There is a general complaint that fruits of liberalization accrue mostly to the developed countries. It is pointed out that the industrialized countries which make up only 20 percent of the membership, will appropriate about 70 percent of the additional income generated by the implementation of the Uruguay agreements.
Do you agree with the above statement? Justify. (4 Marks)
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1.6 The Uruguay Round
LEARNING OBJECTIVE
Learn how the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) greatly expanded the coverage of trade liberalization efforts to previously uncovered sectors.
The Uruguay Round was the last of eight completed rounds of the GATT. Discussion for the round began in Montevideo, Uruguay, in 1986, and it was hoped that the round would be completed by 1990. However, impasses were frequent, and the round was not finalized until 1994. One reason for the delay is that this round incorporated many new issues in the negotiations.
In earlier rounds, the primary focus was always a continuing reduction in the bound tariff rates charged on imported manufactured goods. As a result of seven completed GATT rounds, by the mid-1980s tariffs in the main developed countries were as low as 5 percent to 10 percent and there was less and less room for further liberalization. At the same time, there were a series of trade issues that sidestepped the GATT trade liberalization efforts over the years. In those areas—like agriculture, textiles and apparel, services, and intellectual property—trade barriers of one sort or another persisted. Thus the ambitious objective of the Uruguay Round was to bring those issues to the table and try to forge a more comprehensive trade liberalization agreement. The goals were reached by establishing a series of supplementary agreements on top of the traditional tariff reduction commitments of the GATT. A few of these agreements are highlighted next.
The General Agreement on Trade in Services (GATS)
Trade in services has become an increasingly important share of international trade. Trade in transportation, insurance, banking, health, and other services now accounts for over 20 percent of world trade. However, trade in services is not restricted by tariffs, largely because services are not shipped in a container on a ship, truck, or train. Instead, they are transmitted in four distinct ways. First, they are transmitted by mail, phone, fax, or the Internet; this is called cross-border supply of services, or Mode 1. Second, services are delivered when foreign residents travel to a host country; this is called consumption abroad, or Mode 2. Third, services trade occurs when a foreign company establishes a subsidiary abroad; this is called commercial presence, or Mode 3. Finally, services are delivered when foreign residents travel abroad to supply them; this is called presence of natural persons, or Mode 4. Because of the transparent nature of services, economists often refer to services as “invisibles trade.”
Because services are delivered invisibly, services trade is affected not by tariffs but rather by domestic regulations. For example, the United States has a law in place called the Jones Act, which prohibits products being transported between two U.S. ports on a foreign ship. Consider this circumstance: a foreign ship arrives at one U.S. port and unloads half its cargo. It then proceeds to a second U.S. port where it unloads the remainder. During the trip between ports 1 and 2, the ship is half empty and the shipping company may be quite eager to sell cargo transport services to U.S. firms. After all, since the ship is going to port 2 anyway, the marginal cost of additional cargo is almost zero. This would be an example of Mode 1 services trade, except for the fact that the Jones Act prohibits this activity even though these services could be beneficial to both U.S. firms and to the foreign shipping company.
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