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Joseph Gehlen

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The World Trade Organization (WTO) • Explained With Maps

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The member states of the WTO are responsible for more than 95% of world trade. How does the World Trade Organization work? Transcript and images: http://explainedwithmaps.com/world-trade-organization/

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Riann Haley

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Joseph Gehlen

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A sharp drop in global trade growth this year is underscoring a disturbing legacy of the financial crisis: Exports and imports of goods are lagging far behind the pace during past expansions, threatening future productivity and living standards.

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Dante Urrutia

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Agência Brasileira de Promoção de Exportações

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Joseph Gehlen

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IN MARCH 2000, two months before a crucial vote in America's Congress on whether to make normal trading relations with China permanent, Bill Clinton gave a press conference. In the first year of his presidency, 1993, he had made a bold case for the North Atlantic Free Trade Agreement (NAFTA) with Canada and Mexico, claiming it would create 200,000 jobs in America. Now, in the final year of his second term, he was even more bullish about a trade pact with China, which would allow that country to join the WTO. It would require China quickly to cut its average import tariff from 24% to 9%, to abolish import quotas and licences and to open up some industries to American investment. America, for its part, would not have to do anything. "This is a hundred-to-nothing deal for America when it comes to the economic consequences," said Mr Clinton.

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Sixteen years on the mood is rather different. Job losses in manufacturing states such as Michigan, Ohio and Pennsylvania have made trade a key issue in America's presidential election. Donald Trump has risen to prominence in part by promising to impose steep tariffs on imports from China and Mexico, claiming America's trade deficit with both countries (see chart) shows it is "losing". Hillary Clinton is no longer supporting the TPP trade deal she had earlier favoured. The demise of furniture-makers and textile firms, unable to compete with low-cost imports, belies the predictions made by her husband. Bernie Sanders, Mrs Clinton's opponent in the Democratic Party primaries, said trade deals had been "a disaster for American workers". A YouTube clip earlier this year showing the graceless manner in which bosses of Carrier, a maker of air-conditioners, told its workforce that it was moving production to Mexico seemed to confirm every fear about the exodus of jobs and the heartlessness of capitalism.

What is behind the change in mood? The years after the NAFTA agreement came into force, in 1994, were actually rather good ones for America's economy, including manufacturing. But China's accession to the WTO caused a big shock. The country's size, and the speed at which it conquered rich-world markets for low-cost manufacturing, makes it unique. By 2013 it had captured one-fifth of all manufacturing exports worldwide, compared with a share of only 2% in 1991.

This coincided with a fresh decline in factory jobs in America. Between 1999 and 2011 America lost almost 6m manufacturing jobs in net terms. That may not be as dramatic as it sounds, since America is a large and dynamic place where around 5m jobs come and go every month. Still, when David Autor of the Massachusetts Institute of Technology (MIT), David Dorn of the University of Zurich and Gordon Hanson of the University of California, San Diego, looked into the job losses more closely, they found something worrying. At least one-fifth of the drop in factory jobs during that period was the direct result of competition from China.

Moreover, the American workers who had lost those jobs neither found new ones close by nor searched for work farther afield. They either swelled the ranks of the unemployed or, more often, left the workforce. That contradicts the widespread belief that America's jobs market is fluid and flexible. When men lose a factory job, they often stay put. Those who managed to find new jobs were paid less than before and were working in industries that were vulnerable to competition from imports. In subsequent research, the authors found that lost factory jobs also had a depressing effect on aggregate demand (and thus non-manufacturing jobs) in the affected areas. In total, up to 2.4m jobs may have been lost, directly and indirectly, as a consequence of imports from China.

In other rich countries, regions or industries with heavy exposure to Chinese imports also suffered material losses in factory jobs. A study of Spain's jobs market by Vicente Donoso, of the Complutense University of Madrid, and others found that provinces with the greatest exposure to Chinese imports saw the largest falls in the share of manufacturing employment between 1999 and 2007, but this was compensated for by an increase in non-factory jobs. Research in Norway, though, found that the main effect was to raise unemployment. João Paulo Pessoa of the London School of Economics found that British workers in industries exposed to high levels of import competition from China spent more time out of work than those in other industries. A wide-ranging study of the effect on Germany of more trade with China and eastern Europe in the two decades after 1988 concluded that industries competing with imports suffered job losses, but these were outweighed by job gains in regions focused on export industries. Those gains were due almost entirely to trade with eastern Europe, not China.

