2. Globalization, Trade, Investment, and Environment Session Objectives: l Debate risks and opportunities of economic globalization l Identify SD requirements for trade and investment liberalization

3. Session Agenda l Globalization overview l Basic trade theory l Trade liberalization l WTO & environment l FDI liberalization l Risks/opportunities l Discussions

4. What is Globalization? “A process in which increased amounts of goods, services, investments, and financial capital move across countries.”

5. Major International Forces l Transnational corporations (TNCs) l OECD governments l WTO, OECD, IMF, World Bank

6. International Mechanisms l Uruguay Round, Millennium Round l Multilateral Agreement on Investment l Structural adjustment

7. Policy Instruments l Trade liberalization l FDI liberalization l Capital market liberalization l Currency market liberalization

8. Government Positions l OECD countries: promote, selectively l Emerging economies: embrace, selectively l Less developed countries: hesitant

9. Civil Society Concerns l rise in inequality l erosion of jobs and wages l increased vulnerability of economies l plunder of natural resources l destruction of community l erosion of democracy

10. Some Figures UNDP Human Development Report l 2/3 of the world’s people left out, hurt, or marginalized by globalization l 24 rich countries & 12 emerging economies are benefiting from globalization l 140 countries have slower growth or no growth at all l 200 top TNCs account for: – 28% of world output – 70% of trade, but hire – 1% of world’s labor

11. 6 Commandments Perspectives of some NGOs l Globalization: we are in one single global market l Liberalization: remove all barriers and obstacles to free flows of goods, services, & capital l Deregulation: let the invisible hand work l Privatization: government, hands up l Competitiveness: be a winner, the best, & the strongest l Technological innovations: restless, innovate permanently, always ahead of others

12. Basic Trade Theory: Absolute Advantage - Adam Smith

13. Basic Trade Theory: Comparative Advantage - David Ricardo

14. Traditional Arguments for Free Trade l Win-win for trading partners l Efficiency from specialization & competition l Economy of scale: export market l Technological change expands PPF l Overall increase in welfare

15. Traditional Arguments against Free Trade l Job lost to foreign competitors l National defense l Infant industry l Falling terms of trade –falling TOT in raw materials in the long run –no major innovations in primary commodities –vulnerability of economy dependent on commodities

16. Trade Liberalization Measures l Reduce or remove import duty/export tax l Reduce or remove import/export restrictions l Reduce or remove subsidy for export and import-substitution industries

17. Opportunities of Trade Liberalization l Increase in goods and services available for consumption - increase in welfare l Jobs in export sector - poverty reduction l Removal of price distortion -> efficiency l Technology transfer - cleaner/upgrade l More revenue for environmental investment l Demand for environmental quality

18. Risks of Trade Liberalization l Inequitable distribution of trade benefits l Trade-generated wealth not necessarily used to improve the environment, in time, and for all l Transitional social and economic difficulties l Increased scale of production magnifies externalities l One-way liberalization

19. GATT (1948) - WTO (1995) 3 objectives: l help trade flow as freely as possible l achieve further liberalization gradually through negotiation l set up an impartial means of settling disputes 5 principles: l Non-discrimination (MFN, national treatment) l Freer trade l Predictable policies l Encourage competition l Extras provisions for LDCs

20. WTO & Environment l Conflicts between WTO agreements & MEAs l Non-discrimination of like-products, regardless of their production methods and processes l Difficulty in biosafety negotiations l IPRs over biological resources benefiting OECD countries l Limited access to agricultural & textile markets in OECD countries l Weak capacity of LDCs to benefit from WTO agreements/negotiations

21. FDI Liberalization Measures l Reduce or remove restrictions on FDI l Increase incentives to attract FDI l Allow currency convertibility

22. Opportunities of FDI Liberalization l Source of capital l More jobs if labor intensive l May reduce poverty if in poor areas l Transfer of clean technology & standards l Management skills l Competition and efficiency l Global market connections

23. Risks of FDI Liberalization l Often focus on manufacturing & service, little on agricultural & rural development - polarization l Displacement of domestic industries - job loss l Tax holidays - produce more than justified by production costs l Environmental externalities

24. SD Requirements l Capital or labor intensive? l Sectors for liberalized trade and FDI? l Measures to mitigate transitional difficulties? l Distribution of benefits? l Control of externalities? l Are tax holidays justified? l Readiness of domestic industries for competition? l Transfer of clean technology? l Access to markets in OECD countries? l Gains from liberalization for environmental investment?