Narrow Results

In the context of a current global economic crisis and an unfinished World Trade Organization (WTO) Doha Round, multilateralism is at its weakest point. The proliferation of bilateral and regional trade agreements seems to be the natural consequence of failed multilaterlism. In this difficult context, this chapter argues that the attitude of China — one of the three global economic superpowers — to multilaterlism is questionable or unclear. China poses a major challenge to the world economy by virtue of being a new global economic superpower.

For a country to be considered a global economic superpower, it must meet three criteria: 1) it must be large enough to significantly affect the world economy; 2) it must be sufficiently dynamic to contribute meaningfully to global growth; and 3) it must be open enough to trade and capital flows to have a major impact on other countries. China meets these criteria, but is a unique global economic superpower in three ways. First, it is still a poor country with a Gross Domestic Product (GDP) per capita of around $6,000 in terms of purchasing power parity. Second, China is not yet a democracy in the Western conception of the term. And third, it is not yet a market economy according to some WTO members. Nevertheless, China's rapidly growing economic, political, and cultural engagement and influence in today's world is both undeniable and remarkable, even if China's rise in global power is not yet at the level of the US during the 20th century or Great Britain during the 19th century.

China's trade expansion started in 1978, when the country initiated reforms and opening-up policies. For the past decade, its position as a strong player in international trade had been remarkable. Structural reforms in China, including trade liberalisation, have resulted in annual real GDP growth rates in excess of 10% over the past 4 years, rising per capita income and poverty reduction. In the process, China has become the world's second largest trader. And yet, it is argued that China should play an even more prominent role in international economic institutions and governance and assume a responsibility commensurate with the benefits it derives from the world trading system. Why? Because with greater power and a greater voice comes greater responsibility.

As opposed to playing a proactive role in the world trading system, China attempts to establish itself as a gravity centre in Asia by concluding many low-quality, politically motivated bilateral free trade agreements in the region (for example, the China-ASEAN FTA or China in the APEC context). In this sense, the chapter argues that China's trade policy strategy is the creation of a powerful Asian trading bloc, given China's strong position in Asia. In fact, few regional initiatives are undertaken by other countries without first considering what China thinks or how China might react.

If multilateralism continues to weaken, the likelihood of an East Asia Free Trade Area led by China within the next decade is very high as part of China's strategy of promoting regional identity. Should this crystallise, one could envisage a tripolar global trade regime with a new Asian pole to counteract the already existing power centres in the European Union and the US. Moreover, it would most likely mean further deterioration of the current multilateral trading system. Furthermore, China's policy towards regional trade agreements will have a major impact on the international trading system, the debate about regionalism and multilateralism, and the policy of the WTO concerning regional trade agreements.

The GATT gave special treatment to agriculture by allowing quantitative import restrictions when domestic output was also controlled, and made an exception to the ban on export subsidies by allowing them for primary products, subject to somewhat weak and imprecise conditions. Both were concessions to the operation of domestic farm policies in developed countries, primarily the US and the UK and later Canada and the EU, and full advantage was taken of these legal exceptions. Subsidies in general had been treated leniently in the GATT with merely the obligation to notify if they impacted upon exports. Domestic subsidies for agricultural products had significant impacts on both imports and exports and were seen to be a significant part of the trade problem, but operated under minimal constraints. So the exceptional treatment of agriculture in the GATT had led to a dysfunctional trade regime.

The Uruguay Round faced up to the inchoate conditions on world markets and the deterioration of trade relations that these exclusions allowed. The Agreement on Agriculture (URAA) specifically banned quantitative restrictions on imports, except those introduced to guarantee access and banned new export subsidies, capping and reducing existing expenditures on the programs and the volumes that could be subsidized. Domestic subsidies that were deemed to be most trade-distorting were capped and modestly reduced. The Doha Round would, if completed, eliminate export subsidies, severely limit the ability to provide trade-distorting support, and reduce the bound tariffs by a considerable extent.