China's accession to the WTO was supposed to be a great bonus for America. So why was its impact on trade and jobs so unexpectedly large? One reason was that China got a very significant advantage out of the pact. A paper by Justin Pierce, of the Federal Reserve, and Peter Schott, of Yale School of Management, argues that joining the WTO removed the risk for China of a steep increase in America's tariffs, making it less perilous for its companies to invest in new factories. The authors found that industries where the threat of tariff increases was most reduced suffered the greatest job losses in America. But the lopsided nature of trade between China and the rich world also played a part. After China joined the WTO, its current-account surplus widened from an average of around 2% of GDP in the 1990s to about 5% in the following decade. In other words, China saved more. That helps explain the modest offsetting gains in exports in the regions affected by Chinese imports.

Done workin'

It is important to note that America's growing inability to bounce back from losing manufacturing jobs predates the rise of China as an exporting power. A report published in June by the Council of Economic Advisers (CEA) charts the long-term decline in prime-aged men in America's workforce. It shows that in the mid-1960s almost all men aged between 25 and 54 were either in work or looking for a job, but that in the past half-century the participation rate for this group has dropped below 90%. In every recession the rate falls more sharply, and when the economy picks up again it fails to make up all the lost ground.

But there are big differences between the participation rates of different groups of men. In 1964 male high-school graduates were about as likely to be in the workforce as college-educated men, but now only 83% of those with a high-school degree or less are in the workforce, against 94% of those who finished college (see chart). This mirrors a growing divergence in wages. In the mid-1960s the pay of less educated men averaged 80% of college-educated ones, but by 2014 that proportion had fallen to 60%.

It is unlikely that men are dropping out of work voluntarily. More than a third of inactive men live in poverty; less than a quarter have a working spouse. So the most obvious explanation is a fall in demand for less-skilled men. That in turn is partly linked to a long-term decline in manufacturing, whose share of the jobs market peaked in the days when almost all prime-age men worked. The CEA study found that states with a higher-than-average share of jobs in construction, mining and (to a lesser degree) manufacturing tend to have more prime-age men in the workforce. It does not help that men who lose their jobs are increasingly rooted in unemployment black spots. The propensity of people to move in search of work has dropped sharply since the early 1990s, for reasons that are not yet fully understood.

A steady drop in the share of prime-age men in the workforce going back half a century cannot be pinned on America signing free-trade agreements or China's emergence as an exporter of manufactures, both of which happened fairly recently. Factory jobs peaked in the 1970s, but manufacturing output has continued to increase. Indeed, America's share of world manufacturing output, on a value-added basis, has been fairly stable at a bit under a fifth for the past four decades. Thanks to advances in technology, fewer workers are needed to produce the same quantity of goods. But since trade with lower-cost countries and technological change have similar effects on labour-intensive production in the rich world, it is hard to disentangle their effects.

Still, some rich countries, such as Germany, Britain and Canada, have done rather better than America at keeping prime-age men in work, though others, including France, Italy and Spain, have done even worse. That is partly a matter of policy. Members of the OECD, a club of mostly rich countries, set aside an average of 0.6% of GDP a year for "active labour-market policies"-job centres, retraining schemes and employment subsidies-to ease the transition to new types of work. America spends just 0.1% of GDP. By neglecting those whose jobs have been swallowed by technology or imports, America's policymakers have fuelled some of the anger about freer trade.

Have trade deals really been a disaster for American workers? Trade with China seems to have had an unusually large effect. Since 1985, America has signed 15 free-trade agreements (FTAs) covering 20 countries. Exports to these countries account for nearly half of all the goods America sells abroad, even though FTA countries make up just a tenth of GDP outside America. In the five years after a new trade pact comes into force, America's exports to new FTA partners typically grow around three times as fast as its overall exports, at least keeping pace with imports. In 2012, exports to the 20 countries covered by FTAs grew twice as fast as the average. In America, exporting firms pay a wage premium of between 13% and 18%, compared with non-exporters. This is hardly a disaster.

