Trade Agreements and Global Governance (KEMENY)

Question 1

Rational reasons for anti-trade sentiments

Answer 1

1. Freer trade raises distributional costs
2. Free trade agreements may not be fair,
   • Not a level playing field for poorer countries?
   • Undermine democracies in favour of corporations?

Question 2

What is the Stolper–Samuelson theorem

Answer 2

A basic theorem in Heckscher–Ohlin trade theory.
It describes the relationship between relative prices of output and relative factor rewards—specifically, real wages and real returns to capital.

Question 3

At the end of the Atlantic economy

Answer 3

– Politics trumps liberalization
• Slam the gates shut on labour mobility
• Agricultural prices fall, spurring demands for protectionism

– Lack of global coordination thought to have exacerbated political tensions (via exchange rates)

– Major trade barriers through the end of WWII

Question 4

Post-WWII Economic Order

Two conflicting imperatives

Answer 4

1. Interdependence without so much politics – ie more ‘liberal’ integration
2. National interests must be given voice

Question 5

Bretton Woods

Answer 5

• 1944 conference of world leaders in a resort in New Hampshire (US)
• System that emerges enshrines this attempt at ‘balance’ between liberalization and national sovereignty
• Manages global economic interdependence until around 1970

Question 6

Multilateralism:

Answer 6

• the principle of participation by three or more parties, especially by the governments of different countries.
  – creating and enforcing rules would happen through institutions, rather than through political muscle-flexing
  – Ok didn’t quite get to the ideal (US is already emerging as super power), but better before

Question 7

Bretton Woods Institutions

Answer 7

1. International Monetary Fund (IMF) – Manage exchange rates
   – Later becomes major lender
2. International Bank for Reconstruction and Development
   – Initially funds the rebuilding of Europe
   – Later broadens mandate and becomes the World
   Bank
3. General Agreement on Tariffs and Trade (GATT)
   – Precursor to WTO

Question 8

Bretton Woods and Prosperity

Answer 8

• 1945-1970
– Major period of prosperity
• Ie GDP/capita rising in many countries
– Rise of the middle class in many developed economies
– Large growth in trade (>7%/year)
• Commonly called the ‘golden age’

Question 9

What’s GATT?

Answer 9

General Agreement on Tariffs and Trade (GATT) was a multilateral agreement regulating international trade.

Question 10

What’s GATT got to do with the ‘golden age’?

Answer 10

Possibly not that much
– Trade rising, but how much because of GATT and how much because of
• Innovation leading to declining transport costs • General economic growth
• Overall international economic stability

Question 11

Bretton Woods ends (complex reasons) in 1971

Answer 11

– So does fast growth in world prosperity
– (Correlation not equal to causation!)
– We are still all waiting for a return to golden age growth (uh oh)

Question 12

World Trade Organization

Answer 12

WTO formed in 1995 (after long negotiations through 1980s) as a replacement for GATT
– A member-driven and governed organization – 161 member countries (as of April 2015)
– Still about multilateralism and MFN

Question 13

Aims of WTO

Answer 13

– ‘Liberalize’ trade rules
– Forum to negotiate trade agreements
– Settler of disputes

Question 14

Deep vs Shallow Integration

Answer 14

• WTO aims to make national priorities subservient to international integration
– Of goods and services, not labour!

• Not just about WTO here but also WB and
IMF
– IMF and WB: loans conditional on ‘Washington Consensus’ ideology: exporting neoliberalism

• WTO gets mired in conflict, bilateral agreements multiply, but with same features/ problems

Question 15

Problems with WTO

Answer 15

These deals are increasingly not all that focused on trade!
– Trade becomes an entry into bigger set of rules about the global economy

Along with trade comes requirements for broad liberalization of poorer economies
– Often much stricter than the ones that most richer countries have
– and definitely much more than rich countries had at comparable development levels

– Little concern for broader policy impacts in these poorer countries – health, environment etc

Concerns about loss of sovereignty/ democracy

Question 16

WTO dispute resolution: The Beef War

Answer 16

• 1989: EU enacts rules forbidding sale of beef with growth hormones in them
– Partly fears rooted in mad cow disease of 1980s – Americans exporters become shut out of EU
market
• US says countries had been using hormones for decades – no evidence hormones harm
– Attempts to get international institution to weigh on safety of hormones
– GATT ruling blocked by EU

• Along comes WTO Appellate Court – 1998 ruling in favour of the US
• No scientific evidence is found to support the ban
– EU supposed to change it laws to allow US beef
• But it does not
– Basically it gets away with it because it is big
and has complicated links to the US

Question 17

India, Malaysia, Pakistan and Thailand vs USA
– 1973 US Endangered Species Act

‘Shrimp-Turtle’

Answer 17

Prohibits shrimp imports where catches made without ‘turtle-excluder device’ (TED)
– 1997 joint complaint
• WTO rules against US

Ruled against US because US did not apply rules fairly to all WTO members
• Caribbean nations got transition periods and technical and financial assistance
• Complainants did not
• Violation of MFN principles

In practice it is VERY hard to exercise these rights
• For instance: You first need to have negotiated with ALL potentially affected
• By this time, will all the turtles be gone?

Question 18

Shallow integration

Answer 18

Reduction or elimination of tariffs, quotas, and other barriers to trade in goods at the border, such as trade-limiting customs procedures.

Question 19

Deep integration

Answer 19

Means trade agreements which not only contain rules on tariffs and conventional non-tariff trade restrictions, but which also regulate the business environment in a more general sense.

Question 20

Kemeny view on Deep vs Shallow Integration

Answer 20

The role of WTO as facilitator of multilateralism and neutral arbitration are good, but I favor a shallower kind of integration with more room for varieties of capitalism to flourish.