International political economy BARI

Reconciling the factor and the sector model

Assumptions: high inter-sectoral factor mobility = factor model high factor specificity = sector model 'Factor mobility is more appropriately regarded as acontinuous variable, affected by a range of economic, technological, and political conditions' (p4): regulations; transportation; industry specific machineryand skills Measure of mobility: variation in rate of return for factors (wages for labour, profits for capital) across sectors high mobility = low variation

Societal models

Factor model Sector model

DOMINO PROCESS AND PROTECTION FOR EXPORTERS

Family of explanations where "preferential trade agreements mainly as a response to the preferential trade policies of other countries. In this view, countries excluded from an agreement try to avoid the negative consequences of trade diversion by signing new agreements"(Baccini and Dür 2011)

IMS TODAY : MAIN CHANGES

Floating Capital account liberalization Sub-system

Posrt 1973 system

Floating IMF charter Capital account liberalization Sub-systems

Requirements of neoliberal institutionalism to promote free trade

Forum for quasi-permanent and all-encompassing negotiations Monitoring and information gathering Rules of appropriate behaviour and sanctions Regular and organised tradenegotiations

How was Bretton Woods different to Gold Standard?

Foundational debate: - US position o wants open, nondiscriminatory and multilateral trading system and acknowledges need for managed process (accepts hegemonic stabilizer role) - UK position o wants full employment. International stability through cooperation but also imperial preference system and Sterling bloc New world order: - Compromise o unlike 1930s, order is multilateral. Unlike Gold Standard, primacy to domestic interventionism - no automaticity of adjustment - Factors o expert consensus in favor of interventionism; 1930s crisis critical juncture allowing to explore new possibilities

Exchange rate regimes

Free floating Managed floating Currency peg

MNCs and the new regionalism : Economic arguments

Reminder lecture 6, slide on recent explanations for new regionalism: ECONOMIC Capital-labour ratio and economies of scale rise of intra-firm trade and GVCs IPE version of this: industries and/or large transnational corporations that have increasingreturns to scale and/or operate cross-border supplychains winners from and promoters of regional tradeblocs. Milner 1997 (« Industries, governments and regional trade blocs », in Mansfield and Milner eds PoliticalEconomy of Regionalism) main precursor of this line of analysis.

Dollar glut

The dollar glut is a term for the accumulation of American dollars outside of the United States as a reserve currency, contrasted with the dollar gap, which led to the creation of the Marshall Plan following World War II. The eventual shift to a dollar glut forced the end of the gold standard in the United States and led to the collapse of the Bretton Woods system.

MNC

multinational cooperation

a public good

non-excludable and non-rival

common good

non-excludable and rival

TRIPS

o The Agreement on Trade-Related Aspects of Intellectual Property Rights(TRIPS) is an international legal agreement between all the member nations of the World Trade Organization (WTO). It sets down minimum standards for the regulation by national governments of many forms of intellectual property (IP) as applied to nationals of other WTO member nations.[3] TRIPS was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) between 1989 and 1990[4] and is administered by the WTO.

ECONOMY

draws on economic theories and history; main subject mattereconomic processes, outcomes and policies

frist globalization (middle 19th - 1ww) trade: gradual dismantling protection until 1880

driven by uk repeal of corn law (1846) Cobden-chevalier treaty (1860)

club good

excludable and non-rival

Private good

excludable and rival

1936 : tripartite agreement (USA-UK-France)

first attempt to restore international monetary system. base on cooperation between central bank to stabilize exchange rate. international monetary agreement, stabilize theirs nations' currencies both at home and in the international exchange market

Objectif Mundell-Fleming

fixed exchange rate monetary policy autonomy capital mobility (we can have 2)

INTERNATIONAL

focuses on the politics of economic phenomena transcendingstate borders; examines interaction between economics and politics in individual states and international system (domestic sources of foreign economic policy and impact of international system on domestic political economies)

Definition of FDI in Oatley:

foreign direct investment (FDI) A form of cross-border investment in which a resident or corporation based in one country owns a productive asset located in a second country. Such investments are made by multinational corporations. FDI can involve the construction of a new, or the purchase of an existing, plant or factory.

