DEPARTMENT OF INTERNATIONAL RELATIONS

NAME ISBAH RIAZ

ROLL NO. 9776
SUBMITTED TO SIR ADNAN NAWAZ
CLASS BSIR 5th EVE IRS 509
TOPIC IPE AND TRADE COOPERATION
 ABSTRACT
In this we study how the WTO helps governments enforce the agreements they
reach.Explains how developing countries in a global value chain (GVC) world have
benefited from a rules-based trade system that guarantees against trade discrimination,
offers incentives to reform, assures market access, and provides for dispute settlement.
Nevertheless, this system faces risks from protectionism and policy uncertainty. To
sustain trade openness, countries need to deepen cooperation (for example, liberalize
trade in services) and eliminate subsidies and the distortions of state-owned enterprises.
The leading industrial countries can assure meaningful outcomes if they avoid unilateral
protection and work with developing countries under transparency rules to negotiate on
equal footings recognizing development and business opportunities.

INTRODUCTION
International trade offers opportunities and risks to countries, groups, and individuals..
Opening an economy up to trade with other economies provides potential advantages for all,
as it allows for specialisation that leads to higher levels of productivity and efficiency, enlarges
the markets available to firms, and increases the scope for consumer choice. However, the
process of specialisation entails redeployment of assets that is costly for some actors, and
exposure to the global economy can create new sources of risk. For these reasons, trade is
highly politicized. No government in the modern state system has ever pursued an entirely
hands-off approach to trade policy.
HISTORICAL BACKGROUND
the comparative advantage of trading with other nations, the modern world has become
increasingly more economically integrated. International trade has expanded, and trade
agreements have increased in complexity. While the trend over the last few hundred years has
been toward greater openness and liberalized trade, the path has not always been straight. Since
the inauguration of the there has been a dual trend of increasing multilateral trade agreements,
those between three or more nations, as well as more local, regional trade arrangements.
The rise and decline of free trade in the 19th century and the attendant economic and political
consequences of these trends have always intrigued historians and economists. In the difficult
times following World War I, when international trade relations had to be rebuilt, the free trade
episode among European countries in the second half of the 19th century was perceived as a
golden age. During that latter period, widespread economic development, driven by
industrialisation and technological change, went together with trade expansion supported by a
network of bilateral trade treaties. This network started with the Anglo-French (Cobden-
Chevalier) treaty of 1860 and triggered a series of other treaties among European countries.
Bilaterally agreed reciprocal tariff reductions, together with the application of the
unconditional most- favoured-nation (MFN) clause contained in the treaties, led to historically
low tariff levels, in particular for agricultural products. This period of largely unfettered trade
across Europe lasted for nearly two decades up to 1879, faltering gradually thereafter and
collapsing with World War I.
• The emergence of a multilateral trading system with low tariffs in Europe
• European free trade in decline, 1879-1914
• Tariff policies in the inter-war period
INTERNATIONAL TRADE COOPERATION
In the post–World War II environment, countries came to realize that a major component of
achieving any level of global peace was global cooperation politically, economically, and
socially. The intent was to level the trade playing field and reduce economic areas of
disagreement, since inequality in these areas could lead to more serious conflicts. Among the
initiatives, nations agreed to work together to promote free trade, entering into bilateral and
multilateral agreements. The General Agreement on Tariffs and Trade (GATT) resulted from
these agreements. In this section, you’ll review GATT—why it was created and what its
historical successes and challenges are. You’ll then look at the World Trade Organization
(WTO), which replaced GATT in 1995, and study the impact of both these organisations on
international trade. While GATT started as a set of rules between countries, the WTO has
become an institution overseeing international trade.
THE IDEA OF FREE TRADE
ECONOMISTS OF every persuasion are convinced that free trade is superior to trade
protection. In fact, they consider free trade to be the best policy for a country even if all other
countries should practice trade protection ,arguing that if the countries sort to trade protection,
the economy that remained open would still gain more from cheaper imports than it would lose
in denied export markets. Despite this powerful inclination within the economics profession
to favour free trade and open markets, trade protection has never totally disappeared; and
indeed, during the past two centuries, restricted trade has been a pervasive feature of the world
economy.
