Introduction years without acceding. Some decisions on protection by

Introduction

The overarching official objective of the GATT is ?to help trade flow smoothly, freely, fairly and
predictably. Since the inauguration of the multilateral trading system in 1947,
trade has certainly growth rapidly—although perhaps not always predictably—in the Asia-Pacific. Over the last quarter-century, exports from the
developing countries of East Asia alone have grown at an annual rate of 13
percent per year, fast enough to raise their share of global exports from 3.4
percent to 10.5 percent. However, as Rose (2004) has reminded us so forcefully,
correlation is not causation, and careful analysis is needed to assess the
extent to which the multilateral trading system has contributed to this
felicitous outcome, and to the region’s economic growth more broadly. For the Asia-Pacific
region, the role of the GATT/WTO has been complex. The United States, India,
Pakistan, Burma, Ceylon (Sri Lanka), Canada, Australia, NewZealand, and Chile
were contracting parties to the GATT from its inception, but important
countries such as Japan and Korea entered the system much later (1955 and 1967,
respectively) while China’s participation in the GATT lapsed in 1950 and she
acceded to the WTO only at the end of 2001– after 15 years of negotiations on (re)entry. It will therefore be
particularly important to distinguish the implications of the system for
countries with such widely divergent experiences. As background, Table 1 gives
the dates on which a range of Asia-Pacific countries acceded to the GATT/WTO
system. As noted by Tomz, Goldstein and Rivers (2007), these dates can be
extremely misleading, since some signatories hardly participated in its
activities while other non-signatory countries participated informally in the
GATT system for many years without acceding. Some decisions on protection by
some non-members, most prominently China, were strongly influenced by the
prospect of accession to the WTO, as assumed by Ianchovichina and Martin (2004)
in their analysis of the impacts of China’s WTO accession.

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Impact of GATT on Trade

A popular approach to assessing whether the GATT/WTO system has expanded
trade uses the gravity model to assess empirically the effect of GATT/WTO
membership or participation on the countries trade, trade barriers or the
variability of trade (see, for example, Rose Subramanian and Wei (2007) and Tomz, Goldstein and Rivers (2007). This literature was initiated by Rose (2004) with
the surprising (to many) finding that the GATT/WTO had, on average, no
significant effect on the trade of its members, except through preferences
granted under the Generalized System of Preferences (GSP). In related papers,
Rose (2005) examined whether GATT/WTO members had more liberal trade policies,
and whether WTO membership affected the variability of trade outcomes. In all
cases, he found a negative conclusion—that WTO membership did not significantly contribute to these intended
goals. Rose’s
provocative and challenging work stimulated a range of studies, many of which
found significant impacts of the GATT/WTO on trade. The estimated significant
impacts on imports or trade obtained in these studies are presented in Table.
Subramanian and Wei (2007) re-examined Rose’s finding using import data,
rather than the total trade estimates favored by Rose and distinguishing
between industrial and developing countries, and between products. They found
that the industrial countries that participated more actively than developing
countries in reciprocal trade negotiations experienced large gains in their
trade. For industrial-country members of the WTO, they concluded that imports
were over five times higher than for non-members, and that this estimate is
strongly statistically significant. By contrast, they concluded that the
imports of developing country members are significantly smaller. Like Rose,
they conclude that industrial countries granting GSP preferences increase their
imports from preference-receiving countries substantially—although the dummy variable used for this analysis
does not seem to take into account the range of products on which these
preferences are granted.

 

Motivation to choose GATT as a topic-

I chose my
research topic about GATT’s effect on economic development in Asia because I’m
interested about the different Trade policies in countries. GATT, especially those with a principal supplying
interest, were developed economies. They focused their negotiation efforts on
reducing import barriers in other countries that were of primary interest to
their own exporters, and they used the political trade-off of expanded market
access abroad for exporting industries against increased market access granted at
home to foreign industries and thus the losses to industries competing against
these imports. Since the trade barriers targeted for elimination were typically
those in the import markets of other developed countries, the primary result
was that developed countries were asked to reduce their tariffs. Put
differently, since most developing countries were neither principal suppliers
nor major importing markets, little was asked of them in terms of their own
trade liberalization, and little of what was of direct export interest to
developing countries was liberalized by others. Such an outcome is consistent
with the pattern of import tariff protection that persists today.

 

Origin
and Nature of GATT

The General Agreement on Tariffs and Trade (GATT) was formed soon after
World War II ended. The GATT was a trade treaty implemented to boost economic
recovery. The primary purpose of GATT was to increase international trade
through by eliminating or reducing various tariffs, quotas and subsidies while
maintaining meaningful regulations.

