

Jacques H.J. Bourgeois, “The European Court of Justice and the WTO” in The EU, the WTO, and the NAFTA, ed. H.H.H Weiler, 121-122 (Oxford: Oxford 2000). 27 Abbott, 178-180. 28 Compendium of Issues Related to Regional Trade Agreements, 5-7.

Rutgers Model United Nations

9

and many more under negotiation, this will only continue to spiral into an ever increasing web of multifaceted trade rules for all states.29 At some point, it would seem that the international community will have to either accept limitations afforded by the

Earlier Efforts at Reform A number of previous solutions have been attempted. First, the complete restructuring of the WTO has been proposed. In terms of what the WTO is and what it is supposed to accomplish, a number of ministerial meetings have been completed around the world. These efforts at reform point to the idea of giving the WTO more ability to review and process all of the RTAs that are agreed to by trading partners.30 Also, there is a push to make sure the WTO pays more attention to the values of the smaller, more developing states. Next, it has been suggested that the WTO is no longer meaningful, that states do not want to join and will simply enter into RTAs as they more directly reach their needs. This is unlikely since states that are not members of the WTO in fact seek membership. Two meaningful examples of this are the recent entrance of Vietnam into the WTO and the petition to allow Russia into the organization. After being approved for membership, Vietnam Trade Minister remarked, “WTO membership also helps Vietnam … [create] opportunities for trade expansion, which is an important tool for economic growth.”31 Russia also believes that for future economic development, WTO membership is necessary, and is likely with the support of the United States. Russian trade minister German Greff said that membership within the WTO will allow Russia to compete “as an equal” in the global market.32 While it is true that the enactment of more RTAs hinders the stability of the multilateral trading system, membership in the WTO is important as states still wish accrue the lucrative benefits of membership. 29

“Rules: Regional Agreements: Building blocks or stumbling blocs?” Renato Ruggiero, “Reflections from Seattle,” in The WTO After Seattle, ed. Jeffrey J. Schott, 3 (Washington, DC: Institute for International Economics, 2000). 31 World Trade Organization, “General Council Approves Vietnam’s Membership,” World Trade Organization, http://www.wto.org/english/news_e/pres06_e/pr455_e.htm (accessed March 19, 2007). 32 British Broadcasting Corporation “US paves way for Russia WTO entry,” British Broadcasting Corporation http://news.bbc.co.uk/2/hi/business/6163008.stm (accessed March 19 2007). 30

Rutgers Model United Nations

10

Lastly, the WTO has tried to reform the committee structure for reviewing RTAs, most notable in the creation of the Regional Trade Agreements Committee in 1996. The purpose of this committee is to look at the “broader, systemic implications of the [regional trade agreements] for the multilateral trading system, the relationship between them, and encourages adequate reporting by countries that have signed these agreements.”33 As previously explained, simply making one committee manage this process has not worked effectively but it has made the situation better than it was previously.

Current Status The debate on free trade has had numerous recent developments. Most importantly, talks within the WTO on trading rules have been ongoing. These talks, which started in 2001, recently collapsed in the summer of 2006. Most governments, including almost all of the key players like the United States, China and the European Union are in favor of restarting and rehabilitating these failed talks. However, an important reason for wanting the talks to restart is that these governments believe that the ultimate failure these conversations would be destructive to their economies.34 There have been a number of public announcements from virtually all of the members of the WTO, particularly from the main parties that were working on the Doha round of trade talks: the United States, the European Union, Brazil and India. The trade talks fell apart for a number of very specific reasons according to each side with the most contentious being agricultural subsidies. All sides charged that the other was asking too much or being unreasonable and they all publicly blamed each other for the failed talks because of their unwillingness to relinquish on certain key aspects of the agreement. 35 The Europeans claimed that the United States was not flexible in the negotiations, and

