internatonal trade theories and trade blocs

8/14/2019 Internatonal Trade Theories and trade blocs

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International TradeTheories and Trade Blocs


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The World After 2 nd World War


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Popular Sayings

"When America sneezed, Japan and Europeused to catch a cold

"No nation is immune to economic eventsthat occur in far away places

"Surely there is no closed economy in thereal-world, except the world economy!"


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Examples

"As Toyotas flooded the US market,producers in the US faced a hard choice: toeither trim their budgets or close theirdoors. Many workers lost their jobs, and

louder and louder calls for 'protection fromruinous foreign competition' were heard. Asa result, the country that championed freetrade in the world economy had second

thoughts about the benefits of free trade.

And how about the impact of China and India inmany industries today!


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Time Line of Economic Interdependence

1910s to 40s Two World Wars and One Great Depression

1944 Emergence of US as world power. IMF, World Bank.

1950-European Community (now EU)

1960s -Rise in importance of MNCs

1970s- Market power enjoyed by the OPEC

1990s & 21 st Century- Disintegration of USSR and Global economic

interdependence became more sophisticated

1948 GATT to 1995 WTO

Advocated free trade to solve economic crises-LDCs, and DCs

New World Order 21 st Century


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About Trade Blocs

One of the first economic blocs was the GermanCustoms Union ( Zollverein ) initiated in 1834, formedon the basis of the German Confederation andsubsequently German Empire from 1871.

Surges of trade bloc formation were seen in the1960s and 1970s, as well as in the 1990s afterthe collapse of Communism.

By 1997, more than 50% of all world commerce wasconducted under regional trade blocs. [2]
http://en.wikipedia.org/wiki/Trade_blochttp://en.wikipedia.org/wiki/Trade_bloc


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Stages of economic integration aroundthe World:

Economic and Monetary Union (CSME /EC$ , EU/ )

Economic union (CSME , EU)

Customs and Monetary Union (CEMAC/franc , UEMOA/franc )

Common market (EEA, EFTA , CES )

Customs Union (CAN, CUBKR, EAC, EUCU,MERCOSUR , SACU )

Multilateral Free Trade Area ( AFTA , CEFTA , CISFTA , COMESA ,GAFTA, GCC , NAFTA, SAFTA , SICA, T