GATT was signed by 23 nations in Geneva on October 30, 1947, and took
effect on January 1, 1948. It remained in effect until the signature by 123
nations in Marrakesh on April 14, 1994, of the Uruguay Round Agreements, which
established the World Trade Organization (WTO) on January 1, 1995.

 

Review of literature

A popular approach to assessing whether the GATT/WTO
system has expanded trade uses the ?gravity model to assess empirically the effect of
GATT/WTO membership or participation on the countries trade,  trade barriers or the variability of
trade  for example, Rose, Subramanian and
Wei (2007); and Tomz, Goldstein and Rivers (2007). This literature was
initiated by Rose (2004a) with the surprising (to many) finding that the
GATT/WTO had, on average, no significant effect on the trade of its members,
except through preferences granted under the Generalized System of Preferences
(GSP). In related papers, Rose (2004b;2005) examined whether GATT/WTO members
had more liberal trade policies, and whether WTO membership affected the
variability of trade outcomes. In all cases, he found a negative conclusion—that WTO membership did not significantly contribute
to these intended goals. Rose’s provocative and challenging work stimulated a range
of studies, many of which found significant impacts of the GATT/WTO on trade.
The estimated significant impacts on imports or trade obtained in these studies
are presented in Subramanian and Wei (2007) re-examined Rose’s finding
using import data, rather than the total trade estimates favored by Rose and
distinguishing between industrial and developing countries, and between
products. They found that the industrial countries that participated more
actively than developing countries in reciprocal trade negotiations experienced
large gains in their trade. For industrial-country members of the WTO, they
concluded that imports were over five times higher than for non-members, and
that this estimate is strongly statistically significant. By contrast, they
concluded that the imports of developing country members are significantly
smaller. Like Rose, they conclude that industrial countries granting GSP
preferences increase their imports from preference-receiving countries
substantially—although the dummy
variable used for this analysis does not seem to take into account the range of
products on which these preferences are granted. Subramanian and Wei also
investigated differences in the sectoral coverage of WTO liberalization. For
the range of industrial products that have been subject to liberalization—defined as beginning with a tariff of over 5 percent
in 1989 and ending with a
zero tariff—they found that imports
into industrial country WTO members increased very substantially and
significantly (by 190 percent, with a t-statistic of more than six). The
expansion in imports of these products from developing country exporters was 32
percent, with a t statistic of 2.7. By contrast, for clothing, footwear and
food, the WTO membership dummies were either negative or insignificant.
Finally, they examined whether new members of the system had increased their
trade more than older members. With a cutoff date of 1990, they found
significant positive impacts. Tomz, Goldstein and Rivers (2007) took a very
different approach to the definition of GATT participation. They noted that, in
the GATT era (1947-1994), many customs territories were covered by the GATT
system even though they were not formal members. In some cases, this was
because they were colonies or overseas territories. Other economies were
informal participants. While these participants did not engage in exchanges of
market access during negotiations, they would have benefited from aspects of
the multilateral trading system such as Most-Favored-Nation (MFN) treatment.
With the scope of participation in the GATT/WTO system broadened in this way,
they found that GATT/WTO participation substantially increased trade (by 71
percent in their benchmark case). Gowa and Kim (2005) use the same broader
definition of GATT participation as Tomz, Goldstein and Rivers and focused on
the 1950-1994 period, with comparisons to trade in the period between World
Wars I and II. Like Subramanian and Wei, they used import data from the IMF’s Direction
of Trade, rather than the total trade measures used by Rose (2004a). Like Tomz,
Goldstein and Rivers, they found that GATT participation by both members of a
bilateral trading relationship increased trade—by around 29 percent. However, the industrial country members of GATT
benefited much more—by 113
percent on average. And the ?privileged group consisting of Britain, Canada, France, Germany, and the
United States that were the major trading partners of the founders of the GATT,
the United States and Britain benefited by an estimated 292 percent in their
trade as a result of the GATT. All of the studies reviewed thus far took the
traditional gravity model approach of focusing on non-zero trade flows. A
number of recent studies have taken into account the fact that very large
fractions of trade flows are frequently zero, and that so-called
extensive-margin growth associated with new trade flows may be an important
dimension of trade growth.