33

“Rules: Regional Agreements: Building blocks or stumbling blocs?” British Broadcasting Corporation, “World trade talks set to restart,” British Broadcasting Corporation, http://news.bbc.co.uk/2/hi/business/6304907.stm (accessed February 3, 2007). 35 British Broadcasting Corporation, “EU and US Seek Fresh Trade Push,” British Broadcasting Corporation, http://news.bbc.co.uk/2/hi/business/6240079.stm (accessed March 19 2007). 34

Rutgers Model United Nations

11

European Union Trade Commissioner Peter Mandelson said, “Surely the richest and strongest nation in the world, with the highest standards of living, can afford to give as well as take” while the United States said in response “yesterday’s statement by the European Union alleging that the United States failed to show flexibility ... and attempt to divert blame for the stalemate is false and misleading.”36 The conflict of addressing the developing world arose at the Doha talks, and not surprisingly divided along developed and developing lines. The talks themselves were designed in part to give the developing world more economic power, but there were certain points of contention that were not resolved, such as the agricultural subsidies and opening markets to imports between these two sides. In short, the developing world was demanding that developed states suspend their agricultural subsidies, allowing LDCs to effectively compete in the trade of easily harvested crops such as corn and wheat.37 WTO Director-General Pascal Lamy recently stressed the need for reform regarding FTAs. He lamented what he called a “spaghetti bowl” of agreements making global free trade impossible. This speech, being presented in India was significant since India, like many of the other rapidly developing states, is reaching additional FTAs with its neighbors as well as other states in the world. Lamy also went into the failure of the WTO to have proper rules for looking at FTAs and having proper reports for allowing the world to navigate global trading rules. These, he pointed out, would help alleviate the problem of the “spaghetti bowl,” but would not really fix anything. Another point would be to formalize the rules for what is allowed as an FTA. This has obvious legal implications that would streamline the process as well as help all the states make better agreements. Lastly, the speech made it clear that the WTO supports the continued use of FTAs for all member-states, but stressed the need for multilateralism.38

36

Spiegal Online, “Acrimony and Blame after Collapse of Trade Talks” Spiegal Online http://www.spiegel.de/international/0,1518,428492,00.html (accessed March 19, 2007). 37 Business Week, “WTO Powers Hopeful Despite Trade Failure,” Business Week, http://www.businessweek.com/ap/financialnews/D8MTOIH80.htm (accessed January 31, 2007). 38 World Trade Organization, “Regional Agreements: the ‘Pepper’ in the Multilateral ‘Curry’ – Lamy,” World Trade Organization, http://www.wto.org/english/news_e/sppl_e53_e.htm (accessed January 28, 2007)

Rutgers Model United Nations

12

Another recent development emerged at the World Economic Forum in January 2007, as the United States, Europe and a select number of other key states made a new commitment to restart the failed Doha round of trade talks. This has very significant implications since it suggests that the states of the world still want a multilateral system. It also points to a new willingness for the major powers to work towards compromise. While neither side has acquiesced to the other, it is clear that the parties are willing to return to the negotiating table.39 While the recent trade talks came to a halt, the world is still committed to the notion that a multilateral trade system is critical to global trade. The most recent thinking of most world powers is that FTAs are important and should continue to be legal, but the process needs to be streamlined within the framework of the WTO. The WTO is also trying to fix the broken system of reviewing and authorizing FTAs to help other states to work with the “spaghetti bowl” of trade agreements that are in the world today.

Millennium Development Goals – Successes and Failures While the WTO not party to the Millennium Development Goals (MDGs), it can play an important role in achieving them. The WTO is in some ways in a better position to accomplish the MDGs than the United Nations since the MDGs can be reached through economic reform. The debate of FTAs and multilateral trade agreements is unquestionably part of the solution to some of the MDGs such as eliminating hunger and stopping the spread of certain diseases.40 Within these areas, a solution can be reached through economic means of lowering trade barriers among states, and lower trade barriers lead to cheaper goods. The developing world has been pushing for more benefits in the most recent rounds of trade talks and will continue to demand them until they are successful. If they receive more benefits, achievement of the MDGs is more likely.