PP )
http://en.wikipedia.org/wiki/Economic_and_Monetary_Unionhttp://en.wikipedia.org/wiki/CARICOM_Single_Market_and_Economyhttp://en.wikipedia.org/wiki/Eastern_Caribbean_Currency_Unionhttp://en.wikipedia.org/wiki/Economic_and_Monetary_Union_of_the_European_Unionhttp://en.wikipedia.org/wiki/Eurozonehttp://en.wikipedia.org/wiki/Economic_unionhttp://en.wikipedia.org/wiki/CARICOM_Single_Market_and_Economyhttp://en.wikipedia.org/wiki/Single_market_of_the_European_Unionhttp://en.wikipedia.org/wiki/Customs_and_Monetary_Unionhttp://en.wikipedia.org/wiki/Economic_and_Monetary_Community_of_Central_Africahttp://en.wikipedia.org/wiki/Central_African_CFA_franchttp://en.wikipedia.org/wiki/West_African_Economic_and_Monetary_Unionhttp://en.wikipedia.org/wiki/West_African_CFA_franchttp://en.wikipedia.org/wiki/Common_markethttp://en.wikipedia.org/wiki/European_Economic_Areahttp://en.wikipedia.org/wiki/European_Free_Trade_Associationhttp://en.wikipedia.org/wiki/Common_Economic_Space_(CIS)http://en.wikipedia.org/wiki/Customs_unionhttp://en.wikipedia.org/wiki/Andean_Communityhttp://en.wikipedia.org/wiki/Customs_Union_of_Belarus,_Kazakhstan_and_Russiahttp://en.wikipedia.org/wiki/East_African_Communityhttp://en.wikipedia.org/wiki/European_Union_Customs_Unionhttp://en.wikipedia.org/wiki/Southern_Common_Markethttp://en.wikipedia.org/wiki/Southern_African_Customs_Unionhttp://en.wikipedia.org/wiki/List_of_multilateral_free_trade_agreementshttp://en.wikipedia.org/wiki/ASEAN_Free_Trade_Areahttp://en.wikipedia.org/wiki/Central_European_Free_Trade_Agreementhttp://en.wikipedia.org/wiki/CISFTAhttp://en.wikipedia.org/wiki/Common_Market_for_Eastern_and_Southern_Africahttp://en.wikipedia.org/wiki/Greater_Arab_Free_Trade_Areahttp://en.wikipedia.org/wiki/Gulf_Cooperation_Councilhttp://en.wikipedia.org/wiki/North_American_Free_Trade_Agreementhttp://en.wikipedia.org/wiki/South_Asia_Free_Trade_Agreementhttp://en.wikipedia.org/wiki/Central_American_Integration_Systemhttp://en.wikipedia.org/wiki/Trans-Pacific_Strategic_Economic_Partnershiphttp://en.wikipedia.org/wiki/Trans-Pacific_Strategic_Economic_Partnershiphttp://en.wikipedia.org/wiki/Trans-Pacific_Strategic_Economic_Partnershiphttp://en.wikipedia.org/wiki/Trans-Pacific_Strategic_Economic_Partnershiphttp://en.wikipedia.org/wiki/Central_American_Integration_Systemhttp://en.wikipedia.org/wiki/South_Asia_Free_Trade_Agreementhttp://en.wikipedia.org/wiki/North_American_Free_Trade_Agreementhttp://en.wikipedia.org/wiki/Gulf_Cooperation_Councilhttp://en.wikipedia.org/wiki/Greater_Arab_Free_Trade_Areahttp://en.wikipedia.org/wiki/Common_Market_for_Eastern_and_Southern_Africahttp://en.wikipedia.org/wiki/CISFTAhttp://en.wikipedia.org/wiki/Central_European_Free_Trade_Agreementhttp://en.wikipedia.org/wiki/ASEAN_Free_Trade_Areahttp://en.wikipedia.org/wiki/List_of_multilateral_free_trade_agreementshttp://en.wikipedia.org/wiki/Southern_African_Customs_Unionhttp://en.wikipedia.org/wiki/Southern_Common_Markethttp://en.wikipedia.org/wiki/European_Union_Customs_Unionhttp://en.wikipedia.org/wiki/East_African_Communityhttp://en.wikipedia.org/wiki/Customs_Union_of_Belarus,_Kazakhstan_and_Russiahttp://en.wikipedia.org/wiki/Andean_Communityhttp://en.wikipedia.org/wiki/Customs_unionhttp://en.wikipedia.org/wiki/Common_Economic_Space_(CIS)http://en.wikipedia.org/wiki/European_Free_Trade_Associationhttp://en.wikipedia.org/wiki/European_Economic_Areahttp://en.wikipedia.org/wiki/Common_markethttp://en.wikipedia.org/wiki/West_African_CFA_franchttp://en.wikipedia.org/wiki/West_African_Economic_and_Monetary_Unionhttp://en.wikipedia.org/wiki/Central_African_CFA_franchttp://en.wikipedia.org/wiki/Economic_and_Monetary_Community_of_Central_Africahttp://en.wikipedia.org/wiki/Customs_and_Monetary_Unionhttp://en.wikipedia.org/wiki/Single_market_of_the_European_Unionhttp://en.wikipedia.org/wiki/CARICOM_Single_Market_and_Economyhttp://en.wikipedia.org/wiki/Economic_unionhttp://en.wikipedia.org/wiki/Eurozonehttp://en.wikipedia.org/wiki/Economic_and_Monetary_Union_of_the_European_Unionhttp://en.wikipedia.org/wiki/Eastern_Caribbean_Currency_Unionhttp://en.wikipedia.org/wiki/CARICOM_Single_Market_and_Economyhttp://en.wikipedia.org/wiki/Economic_and_Monetary_Union