POLITICS OF INTERNATIONAL TRADE
International trade and state efforts to liberalize or restrict trade generate very contentious
politics. Trade creates winners and losers at the individual level, firm level, industry level,
national level, and even regional level. It also generates conflict among transnational social
groups, such as environmental advocacy organisations, human rights organizations, and
transnational business alliances. Because of this complexity of the politics of international
trade, scholars of international political economy (IPE) can focus on different levels of analysis
and a variety of stages of the political decision-making process. Scholars agree that not only
societal preferences but collective action problems, domestic institutions, and international
factors all affect trade politics and policy outcomes. These aspects of trade politics together
form the key influences on trade policy and whether it is liberal or protectionist in nature.
Societal preferences constitute the initial inputs into the trade policy-making process.
Understanding how different groups of economic actors within society win or lose from trade
liberalisation or protection is the first step toward understanding trade politics and trade policy
outcomes. Once societal trade preferences are formed, they must be aggregated into cohesive
pressure groups or grass-roots movements whose purpose is to influence trade policy. This is
easier for some groups of actors to achieve than others. In lobbying government actors on
policy, interest groups find that domestic institutions play an important role translating societal
inputs into policy outputs. Policy making institutions vary in the degree to which they are
susceptible to special-interest lobbying versus the preferences of broader societal coalitions,
and electoral rules and party structures also affect policy outcomes, with certain configurations
creating a bias toward more protectionism or liberalisation..
In addition to these domestic-level influences on trade policy, IPE scholars have extensively
studied the ways that international factors also affect trade policy outcomes such as the extent
of liberalisation and the content of what is liberalized (e.g., manufactures versus agricultural
goods versus services). International factors such as the distribution of power, the character of
international institutions and trade agreements (e.g., multilateral versus bilateral), transnational
civil society and diffusion processes may be thought of as inputs into the policy-making process
as well. Systemic conditions may constrain the types of policies that governments can adopt,
or they may open the door to a range of possible policy outcomes that are nevertheless limited
by the preferences of domestic societal actors.
TRADE BARGAINING
Although trade liberalisation raises the standard of living, governments don’t often liberalize
trade unilaterally. Instead, governments strive to open foreign markets to the exports of
competitive domestic industries and continue to protect less competitive industries from
imports. As a result, trade liberalisation generally occurs through trade bargaining in which
governments exchange market access commitments
GENERAL AGREEMENT ON TARIFFS AND TRADE
INTRODUCTION
The General Agreement on Tariffs and Trade (GATT) is a series of rules governing trade that
were first created in 1947 by twenty-three countries. By the time it was replaced with the WTO,
there were 125 member nations. GATT has been credited with substantially expanding global
trade, primarily through the reduction of tariffs.
PRINCIPLES
The basic underlying principle of GATT was that trade should be free and equal. In other
words, countries should open their markets equally to member nations, and there should be
neither discrimination nor preferential treatment. One of GATT’s key provisions was the most-
favoured nation clause (MFN). It required that once a benefit, usually a tariff reduction, was
agreed on between two or more countries, it was automatically extended to all other member
countries. GATT’s initial focus was on tariffs, which are taxes placed on imports or exports.
Gradually, the GATT member countries turned their attention to other non tariff trade barriers.
These included government procurement and bidding, industrial standards, subsidies, duties
and customs, taxes, and licensing. GATT countries agreed to limit or remove trade barriers in
these areas. The only agreed-on export subsidies were for agricultural products. Countries
agreed to permit a wider range of imported products to enter their home markets by simplifying
licensing guidelines and developing consistent product standards between imports and
domestically produced goods. Duties had to result from uniform and consistent procedures for
the same foreign and domestically produced items.
The initial successes in these categories led some countries to get more creative with
developing barriers to trade as well as entering into bilateral agreements and providing more
creative subsidies for select industries. The challenge for the member countries of GATT was
enforcement. Other than complaining and retaliating, there was little else that a country could
do to register disapproval of another country’s actions and trade barriers.