 

Current Situation of GATT on Asia

The world trading system, led by the World Trade
Organization (WTO), is under pressure to evolve and address 21st-century trade
issues. Meanwhile, economically salient Asia has built deep supply chains over
decades, whilst experimenting with mega-regional trade agreements and economic
policies to sustain growth amid a fragile economy. The Asian-led Regional
Comprehensive Economic Partnership (RCEP) and the United States-led
Trans-Pacific Strategic Economic Partnership (TPP) are competing to set
standards for Asia’s trade and supply chains. Lessons from the Asian experience
offer new approaches and economic policies to sustain growth, presenting the
WTO as a forum for action to improve global and regional trade governance in
the 21st century.

Policy makers will benefit from the expert knowledge
and policy lessons presented in this book, and development economists and
researchers will profit from its critical examination of the world trading
system. Undergraduate and postgraduate students interested in development,
development economics, international development, and related fields will find
this essential supplementary reading. ‘This unique compilation of essays
addresses a core political economy question: how do market forces and trade
regulation interact? Its fresh Asian perspective offers a much-needed
contribution to our understanding of how treaty-based regional and bilateral
economic integration is driven by the Factory Asia phenomenon. The authors also
compellingly show where the World Trade Organization could fit in. An
informative read for scholars and experts, alike.’ – Manfred Elsig, University
of Bern, Switzerland “Asia has been a successful model of development
through trade, which has inspired many others around the world. There is no
doubt that the region will continue to inspire the trade community in the next
decades to come.” From the foreword by Pascal Lamy, former
Director-General of the World Trade Organization.

Lessons Learned

1.  How the GATT/WTO might have influenced outcomes in the
Asia-Pacific

2.  Econometric Evidence on the Impact of the GATT/WTO on
Trade

3.  The Benefits of GATT/WTO Membership in the
Asia-Pacific

4.  Prospects for WTO Disciplining Growth in Protection

 

Conclusion-

In this study, we first noted the different roles of
the GATT/WTO system: (i) to develop and enforce rules, and (ii) to provide a
forum for negotiations on reducing trade barriers. We noted the large
asymmetries in the use of the trade liberalization function between industrial
and developing cou tries, and the much greater ambition of more recent rounds
relative to earlier rounds. For the Asia-Pacific region, it seems likely that
the provision oftrade rules is particularly important, since manycountries in
this region are growing rapidly and changing their export mixes in ways that
are inevitably seen as disruptive byestablished traders. We surveyed the
evidence from the burgeoning literature that uses the gravity model to assess
the impacts of GATT/WTO on trade. While the initial study by Rose found no
significant results, two subsequent types of studies have found positive results.
Studies such as Subramanian and Wei (2007) have found large gains in trade for
countries and products where there has been substantial liberalization. Tomz,
Goldstein and Rivers (2007) have found smaller, but still statistically
significant, gains when the definition of participation is broadened beyond
formal GATT members to include those who participated informally under the GATT
In our empirical analysis, we used the Subramanian and Wei (2007) database to
investigate whether formal membership in the multilateral trading system had an
effect on trade in the Asia-Pacific region. We found, like Subramanian and Wei,
that GATT/WTO membership alone was not significant. When we included a dummy
for countries in the region covered by PAFTAD, we found that these countries
traded much more than other countries. But when we added an interaction term
between GATT/WTO membership and the PAFTAD dummy, we found a strongly
significant and economically large effect. This may suggest that membership in
the multilateral system has been particularly important in promoting the growth
of trade in the Asia-Pacific region. In the final section of our paper, we
focused on a potential prospective source of economic gains from WTO membership—the potential for ruling out the rapid growth in
agricultural protection frequently associated with rapid growth in developing
countries. To illustrate the potential importance of this phenomenon, we use a
case study of China. The recent study by Huang, Liu, Martin and Rozelle (2007)
provides information on the trends in protection in China’s agriculture, highlighting
the fact that most parts of the sector have traditionally been taxed, rather
than supported by policy. Related work drawing on the range of international
experience in Anderson (2008) has examined some of the key trends in
protection. Based on this, we create a projection of protection to agriculture
in China in the absence of WTO commitments. Given the relatively low rates of
protection prevailing in 1995, we find that the welfare benefits of
agricultural reform contributed a relatively small part of the overall welfare
gain during this period. If protection to agriculture in the absence of WTO
commitments would have followed an upward path similar to that in neighboring
countries, however, then the relative importance of agricultural trade reform
would increase considerably.

 

Reference

linkspringer.com

www.nap.edu

www.adb.org

www.investopedia.com

economics.adelaide.edu.in

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