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Economic and Monetary Union

Economic union

Customs and Monetary Union

Common market Customs Union

Multilateral Free Trade Area
http://en.wikipedia.org/wiki/Economic_and_Monetary_Unionhttp://en.wikipedia.org/wiki/Economic_unionhttp://en.wikipedia.org/wiki/Customs_and_Monetary_Unionhttp://en.wikipedia.org/wiki/Common_markethttp://en.wikipedia.org/wiki/Customs_unionhttp://en.wikipedia.org/wiki/List_of_multilateral_free_trade_agreementshttp://en.wikipedia.org/wiki/List_of_multilateral_free_trade_agreementshttp://en.wikipedia.org/wiki/Customs_unionhttp://en.wikipedia.org/wiki/Common_markethttp://en.wikipedia.org/wiki/Customs_and_Monetary_Unionhttp://en.wikipedia.org/wiki/Economic_unionhttp://en.wikipedia.org/wiki/Economic_and_Monetary_Union


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Regional Trade Blocs


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Trade Bloc

A trade bloc is a large free trade area formed byone or more tax, tariff and trade agreements.

Typically trade pacts that define such a bloc specifyformal adjudication bodies, e.g. NAFTA tradepanels. This may include even a more democraticand participative system, as the EU.

A trade bloc is established through a trade pact (orpacts) covering different issues of the economicintegration.


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Description

The South Asian Association for RegionalCooperation (SAARC ) is an economic and politicalorganization of eight countries in Southern Asia. Interms of population, its sphere of influence is thelargest of any regional organization: almost 1.5 billionpeople, the combined population of its member states.It was established on December 8, 1985 by India,Pakistan, Bangladesh, Sri Lanka, Nepal, Maldives and

Bhutan. In April 2007, at the Association's 14th summit, Afghanistan became its eighth member.


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MEMBERS

Islamic Republic of Afghanistan

Kingdom of Bhutan Republic of India Republic of Maldives State of Nepal Islamic Republic of Pakistan People's Republic of Bangladesh Democratic Socialist Republic of SriLanka

Headquarters Kathmandu, NepalMembership 8 member states,6 observers
http://en.wikipedia.org/wiki/Image:Flag_of_Afghanistan.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Maldives.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Bangladesh.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Maldives.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Sri_Lanka.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Pakistan.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Nepal.svghttp://en.wikipedia.org/wiki/Image:Flag_of_India.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Bhutan.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Bangladesh.svghttp://en.wikipedia.org/wiki/Image:Flag_of_Afghanistan.svg


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OBJECTIVES

To promote the welfare of the people of South-Asiaand to improve their quality of life.

To accelerate economic growth.To promote active collaboration and mutual assistance inthe economic, social, cultural, technical and scientificfields.To promote and strengthen collective self-relianceamong the countries of South Asia.To contribute to mutual trust, understanding andappreciation of one anothers problems


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HistoryIn the late 1970s, Bangladesh's president Ziaur Rahman proposedthe creation of a trade bloc consisting of South Asian countries.The Bangladeshi proposal was accepted by India, Pakistan andSri Lanka during a meeting held in Colombo in 1981. In August1983, the leaders adopted thehich was held in New Delhi. The

seven South Asian countries, which also included Nepal, Maldivesand Bhutan, agreed on five areas of cooperation: Agriculture and Rural DevelopmentTelecommunications, Science, Technology and MeteorologyHealth and Population Activities

TransportHuman Resource Development


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Free Trade Agreements

In 1993, SAARC countries signed an agreement togradually lower tariffs within the region, in Dhaka. Nineyears later, at the 12th SAARC Summit at Islamabad,SAARC countries devised the South Asia Free Trade

Agreement (SAFTA) which created a framework for theestablishment of a free trade area covering 1.4 billionpeople. This agreement went into force on July 1,2006. Under this agreement, SAARC members will

bring their duties down to 20 per cent by 2007.