FDI

foreign direct investment)

GCC

global commodity chains An internationally integrated process of economic links between corporations and workers whereby commodities are gathered, transformed into goods and services, and distributed to consumers across the world. a process used by firms to gather resources, transform them into goods or commodities, and finally, distribute them to consumers. It is a series of links connecting the many places of production and distribution and resulting in a commodity that is then exchanged on the world market. In short, it is the connected path from which a good travels from producers to consumers. Commodity chains can be unique depending on the product types or the types of markets. Different stages of a commodity chain can also involve different economic sectors or be handled by the same business

MNCs and GVCs

highlight that national economies are not separateentities in global capitalism but accounting units. Reality of production is cross-border in a qualitatively different way than during first globalisation

ISI

import substitution industrialization)

interwar disintegration of global capitalism money macroeconomics stages

inflation early 1920s return to gold 1924-1931 Great Depression 1929-1937

EU acquis as seal of approval (Gray 2009 (American Journal of Political Science 53/4))

"closing negotiation chapters on domestic economic policy—in other words, receiving a seal of approval from Brussels that previously existing policy reform is acceptable to the wider EU—substantially decreases perceptions of default risk in [accession]countries. That decrease operates independently from policy reform [already implemented]" EU acquis signals drop in investment risk and stimulates inflow of capital

embedded liberalism : investment

- IBRD - American initiative for reconstruction Marshall plan Japanese equivalent Boots local economics by Korean War spending -investment trend from interval period gather pace rise of MNE Reorientation of flows Intra developed world FDI dominated and intra industry FDI - ROW shuns (éviter) développer countries FDI. expropriation

Components of research

1. research question 2. variables DV = something you want to explain/outcome IV = factor that could cause a certain outcome hypothesis: importance of falsification 3. causal mechanism : how and why? 4. evaluation = critique of the theory

Origins mercantilism

17th century England; then diffuses over Europe (France, Austria, Netherlands, Prussia)

corn law: date

1815-1846

gold standard : date

1844-1914 ( top : 1870-1914) return : 1924-1931

interwar disintegration of global capitalism money end of gold standard

1931 : UK 1933 : Roosevelt declares primacy of domestic policies over external commitments 1936 : tripartite agreement (USA-UK-France)

Bretton woods

1944 IMF IBRD ITO, reject --> GATT instead

date Bretton woods system

1944-1971

realism : date, auteur, theme

1950 Morgenthau anarchy

stages in the rise of new regionalism

1950, 1 point 1980, 2 points 1990, 3 points

STAGES IN RISE OF NEW REGIONALISM

1950s: first steps in European integration (ECSC, EEC) - USA support despite contradiction withmultilateralism 1980s: EU deepening (Single European Act); NorthAmerican treaties (CUFTA, NAFAT) 1990s: further regional deepening (EMU); MERCOSUR (1991) and ASEAN FTA (1992); bilateral agreements worldwide take off

The Treaty of Rome

1957 The Treaty of Rome established the European Economic Community (EEC) which is seen as a major steppingstone (tremplin) in the creation of the EU. The EEC established a common market, which gave members the freedom to move goods, services, capital and people, and also a customs union among the founding states

XR regimes

4 categories: fixed limited flexibility managed floating freely floating

Definition of MNC in Oatley

A company that has ownership and manages production facilities in two or more countries. There are approximately 63,459 parent firms that together own a total of 689,520 foreign affiliates. These parent firms and their foreign affiliates account for about 25 percent of the world's economic production and employ some 66 million people worldwide.

Gold Standard: Politics of adjustment

ADJUSTMENT INTERESTS INSTITUTIONAL CHANGE

BATNAs

Best Alternative to a Negotiated Agreement. It is defined as the most advantageous alternative that a negotiating party can take if negotiations fail and an agreement cannot be made. In other words, a party's BATNA is what a party's alternative is if negotiations are unsuccessful

interregional agreements

CETA : comprehensive economic and trade agreement TPP : trans-pacific partnership TTIP : transatlantic trade and investment partnership

CUFTA

Canada-Ukraine Free Trade Agreement (CUFTA) is a free-trade agreement between Canada and Ukraine. According to the agreement, the signing parties eliminate custom duties on essentially all goods produced in one country and imported to the other. The agreement was signed on 11 July 2016 in Kyiv, Ukraine, and has come into force on 1 August 2017.

