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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 Increases diversity and

quality of consumer goods and services

Facilitates diffusion of technology

Provides jobs Promotes efficiency

Cons Destroy national

industries Displace workers Threaten national

culture and identity

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The History of International Trade

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

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

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

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

Bank

IMF GATT

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General Agreement on Tariffs and Trade

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

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

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

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:– 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.

– Is this realistic?

– 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

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

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 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

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

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

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.