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Political Issues

SAARC has intentionally laid more stress on "core issues"mentioned before rather than more decisive political issueslike;

the Kashmir dispute, between India and Pakistan

the Sri Lankan civil war.However, political dialogue is often conducted on themargins of SAARC meetings. SAARC has also refraineditself from interfering in the internal matters of its memberstates. During the 12th and 13th SAARC summits, extremeemphasis was laid upon greater cooperation between theSAARC members to fight terrorism.


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Ineffectiveness

SAARC's inability to play a crucial role inintegrating South Asia is often credited to thepolitical and military rivalry between India and

Pakistan. It is due to these economic, political,and territorial disputes that South Asian nationshave not been able to harness the benefits of aunified economy.


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Dhaka 2005

The summit accorded observer status toPeople's Republic of China, Japan, SouthKorea and United States of America. The

nations also agreed to organize developmentfunds under a single financial institution with apermanent secretariat, that would cover allSAARC programs ranging from social, to

infrastructure, to economic ones.


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DESCRIPTION

The ASEAN bloc was established on August 8, 1967 ,when foreign ministers of five countries Indonesia,Malaysia, the Philippines, Singapore, and Thailand met at the Thai Department of Foreign Affairs building

in Bangkok and signed the ASEAN Declaration,commonly known as the Bangkok Declaration.

It is an Association for Regional Cooperation among

the Countries of Southeast Asia.


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Indonesia Malaysia

ORIGINAL ME MB ERS (1967)

Vietnam (July1995)

Brunei Darussalam(January 1984)

Lao PDR(July 1997 )

Myanmar(July 1997 )

Cambodia (April1999 )

Phillipines Singapore Thailand


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FACTS AND FIGURES

Population - 500 million

Total Area - 4.5 million square kilometers

Combined Gross Domestic Product - US$ 700 billion

Total Trade - US$ 850 billion (approx


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OBJECTIVES

To accelerate economic growth , social progress and culturaldevelopment in the region

Preferential trading including reduced tariffs and non-tariff barriers

Guaranteed member access to the markets throughout the region

Harmonized Investment Incentives

To promote regional peace and stability through abiding respectfor justice and the rule of law


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ASEAN Free Trade Area

Agreement by the member nations of ASEANconcerning local manufacturing in all ASEANcountries

Signed on January 28, 1992 in Singapore

Elimination of tariff and non-tariff barriers amongmember countries


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ASEAN Plus Three

A forum for ASEAN plus China, Japan and SouthKorea primarily to deal with the trade and monetaryissues facing Asia.

Meetings held during each ASEAN Summit

May lead to a common market, single currency andeven a new Bloc comprising of Northeast andSoutheast Asia.


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http://images.google.co.in/imgres?imgurl=http://upload.wikimedia.org/wikipedia/commons/thumb/1/18/Flag_of_CARICOM.svg/600px-Flag_of_CARICOM.svg.png&imgrefurl=http://commons.wikimedia.org/wiki/Image:Flag_of_CARICOM.svg&h=400&w=600&sz=15&hl=en&start=1&tbnid=0iEpzWZHgzkfkM:&tbnh=90&tbnw=135&prev=/images%3Fq%3DCARICOM%26gbv%3D2%26svnum%3D10%26hl%3Den%26sa%3DGhttp://images.google.co.in/imgres?imgurl=http://upload.wikimedia.org/wikipedia/commons/thumb/1/18/Flag_of_CARICOM.svg/600px-Flag_of_CARICOM.svg.png&imgrefurl=http://commons.wikimedia.org/wiki/Image:Flag_of_CARICOM.svg&h=400&w=600&sz=15&hl=en&start=1&tbnid=0iEpzWZHgzkfkM:&tbnh=90&tbnw=135&prev=/images%3Fq%3DCARICOM%26gbv%3D2%26svnum%3D10%26hl%3Den%26sa%3DG


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ESTABLISHMENT AND MEMBERS

CARICOM was established by the Treaty ofChaguaramas on 1 st August 1973 and the foursignatories were Barbados, Jamaica, Guyana and

Trinidad and Tobago.