39

British Broadcasting Corporation, “World trade talks set to restart,” British Broadcasting Corporation, http://news.bbc.co.uk/2/hi/business/6304907.stm (accessed February 3, 2007) 40 United Nations, “The UN Millennium Development Goals.” United Nations, http://www.un.org/millenniumgoals/ (accessed February 12, 2006).

Rutgers Model United Nations

13

MDG number eight deals specifically with the goals of the WTO since it deals directly with the issue of trade. Part this goal is to “develop further an open trading and financial system that is rule-based, predictable and Millennium Development Goal Eight: Develop further an open trading and financial system that is rule-based, predictable and non-discriminatory, includes a commitment to good governance, development and poverty reduction — nationally and internationally.

non-discriminatory, includes a commitment to good

governance,

development

and

poverty

reduction— nationally and internationally”.41 FTAs and multilateral trade agreements both are in favor of free trade, but to better regulate the process and

ensure fair and legal use of FTAs, the WTO must change the way the Regional Trade Agreements Committee works.

Bloc Positions There are a set number of established voting blocs that exist in the WTO. These blocs work both within the WTO and during the negotiations of trade deals. However, while trade blocs exist, the United States and the European Union play a significant role in the power relations and power distribution. In terms of actual blocs, a number that exist have a history of working together, sharing common positions and working together within the WTO. An interesting component of these blocs is that some of the blocs themselves are actually free trade areas, such as the European Union and the NAFTA. While they might exist as free trade areas themselves, their positions on this issue are not necessarily consistent regarding the issue of free trade zones. The EU and the NAFTA bloc are in favor of new trade talks establishing a new multilateral trade system, but are also in favor of keeping regional agreements legal. The Europeans in particular are in favor of this since the primary historical function of the EU has been economic.42 Europeans have a long history of wanting to keep their economies isolated from external control, ,and as such are opposed to removing certain barriers from trade, specifically agricultural barriers 41 42

Ibid. Europa, “The EU at a Glance” Europa, http://europa.eu/abc/history/index_en.htm (accessed March 21, 2007).

Rutgers Model United Nations

14

that would allow lower cost food to enter Europe.

43

The United States has been one of

the strongest advocates of new multilateral trade agreements. The US is fervently pushing the world community and the Europeans to restart the trade talks and to accept the position of the US on trade subsidies. When the Uruguay rounds of talks were under way, the United States was negotiating the NAFTA, and was therefore advocating the benefits of regional trade agreements. This position is largely intact today, as the United States relishes its position of power, and has traditionally been able to negotiate favorable trade agreements with individual states. The developing world, as a bloc of states, is an emerging economic power bloc within the WTO known as the G20, and is G20 Members: Argentina, Bolivia, Brazil, Chile, China, Cuba, Egypt, Guatemala, India, Indonesia, Mexico, Nigeria, Pakistan, Paraguay, Philippines, South Africa, Thailand, Tanzania, Uruguay, Venezuela, Zimbabwe

starting to challenge the US and the EU. This new bloc is a recent development in the politics of trade. Emerging in 2003,

they are in favor of keeping multilateral trade, but want to make sure there are concessions given to them, specifically in the area of agriculture for the realm of multilateral agreements. These states want to ensure that their strengths are addressed in these talks such as their strong ability to export through the elimination of certain tariffs on services and manufactured goods.44 China in particular has been signing a great number of free trade pacts with many states, increasing its regional power within another bloc known as AsiaPacific Economic Cooperation (APEC).

APEC Members: Australia; Brunei; Canada; Chile; China; Hong Kong; Indonesia; Japan; South Korea; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; Philippines; Russia; Singapore; Taiwan; Thailand; United States; Vietnam

.APEC members have pledged to liberalize their markets by 2015, further increasing the power of China’s and the rest of the bloc 45 The most basic difference in bloc positions is the developed world of the United States and Europe versus the rapidly developing world such as China, India and Brazil. 43

British Broadcasting Corporation, “A Guide to World Trade Blocs,” British Broadcasting Corporation, http://news.bbc.co.uk/2/hi/business/4510792.stm (accessed February 12, 2007) 44 Abbott, 176. 45 “A Guide to World Trade Blocs”

