GATT

The Underappreciated Benefits of Multilateral Rules-Based Trade

The Underappreciated Benefits of Multilateral Rules-Based Trade

Multilateral rules-based trade, championed by the World Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs and Trade (GATT), refers to the system where international trade is conducted according to agreed-upon transparent, non-discriminatory and impartial rules, negotiated by all its members, rather than being subject to the whims of individual governments.

While there are multiple impacts of such trade, we choose to single out five underappreciated benefits. These are not exhaustive, but they summarize important gains for all segments of society when trade is conducted by these non-discriminatory and transparent rules.

1.     Open and fair multilateral trade provides a level playing field for all economies

The multilateral trade system is composed of 164 economies, with differing levels of development. They set the rules of engagement among all through negotiations and acceptance of the rules by consensus. The principles of non-discrimination, reciprocity, transparency and special and differential treatment allow a fair trade system in which developing economies have a voice. Each member can contribute to the construction of system that creates value for itself and for the world as a whole through trade. Differences with other countries are solved peacefully, using a trusted and enforceable mechanism of dispute settlements. The multilateral system shows that collaboration among nations is not only possible but the key for sustainable and inclusive development.

Managing Disputes Over Trade: Part I

Managing Disputes Over Trade: Part I

Trade policy, like many other arenas, has developed a complicated language that can be impenetrable or, at best, opaque to outsiders.  Some aspects, especially those touching on law, have extra layers of jargon. While trade dispute settlement systems can be quite important and have been frequently in the news over the past few years, it can be hard to follow the arguments.  Talking Trade will be running a multi-part set of blog posts to help unravel the situation and make it easier for you to follow evolving developments.  Let’s dive in with some background to help set the context…The international trading system has had to overcome multiple challenges to function and remain effective.  Governments have strong incentives to cheat or, as they would put it, to strongly prioritize their own economy and companies over the affairs of others.  But if everyone is busy protecting their own, the net result is much worse for everyone. This basic tension between keeping markets open despite individual incentives for closure has been a key element of the system for decades.  Now, the long-standing the consensus in favor of freer trade has started to fray with far more serious trade disputes ahead.

Trump’s Unilateral Trade Toolkit

Trump’s Unilateral Trade Toolkit

Finally, the system brought welcome stability, more certainty and lower risk. The GATT/WTO process captured the highest level of tariff on each product that could be charged. Many members applied a lower tariff rate at the border, but firms can be confident that tariffs will not rise above the rates locked in or “bound” at the GATT/WTO. Trump’s plan would upend all of this. Firms could be faced with a shifting and complex set of potential tariffs with no certainty on the top level of tariffs that might be charged at any time. To see how this matters it can be easiest to just view imports first. The table manufacturer can now make tables knowing that the wood for legs will face a consistent tariff no matter where they are sourced. The screws can be imported from anywhere, with the same tariffs in place. But if Trump gets his matching tariff scheme, the table company would need to know exactly where the legs are coming from, as the tariff on wood could vary widely from WTO member to WTO member. Screws from one country might arrive without any tariffs at all, while the supplier the table firm has traditionally used would need to pay 10% tariffs. But the basic point is that the GATT/WTO system brought welcome stability and consistency to most trade. Trump’s proposed action would upend this system. Firms would suddenly have to grapple with inconsistent and discriminatory tariffs. The complexity of managing trade and the costs associated with ensuring compliance would skyrocket. Smaller firms, especially, would be at a serious disadvantage.