The URAA was negotiated at a time when the US and the EU were the main players in the agricultural policy space and it represented a way of disciplining trade to avoid conflicts and reduce protection. Domestic policies were reformed in a way that was consistent with the URAA constraints. If the Doha Round is successful, most of the special provisions for agriculture will no longer be needed. But at that stage the URAA may inadvertently hamper the process of developing trade rules that meet new challenges.

We use both qualitative and quantitative tools to examine whether membership in the WTO reduces the likelihood of conflict. In our qualitative analysis, we show how WTO facilitates cooperation and transparency. Then we study what policymakers say and do to use trade to promote peace. We also examine whether and how members of the WTO respond to acceding states as well as member states experiencing inter-state conflict. We find member states do little to expand trade with states in conflict. Moreover, they continue to use trade sanctions. Hence, they are sending contradictory messages about the trade/peace relationship. Next we test whether the trust engendered through daily interactions and participation in a rules based system (our membership hypothesis) reduces the likelihood of conflict or whether membership in the WTO which in turn leads to expanded trade reduces the likelihood of conflict (our membership and trade hypothesis). We find no evidence that membership alone reduces the likelihood of either major interstate war or militarized interstate dispute among members. However, when states are both members of the GATT/WTO and benefit from increased trade, they are less likely to engage in militarized interstate disputes. Hence, the liberal illusion is not a complete delusion.

This paper argues that the growing US trade deficit has caused the decline of the WTO and the rise of regional trade agreements. Growing imbalances make countries more selective about who to cooperate with. This is formally shown in a three-country negotiation game that is based on a goods-market model. Subsequently, the model is parameterized and applied quantitatively. Using historical data, the model correctly predicts the date that US-Canada FTA talks began. Based on current data, moreover, the model paints a bleak picture for multilateralism: US exports to China would have to triple for a new WTO round to stand a chance. But even this may be insufficient: a dynamic extension of the game shows that regionalism can have a lock-in effect. Nonetheless, this does not plead for tougher WTO rules on regionalism. As is argued both qualitatively and quantitatively, these may push countries to less, not more, cooperation.

This study aims to contribute to drawing a more complete picture of the role of multilateral economic and political institutions. Particularly, we pursue answers to questions such as how much influence participation in multilateral trade arrangements and military alliance has on bilateral trade of the states involved. Our results show that political institutions, set apart from trade issues, do affect bilateral trade--even though these effects are demonstrably smaller than those that occur within economic institutions. Military disputes between two states are sure to decrease bilateral trade, while joint democracy and policy similarity between two states, although moderate, increase bilateral trade, but military alliance is indeterminate.

World Trade Organization (WTO) members have long expressed a norm concerning the trade “remedies” of countervailing (anti-subsidy) duties and antidumping duties: that these measures offset the behavior that gives rise to them, restoring trade to a “level playing field.” The WTO agreements provide that the duties imposed should be calculated accordingly, that countervailing duties are measured against subsidies and anti-dumping duties are measured against the excess of a benchmark “normal” value over export price. This paper makes two principle contributions in light of this norm. First, it develops formal models of antidumping and countervailing duty actions conforming to the offsetting duty norm. Economists have often shown little patience with the rationale for these duties, leading to a dearth of formal analysis that takes into account the social welfare function—the offsetting duty norm—incorporated in the WTO agreements; the formal models here provide that analysis. Second, the paper extends this analysis to the simultaneous prosecution of countervailing and antidumping cases. Once rare, simultaneous countervailing and antidumping duty proceedings have become perhaps the most prominent expression of trade protection permitted under WTO rules. The analysis establishes the conditions to identify any overlap in the application of countervailing and antidumping measures and demonstrates that recent practice of WTO members has created excessive application of duties. The analysis also provides the methods for preventing this double-count in simultaneous cases. These results have direct application to current policy debates.