International Trade System

1. About the ITS 2. Highly Interdependent 3. GN-Led 4. Agreements & Institutions

About the ITS System of exchange of goods & services between countries Based around two types of trade 1. Merchandise trade Primary goods Raw materials: foods, fuels, fibers, minerals Manufactured goods Finished goods 2. Service trade Direct relationship: buyer seller Foreign commercial presence ¤

ITS is Highly Interdependent

Interdependence Goods & Services $20 B= $55,000/ day 2013$18.3 T= $50 B/day

Interdependence GN Goods as % of total exports GS Goods as % of total exports GN Services as % of total exports GS Services as % of total exports

Factors Why has trade has increased between countries? Industrial Revolution Resource requirement Transportation Materialism Free trade philosophy Absolute versus comparative advantage ¤

Interdependence GS- Export-driven markets Heavily rely on producing goods for export Cash crops dependence, Labor as comparative advantage Reliance on GN to buy goods, source labor Lack diversified market ¤

GN-Led ITS

GN Domination Factors Industrial Revolution European and American advantage Post –WWI Protectionist policies Post-WWII US economic hegemony in ‘free world’ Encourage global capitalism MNC investments in allies Foster trade ties Neoliberal approach criticized Uneven trade  ~25% of countries dominate world trade ¤

GN Domination Factors EEs brought into loop Finance capital Expand markets Cheap labor Rest of GS lags ¤

Agreements & Institutions GATT  WTO Regional Trade Organizations

GATT  WTO General Agreement on Tariffs & Trade (GATT) Est ITO proposal - Havana Charter Not ratified by U.S. Principle of Nondiscrimination ‘Normal trade relations’= same treatment Reduce tariffs Eliminate non-tariff barriers Pressure on US as hegemon Similar to IMS situation with US as Central Banker Japan, Germany, then also European Union bloc Created WTO ¤

GATT  WTO World Trade OrganizationWorld Trade Organization (1995) 3:22 Formal organization Director General Dispute Settlement Body WTO structure 160 members China, Russia Doha Round st WTO Round Still ongoing Objective: open trade Challenges: eliminate non-tariff barriers ¤ Roberto Azevêdo,

WTO Challenges: Tariffs & Quotas Traditional trade regulation tactics Less likely to use Countries respect WTO dispute rulings Countries adopt covert policies All guilty of this ¤

WTO Challenges: NTBs Nontariff Barriers (NTBs) Quotas Set standards Environment Safety Licenses Domestic content rules Joint venture requirements Security Subsidies ¤

WTO & Subsidies Agriculture Industry Automaker bailouts Solar panels ¤ CountryMarket price SubsidyFarmer’s income US$2$1$3 Brazil$2$0$2

Sugar Subsidies How does the U.S. government protect its sugar industry? Direct tariffs on imports, quotas Except from Mexico- NAFTA How is Mexico protecting its sugar industry? Subsidizing its industry ‘Dumping’ cheap sugar in U.S. How do these tactics affect free trade? U.S. prices higher U.S. companies, consumers end up paying more NAFTA- U.S. HFCS to Mexico; Excess MX sugar to U.S. John Oliver on Sugar SubsidiesSugar Subsidies ¤

WTO Challenges: New Issues Service Intellectual Property Rights (IPRs) Patents India Trademarks Copyrights

WTO Challenges: New Issues (cont.) Environmental issues Standards legitimate? Labor issues GS comparative advantage Regionalism EU, NAFTA, etc. Electronic commerce Dispute Resolution Mechanism Create body with formal process and power ¤

Disputes Trade wars much more common EU- US ‘Banana War’ 1991 (Pre-WTO) to 2009 EU- US ‘Beef War’ Hormones v. mad cows Russia –US Steel tariffs China-US Solar panel subsidies EU banned US apples- potential carcinogen EU banned US apples- ¤

WTO Dispute Resolution Use WTO to file complaints 491 dispute cases filed since 1995 Overwhelming majority GN, EEs WTO has power to enforce decisions Sanctions Fines Antigua and Barbuda v. U.S. DS 285DS antigua-and-barbuda-turn-from-internet-gambling-to-legalized-piracy/ antigua-and-barbuda-turn-from-internet-gambling-to-legalized-piracy/ ¤

WTO Dispute Resolution: Antigua Case Why is Antigua upset with the US?Antigua Online gambling as IP piracy US wants to stop int’l gambling by US citizens Lots of $ at stake What did the WTO rule in 2013? WTO ruled in favor of Antigua US violated trade treaties Gave US 1 year to comply On 1/28/14- WTO allowed Antigua to suspend US copyrights on all IP for non-compliance Why did the WTO make this decision? Will the US comply?

Free Trade Agreement (FTA) Types (cont.) Bilateral US FTAs- 20 countries US FTAs EU FTAs Multilateral NAFTA, CAFTA-DR Lomé ¤

Free Trade Agreement (FTA) Types Regional Promote intra-trade ECSC as model Proposed Trans-Pacific Partnership 12 members Anti-China FTA? ¤

EU ASEAN Mercosur SADC SAARC Regional Economic IGOs ECOWAS EAC

Benefits of FTAs How do you benefit from an FTA between US-EU? Cheaper shoes Cheaper drugs EU cars cheaper, more available Dairy availability Standardize products Headlights issue Gas exports to EU ¤

Free Trade Agreement (FTA) Types Global: WTO What is the WTO’s consensus principle?consensus principle Unanimous support or agreement fails How is the consensus principle problematic? Getting everyone to always agree is very difficult This round of talks ~20 yrs. Can only eliminate if unanimous vote Big players benefit from this rule Pushing new idea of ‘plurilateral’ But other WTO members can block policies ¤

Free Trade Agreement (FTA) Types Global: WTO Though very close to an agreement, India held out. Why?India held out Wanted to continue farm subsidies Food stockpiling for poor Feared WTO would end this if deal went through US extended ‘peace clause’ indefinitely- permits these subsidies How will countries benefit from the Trade Facilitation Agreement? Add jobs Increase $1 T in global trade Only one issue of Doha Round Adopted 11/14; members must ratify ¤

4 Most Important ITS Things 1. About the ITS 2. The ITS is Highly Interdependent 3. The ITS is GN-Led 4. About the Agreements & Institutions

Cocoa Production

Cocoa DQs 1. How is the current situation on cocoa farms in West Africa tied to Spanish Mesoamerican colonization? 2. How do implementation, monitoring, and enforcement of the Harkin-Engel Protocol demonstrate the difficulties of addressing human rights issues on a global level? 3. Why would corporations—particularly those based outside the United States—care about what the U.S. government finds regarding the extent to which they complied with the Protocol they signed, especially when there is no enforcement mechanism? 4. What incentives do the Ivory Coast and Ghana have, as sovereign countries, to comply with the Protocol? 5. Why is fair trade

Fair Trade

Objective: livable wage, invest in community Trade over aid NGOs certify Req. differ Monitoring issue Fair trade ≠ violate free trade Consumer demand Int’l protocol to end child slave labor Protect source for consistent flavor MNCs have leverage Fair trade agriculture demand v. handicrafts Mass production ¤