Strategies of neoliberal institutionalism to promote free trade

Change payoff structure/issue linkage Reciprocity Higher defection costs Longer time horizon ('shadow of the future') and repeated play

MNCs and the new regionalism : MNCs and European integration

Chase and other work (including my own in French) show link between economies of scale potential and Single European Act. European Customs Union (completed 1968) « leftnational markets separated and production ... fragmented. This was particularly damaging to industries with large returns to scale because firmsneeded to concentrate production to compete withrivals in the United States and Asia. Thesecompanies therefore pushed ... to remove the remaining barriers to intra-EC trade » (Chase, 2005, p 179). Case of « deep integration » = removal of non-tariffbarriers and European rules (competition in particular) and standards

world view merchantilism

Machiavellian and Hobbesian "Realpolitik" International politics and economics zero-sum game "National interest" prevails over individuals interests or rights

CHARACTERISTICS of new regionalism

Depth: Partial economic cooperation free trade area customs unio single market (four freeodms) economic, monetary union Members: Regional and interegional bilateral or multilateral North-North, South-South, North-South

DOHA ROUND

Development: launched in 2001 9 ministerials collapse of negotiations Topics: agriculture services environment trade facilitation Cleavages: EU vs US vs BRICs (leading developingcountries) but also within BRICs

world view MERCANTILISM

Machiavellian and Hobbesian 'Realpolitik' international politics and economics as zero-sum game 'national interest' prevails over individual interests or rights

« Bretton Woods II »

Dooley, Folkerts-Landau and Garber have referred to the monetary system of today as Bretton Woods II. They argue that in the early 2000s the international system is composed of a core issuing the dominant international currency, and a periphery. The periphery is committed to export-led growth based on the maintenance of an undervalued exchange rate. In the 1960s, the core was the United States and the periphery was Europe and Japan. This old periphery has since graduated, and the new periphery is Asia. The core remains the same, the United States. The argument is that a system of pegged currencies—in which the periphery exports capital to the core, which serves an intermediary financial role—is both stable and desirable, although this notion is controversial.

Recent explanations of the new regionalism

ECONOMIC Capital-labor ratio and economies of scale rise of intra-firm trade and GVCs INT'L POLITICS WTO stagnation geopolitics; standard setting exporter discrimination DEVELOPMENT Political risk commitment to openness macroeconomic credibility lock-in of liberal economic reforms

explanation for new regionalism

Economies of scale cross-border supply chains industries and/or large transnational corporations that have increasing returns to scale and/or operate cross-border supply chains winners from and promoters of regional trade blocs.

CONTEXT mercantilism

Emergence of centralized nation-states; Great Power competition; new overseas markets and first wave of colonial expansion

Dispute settlement : Debate

Enforcement: "given that the WTO remains a 'court without a bailiff', its rulings at best can have a modest direct influence on dispute outcomes" (Busch and Reinhardt 2000) Participation bias: High costs for poor countries with poor legal capacities

ECSC

Europe coal and steel community 6 countries 1951, treaty of Paris

ECSC

European Coal and Steel Community (ECSC) was an organization of six European countries created after World War II to regulate their industrial production under a centralized authority. It was formally established in 1951 by the Treaty of Paris, signed by Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany. The ECSC was the first international organization to be based on the principles of supranationalism, and started the process of formal integration which ultimately led to the European Union.

EEC

European Economic community 1957, treaty of Rome Single EUropean Act is the major revision of this treaty

GVCs

Global value chains

Mercantilist model of trade

Governments under influence of import-competing sectors prefer to promote production and jobs in those sectors to detriment of economy-wide consumer welfare effects Each government prefers to protect its marketwhile having free access to third countries' market; each government therefore protects In-game theoretical terms: Prisoner's dilemma

Liberty and property (Locke)

He expressed the radical view that government is morally obliged to serve people, namely by protecting life, liberty, and property. He explained the principle of checks and balances to limit government power. He favored representative government and a rule of law. He denounced tyranny. He insisted that when government violates individual rights, people may legitimately rebel.

