UC3M: International Political Economy

What other economic institutions are there?

- - - - Newly industrializing countires (NIEs) - BRICS economies - Emerging markets

What was the evolution/timeline of the global trade regime?

- 1800s-1945: Historical antecedents - 1947-1948: The ITO & GATT - 1950s-1980s: Multilateral trade negotiations - 1986-1994: Uruguay round & WTO - 1995 & beyond: WTO in action

Describes the Multilateral trade negotiations: 1950s to today

- 1950s-80s The Kennedy Round & The Tokyo Round; - 1986 to 1994 Uruguay round & the creation of WTO -1995+ Doha Round, Hong Kong, etc

What were the trade theories concepts?

- Absolute advantage - Comparative advantage - Heckscher-Ohlin factor endowments theory (analyzing differences in factor endowments: capital or labor - which will determine if a good in a particular country will strive or not) {US: Relatively cheap capital, expensive labor, Developing: expensive capital, relatively cheap labor} - Stolper- Samuelson theory (describes relations between relative price of out put and relative factor rewards- real wages or real returns to capital)

THE EVOLUTION OF THE GLOBAL TRADE REGIME: 1800 TO 1945

- British industrialization (free trade/corn law 1848, cobden- chevalier treaty 1860 w/FR & GB) - World expansion (1850-1875) - Perils of interdependence (1873-1914) - WWI and its aftermath: The Smoot-Hawley tariff (1930): protectionism & Reciprocal Trade Agreements Act (1934): beginning of liberalism

What is the WTO dispute settlement machanism (DSM)? and how does it help developing countries?

- DSM ensure that Govs comply with the rules they establish by providing an independent quasi-judicial tribunal. In this process, rules are created, enforcing compliance after establishment of a decision- making process and revising it - Developing countries benefit from this when they face discrimination against their exports. They sit at the negotiating table when they file a complaint, use of shared rules facilitates allies, making DSU standard for reaching an agreement. (Advisory Centre on WTO law- 2001 & encourages long term economic interest to support rules and compliance)

What is an "exchange rate" ? Describe the exchange rate system's two markets

- Exchange rate is the price of one currency in exchange of another - The two markets within the exchange-rate system are the foreign exchange market (trade of world currency) and exchange trade system (rules on how much national currencies can appreciate/depreciate in the foreign exchange market).

Exchange rates (3 types, , Euro is)

- Fixed: currencies has a fixed price (in terms of some external standard) which gov. intervenes to keep it from appreciating or depreciating and maintains its prices through the purchasing & selling within the foreign market. - Floating: currencies value is determine solely on the market - when private actors purchase/sell in the foreign exchange market(no gov intervention) - Pegged: When a currency floats with another currency (currencies are tied together)

What is GATT and why was it created?

- It was created to avoid protectionism

DESCRIBE THE EVOLUTION OF THE GLOBAL TRADE REGIME: 1947 TO 1948

- Liberal pro business & Trade liberalization - Multilateralism - ITO/BWS in 1944 - GATT in 1948 ( A contract with 35 articles of trade principles. is NOT a international organization)

Why should countries trade? ( in respect to the trade theories)

- Limited resources: resources & factors of production are limited - Opportunity Cost: can produce less of one product to produce more of another - liberalism: win/win -mercantilism: increase exports/trade, decrease imports - Marxism: core-periphery unequal exchange

What are the major theoretical perspectives in the IPE (Liberalism, realism and Marxism (and their neo-versions)?

- Mercantilism: Power to the state, increase trade: for wealth and power, Gov allocate and distribute resources - Liberalism: power to the inf=dividual, promote individual and property rights, win/win - Marxism: classes, exploitative society, unequal trade and distribution of resources/power (wealth has most) - Constructivism: professional with known expertise, sharing information to - Feminism: ways/assumptions about gender affecting institution

What theories/adjustment measures are available to control a nation's cash flow?

- Monetary Policy: capacity to increase interest rates - Fiscal policy: control over taxes - Financing: - Commercial policies:

What are the instruments of trade policy?

- Tariffs - Non-tariffs barriers - Export subsides - Import quota - Voluntary export restraint (D: limit the quantity of specific exports, H: wont pose tariffs, quotas, etc) -Others (export credit subsidies, national procurement, red-tape barriers).

What is the Bretton Wood system ?