Currently CARICOM has 15 full members, five

associate members and seven observers.


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STRUCTURE

CARICOM has organised itself into a state like Governmentstructure made up of the following branches: The Executive, TheLegislation and The Judiciary

The goal of the Secretariat is To provide dynamic leadershipand service, in partnership with Community institutions andGroups, toward the attainment of a viable, internationallycompetitive and sustainable Community, with improved quality

of life for all."


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CARICOM Single Market and Economy (CSME)

The CSME is an integrated development strategy (July1989) has three key Features:

1. Deepening economic integration by advancing beyond a

common market towards a Single Market and Economy.

2. Widening the membership and thereby expanding theeconomic mass of the Caribbean Community.

3. Progressive insertion of the region into the global tradingand economic system by strengthening trading links withnon-traditional partners
http://images.google.co.in/imgres?imgurl=http://upload.wikimedia.org/wikipedia/commons/thumb/1/18/Flag_of_CARICOM.svg/600px-Flag_of_CARICOM.svg.png&imgrefurl=http://commons.wikimedia.org/wiki/Image:Flag_of_CARICOM.svg&h=400&w=600&sz=15&hl=en&start=1&tbnid=0iEpzWZHgzkfkM:&tbnh=90&tbnw=135&prev=/images%3Fq%3DCARICOM%26gbv%3D2%26svnum%3D10%26hl%3Den%26sa%3DG


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The Caribbean Community (CARICOM) Free Movement of PersonsAct, provides for the free movement of certain categories of skilledlabour, (by applying for Skills Certificates)

Harmonization of Legislation : Harmonized regimes for Anti-dumpingand countervailing measures, Banking and securities, Consumer

protection, Customs, Intellectual property rights etc.

Free Movement of Capital and Single Currency: The free movement

of Capital involves the elimination of the various restrictions such asforeign exchange controls and allowing for the convertibility ofcurrencies or a single currency and capital market integration via aregional stock exchange.

Work Permits and the Free Movement ofPeople :


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COUNCIL MEMBERS

The United Arab Emirates

The State of Bahrain

The Kingdom of Saudi Arabia

The Sultanate of Oman

The State of Qatar

The State of Kuwait


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OBJECTIVES

The basic objectives of the Cooperation Council are:

To effect coordination, integration and inter-connectionbetween Member States in all fields.

Strengthening ties between their peoples.

Formulating similar regulations in various fields such aseconomy, finance, trade, customs, tourism, legislation &

administration.

Fostering scientific and technical progress in industry,mining, agriculture, water and animal resources.

Establishing scientific research centers, setting up jointventures, and encouraging cooperation of the private sector.


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PARTA- Pacific Regional Trade Association.

Trade Agreement TypePlurilateral Free Trade Agreement

Participating Nations Australia, Cook Islands, Fiji, Kiribati, New Zealand, Niue,Papua New Guinea, Solomon Islands, Tonga, Tuvalu, WesternSamoa

Notes A PARTA would represent a market of almost 29 million and atotal GDP of US $657.7 billion (of which Australia and NewZealand account for US $640 billion).


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It is expected that the free trade area across the ForumIsland Countries will be complete in coming years.

The most contentious issue amongst Forum IslandCountries, and therefore, obstacle to a RTA is how toinclude Australia and New Zealand in a reciprocal FreeTrade Agreement without disadvantaging the smallerPacific Island economies.


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European Union


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A BRIEF HISTORY OF THE EU

The European Unionhas gone throughmany incarnationssince its originsfifty-plus years ago.


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*1952: The basis of the EU began with the signing of the Treaty ofParis , establishing the European Coal and Steel Community (ECSC), toregulate European industry & improve commerce, post WWII.