America has run a trade deficit every year since 1976. On the other side of the global ledger are countries that consistently run big trade surpluses. These days the record is held not by China but by Germany, which last year had a current-account surplus of 8% of GDP (see chart). But this does not mean that America is "losing" at trade, as Mr Trump suggests, and China and Germany are winning. The purpose of exports is to pay for imports, either now or later. A trade surplus is not a virility symbol. In some cases, it is a sign of a strong national preference for saving (though other countries might describe it as a symptom of weak domestic demand). Countries rarely have balanced trade, where the value of exports and imports is exactly the same. It might seem plausible that restricting trade to eliminate deficits will create jobs, channelling existing demand towards goods made at home. But the reality is more complicated. In most rich countries, particularly America, the trade deficit widens when GDP growth is strong, and shrinks during recessions. The factors that drive demand for imports are the same as those that drive overall demand, and thus jobs. To balance trade, Americans would have to invest less or save more. Neither would create jobs.

It would help a sluggish world economy if surplus countries, like China and Germany, were to spend more on imports. But for America to aim to balance trade with any one country would be pointless. In any case, a finished product exported from China to America, say, will include components made in third countries, and probably only a small fraction of the value will have been added in China itself. Four-fifths of all trade takes place along supply chains within, or organised by, multinational firms. Slapping a tariff on imports of intermediate goods from, say, Mexico would raise the price of America's exports, which would probably be bad for its trade balance. Around 40% of the value of Mexico's exports of final goods to America, for instance, was added in America itself.

Sober advocates of free trade know that over time the gains from it come from greater efficiency, not from more jobs, the number of which is largely determined by demography and the strength of aggregate demand. It is easier to spot the link between freer trade and factory closures than the more dispersed benefits trade brings to workers across other industries. Exporting firms in all countries and across a variety of industries are more productive, grow faster and pay higher wages than non-exporting firms. But a lot of the gains from trade come from the direct benefit of cheaper imports and their indirect effect on productivity.

The cost of protectionism

A study by Pablo Fajgelbaum of the University of California, Los Angeles, and Amit Khandelwal, of Columbia University, suggests that in an average country, people on high incomes would lose 28% of their purchasing power if borders were closed to trade. But the poorest 10% of consumers would lose 63% of their spending power, because they buy relatively more imported goods. The authors find a bias of trade in favour of poorer people in all 40 countries in their study, which included 13 developing countries. An in-depth study of European industry by Nicholas Bloom, of Stanford University, Mirko Draca of Warwick University and John Van Reenen of the LSE found that import competition from China led to a decline in jobs and made life harder for low-tech firms in affected industries. But it also forced surviving firms to become more innovative: R&D spending, patent creation and the use of information technology all increased, as did total factor productivity.

Taken together, these are large and permanent benefits. What is clear from the studies of Mr Autor and others is that the one-off integration of China had bigger and more lasting effects than expected. Too little attention has been paid in America to those whose jobs are displaced by new technology or imports. That has given an opening to protectionists, who are peddling a solution that will hurt the poor most. A similar sort of populism is rearing its head in Europe in response to migration.

Special report: An open and shut case More in this special report:

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IN MARCH 2000, two months before a crucial vote in America's Congress on whether to make normal trading relations with China permanent, Bill Clinton gave a press conference. In the first year of his presidency, 1993, he had made a bold case for the North Atlantic Free Trade Agreement (NAFTA) with Canada and Mexico, claiming it would create 200,000 jobs in America.

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Riann Haley

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Dante Urrutia
An investment made by a foreign company in the economy of another

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Riann Haley

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A stronger world trade organization is better for America

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A stronger world trade organization is better for America

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Joseph Gehlen

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Over the past few weeks, much has been made about the transatlantic trade pact President Obama proposed in his State of the Union address, as well as the announcement that Japan will join the Trans-Pacific Partnership, which the U.S. hopes to wrap up this year. Largely overlooked, however, was another development in the area of trade: the leadership contest for the post of the World Trade Organization's director general. The winning candidate, Brazil's Roberto Carvalho de Azevêdo, managed to secure the closed-door consensus that passes for a selection procedure with milquetoast statements designed to offend no one.

The lack of excitement about Azevêdo's appointment reflects the extent to which the WTO has been marginalized in favor of trade regionalism. That's a real problem for the U.S.: Regional approaches can't handle a lot of the country's most significant trade issues. The World Trade Organization, meanwhile, remains vital to national and global economic prospects.