- The BTS is known as the "unholy trinity". This "unholy trinity" consist of a. fixed exchange rate, b. sovereign monetary policy c. free capital flow - All 3 cannot be achieved - First time Gov made exchange rate matter into an international cooperation and regulation (some form of a flexible exchange rate system) - Consist of IMF, WB, and GATT (Negotiating forum for reduction of tariffs and trade barriers. - Based on the multilateral conference on Bretton Woods in 1944 (44 countries)

What is the Euro? (Exchange type)

- The Euro is known as a floating exchange rate because its fixed but adjustable (floating with the world, fixed in the EU)

What is the gold standard and what were its disadvantages?

- The gold standard was a system that countries would peg their currencies (at a fixed price) to a specific/certain amount of Gold. Basically the value of their currency is directly linked to gold & Gov had to physically buy gold. Disadvantages were: -Corrections would be made through price and not devaluation (CB continuously intervene to maintain national currency's value in gold reserves) -Insufficient funds for economic growth needs (Deflation & stagnation) - Domestic needs weren't met and deflation harmed debtors and benefit leaders leading to - increase in inequality and social unrest

What was the WTO and why did it exist?

- WTO was created to be more authoritative than GATT by implementing/monitoring trade principle rules, settling disputes among WTO members, and conducting multilateral trade negotiations (been failing since Doha Rounds) The WTO was created to avoid protectionism and promote cooperation/ compliance. - WTO has 164 members and is the center of the trade system. providing forum for trade negotiations and mechanisms which Govs can resolve trade disputes. Including administering trade agreements for the Gove

What are the key elements of the IMS?

key elements: - it serves the role of exchange rates (fixed/floating), - control over capital movement, and - serves as a reserve asset (money that the central bank will hold on to meet demands for payments of currency.

What are the advantages of the Gold standard?

The advantages are: - creates long term price stability - stable exchange rate ( less uncertainty in international trade and freer capital movements -Predictability facilitated world trad, lending, investment, migration & payments - controversial- price specie flow (David Hume)

What are the issues in IPE?

The issues within IPE are: - International Monetary System - International Trade System - Economic Development - Multinational Corporations System - Economic crises

WHY IS IT SO IMPORTANT TO UNDERSTAND THE INTERNATIONAL MONETARY SYSTEM? What are the key elements of the IMS?

The purpose is simple: to facilitate trade but the dynamics are more complex. - its for international trades (economic exchange) which involves exchange rates, currency stability, and national economic autonomy

How does the WTO make decisions? What is its process? (Decision making process DMP)

WTO uses intergovernmental bargaining (primarily DMP) which includes policies like tariffs, non tariff barriers, etc as a way to way to liberalize trade. Bargining rounds happens at the WTO Ministerial Conference. Its a cycle that consists of 5 steps which includes an agenda to beginning, then multiple meetings, until framework for improvement is clear and Gov accept common rule to constraint their actions

Why do we want to control the value of money? What theories

We want to control the value of money because - It affects the cost of G&S abroad and domestically - Price changes in imports and exports affects the nation's overall balance of trade

What are the 2 forms of the WTO nondiscrimination policies?

1. MFN - Most favored nation: prohibits Gov from giving special treatment/ advantages via trade policies (expections:1 Preferential Trade or Trade Regional Arrangements. GATT article 24, 2: General System of Preferences (GSP), lower tariffs for developing countries) 2. National treatment: prohibit Gov from using taxes, regulations, and other domestic policies to provide domestic firms advantages at the expense of foreign firms (Treat domestic and foreign versions of the same product identically, once the product is inside the market)

What are the difference between the WTO & GATT?

1. WTO: a formal legally consituted orginzation like WB & IMF GATT: not an (international) organization 2.WTO: oversees The General Agreement on Trade in Services (GATS), The Agreements on Trade- Related Intellectual Property Rights (TRIPS) and Trade- Related Investment Measures (TRIMs). 3. 4.

What were the Global trade regime principle? (there's 2 core principles)

1. market liberalism 2. non - discrimination (ensures that each WTO member faces identical opportunities to trade with other WTO members)

What were the phases/innovations of the BWS?

Phase 1: flexible exchange rate, Gov can devalue currencies but the U.S. could not devalue currency to correct large imbalances(hold 80% reserves). The price of gold can change when facing fundamental disequilibrium (large payment imbalances) Phase 2:Capital flow restriction: destabilizing rates during war periods. Exchange restrictions avoided speculative attacks. Phase 3: Stabilization fund /credit mechanism- quota was based on wealth (25% gold, 75% national currency). This help gov be able to oull out funds if there is a balance- of- payment deficit. Phase 4: Creation of the IMF to decide when devaluation is needed, limit competitve devaulation and abuse of the stabilization fund since it managed the fund and its conditionality. It also monitor it's memebers countries' macroeco policies and balance-of - payement positions