* The six founding states were Belgium, France, Germany,Italy, Luxembourg, and The Netherlands.

*1957: the Treaties of Rome were signed by the six memberstates, forming:

-The European Economic Community (EEC)-The European Atomic Energy Community (Euroatom)

* These units worked concurrently with the ECSC.

European Coal and Steel Community


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Regional Integration (Theory)

From Free Trade Area: the elimination of tariffsfor goods and services within region (NAFTA)

Via Customs Union: an FTA with a common external tariff (EEC)

To Single Market / Economic Union:Eliminating all tariff and non-tariff barriersFreedom of goods, services, labor and capitalHarmonization of regulationMay also have common currency (euro)

To Political Union?Common Political Institutions / Constitution


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The EU is a unique, treaty-based institutional framework definingand managing economic and political cooperation among its 27member states


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The European Community

1967: ECSC, EEC, and EuroAtom merged to formthe basis of the EC.

1973: the United Kingdom, Denmark, and Ireland

joined the EC.

1981: Greece joined.

1986: Spain and Portugal joined.

1995: Finland, Sweden, and Austria joined .


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Goals of the EC

To continue to improve Europes economy by regulating trade and commerce.

To form a single market for Europe'seconomic resources.

As these goals were accomplished, other

goals were developed:Environmental movementsRegulatory actsHuman rights concerns.


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THE EUROPEAN UNION

1992: the MaastrichtTreaty was ratified,which re charteredthe EC as theEuropean Union .


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Basis of the EU

The European Union is based on the rule oflaw and democracy. It is neither a new Statereplacing existing ones nor is it comparable to

other international organisations. Its MemberStates delegate sovereignty to commoninstitutions representing the interests of theUnion as a whole on questions of joint interest.

All decisions and procedures are derived fromthe basic treaties ratified by the MemberStates.


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Principal Objects of the EU

Establish European Citizenship

Ensure freedom, security, and justice

Promote economic and social progress

Assert Europes role in the world


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THE EURO

The euro Europe's new singlecurrency - represents theconsolidation and culmination ofEuropean economic integration.

Its introduction on January 1, 1999,marked the final phase of Economicand Monetary Union (EMU), athree-stage process that was

launched in 1990 as EU memberstates prepared for the 1992 singlemarket.


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International Monetary Fund


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Why was it created?

The IMF was conceived in July 1944, whenrepresentatives of 45 governments meeting inthe town of Bretton Woods, New Hampshire,

in the northeastern United States, agreed on aframework for international economiccooperation. They believed that such aframework was necessary to avoid a repetition

of the disastrous economic policies that hadcontributed to the Great Depression of the1930s.


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IMF

185 member countries.Established in 1944 to promote

international monetary cooperation,

exchange stability, andorderly exchange arrangements;to foster economic growth and high levelsof employment; andto provide temporary financial assistanceto countries to help ease balance ofpayments adjustment

Growth in IMF Membership 1945 2005


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Growth in IMF Membership, 1945 - 2005(number of countries)


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The purposes of the International Monetary Fund

To promote international monetary cooperationthrough a permanent institution which provides themachinery for consultation and collaboration oninternational monetary problems.

To facilitate the expansion and balanced growth ofinternational trade, and to contribute thereby to thepromotion and maintenance of high levels ofemployment and real income and to the development

of the productive resources of all members as primaryobjectives of economic policy.


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To promote exchange stability, to maintain orderlyexchange arrangements among members, and toavoid competitive exchange depreciation.

To assist in the establishment of a multilateral systemof payments in respect of current transactionsbetween members and in the elimination of foreignexchange restrictions which hamper the growth of

world trade.


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To give confidence to members by making the generalresources of the Fund temporarily available to themunder adequate safeguards, thus providing them withopportunity to correct maladjustments in their balance

of payments without resorting to measures destructiveof national or international prosperity.

