POLST 362.3 The IPE of Biotechnology

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POLST 362.3 The IPE of Biotechnology

• Lecture 9
• The trading system

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• Fundamental change in view of trade
• We have moved from a focus on comparative
  advantage
• to
• a focus on competitive advantage.
• Why? How? What does it mean?

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• Statistics
• global trade in merchandise 5.1 trillion
• global trade in commercial services 1.2
  trillion
• exports account for 60 of Sask. output markets
  40 for Canada, 25 for FRG, 10 for US and
  Japan, etc

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• Major areas of dispute
• trade imbalances creating tensions e.g. US
  Japan battles US EU grain battles
• trade negotiations major policy initiative of
  1980s-90s
• EU expansion, CUSTA, NAFTA, AIT, WTO, US-Israel,
  MERCOSUR, ASEAN
• more than 1300 deals worldwide
• Americas FTA, APEC 2020 initiative

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• How important is trade
• 1,666,753 pages containing the word trade in
  internet
• compared with 973,007 pages containing the word
  God

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• History of free trade is long and tortuous
• ancient doctrine of universal economy
• Christian doctrine anti trader (Jesus against
  the money lenders) but neutral on trade
• Mercantilists saw X as good and M as bad sought
  BOP surplus (inflow of specie)
• debate through the 1500-1700 no economic
  foundation provided for trade

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• Economic foundation for trade
• Both countries gain from it
• Smith theory of absolute advantage caveats were
  national security and reciprocity
• Ricardo theory of comparative advantage

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• Neoclassical trade model
• Heckscher-Ohlin Theorem a country exports those
  products that are intensive in abundant factors
• Stolper-Sameulson Theorem trade benefits the
  locally abundant factors
• Mundell Equivalency Theorem trade in factors is
  a substitute for trade in goods
• Factor-Price Equalization Theorem trade will
  over time equalize factor returns

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• Implications
• the theory is deterministic government support
  for industry ineffective as flows determined by
  factor endowments and intensities
• benefits from unilateral liberalizing
• trade
• increases domestic competition
• enables countries to specialize
• encourages diffusion of technology
• increases (?) prospects for world peace

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• Almost universal support
• do you believe that free trade is on the whole
  economically more beneficial than protection. ?
• 95 of US economists and 88 of economists
  surveyed in the US/Austria/ France/Germany/Switzer
  land support or support with qualification
• By economists, that is

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• Marshall (1903)Free trade is an advantageous
  expedient because it is not a device, but the
  absence of a device. A device contrived to deal
  with any set of conditions must become obsolete
  when they change. The simplicity and naturalness
  of Free Trade--that is the absence of any
  device--may continue to outweigh the series of
  different small gains which could be obtained by
  any manipulation of tariffs, however scientific
  and astute.

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• Economic challenges to free trade
• Leontief paradox added human capital
• Intraindustry trade explained by tastes, scale
  economies and differentiation
• Intrafirm trade FDI causes trade flows
  determined by companies not markets
• Vernon and product life cycle
• Porter Clusters and competitiveness
• Endogenous growth, path dependency and IRS

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• Political arguments against trade
• protect those in declining industries
• unfair competition (e.g. low wage/costs)
• change distribution of incomes
• protect infant industries
• industrial development (the immiserising argument)

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• Political economy of trade
• Benefits widely disbursed often dont have vocal
  support (e.g. lower prices, new jobs)
• Costs are very concentrated (e.g. steel, textiles
  and agriculture) losers are very vocal
• Rent seeking rampant
• One rationale for multilateral negotiations--need
  to demonstrate others paying some of costs

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• In short
• Spero
• Trade is the stuff of domestic politics
• Milward
• Tariff book is like a constitution

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• Trade in practice
• Liberal trade regimes limited to 2 periods when
  hegemons wanted it
• 1846 (Corn Laws) to 1870s (rise of protective
  tariff)--Britain was hegemon
• 1944 (GATT/WTO world) to ?--US was hegemon
• Who is supporting trade in 21st century?

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• Canadian trade policy stance
• Canada founded as response threat of integration
  with US
• national policy in 1870s
• continental free trade (1911) defeated
• GATT founder (1948) multi-lateralist
• NORAD defense procurement (1959)
• Auto-pact (1965)
• Third option (1970s)
• Macdonald RC (1985) CUSTA (1988)

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• Post war trading system
• Bretton Woods (1944)
• GATT (1948) and ITO (rejected in 1951) remained
  treaty until WTO in 1995
• Principles
• multilateralism/MFN
• reciprocity
• National treatment
• impartial adjudication
• 8 rounds

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• Uruguay Round
• created WTO trade policy review mechanism
• members rather than signatories price of
  membership was accepting all agreements
• 29 agreements textiles, ag, services, TRIPS,
  SPS, TBT (Investment?)
• binding DSM cross compliance now possible

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• Negotiating process
• early rounds bid and ask on specific products
  then multilateralise via MFN
• Beginning in Kennedy Round (64-67) adopted
  formulae to reductions
• Tokyo Round added codes of conduct could pick
  and chose which to accept
• Uruguay Round most comprehensive
• created WTO and universal adoption of all
  agreements binding DSM added new sectors

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• The risk of popularity
• GATT originally had 15 members WTO now has 145
• Competing organizations (e.g. BSP, UNCTAD)
• Regional agreements

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• New trade agenda
• in past, looked at the products (goods/services)
  being traded ignored their provenance
• new demands to examine production and processing
  methods
• environmental (forestry, GM foods)
• labour standards
• ethical/moral elements

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• Implications for biotech
• Trade regimes not fully functioning for biotech
• WTO agreement for goods works
• WTO agriculture agreement still has lots of water
• SPS, TBT and TRIPs agreements uncertain
• competition/investment policy still not resolved
• biotech raises all the economic concerns and all
  the net agenda items not clear how the system
  will handle

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• Conclusion
• Free trade doctrine has great power of
  explanation and significant momentum
• Economic theory and commercial developments
  causing more to question trade regime
• New trade agenda most significant challenge