Gradually, trade became more complex, leading to the Uruguay Round beginning in 1986 and
ending in 1994. These trade meetings were called rounds in reference to the series of meetings
among global peers held at a “roundtable.” Prior to a round, each series of trade discussions
began in one country. The round of discussions was then named after that country. It sometimes
took several years to conclude the topic discussions for a round. The Uruguay Round took eight
years and actually resulted in the end of GATT and the creation of the World Trade
Organization (WTO). The current Doha Development Round began in 2001 and is actually
considered part of the WTO.
WORD TRADE ORGANIZATION (WTO)
BRIEF HISTORY
The World Trade Organization (WTO) developed as a result of the Uruguay Round of GATT.
Formed officially on January 1, 1995, the concept of the WTO had been in development for
several years. When the WTO replaced GATT, it absorbed all of GATT’s standing agreements.
In contrast to GATT, which was a series of agreements, the WTO was designed to be an actual
institution charged with the mission of promoting free and fair trade. As explained on its
website, the WTO “is the only global international organization dealing with the rules of trade
between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of
the world’s trading nations and ratified in their parliaments. (2010.)
The global focus on multilateral trade agreements and cooperation has expanded trade
exponentially. “The past 50 years have seen an exceptional growth in world trade. Merchandise
exports grew on average by 6 percent annually. Total trade in 2000 was 22-times the level of
1950. GATT and the WTO have helped to create a strong and prosperous trading system
contributing to unprecedented growth.”“The Multilateral Trading System Past, Present and
Future,” (World Trade Organization, accessed December 29, 2010)
PURPOSE
The WTO’s primary purpose is to serve as a negotiating forum for member nations to dispute,
discuss, and debate trade-related matters. More than just a series of trade agreements, as it was
under GATT, the WTO undertakes discussions on issues related to globalisation and its impact
on people and the environment, as well as trade-specific matters. It doesn’t necessarily establish
formal agreements in all of these areas but does provide a forum to discuss how global trade
impacts other aspects of the world.
Headquartered in Geneva, Switzerland, the current round is called the Doha Round and began
in 2001. With 153 member nations, the WTO is the largest, global trade organization. Thirty
nations have observer status, and many of these are seeking membership. With so many
member nations, the concept of MFN has been eased into a new principle of normal trade
relations (NTR). Advocates say that no nation really has a favoured nation status; rather, all
interact with each other as a normal part of global trade.
DISPUTE SETTLEMENT
Dispute settlement is the central pillar of the multilateral trading system, and the WTO’s unique
contribution to the stability of the global economy. Without a means of settling disputes, the
rules-based system would be less effective because the rules could not be enforced. The WTO’s
procedure underscores the rule of law, and it makes the trading system more secure and
predictable. The system is based on clearly-defined rules, with timetables for completing a
case. First rulings are made by a panel and endorsed (or rejected) by the WTO’s full
membership. Appeals based on points of law are possible.
However, the point is not to pass judgement. The priority is to settle disputes, through
consultations if possible. By January 2008, only about 136 of the nearly 369 cases had reached
the full panel process. Most of the rest have either been notified as settled “out of court” or
remain in a prolonged consultation phase some since 1995.
CONCLUSION
The WTO exists, therefore, because it facilitates international cooperation, thereby enabling
societies to capture the welfare gains available from trade. Trade raises social welfare by
enabling consumers to enjoy a higher level of utility than if they could consume only goods
produced at home. The principle of comparative advantage tells us that these welfare gains do
not require a country to have an absolute advantage in anything. As long as a country is better
at doing some things than others, it gains by specialising in what it does relatively well and
trading for everything else.
Politics, however, makes it difficult for societies to realize these gains from trade. the WTO
facilitates international cooperation by providing an infrastructure that allows governments to
enforce agreements themselves. By providing a set of mutually agreed rules, by helping
governments monitor the extent to which their partners comply with these rules, and by
providing a dispute settlement mechanism that helps governments resolve those issues of
compliance that do arise, the WTO enables governments to enforce effectively the trade
agreements that they reach. The WTO thus provides enough assurance that all governments
will live up to the agreements that they enter into and that no government will be able to take
advantage of the others. By providing this infrastructure, the WTO enables governments to
conclude the trade agreements necessary to capture the welfare gains from trade.
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