In accordance with the above, to shorten the duration

and lessen the degree of dis-equilibrium in theinternational balances of payments of members

Wh h IMF D ?


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What the IMF Does?

Surveillancelendingtechnical assistance


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The 2007 Decision on Bilateral


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The 2007 Decision on BilateralSurveillance

countries' policies promote external stability

what is and is not acceptable to the

international community in terms of howcountries run their exchange rate policies

that surveillance is a collaborative, candid,and evenhanded process between the Fundand its members


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Lending

provide loans to countries experiencingbalance of payments problems.enables countries to rebuild their internationalreserves;

stabilize their currencies;continue paying for imports; andrestore conditions for strong economic growth.

Unlike development banks, the IMF does notlend for specific projects.


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IMF Lending

IMF L di g


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IMF Lending

Poverty Reduction and Growth Facility (PRGF) andExogenous Shocks Facility (ESF) . The interest rate levied onPRGF and ESF loans is only 0.5 percent, and loans are to berepaid over a period of 5-10 years.

Stand-By Arrangements (SBA) . For short-term balance ofpayments problems. The length of a SBA is typically 12-24months,

Extended Fund Facility (EFF) . This facility was established in

1974 to help countries address longer-term balance ofpayments problems. Repayment within 4-7 years.

IMF lending


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IMF lending

Supplemental Reserve Facility (SRF) . From 1997to meet a need for very short-term financing on alarge scale. The motivation for the SRF was thesudden loss of market confidence experienced by

emerging market economies in the 1990s, which ledto massive outflows of capital and required financingon a much larger scale than the IMF had previouslyprovided. Repay within 2-2 years, but may requestan extension of up to six months. All SRF loans carrya substantial surcharge of 3-5 percentage points.

IMF lending


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IMF lending

Compensatory Financing Facility (CFF) . Assist countriesexperiencing either a sudden shortfall in export earnings or anincrease in the cost of cereal imports, often caused byfluctuating world commodity prices.

Emergency assistance . The IMF provides emergencyassistance to countries that have experienced a natural disasteror are emerging from conflict. Emergency loans are subject tothe basic rate of charge, although interest subsidies areavailable for PRGF-eligible countries, subject to availability.

Loans must be repaid within 3-5 years.


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IMF Quotas


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IMF Quotas

Quota subscriptions generate most of the IMFs financialresources.

Each member country of the IMF is assigned a quota, basedbroadly on its relative size in the world economy.

A members quota determines its maximum financialcommitment to the IMF and its voting power, and has a bearingon its access to IMF financing.

Quotas are denominated in Special Drawing Rights (SDRs), theIMF's unit of account.

T h


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Tranches

Gold

ForeignCurrency

FinancialAssets

S i l D i Ri h


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Special Drawing Rights

The SDR is an international reserve asset, created in 1969

SDRs are allocated to member countries in proportion totheir IMF quotas.

The SDR also serves as the unit of account of the IMF andsome other international organizations.

Its value is based on a basket of key international currencies.

C l l i SDR


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Calculating SDR

The currency value of the SDR is determined bysumming the values in U.S. dollars, based on marketexchange rates, of a basket of major currencies (theU.S. dollar, Euro, Japanese yen, and pound sterling).

The SDR currency value is calculated daily and thevaluation basket is reviewed and adjusted every fiveyears.

Fast Facts on the IMF


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Current membership: 185 countries

Staff: approximately 2,635 from 143 countries

Total Quotas: $338 billion (as of 9/30/07)

Loans outstanding: $17 billion to 68 countries, of which $6 billionto 57 on concessional terms (as of 9/30/07)

Technical Assistance provided: 438.4 person years duringFY2007

Surveillance consultations concluded: 134 countries duringFY2007, of which 125 voluntarily published information on theirconsultation.