Rutgers Model United Nations

15

Both sides stress the need for multilateralism, but disagree on the benefits for the rich trading sates, protectionism, agriculture and most generally, if the agreement should benefit the developing world

Rutgers Model United Nations

16

Summary The WTO and the topic of free trade areas is one that while seemingly onedimensional when looking at the opinions of most major governments, is more clearly recognized as a very complex concern. The general principle of multilateralism is that all states should elevate each other to what is known as most favored nation status, allowing for trade that is more free. Despite the existence of the WTO, there are hundreds of regional trade agreements that, while under the umbrella of the WTO, subvert the system they are intended to support. The WTO’s role within the topic itself such as regulation and reporting within the Committee on Regional Trade Agreements is another important problem for the member states. Despite these specifics, the most basic part of the debate is on how FTAs can exist within the WTO, as a global economy with only FTAs would make the WTO irrelevant. Several hundred FTAs are in existence and many more are still in the process of being worked out, all as talks for a new multilateral system are failing. The members states of the WTO are attempting to restart these talks since the member states believe that a failure in these talks would damage their economies. Nonetheless, the entire idea of the GATT and now the WTO rests upon the fact that the world wants to have free trade that works for the entire world, not just between certain states that have good trade relationships. Therefore, the WTO must continue its effort to evolve the global trading system, curb the rampant expansion of FTAs that do not benefit multilateralism, and reform itself to accommodate the current situation, all while working along with specific blocs that exist within the WTO.

Rutgers Model United Nations

17

Discussion Questions • Why is multilateralism good? Expanding on that, why is it better to have a multilateral system of trade as opposed to not having one? Why is it better to have a system of universal most favored nations? • Does the current system better the world and if so, by how much and if not, why do so many states in the global economy depend on having a multilateral system. • How can the WTO help its members? Can it allow FTAs and push for multilateralism at the same time? • What are the problems with the current system? How does it affect the WTO itself? What problems arise from the current system for the members of the WTO? Are the problems only logistical ones that can be solved from within the WTO or do they need the support of the member states? • Do FTAs have any benefits? If so, what are they? How do FTAs affect other states in the world that are not a party to them? • What are some of the reasons why the Doha round of talks failed? Can they be restarted? What does it mean to have a multilateral trading system? • Do the legal complexities of existing FTAs within the WTO make the WTO less relevant? • How does the problem of legal hierarchy such as the one that exists between the EU’s court and the WTO’s ability to regulate trade affect the WTO?

Rutgers Model United Nations

18

Works Cited Abbott Frederick M. “The North American Integration Regime” in The EU, the WTO and the NAFTA, edited by H.H.H Weiler, 169-199. Oxford: Oxford, 2000. Anderson, Kym. “Environmental and Labor Standards: What Role for the WTO?” in The WTO as an International Organization, edited by Anne O. Krueger, 231-255. Chicago: University of Chicago Press, 1998. Anderson, Kym. “The Future Agenda of the WTO” in From GATT to the WTO: The Multilateral Trading System in the New Millennium, edited by The WTO Secretariat, 7-33. The Hague: Kluwer Law International, 2000. Berry, David. and Ronald, C. Keith. “Introduction: Changing Perspectives on Regionalism and Multilateralism” in Regionalism Multilateralism and the Politics of Global Trade, edited by. Donald Barry and Ronald C. Keith, 3-22. Vancouver: UBC Press, 1999. Bourgeois, Jacques H.J. “The European Court of Justice and the WTO” in The EU, the WTO, and the NAFTA, edited by H.H.H Weiler, 71-123. Oxford: Oxford 2000. British Broadcasting Corporation, “EU and US Seek Fresh Trade Push,” British Broadcasting Corporation, http://news.bbc.co.uk/2/hi/business/6240079.stm. British Broadcasting Corporation, “Profile: World Trade Organization,” British Broadcasting Corporation, http://news.bbc.co.uk/1/hi/world/europe/country_profiles/2429503.stm. British Broadcasting Corporation “US paves way for Russia WTO entry,” British Broadcasting Corporation http://news.bbc.co.uk/2/hi/business/6163008.stm. British Broadcasting Corporation, “World trade talks set to restart,” British Broadcasting Corporation, http://news.bbc.co.uk/2/hi/business/6304907.stm. Business Week, “WTO Powers Hopeful Despite Trade Failure,” Business Week, http://www.businessweek.com/ap/financialnews/D8MTOIH80.htm. Coleman, William D. and Perl, Anthony. “Globalization, Regionalism, and the Analysis or Domestic Public Policy,” in Regionalism, Multilateralism and the Politics of Global Trade, edited by Donald Barry and Ronald C. Keith, 71-91. Vancouver: UBC Press, 1999.