The two most important long-term trends in U.S. trade are the integration of American factories and retailers into global production networks and the declining U.S. share of global trade volume. Both factors suggest America needs a strong WTO much more than it needs a series of bilateral and regional deals.

The rise of global production networks means that products no longer originate in a single place. Instead, manufacturing now involves multiple countries. And networked production is becoming the norm worldwide. According to the U.S. International Trade Commission, the proportion of U.S. manufacturers' inputs that were imported increased fourfold from 1980 to 2006. And the proportion of the value of U.S. exported goods accounted for by imported parts doubled from 1977 to 2002. Global trade in "intermediate goods" each year is larger than that in finished manufactured products sold to consumers and industries combined.

Take the Boeing 787, finally assembled in Everett, Wash. Parts of the plane, including the flight-deck controls, escape slides, and rear fuselage, are made in the U.S. Other bits-the landing gear and passenger doors-are made in Europe. The wing tips and toilets are made in countries in Asia. The components of those parts, in turn, come from a range of other countries. Production of this world-traveling aircraft is pretty much a global endeavor.

Jason Dedrick of Syracuse University and his colleagues pointed out that a few years ago, each iPod sold at $299 retail. It appears as a $144 trade deficit with China in the trade statisitcs, but China's input is actually only worth about $5 of labor. Much of the remaining $139 of imported value is accounted for by parts imported by China from all over the world-including the U.S. Apple's gross margins amount to about $80 on each iPod; U.S. retailers and distributors account for about $75. For Apple and Boeing to make money requires friction-free trade not just between the U.S. and China, but around the world.

That involves a global agenda far beyond the traditional fixation on trade tariffs. Analysis by the OECD suggests that reducing transaction costs of trade by just 1 percent would increase global income by more than $40 billion. And World Bank researchers note that countries with more efficient logistics systems are far more integrated into international production networks. The WTO has begun to tackle a host of nontariff barriers to trade that prevent goods and services from being provided to consumers more efficiently and with greater choice. These include trade in services-such as logistics, banking, and telecommunications-as well as policies relating to the movement of the people who deliver those services.

The U.S. needs global trade to work better at a time when America's economic dominance is declining. The U.S. controlled nearly 16 percent of world trade as recently as 2000. Economist Arvind Subramanian predicts that will drop to around 7 percent by 2030 (China will control around 15 percent-as much as the U.S. and Europe combined). The best way to lock in a trading regime that will be fair to the U.S. is to use the power of the WTO. The organization has shown itself capable of standing up to today's biggest trade bully: Washington. Economic minnows Antigua and Costa Rica have both successfully challenged U.S. trade practices using the WTO. At the same time, WTO decisions have also helped the U.S.-not least, a WTO ruling forced China to drop export taxes on a number of raw materials, including bauxite and zinc, in 2012.

If the U.S. wants to benefit from a stronger, fairer, truly global trading regime, it needs to reach out beyond Europe and the Far East to producers from Africa to Asia and Latin America. Because of global production networks, it needs agreements that promote friction-free movement of goods all around the world. And only one trade institution has that reach. The WTO now has 158 members who account for more than 95 percent of world trade. Add in 32 applicant countries, and that brings the total to 99.95 percent. For all of the frustrations of the past 10 years, the Obama Administration should be putting its muscle behind reviving the moribund Doha WTO round-or launching a new one. Regional and bilateral agreements are simply a distraction.

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A Stronger World Trade Organization Is Good for America

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Over the past few weeks, much has been made about the transatlantic trade pact President Obama proposed in his State of the Union address, as well as the announcement that Japan will join the Trans-Pacific Partnership, which the U.S. hopes to wrap up this year.

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Riann Haley

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Goods are loaded and unloaded at the Hải Phòng Port, situated near a major international maritime route. The busy port is set to be international gateway of Việt Nam by 2010. - VNA/VNS Lâm Khánh

Viet Nam News
HÀ NỘI - Implementation of the WTO Trade Facilitation Agreement (TFA) will help reduce about 20 per cent of business expenses as well as promote investment and create more jobs for Vietnamese.

