In Defense of Trade: - PDF Free Download

In Defense of Trade: Post Colonial States and the Timing of WTO Accession Mark Copelovitch Assistant Professor of Political Science and Public Affairs University of Wisconsin-Madison Dave Ohls Ph.D. Candidate University of Wisconsin-Madison November 13, 2009

Vietnam and the WTO January 11, 2007: Vietnam officially joins the World Trade Organization Protocol of Accession including schedules of goods and services, based on report of the Working Party and bilateral negotiations between Vietnam and all interested member states Conclusion of a decade-long process of application and accession, extensively laying out the minute details of Vietnam s interaction with the international economic community.

Vietnam s Accession Protocol Schedule of Goods Product Bound Rate (Accession) Bound Rate (Final) Pocket lighters (pistol shaped) 35 25 Ship propeller oil seal rings 10 5 Rhinoceros horns; ivory powder 5 Imitation jewelry (bangles) 30 25 Cashew nuts (shelled) 40 25 Decoy calls (noisemakers) 3 Schedule of Services Service Motion picture production Freight Transportation Restrictions Only in the forms of business cooperation contracts or joint ventures with Vietnamese partners... foreign capital contribution may not exceed 51% of the legal capital.... the capital contribution of the foreign side not exceeding 49%... 100% of joint-venture s drivers shall be Vietnamese citizens.

GATT Article XXVI:5(c) and Post-Colonial States Vietnam could have joined earlier, before the GATT was recast as the WTO, with much less onerous restrictions: If any of the customs territories, in respect of which a contracting party has accepted this Agreement, possesses or acquires full autonomy in the conduct of its external commercial relations and of the other matters provided for in this Agreement, such territory shall, upon sponsorship through a declaration by the responsible contracting party establishing the above-mentioned fact, be deemed a contracting party. (emphasis added) GATT Charter, article XXVI:5(c)

Variation in Post-Colonial GATT/WTO Accession Many states joined quickly upon independence: Nigeria 1960 1961 Bangladesh 1971 1972 Belize 1981 1983 Several waited, then joined pre-transition: Mozambique 1975 1992 Guinea 1958 1994 Qatar 1971 1994 Others never joined the GATT, then began WTO accession: Vietnam 1954 2007 Cape Verde 1975 2008 Algeria 1962 in negotiations

Post-Colonial States: Years Until Accession

Question How can we explain the substantial variation in the speed and timing of post-colonial states accession to the GATT/WTO? Why did some countries join under Article XXVI:5(c) while others did not? What determines whether and when states choose to join?

WTO Literature Dynamics of trade round negotiations (Baldwin 2007; Jones 2009; Odell 2009) Effects of GATT/WTO membership (Rose 2004/2005; Goldstein et al 2007; Subramanian and Wei 2007) Dispute resolution (Bush 2000; Allee and Huth 2006; Sattler and Bernauer 2008) Overlap between the GATT/WTO and PTAs (Davis 2006; Busch 2007; Naoi 2009) Developing states and the WTO (Drahos 2003; Clapp 2006; Davis 2006; Patel 2008)

GATT/WTO Accession and Defensive Market Access States will join the GATT/WTO more quickly when when: They are heavily dependent on trade with existing member states They lack viable outside options (PTAs) to ensure market access with key trading partners

Alternative Arguments Democracy or democratization Costly signaling Policy lock-in Geopolitical ties Ties to prominent members/nonmembers Colonial connections Regional diffusion Neighboring states actions shift incentives Peer states experiences provide information

Model and Data Statistical model Cox proportional hazards model: h(t x) = h 0 (t)e (xβ) Efron method of handling ties Data 70 post-colonial states, 1954-2003 917 country-year observations Entry: year of independence Fail time: GATT/WTO accession Key Variables GATT/WTO trade coverage: percentage of trade conducted with GATT/WTO member states PTA trade coverage: percentage of trade covered by PTA agreements

Cox Proportional Hazard: Key Variables Model 1 Model 2 Model 3 Model 4 GATT GATT/WTO GATT GATT/WTO GATT/WTO trade coverage 0.0451** 0.0428** 0.0676** 0.0583** [0.0218] [0.0193] [0.0335] [0.0296] PTA trade coverage -0.0183* -0.0150-0.0510*** -0.0391*** [0.0095] [0.0097] [0.0131] [0.0128] GATT non-member participant 2.1323** 2.0093*** 3.4599** 3.7708** [0.9079] [0.7360] [1.4807] [1.7130] Trade openness (% of GDP) -0.0017-0.0013 0.0157*** 0.0120 [0.0046] [0.0044] [0.0055] [0.0065] Real GDP 0.2572* 0.3606*** -0.1738 0.0086 [0.1444] [0.1292] [0.1772] [0.1560] Real GDP per capita -0.0865-0.1243-0.4938-0.4511 [0.2872] [0.2771] [0.3389] [0.3366] Africa 0.5873 0.5658 2.9678** 3.3576* [0.3825] [0.3516] [1.3980] [1.8840] Americas 1.9302*** 1.8239*** 2.3349** 2.2236** [0.5447] [0.5617] [0.9275] [1.0794] Europe 2.2071*** 2.7079*** 4.9262*** 5.7067*** [0.7181] [0.5874] [1.1112] [1.3937] Middle East -0.9931-1.1283 1.8526 2.0415 [0.7132] [0.7228] [1.6645] [2.0280] Date 0.0142 0.0232 0.1346** 0.1316* [0.0345] [0.0283] [0.0597] [0.0682] WTO era -0.7945-2.5425*** [0.7610] [0.9197] Democracy, diffusion, and (included) (included) geopolitical variables * =.10 / ** =.05 / *** =.01