Rutgers Model United Nations

19

Das, Bhargirath Lal. The World Trade Organisation: A Guide to the Framework for International Trade New York: Zed Books Ltd., 1999. Europa, “The EU at a Glance” Europa, http://europa.eu/abc/history/index_en.htm. Gallagher, Peter. The First Ten Years of the WTO 1995-2005 New York: Cambridge University Press, 2005. Georgetown University, “The Asian Financial Crisis of 1997–1998: Adapting U.S. Intelligence and Policy-Making to the Challenges of Global Economics,” Georgetown University, http://isd.georgetown.edu/Asian_Financial_Crisis_WG_Report.pdf. Hart, Michael. “A Matter of Synergy: The Role of Regional Trade Agreements in the Multilateral Trading Order” in Regionalism Multilateralism and the Politics of Global Trade, edited by Donald Barry and Ronald C. Keith, 2553. Vancouver: UBC Press, 1999. Ruggiero, Renato “Reflections from Seattle,” In The WTO After Seattle, edited by Jeffrey J. Schott, 3-40. Washington, DC: Institute for International Economics, 2000. Spiegal Online, “Acrimony and Blame after Collapse of Trade Talks” Spiegal Online http://www.spiegel.de/international/0,1518,428492,00.html. United Nations, “The UN Millennium Development Goals.” United Nations, http://www.un.org/millenniumgoals/. Winham, Gilbert R. “Regionalism and the Evolving Global Trade System” in Regionalism Multilateralism and the Politics of Global Trade, edited by Donald Barry and Ronald C. Keith, 54-69. Vancouver: UBC Press, 1999 World Trade Organization, Compendium of Issues Related to Regional Trade Agreements World Trade Organization: 2002. World Trade Organization, “General Council Approves Vietnam’s Membership,” World Trade Organization, http://www.wto.org/english/news_e/pres06_e/pr455_e.htm. World Trade Organization, “Growth in the volume of world merchandise exports and production, 2000-04,” World Trade Organization, http://www.wto.org/english/res_e/statis_e/its2005_e/section1_e/i01.xls.

Rutgers Model United Nations

20

World Trade Organization, “Lamy warns bilateral agreements are not the “easy way out” from the suspended talks,” World Trade Organization, http://www.wto.org/english/news_e/sppl_e/sppl46_e.htm. World Trade Organization, “Legal Texts” World Trade Organization, http://www.wto.org/english/docs_e/legal_e/gatt47_02_e.htm#articleXXIV. World Trade Organization, “Regional Agreements: the ‘Pepper’ in the Multilateral ‘Curry’ – Lamy,” World Trade Organization, http://www.wto.org/english/news_e/sppl_e53_e.htm. World Trade Organization, “Rules: Regional Agreements: Building blocks or stumbling blocs?” World Trade Organization, http://www.wto.int/english/thewto_e/minist_e/min03_e/brief_e/brief12_e.htm. World Trade Organization, “Uruguay Round Agreement General Agreement on Trade in Services,” World Trade Organization, http://www.wto.org/English/docs_e/legal_e/26-gats_01_e.htm#articleV. World Trade Organization, “What is the WTO,” World Trade Organization, http://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm.

