Transcript Slide 1

Chapter 7: Trade
The History of International Trade
General Agreement on Tariffs and Trade
World Trade Organisation
Multinational Corporations
The U.S. Clean Air Act
Genetically Modified Foods and Organisms
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International Trade
Pros
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Increases diversity and
quality of consumer
goods and services
Facilitates diffusion of
technology
Provides jobs
Promotes efficiency
Cons
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Destroy national
industries
Displace workers
Threaten national
culture and identity
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The History of International Trade
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The Roman Empire depended on trade.
Merchants had great powers.
Crusades quickened the flow of goods from
East to West and back.
Mercantilist period:16th century significant
trade, made for accumulating wealth and a
trade surplus. Control of trading industries an
stockpiling gold.
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The History of International Trade
18th Century
 Adam Smith (1723-1790): Laissez-faire approach to
economy.
 David Ricardo( 1772-1823): Theory of comparative
advantage. Argued that mercantilist trading practices
hurt states because they promoted inefficient
industries.International market forces should
determine what industries a state should specialize
in.
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The History of International Trade
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19th Century: British colonialism based on
the principles of liberalism. European states
forcing for trade in Africa, India, Southeast
Asia and Latin America.
Low tariffs, limited use of quotas.
British Corn Laws 1846: unilateral reduction
of agricultural tariffs.
Trade increased with industrialization
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The History of International Trade
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WW I stopped trade.
States adopted nationalist policies to protect
the domestic economies.
Great Depression (1929) caused states to be
even more protectionist.
After WW II challenge for US: how to
establish a liberal international economic
order ?
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The History of International Trade
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John Maynard Keynes: sought to strike a balance between the
interest of states and the need for international stability.
Bretton Woods System: took after the ideas of Keynes. States
keep the right to regulate the local economy but agree to
commitment to liberalism.
Bretton Woods
World
IMF
GATT
Bank
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General Agreement on Tariffs and Trade
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GATT was designed by the UN in 1946
It aimed to increase trade by tariff reduction.
Most Favored Nation status (MFN): member
states must treat other member states the
same.
Kennedy Round (1962-1967)
Tokyo Round (1973-1979)
Uruguay Round (1986-1993)
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General Agreement on Tariffs and Trade
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The latter rounds included agricultural products and
trade in services such as banking and
telecommunications.
Increased use of non-tariff barriers (NTB).
Agriculture has been traditionally considered national
security. Governments protected and subsidized the
farmers. US has cut agricultural subsidies in the
1980s and so did Europe. It has caused great
protests in Europe.
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World Trade Organisation
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GATT became insufficient: an inconsistent dispute process,
jurisdiction limited, questionable legal status. GATT had
success in lowering tariffs and quotas on manufactured and
industrial goods. Need for removal of NTBs.
1995 WTO headquartered in Switzerland with 149 members.
Member-driven consensus-based IGO. Balances state interests
to interests of free trade.
WTO success: Members agreed to liberalization on financial
and telecommunications services.
1997 WTO and member states reached a historic deal
regarding the liberalization of financial sectors.
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Multinational Corporations
Why is the reduction of
tariff rates and quatas
important for MNCs?
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Multinational Corporations
Reduction of tariff rates benefit the MNC the
most because
 Lowers the costs of production
 Allows the products to be distributed globally
 Services enter markets that were previously
closed to them. Example : Turkish Banking
Sector.
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MNC
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Early MNCs were European or American owned,
involved in extracting raw materials, oils and ores.
For ex: Shell
New MNC trade all sorts of goods and services. Still
mainly headquartered in the West, shareholders
around the world.
MNCs have developed economies of scale through:
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Horizontal Investment: manufacture of same goods
everywhere
Vertical Investment: Outputs of some factories serve as
inputs for others
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US Clean Air Act
1996: Brazil and Venezuela against US. Test for the
powers of WTO.
 Environmental Protection Agency Rules: gasoline
companies must produce the same quality of
gasoline they produced in 1990. Attempt to stabilize
the effects of pollutants.
 Brazil and Venezuela claimed they were
discriminated against because standards were set
up high.
 WTO decided US policy was unfair barrier to
international trade.
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US Clean Air Act: Realists
Traditional Realists: WTO as unacceptable erosion of state
sovereignty WTO has the final say over policies.
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Is this realistic?
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Can not US withdraw from WTO?
Neorealist: WTO useful as long as free trade does not threaten
national security. EPA regulation is not a national security issue.
By letting WTO overrule EPA decision, US sacrificied a little but
gained more.
WTO useful in trade negotiations of US with other countries such
as with Japan.
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US Clean Air Act: Liberals
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WTO: strong supranational institution. EPA
overruling proved the power.
There is contradiction between what WTO wants to
achieve-liberalize trade and better environment.
Unilateral environmental regulations are very
important.
Liberals argue that free trade generates resources
necessary for the protection of environment. It is
proven That wealthy nations protect the environment
better.
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US Clean Air Act: Marxists
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There is high levels of conflict between free trade
and environmental protection. Profits are always
preferred against protection of the environment.
WTO case demonstrates this example.
WTO meetings are done in secrecy. Governments
officials that represent large MNC are present at the
meetings.
MNCs fund scientific research about impacts on the
environment. They are unreliable.
Societies around the world are lowering labor and
env. Stds to attract foreign investment.
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Challenges for WTO
Countries are divided on the benefits of WTO.
Struggle between
Protectionists
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Free Trade Supporters
Russia is planning to join WTO. But countries
like Russia and Malaysia are concerned
about the pace of liberalization.
UN defines WTO as “nightmare for
developing nations”
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Challenges for WTO
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2001-2005 Doha Round of WTO negotiations
made in Qatar. Aimed to stop protests by
keeping away from disruption.
2005 France farmers protested the subsidy
cuts, negotiations stopped.
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Genetically Modified Foods and
Organisms
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Foods that their DNA and other genetic
materials manipulated by scientists.
Scientists create crops that are disease
resistant and insect resistant, or high in
minerals and vitamins.
GM foods are a source of friction between
US and EU and developing countries.
Disagreements on the benefits and harms.
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Genetically Modified Foods
and Organisms
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A case was filed in Thailand in 2000.
Bio-safety Protocol signed by member states
of WTO in 2000. Allows states to bar imports
of genetically modified seeds, microbes,
animals and crops that they deem may harm
the environment.
EU and other countries continue to reject GM
exports from US.
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