Factor model : definition

Heckscher-Ohlin model (definition in Oatley) (see alsoStolper-Samuelson theorem) A model of the determinants of comparative advantage that argues that comparative advantage arises from cross-national differences in factor endowments. A country's comparative advantage will lie in goods produced through heavy reliance on its abundant factors. Capital-abundant countries have a comparative advantage in capital-intensive goods, and labor-abundant countries have a comparative advantage in labor-intensive goods.

readings tutorat

Helen Milner (1988): Trading Places: Industries for Free Trade Morrison (2012): Before Hegemony: Adam Smith, American Independence and the Origins of the First Era of Globalisation Goldstein et al. (2007): Institutions in International Relations: Understanding the Effects of the GATT and the WTO on World Trade Gowa (1984): State Power, State Policy: Explaining the Decision to Close the Gold Window Frieden (1991): Invested Interests: the politics of national economic policies in a world of global finance

Gold Standard : background

History: Gold, silver, bi-metallic standards UK adopts Gold diffusion during 2nd half of 19th century Features: fixed exchange rates priority to externalstability over domestic policy autonom capital mobility Adjustment: automatic and internal via flexible wages and prices and compression of domesticdemand

Electoral consequences : reconciling sector and factor model Economic self-interest and role of knowledge Rho and Tomz 2017

Hypotheses: if knowledge ↑, individual preferences more in line with self-interest Knowledge: individuals' beliefs about trade in line with Stolper-Samuelson Experiment: survey respondents receive random cues about effect of trade Result: when respondents received cues, answered more in line with Stolper-Samuelson

Electoral consequences : reconciling sector and factor model Trade and presidential votes Jensen et al. 2017

Hypotheses: trade-related job insecurity reducessupport for incumbents Job insecurity: low in high-skilled services and goods production; high in low-skilled manufacturing Analysis: U.S. county-level votes and employmentin high- vs low-skilled tradeables sector (1992-2012) Results: a.↑ in vote shares for incumbents in high-skilledmanufacturing and services counties; ↓ in low-skilled manufacturing counties b.At national level: increasing imports (exports) → decreasing (increasing) presidential incumebtvote shares.

International politics: Standard setting

INTEREGIONAL AGREEMENTS CETA, TPP, TTIP Coverage: EU - Canada US - Asian countries (not China or India) EU - US Topics: trade environment governance labor standards regulation investment arbitration Motivations: standard-setting Regional Comprehensive Economic Partnership(RCEP) Coverage: ASEAN - 6 FTA partners: China, India, Australia, Japan, South Korea, New Zealand Topics: trade investment economic and technical cooperation IPR competition policy dispute settlement Motivations: standard-setting

GVC

In development studies, the global value chain (GVC) describes the people and activities involved in the production of a good or service and its supply, distribution, and post-sales activities (also known as the supply chain) when activities must be coordinated across geographies. GVC is similar to Industry Level Value Chain but encompasses operations at the global level.

Unholy Trinity

Mundell 1963: - Goal o Stability (fixed XRs) o Flexibility (policy autonomy) o Capital mobility (access to international finance) - Trade-off o Only two of three goals can be realized at one time - Politics o This trilemma gives rise to political conflict over appropriate XR policy o Who adjust?

IPRs

Intellectual property rights refers to the general term for the assignment of property rights through patents, copyrights and trademarks. These property rights allow the holder to exercise a monopoly on the use of the item for a specified period.

The IMS today: Revival of IMF role

International Monetary Fund - overseeing structural adjustment programs meant IMF key vector of Washington Consensus - During European sovereign debt crisis, huge increase in IMF resources

Gold standard : Polanyi's classic analysis

International disintegration: - UK's declining position - Rising costs of defending Sterling and Gold Standard Domestic pressure: - Growing unwillingness of policymakers to subordinate « questions of social organization ... to the needs of the restoration of the currency » (ch. 19) Reasons: - Rise of labor movement and socialist parties - Shift in economic beliefs and values (rise of interventionism

WTO Organs

MINISTERIAL CONFERENCE GENERAL COUNCIL

conclusion GCV and MNC

MNCs and GVCs highlight that national economies are not separate entities in global capitalism but accounting units. Reality of production is cross-border in a qualitatively different way than during first globalisation.

Rationality (Kant)

Kant claims that the fundamental principle of morality is given by pure reason itself. Many have interpreted Kant to derive this principle from a conception of pure practical reason (as opposed to merely prudential reasoning about the most effective means to empirically given ends). But Kant maintained that there is only one faculty of reason, although with both theoretical and practical applications. This Element shows how Kant attempted to derive the fundamental principle and goal of morality from the general principles of reason as such, defined by the principles of non-contradiction and sufficient reason and the ideal of systematicity.

