The Political Economy of the World Trading System: The WTO and Beyond

The Political Economy of the World Trading System: The WTO and Beyond

The Political Economy of the World Trading System: The WTO and Beyond

The Political Economy of the World Trading System: The WTO and Beyond

Synopsis

The creation of the World Trade Organization (WTO) in 1995 ushered in a new era in world trading arrangements. Building on the General Agreement on Trades and Tariffs (GATT), the intergovernmental treaty that for 50 years had regulated international trade relations, the WTO is a globalorganization of equal standing to the International Monetary Fund and the World Bank, and will set the agenda for international trade for decades to come. The authors of this volume were heavily involved in the Uruguay Round of GATT negotiations that laid the foundations for the creation of the WTO,and were ideally placed to see how the politics of negotiation affects the economics of trade. The Political Economy of the World Trading System is the first comprehensive and accessible introduction to the institutional mechanics, economics, and politics of the global trading networks. It goes beyond description of the rules of the WTO to analyse the political and economic forces thatsculpted them, the incentives for countries to abide by them, and the likely future direction of the organization. The authors show how governments are not necessarily the social welfare-maximizing entities often found in textbooks, but instead develop policy subject to the pressures of a variety ofinterest groups. Although economic theory suggests that countries should pursue liberal trade policies and exchange goods and services on the basis of their comparative advantage, in practice most nations actively intervene in international trade. The political economy approach taken in this volumeexplains how the WTO functions, why GATT has been very successful in reducing tariffs, and why it has proven much more difficult to expand the reach of multilateral disciplines to domestic policies impacting on trade. This book will increase the reader's understanding of international economics, business, and international relations by supplying in-depth insider knowledge of how trade negotiations take place, how this decision-making affects trade policy, and how the multilateral arrangements that shape worldtrade are created. This information is crucial to understand why WTO rules are phrased as they are, and to understand the processes by which business organizations, industrial associations, and political lobbies influence the multilateral trading system. In this expanded and thoroughly revisededition, the authors have taken account of the recent developments in international trade relations, included an extra chapter on the historical importance of international trading arrangements, and updated all the references and guides to further reading.

Excerpt

Starting as an obscure trade agreement, unknown to most citizens of participating countries, by the early 1990s the General Agreement on Tariffs and Trade (GATT) had become a prominent institution. The Uruguay Round of multilateral trade negotiations, held under its auspices during 1986-93, played an important role in raising its public profile, catapulting it into the limelight for the first time in its history. The Uruguay Round led to the creation of the World Trade Organization (WTO), and expanded the coverage of the multilateral trading system to include trade in services and intellectual property rights.

At the time the first edition of this book was being written (1993-4), no readily accessible, yet comprehensive, introduction to the economics and politics of the trading system existed. The GATT was a rather reclusive institution. Information about its operation was not easy to obtain. Many documents were confidential, with distribution restricted to government officials. This situation changed dramatically subsequent to the establishment of the WTO and the concurrent emergence of the Internet. A plethora of WTO documents and reports can now be downloaded freely from the WTO home page (www.wto.org). Greatly expanded coverage of the institution in the press—both print and online—also makes it much easier than in the past to remain up-to-date with respect to WTO-related events. At the same time, interest in the WTO has increased. The WTO is repeatedly at the center of highly visible and public disputes on issues that go beyond trade and concern large groups of people. Examples are disputes between the US and the European Union (EU) on the use of hormones in beef, and disputes between the US and other WTO members regarding the extra-territorial application of US laws. Some argue strongly that the institution needs to expand its mandate and develop clear rules of the game in these areas, others argue equally vehemently that it needs to be scaled back.

As in the first edition, the bulk of the material in this book is devoted to systemic and conceptual questions relating to the functioning of the trading system. What matters in this connection is not only an understanding of the rules, but also the political and economic forces that sculpted them, and the incentives for countries to abide by them. Governments are not necessarily the social welfare-maximizing entities found in introductory economics textbooks, but develop policy subject to the pressures of a variety of interest

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