Rutgers Model United Nations

21

Appendix 1: The Millennium Development Goals46 1. Eradicate extreme poverty and hunger o Reduce by half the proportion of people living on less than one U.S. dollar a day. o Reduce by half the proportion of people who suffer from hunger. o Increase the amount of food for those who suffer from hunger. 2. Achieve universal primary education o Ensure that all boys and girls complete a full course of primary schooling. o Increased enrollment must be accompanied by efforts to ensure that all children remain in school and receive a high-quality education 3. Promote gender equality and empower women o Eliminate gender disparity in primary and secondary education preferably by 2005, and at all levels by 2015. 4. Reduce child mortality o Reduce the mortality rate among children under five by two thirds. 5. Improve maternal health o Reduce by three quarters the maternal mortality ratio. 6. Combat HIV/AIDS, malaria, and other diseases o Halt and begin to reverse the spread of HIV/AIDS. o Halt and begin to reverse the incidence of malaria and other major diseases. 7. Ensure environmental sustainability o Integrate the principles of sustainable development into country policies and programmes; reverse loss of environmental resources. o Reduce by half the proportion of people without sustainable access to safe drinking water (for more information see the entry on water supply). o Achieve significant improvement in lives of at least 100 million slum dwellers, by 2020. 8. Develop a global partnership for development o Develop further an open trading and financial system that is rule-based, predictable and non-discriminatory. Includes a commitment to good governance, development and poverty reduction—nationally and internationally. o Address the least developed countries’ special needs. This includes tariff- and quota-free access for their exports; enhanced debt relief for heavily indebted poor countries; cancellation of official bilateral debt; and more generous official development assistance for countries committed to poverty reduction. o Address the special needs of landlocked and small island developing States. o Deal comprehensively with developing countries’ debt problems through national and international measures to make debt sustainable in the long term. o In cooperation with the developing countries, develop decent and productive work for youth. o In cooperation with pharmaceutical companies, provide access to affordable essential drugs in developing countries. o In cooperation with the private sector, make available the benefits of new technologies— especially information and communications technologies.

46

United Nations, “The UN Millennium Development Goals.” United Nations, http://www.un.org/millenniumgoals/ (accessed February 12, 2006).

Rutgers Model United Nations

22

Rutgers Model United Nations

23

Appendix 2: GATT Article Twenty-four47 Article XXIV: Territorial Application — Frontier Traffic — Customs Unions and Free-trade Areas back to top 1. The provisions of this Agreement shall apply to the metropolitan customs territories of the contracting parties and to any other customs territories in respect of which this Agreement has been accepted under Article XXVI or is being applied under Article XXXIII or pursuant to the Protocol of Provisional Application. Each such customs territory shall, exclusively for the purposes of the territorial application of this Agreement, be treated as though it were a contracting party; Provided that the provisions of this paragraph shall not be construed to create any rights or obligations as between two or more customs territories in respect of which this Agreement has been accepted under Article XXVI or is being applied under Article XXXIII or pursuant to the Protocol of Provisional Application by a single contracting party. 2. For the purposes of this Agreement a customs territory shall be understood to mean any territory with respect to which separate tariffs or other regulations of commerce are maintained for a substantial part of the trade of such territory with other territories. 3.

The provisions of this Agreement shall not be construed to prevent:

(a)

Advantages accorded by any contracting party to adjacent countries in order to facilitate frontier traffic;

