IPE WEEK 5

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IPE - WEEK 5
We merely want to live in peace with all the
world, to trade with them, to commune with them,
to learn from their culture as the may learn
from ours, so that the products of our toil may
be used for our schools and our roads and our
churches and not for guns and planes and tanks
and ships of war. Dwight Eisenhower

• International Trade
• Berkeley City College

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World Trade

• Today, 30 average trade to GDP ratio
• Volume of exports almost doubled since 1994
• European trade multiplied 40-fold in the 19th
  century
• 1929 Smoot Hawley Act, retaliation by US
  trading partners
• Surge in trade after WWII, then in 1990s

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WTO, 2008.
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WTO, 2008.
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Why States Trade

• Comparative advantage based on lower opportunity
  costs
• (favorable terms of trade)
• Opportunity cost the next best alternative to
  an activity
• Law of comparative advantage
• countries should export the good in which they
  have lower opportunity costs of production and
  exchange them for foreign goods in which they
  have higher opportunity cost of production.
• Ways to Enhance Comparative advantage
• Awareness of a dynamic nature of this concept
• Strategic trade policy
• 2. Economies of scale
• Internal
• External
• 3. Consumer tastes differences
• 4. Competition through trade increases innovation
  and efficiency
• 5. Stimulating domestic demand overtime through
  export growth
• 6. Favorable/desired effects on politics, culture

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Barriers to Trade

• Tariffs
• Quotas and voluntary export restraints
• Subsidies
• Exchange controls
• Import licensing
• Administrative rules
• Embargos
• Export Taxes

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Reasons for Protectionism
Economics is a powerful policy tool.

• Sanction is a penalty imposed against a nation in
  order to coerce it into compliance with
  international law or otherwise.
• Unilateral
• UN uses sanctions to pursue collective security
  goals.
• Sanctions have their costs.

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Trade Actors

• USTR, Susan Schwab
• GATT
• WTO
• MNC
• Regional blocks
• EU
• NAFTA
• Mercosur
• CAFTA
• APEC

Ambassador Susan Schwab
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GATT - General Agreement on Tariffs and Trade

• Signed in 1947, a Bretton Woods arrangement
• 8 rounds of global trade talks
• Replaced by WTO
• Main Principles
• Non-discrimination MFN, import goods domestic
• Reciprocity trade concessions should be balanced
• Prohibition of non-tariff trade restrictions

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WTO - The World Trade Organization

• Successor of GATT (Uruguay Round), 1995
• Multilateral trade institution
• 151 member-countries
• Pascal Lamy Director General
• Functions
• Implement GATT rules
• Help solve disputes through dispute-settlement
  mechanism (enforcement)
• Aid poor countries in trade policy design and
  implementation

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http//www.wto.org/english/res_e/statis_e/its2007_
e/its07_charts_e.pdf
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http//www.wto.org/english/res_e/statis_e/its2007_
e/its07_charts_e.pdf
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Regional Trade Arrangements
Political Union

• Free Trade Area
• All barriers to trade among members removed.
• Each country can determine own trade policies
  toward nonmembers.
• Customs Union
• Eliminates barriers among members and has a
  common external trade policy.
• Economic Union
• No barriers among members, common external
  policy, common monetary and fiscal policy,
  harmonized tax rates and common currency.
• Political Union
• Has a coordinating bureaucracy accountable to all
  citizens.

Economic Union
Common Market
Customs Union
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Developing Countries Impact of Trade

• Comparative advantage in raw materials
• Arguments minimizing benefits from trade
• Dynamic nature of comparative advantage
• MNC reap all the gains from trade
• Arguments emphasizing benefits from trade
• Economic growth (higher demand in the North and
  higher growth for the South)
• Dynamic nature of comparative advantage does not
  exist
• Policies
• Export orientation
• Import substitution

12.12.2005 WTO Director-General Pascal Lamy at
the handover of Oxfams Big Noise petition the
day before the opening of the Sixth Ministerial
Conference in Hong Kong
The concept of fair trade an alternative
approach to trade, aiming at sustainable
development for excluded and disadvantaged
producers