This was the assessment of Vũ Ngọc Anh, Deputy General Director of the Việt Nam Customs, at a workshop yesterday held by the General Department of Việt Nam Customs (GDVC) with support from the United States Agency for International Development (USAID), and in co-operation with the World Bank.

"Việt Nam Customs has made efforts to complete commitments, including on animal and plant quarantines, food safety and hygiene control, logistics services, and procedures for the clearance of goods," Anh told the meeting.

The TFA was passed at the 9th WTO Ministerial Conference in Indonesia on December 6 2013 after ten-year negotiations.

In November 2015, Việt Nam became the 60th country to ratify the TFA, which will go into force when 109 out of 164 WTO member states ratify it.

The commitments are divided into categories A, B, and C.

"Việt Nam has already submitted to the WTO its Category A commitments, identifying those that can be implemented immediately upon the TFA coming into force," Anh told the workshop.

Once in effect, the TFA is expected to enhance national and business competitiveness and boost trade and investment by committing Việt Nam to reforms in support of trade facilitation.

The workshop, which brought together more than 50 Government officials, completed reviewing the list of Category A commitments, and revalidated the B and C commitments to be implemented after the Agreement comes into effect.

The action plan detailed activities, objectives and outputs for each commitment, along with the timeframe, needed technical assistance, responsibilities of each agency, and coordination mechanisms.

The workshop was one of a number of activities on which the USAID Governance for Inclusive Growth (GIG) Program is collaborating with the General Department of Việt Nam Customs and other agencies to successfully implement the TFA. - VNS

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Goods are loaded and unloaded at the Hải Phòng Port, situated near a major international maritime route. The busy port is set to be international gateway of Việt Nam by 2010.

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Dante Urrutia

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The World Trade Organization WTO and the global resistance

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The World Trade Organization WTO and the global resistance

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Dante Urrutia

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The World Trade Organization

Have you ever wondered who helped make all the rules and regulations for how businesses and countries trade goods with each other? Today's global marketplace is extremely complex, with thousands of moving parts. Many of the electronics, clothes you wear, or food you enjoy may be partly made possible by the agreements and policies that the World Trade Organization has helped establish.

The World Trade Organization (WTO) is a global organization that helps countries and producers of goods deal fairly and smoothly with conducting their business across international borders. It mainly does this through WTO agreements, which are negotiated and signed by a large majority of the trading nations in the world. These documents act as contracts that provide the legal framework for conducting business among nations. There are several groups within the WTO, with the highest decision-making authority going to a group known as the Ministerial Conference, which can make decisions on all matters and trade disputes among members.

History

The WTO was officially created in January of 1995 and essentially replaced the General Agreement on Tariffs and Trade (GATT), which had been in force since 1948, a few years after the Second World War. Before the WTO was created, an initiative to start something similar known as the International Trade Organization (ITO) took place. Unfortunately, the ITO treaty was not approved by the U.S. and a few other countries and ultimately never went into effect.

In the 1980s, as the world economies became more global in trade and business, it became evident that GATT was not built or structured to address many of the new global trading challenges that were arising. As a result, the biggest trade negotiating event on record began in 1986. It was known as the Uruguay Round, seeing as it took place in Punta del Este, Uruguay. One of the final accomplishments of this round was the creation of the WTO. The WTO is currently working on new negotiations and agreements, known as the Doha Development Agenda, and these started in 2001.

Purpose

As stated earlier, the WTO is a complex international organization with many moving parts. Simply stated though, its main purpose is to help trade flow smoothly for all member nations so that they may increase the well-being of their countries and standards of living for their citizens. It works to educate and inform companies and governments on the acceptable rules that govern trade (i.e., imports and exports). When issues arise, it works to settle disputes based on the legal agreements that the countries have adopted and ratified in their governments.

In short, the WTO does many things. Here are just a few of its main focuses:

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the world trade organization: definition

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purpose & members - video & lesson transcript | study.com

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The World Trade Organization: Definition, History, Purpose & Members - Video & Lesson Transcript | Study.com

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Have you ever wondered who helped make all the rules and regulations for how businesses and countries trade goods with each other? Today's global marketplace is extremely complex, with thousands of moving parts. Many of the electronics, clothes you wear, or food you enjoy may be partly made possible by the agreements and policies that the World Trade Organization has helped establish.