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World Bank

A f 5 I tit ti


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A group of 5 Institutions

Its five agencies are:International Bank for Reconstruction and Development (IBRD)

International Development Association (IDA)

International Finance Corporation (IFC)

Multilateral Investment Guarantee Agency (MIGA)

International Center for Settlement of InvestmentDisputes (ICSID)


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The World Bank Group, among the worlds largestdevelopment institutions, is a major source of financial andtechnical assistance to developing countries around theworld.

The World Bank Group advances ideas about internationalprojects on trade, finance, health, poverty, education,infrastructure, governance, climate change, and more to benefitthe poor seeking new opportunities.


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Th i f I t ti l T d


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Theories of International Trade

Absolute AdvantageComparative AdvantageFactor price equalization

Life cycle TheoryNew Trade TheoryNational Competitive Advantage theory

No nation was ever ruined by trade .Benjamin Franklin

Absolute Advantage


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Absolute Advantage

One country is said to have an absoluteadvantage over another country in theproduction of a particular good if it canproduce that good using smaller quantities ofresources.

Eg: England produces Textiles; France Wine

Li it ti f th Ab l t Ad t g Th


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Limitation of the Absolute Advantage Theory

What if one trading nation has absolute advantage inboth & the other has in neither

Still, trade is possible according to the ComparativeCost theory by Ricardo

The weaker nation would specialize production ofthat good where the disadvantage is lower

Post-trade, the weaker nation would improveefficiency due to economies of scale

Comparative Advantage


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One country is said to have a comparative advantageover another country in the production of a particulargood if it produces that good with lower opportunitycosts.

Two countries can mutually benefit from trade even ifone country is at an absolute advantage relative toanother country in the production of every good.

Comparative Advantage

Ricardian Law of Comparative Advantage


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Ricardian Law of Comparative Advantage

When countries differ in relative labor productivity(comparative advantage), Each country can increase

its welfare by Specializing in production of thosegoods for which it has a comparative advantage

Heckscher-Ohlin Theory


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Heckscher Ohlin Theory

Comparative advantage arises from the differences in Factorendowments

The abundance of factor makes its cost low

Hence a country exports those goods that make intensive use offactor that is abundantly present

It imports goods that require intensive use of factors that arelocally scarce.

US exports capital-intensive goodsChina exports labor-intensive

The Product Life Cycle Theory


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The Product Life-Cycle Theory

US dominance (1945-75) in new productinnovations

New Products developed and sold in localmarket and also exported.

Demand for export increases and productionfacilities shift to other countries

The New Trade Theory


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Based on economies of scale that helps inunit cost reduction

World market may be able to support only

limited number of firms that enter first gainadvantage

Aerospace example Boeing and Airbus

Dominance of US and Europe. China is arecent example.



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Developing cost $ 5 bln

For producing 100 aircraftsFixed costs $ 50 mln ($5 bln/100)

Variable costs $ 80 mln, Total cost $ 130 mlnIf we increase to 500FC will come down to $10 mln and total cost to$90 mln (10+80)

Economies of scale, learning effects

National Competitive Advantage Theory


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National Competitive Advantage Theory

Porters Diamond Factor endowmentsDemand conditionsRelated and supporting industries

Firm strategy, Structure and Rivalry

Implications for businessLocationalFirst moverPolicy implications

INTERNATIONAL TRADE POLICY


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INTERNATIONAL TRADE POLICY

Free Trade Versus Protectionism

Trade Barriers: Tariffs,Subsidies and Quotas

Other Commercial Policies


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Most Common Trade Barriers


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Most Common Trade BarriersTrade barriers -obstacles to trade- take many forms, three most common

ones are:

1)Tariffs: import duty (a tax on imports) -Can also be an export duty, but thatis less common.

2) Export Subsidies:Government payments made to domestic firm to encourage exportsClosely related to subsidies is the practice of dumping

Dumping takes place when a firm or an industry sells products on theworld market at price below the cost of production

3) Quotas and Voluntary Export Restraints (VERs): A limit on the quantity of import can be mandatory or voluntary, and can be

legislated or negotiated with foreign governments

internatonal trade theories and trade blocs

Documents