Cox Proportional Hazard: Alternative Explanations Model 1 Model 2 Model 3 Model 4 GATT GATT/WTO GATT GATT/WTO Trade coverage and controls (included) (included) (included) (included) Democracy 0.1492 0.3521 [0.7011] [0.6545] Age of regime -0.0889-0.0776 [0.0581] [0.0574] Democracy*Age 0.1766** 0.1718* [0.0844] [0.0884] UK colony -1.2875** -1.2695** [0.5600] [0.6450] French colony 1.3314* 0.9618 [0.7617] [0.7827] Portuguese colony -1.6289-1.8998* [1.0658] [0.9865] Belgian colony 2.2730* 1.8224 [1.3467] [1.2857] US S score (UN voting) 0.2036-0.0156 [.6630] [0.6454] Russia S score (UN voting) -4.1543* -3.4995* [2.4175] [1.9599] GATT/WTO regional coverage -0.0519-0.0481 [0.0864] [0.0895] GDP growth (3-year avg) -0.0076 0.0097 [0.0242] [0.0238] GDP per capita growth (3-year avg) -2.3089-1.6964 [3.4477] [3.3259] Civil war 0.1672-0.0976 [1.8130] [1.5981] * =.10 / ** =.05 / *** =.01

Robustness Results on key variables robust to changes in: Econometric approach: Cox exact partial likelihood, Cox correcting for non-proportionality, Cox stratified by region, Weibull, Logit Subsamples: population always above 250,000/1,000,000, omitting constituent states (former Yugoslavia and Czechoslovakia), including only states achieving independence before 1970 Model specification: application/memorandum as post-1995 fail time, differenced trade coverage variables, alliance affinity scores, Polity democracy measures, controlling for GATT rounds

Survival Functions: Key Variables GATT coverage PTA coverage GATT/WTO coverage hazard ratio: 1.06 PTA coverage hazard ratio: 0.96

Vietnam Revisited Increasing trade with GATT/WTO members Policy shift toward trade openness as an engine of economic growth and stability Increasing trade with the United States following 1994 normalization and 2001 Bilateral Trade Agreement Accession of Hong Kong (1995), China (2001), Taiwan (2002), and Cambodia (2004) Weak PTA protection Loss of PTA trade with the Soviet Union Vulnerable U.S.-Vietnam BTA Limited ASEAN Free Trade Area

Vietnamese GATT/WTO and PTA Trade Coverage

Conclusions The need to protect market access is the central determinant of whether and when states choose to join the GATT/WTO Other arguments... Democracy or democratization: limited, mixed evidence Geopolitical ties: some evidence negatively, none positively Regional diffusion: no evidence Economic factors... Trade openness: positive, but weak evidence GDP and GDP per capita: not consistently significant Institutional status... Non-member status: positive (possible selection effect)

Implications Evolving economic ties drive participation in multilateral trade institutions PTAs acting as substitutes, not complements, for GATT/WTO membership States decisions of whether and when to join international organizations is affected by the pre-existing context of their institutional membership

Alternative Econometric Specifications Model 1 Model 2 Model 3: Model 4 Model 5 Cox: Exact Cox: Non-Prop Cox: Stratified Weibull Logit Partial Likelihood Corrected by Region GATT/WTO trade cov 0.0723** 0.0666** 0.0489* 0.0465** 0.0654** [0.0329] [0.0336] [0.0264] [0.0232] [0.0318] PTA trade cov -0.0462*** -0.0195* -0.0457*** -0.0347*** -0.0417** [0.0153] [0.0118] [0.0142] [0.0109] [0.0161] Years independent -0.6367** [0.2511] Cubic spline 1 0.0006* [0.0003] Cubic spline 2-0.0048** [0.0020] Ln ρ 0.2113 [0.5097]

Subsamples (Cox Proportional Hazard) Model 1 Model 2 Model 3 Model 4 Population Population Non-Constituent Independence 250,000 1,000,000 States Pre-1970 GATT/WTO trade coverage 0.0665** 0.1509** 0.0733** 0.1189*** [0.0308] [0.0601] [0.0354] [0.0294] PTA trade coverage -0.0309* 0.0314-0.0501*** -0.0079 [0.0182] [0.0235] [0.0136] [0.0129]

Alternative Variables (Cox Proportional Hazard) Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 App as Post- Memo as Post- Coverage Alliance Polity GATT 1995 Failure 1995 Failure Affinity (Gleditsch) Rounds GATT/WTO cov 0.0504** 0.0476** 0.0271 0.0520* 0.0568* 0.0530* [0.0219] [0.0235] [0.0204] [0.0294] [0.0331] [0.0320] PTA cov -0.0289*** -0.0206** -0.0377*** -0.0303** -0.0425*** -0.0287** [0.0098] [0.0090] [0.0103] [0.0126] [0.0163] [0.0134] GATT/WTO cov 0.0037 [0.0278] PTA cov -0.0137 [0.0507] Polity 0.0347 [0.0367] Democ Transition 0.5489 [0.4711] US S (Alliance) 7.4071 [5.1222] Russia S (Alliance) 8.4733*** [3.2267] Kennedy round -0.8422 [1.0489] Tokyo round -0.5056 [0.8700] Uruguay round 2.8830*** [0.8500]

Kaplan-Meier Survival Function by Region