(b) Advantages accorded to the trade with the Free Territory of Trieste by countries contiguous to that territory, provided that such advantages are not in conflict with the Treaties of Peace arising out of the Second World War. 4. The contracting parties recognize the desirability of increasing freedom of trade by the development, through voluntary agreements, of closer integration between the economies of the countries parties to such agreements. They also recognize that the purpose of a customs union or of a free-trade area should be to facilitate trade between the constituent territories and not to raise barriers to the trade of other contracting parties with such territories. 5. Accordingly, the provisions of this Agreement shall not prevent, as between the territories of contracting parties, the formation of a customs union or of a free-trade area or the adoption of an interim agreement necessary for the formation of a customs union or of a free-trade area; Provided that: (a) with respect to a customs union, or an interim agreement leading to a formation of a customs union, the duties and other regulations of commerce imposed at the institution of any such union or interim agreement in respect of trade with contracting parties not parties to such union or agreement shall not on the whole be higher or more restrictive than the general incidence of the duties and regulations of commerce applicable in the constituent territories prior to the formation of such union or the adoption of such interim agreement, as the case may be; (b) with respect to a free-trade area, or an interim agreement leading to the formation of a free-trade area, the duties and other regulations of commerce maintained in each of the constituent territories and applicable at the formation of such free–trade area or the adoption of such interim agreement to the trade of contracting parties not included in such area or not parties to such agreement shall not be higher or more restrictive than the corresponding duties and other regulations of commerce existing in the same constituent territories prior to the formation of the free-trade area, or interim agreement as the case may be; and (c) any interim agreement referred to in subparagraphs (a) and (b) shall include a plan and schedule for the formation of such a customs union or of such a free-trade area within a reasonable length of time. 6. If, in fulfilling the requirements of subparagraph 5 (a), a contracting party proposes to increase any rate of duty inconsistently with the provisions of Article II, the procedure set forth in Article XXVIII shall apply. In 47

World Trade Organization, “Legal Texts” World Trade Organization, http://www.wto.org/english/docs_e/legal_e/gatt47_02_e.htm#articleXXIV (accessed March 21, 2007).

Rutgers Model United Nations

24

providing for compensatory adjustment, due account shall be taken of the compensation already afforded by the reduction brought about in the corresponding duty of the other constituents of the union. 7. (a) Any contracting party deciding to enter into a customs union or free-trade area, or an interim agreement leading to the formation of such a union or area, shall promptly notify the CONTRACTING PARTIES and shall make available to them such information regarding the proposed union or area as will enable them to make such reports and recommendations to contracting parties as they may deem appropriate. (b) If, after having studied the plan and schedule included in an interim agreement referred to in paragraph 5 in consultation with the parties to that agreement and taking due account of the information made available in accordance with the provisions of subparagraph (a), the CONTRACTING PARTIES find that such agreement is not likely to result in the formation of a customs union or of a free-trade area within the period contemplated by the parties to the agreement or that such period is not a reasonable one, the CONTRACTING PARTIES shall make recommendations to the parties to the agreement. The parties shall not maintain or put into force, as the case may be, such agreement if they are not prepared to modify it in accordance with these recommendations. (c) Any substantial change in the plan or schedule referred to in paragraph 5 (c) shall be communicated to the CONTRACTING PARTIES, which may request the contracting parties concerned to consult with them if the change seems likely to jeopardize or delay unduly the formation of the customs union or of the freetrade area. 8.

For the purposes of this Agreement:

(a) A customs union shall be understood to mean the substitution of a single customs territory for two or more customs territories, so that (i) duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated with respect to substantially all the trade between the constituent territories of the union or at least with respect to substantially all the trade in products originating in such territories, and, (ii) subject to the provisions of paragraph 9, substantially the same duties and other regulations of commerce are applied by each of the members of the union to the trade of territories not included in the union; (b) A free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated on substantially all the trade between the constituent territories in products originating in such territories. 9. The preferences referred to in paragraph 2 of Article I shall not be affected by the formation of a customs union or of a free-trade area but may be eliminated or adjusted by means of negotiations with contracting parties affected.* This procedure of negotiations with affected contracting parties shall, in particular, apply to the elimination of preferences required to conform with the provisions of paragraph 8 (a)(i) and paragraph 8 (b). 10. The CONTRACTING PARTIES may by a two-thirds majority approve proposals which do not fully comply with the requirements of paragraphs 5 to 9 inclusive, provided that such proposals lead to the formation of a customs union or a free-trade area in the sense of this Article. 11. Taking into account the exceptional circumstances arising out of the establishment of India and Pakistan as independent States and recognizing the fact that they have long constituted an economic unit, the contracting parties agree that the provisions of this Agreement shall not prevent the two countries from entering into special arrangements with respect to the trade between them, pending the establishment of their mutual trade relations on a definitive basis.*

Rutgers Model United Nations 12.

