Switch to Considerations of Global Economy

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Switch to Considerations of Global Economy
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Changes underway in the Global Trading and
Financial system

• Fading importance of the system based on the
  World Trade Organization
• Renewed interest in Regionalism (Free Trade
  Areas)
• A drop in the importance of the U.S. Dollar
• The increasing importance of late-comers to the
  world trading system (the BRICs)
• Recent events in Ukraine may make this into the
  BICs
• With Brazil in recession, perhaps its just the
  ICs

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The History

• The General Agreement on Tariffs and Trade (GATT)
• Signed in 1947 Governed international trade
  relations until 1997 when WTO created
• Rules and accomplishments
• Most favored nation status for most countries
• A tariff cut for one was a tariff cut for all
• By 1970s, tariffs had dropped from an average of
  around 50 to the single digitsTrade exploded.

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Rounds of the GATT

• 1947 Round in Geneva
• Torquay, Spain and Geneva in the 1950s (not much
  done)
• 1962-4 Kennedy Round
• Huge tariff cuts due to fears that Europe was
  going to isolate itself through integration
• Treaty of Rome (1957)
• Tokyo Round 1977 Non-tariff Barriers and
  reductions of some tariffs to zero

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Examples of Nontariff Barriers

• quality controls that have nothing to do with
  quality (e.g. autos)
• Customs barriers (unloading of ships)
• Spurious industrial standards
• 114 volt current in Saudi Arabia
• American Selling Price for chemicals

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• Uruguay Round The formation of the World Trade
  Organization
• Finally system is run under auspices of
  organization rather than a document
• Addressed intellectual property rights
• Controversial, since pharmaceuticals come under
  this category
• Tried, in vain, to address agricultural issues
• Forced developing nations to join in tariff
  cutting process

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Also standardized health standards for imported
products

• phytosanitary standards
• Numerous cases of illness due to imported fresh
  foods
• Growing products for export without the expertise
  necessary
• WTO standardized controls so that food was safe,
  but standards did not become a trade barrier

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Stalling out of the WTO

• Problem Major work is done
• Tariff and Non-tariff barriers are much lower
• Non-tariff barriers have been largely eliminated
• Intellectual property has protections (at least
  on the books)
• No agreement, however, on agricultural price
  supports
• But is this enough to drive a meeting of 145
  countries
• Since 1994, no agreement has been reached (Doha,
  Qatar Round)
• Was supposed to be the development round

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Regionalism Reborn

• Failure to advance tariff cuts and reduction in
  other trade barriers has led to rebirth of
  regionalism
• Particularly expansion of the EU, but also
  expansion of NAFTA
• Membership U.S., Canada, Mexico
• U.S. now signing free trade agreements with other
  nations

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• Free Trade Agreements (U.S.)
• Australia Bahrain
• Canada Chile
• Colombia Costa Rica
• Dominican Republic El Salvador
• Guatemala Honduras
• Israel Jordan
• Korea (South) Mexico
• Morocco Nicaragua
• Oman Panama
• Peru Singapore

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• The European Union continues its expansion from
  its original 5 members to the current 27.
• Not all in European Monetary Union (17 of 27).
• Conversely, regionalism in Latin America remains
  stalled (Mercosur)
• Regionalism tends to discourage multilateralism,
  since benefits of former disappear when free
  trade is open globally

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Other Economic and Political Forces at work in
Latin America are holding Region Back

• Region has always swayed back and forth between a
  market-orientation and more centralized economies
• Relations with U.S. affected as a result
• Region is currently in an anti-market phase
• Relations with Venezuela, Bolivia, Peru, Ecuador
  and to a less extent Argentina are not
  particularly good
• Recent re-default by Argentina unlikely to
  improve things

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Result

• Slowdown in Trade initiatives (as noted above)
• The Pan-American Free Trade Area is not likely to
  happen
• With the GATT/WTO stalled, the U.S. will need to
  seek other avenues for expanding trade.
• Currently arguing in congress over fast-track
  authority for the president (both Republicans and
  Democrats oppose)

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The original plan!
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End of Day 2

• Questions and suggestions for next time we meet?