Switch to Considerations of Global Economy. Changes underway in the Global Trading and Financial system Fading importance of the system based on the World.

Switch to Considerations of Global Economy

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

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 digits…Trade exploded.

“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

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

• 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

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

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

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:

• Free Trade Agreements (U.S.):Australia BahrainCanada ChileColombia Costa RicaDominican Republic El SalvadorGuatemala HondurasIsrael JordanKorea (South) MexicoMorocco Nicaragua Oman PanamaPeru Singapore

• 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

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

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)

The original plan!

End of Day 2

• Questions and suggestions for next time we meet?