25

Each contracting party shall take such reasonable measures as may be available to it to ensure observance of the provisions of this Agreement by the regional and local governments and authorities within its territories.

Rutgers Model United Nations

26

Appendix 3: GATS Article Five48 This Agreement shall not prevent any of its Members from being a party to or entering into an agreement liberalizing trade in services between or among the parties to such an agreement, provided that such an agreement: (a)

has substantial sectoral coverage(1), and

(b) provides for the absence or elimination of substantially all discrimination, in the sense of Article XVII, between or among the parties, in the sectors covered under subparagraph (a), through: (i)

elimination of existing discriminatory measures, and/or

(ii)

prohibition of new or more discriminatory measures,

either at the entry into force of that agreement or on the basis of a reasonable time-frame, except for measures permitted under Articles XI, XII, XIV and XIV bis. 2. In evaluating whether the conditions under paragraph 1(b) are met, consideration may be given to the relationship of the agreement to a wider process of economic integration or trade liberalization among the countries concerned. 3. (a) Where developing countries are parties to an agreement of the type referred to in paragraph 1, flexibility shall be provided for regarding the conditions set out in paragraph 1, particularly with reference to subparagraph (b) thereof, in accordance with the level of development of the countries concerned, both overall and in individual sectors and subsectors. (b) Notwithstanding paragraph 6, in the case of an agreement of the type referred to in paragraph 1 involving only developing countries, more favourable treatment may be granted to juridical persons owned or controlled by natural persons of the parties to such an agreement. 4. Any agreement referred to in paragraph 1 shall be designed to facilitate trade between the parties to the agreement and shall not in respect of any Member outside the agreement raise the overall level of barriers to trade in services within the respective sectors or subsectors compared to the level applicable prior to such an agreement. 5. If, in the conclusion, enlargement or any significant modification of any agreement under paragraph 1, a Member intends to withdraw or modify a specific commitment inconsistently with the terms and conditions set out in its Schedule, it shall provide at least 90 days advance notice of such modification or withdrawal and the procedure set forth in paragraphs 2, 3 and 4 of Article XXI shall apply. 6. A service supplier of any other Member that is a juridical person constituted under the laws of a party to an agreement referred to in paragraph 1 shall be entitled to treatment granted under such agreement, provided that it engages in substantive business operations in the territory of the parties to such agreement. 7. (a) Members which are parties to any agreement referred to in paragraph 1 shall promptly notify any such agreement and any enlargement or any significant modification of that agreement to the Council for Trade in Services. They shall also make available to the Council such relevant information as may be requested by it. The Council may establish a working party to examine such an agreement or enlargement or modification of that agreement and to report to the Council on its consistency with this Article.

48

World Trade Organization, “Uruguay Round Agreement General Agreement on Trade in Services,” World Trade Organization, http://www.wto.org/English/docs_e/legal_e/26-gats_01_e.htm#articleV (accessed March 21, 2007).

Rutgers Model United Nations

27

(b) Members which are parties to any agreement referred to in paragraph 1 which is implemented on the basis of a time-frame shall report periodically to the Council for Trade in Services on its implementation. The Council may establish a working party to examine such reports if it deems such a working party necessary. (c) Based on the reports of the working parties referred to in subparagraphs (a) and (b), the Council may make recommendations to the parties as it deems appropriate. 8. A Member which is a party to any agreement referred to in paragraph 1 may not seek compensation for trade benefits that may accrue to any other Member from such agreement.

Article V bis: Labour Markets Integration Agreements This Agreement shall not prevent any of its Members from being a party to an agreement establishing full integration(2) of the labour markets between or among the parties to such an agreement, provided that such an agreement: (a)

exempts citizens of parties to the agreement from requirements concerning residency and work permits;

(b)

is notified to the Council for Trade in Services.