Trade Agreements & the WTO
MFN, dispute settlement, FTAs, USMCA, CPTPP — how global trade rules are written and enforced.
WTO
GATT to WTO
The General Agreement on Tariffs and Trade (1947) became the World Trade Organization on January 1, 1995, after the Uruguay Round.
Key Points
- 164 members + 25 observers (Russia suspended participation in some bodies after 2022).
- Principal agreements: GATT (goods), GATS (services), TRIPS (IP).
- Ministerial Conferences every two years; major negotiating rounds can span decades (Doha Round launched 2001, effectively stalled).
Core principles
Most-Favored-Nation (MFN)
Article I of GATT. A concession to one WTO member must be extended to all. Exceptions: FTAs (Art XXIV), GSP for developing countries.
National treatment
Article III. Imports must be treated no less favorably than domestic products after entering the market.
Tariff bindings
WTO members commit to maximum tariff rates per product line. Many applied tariffs are below the bound rate.
Transparency
Members must publish trade rules and notify changes.
Dispute Settlement
The WTO's 'crown jewel' — a system of binding arbitration. Hobbled since 2019 by US blocks on Appellate Body appointments.
Key Points
- Panels issue first-instance rulings; Appellate Body was supposed to review.
- Multi-Party Interim Appeal Arbitration Arrangement (MPIA) — EU, Canada, others substitute for AB.
- Reform discussions ongoing; MC13 (2024) produced limited progress.
Free Trade Agreements
Types of FTAs
Bilateral FTA
Two parties. E.g., Australia-US (2005), EU-South Korea (2011).
Plurilateral / mega-regional
Many parties. CPTPP (11 Pacific Rim countries, 2018), RCEP (15 Asia-Pacific, 2022).
Customs union
Members + common external tariff. EU, Mercosur, East African Community.
Common market
Customs union + free movement of capital/labor. EU internal market.
Major modern agreements
Key Points
- USMCA (2020): replaced NAFTA. Stricter rules of origin, auto content requirements, enforceable labor chapter.
- CPTPP (2018): US withdrew under Trump; 11 members. UK acceded 2024.
- RCEP (2022): world's largest by GDP. ASEAN + Australia, China, Japan, NZ, South Korea.
- AfCFTA (2021): African Continental Free Trade Area. 54 countries, 1.4B people.
- EU-Mercosur: politically agreed 2019, still not ratified.
Trade Policy Today
Rise of industrial policy
Post-2016: protectionism and industrial policy have returned to mainstream US and European debate — accelerated by US-China decoupling and COVID supply chain shocks.
Key Points
- CHIPS Act ($52B US); EU Chips Act (€43B); Japan, Korea, India all launched major semiconductor programs.
- IRA (2022): US industrial policy for clean energy — EU complaining about discrimination against non-US EVs.
- Section 232 (national security) and Section 301 (unfair practices) US tariffs targeting China are largely intact.
Services and digital trade
Where trade rules remain underdeveloped.
Key Points
- GATS covers services but permits extensive reservations.
- Cross-border data flows: ongoing EU-US Privacy Shield / Data Privacy Framework saga.
- Digital trade chapters in newer FTAs (USMCA Ch 19, CPTPP Ch 14).
FAQ
What is anti-dumping?
Selling below 'normal value' in an importing market. WTO permits targeted duties if injury to domestic industry is shown. Most challenged anti-dumping cases come from China-directed duties.
Who actually pays tariffs?
Importers — which means US tariffs on Chinese goods were paid by US companies and, through higher prices, US consumers. Research (Fajgelbaum-Khandelwal 2020) quantified the incidence.
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