Dispute settlement : Role

Legal view: rule clarification interpretation of law reduction of uncertainty Political view: identification of defection implementation of reciprocity (tit-for-tat) enforcement and sanctions

TOPICS mercantilism

Link between state power and foreign trade policy(East India Companies); relantionship between power and wealth (plenty)

Int'l monetary systems : main tasks

Liquidity: funds to finance trade and investment lender of last resort in times of crisis Confidence: low uncertainty about future stability limited volatility Adjustment: reduce imbalances that destabilise the system

2 explanations of why MNC exist

Locational advantage Market imperfection

LIBERAL MODEL

Models of trade politics a.Governments act on the basis of consumer welfare considerations b.All governments prefer to liberalize, including unilaterally = cheaper imports = increases domestic consumer welfare c.Government preferences spontaneously aligned; all liberalized d.Strong theoretically; weak empirical validation

MERCANTILIST MODEL

Models of trade politics a.Governments protect import-competing sectors (to detriment of economy-wide consumer welfare effects) b.Each government prefers protection and free access to third countries' market; each government therefore protects c.Prisoner's dilemma d.Weak theoretically; strong empirical record

Economic explanations : Why do MNCs exist in the first place?

Neoclassical economics predicts that cross-border transactions should happen on the market. - Locational advantages: o Natural-resource investment o Market-seeking o Efficiency-seeking o Strategic asset seeking (Dunning's « eclectic theory of international production »): An eclectic paradigm is a three-tiered (3 niveaux) evaluation framework that companies can follow when attempting to determine if it is beneficial to pursue foreign direct investment (FDI). This paradigm assumes that institutions will avoid transactions in the open market if the cost of completing the same actions internally, or in-house, carries a lower price. It is based on internalization theory and was first expounded upon in 1979 by the scholar John H. Dunning. - Market imperfections o Horizontal integration: Horizontal integration occurs when there is a merger between two firms in the same industry operating at the same stage of production o Intangible assets: Intangible means that an asset does not take physical form in the same way as a factory, machine or retail outlet does. he two main characteristics of an intangible asset are that it is not physical, meaning it exists as a legal power, and that it is identifiably separate from other assets. o Vertical integration: Vertical integration occurs when a firm controls different stages of production o Specific assets

Realism and neorealism

Neorealism is a theory of international relations that says power is the most important factor in international relations Realism is set of related theories of international relations that emphasizes the role of the state, national interest, and military power in world politics

Customs Unions (type of regional trade agreements)

No inside barriers Common external tariff

MNCs and the new regionalism: MNCs and trade politics in contemporary America

Osgood (2018) shows that « FDI and input sourcingare the primary drivers of support for tradeliberalization » in US today whereas « import competition and export opportunities [traditionalIPE explanations] ... secondary roles » a.MNCs and GVCs has increased level of support for free trade because US firms now also enjoybenefits of cheaper (intermediates) imports b.GVCs have created support for free trade even in uncompetitive industries because firms in theseindustries can enhance their competitiveness by sourcing cheaper inputs abroad c.GVCs have undermined industry homogeneityover trade: large firms even in uncompetitiveindustries will lobby for free trade Pro-free trade coalition now larger and more entrenched

The IMS today : OVERVIEW

Overview: - Floating o 1978 IMF Jamaica meeting and 2nd amendment - exchange rates regularly swing - Capital account liberalization o from mid-1970s, growing trend to lift capital controls - Sub-system o EMU o « Bretton Woods II » (pegging to dollar by China, oil producers)

The Greater East Asia Co-Prosperity Sphere

The Greater East Asia Co-Prosperity Sphere was an imperialist concept created and promulgated for occupied Asian populations from 1930 to 1945 by the Empire of Japan. It extended across the Asia-Pacific and promoted the cultural and economic unity of Northeast Asians, Southeast Asians, South Asians and Oceanians.

Sector model : definition

Ricardo-Viner (specific factors) model Unlike in Stolper-Samuelson theorem, factors are 'specific' to sectors/industries that employ them because 'inter-industry factor mobility' is low (i.e. workers in sector X cannot easily move to sector Y ifthey are laid-off; same for capital) Benefits of openess tied to sectors, not factors

CONCLUSION : POLITICS OF MULTINATIONAL CORPORATIONS

Rise of manufacturing MNCs spurred (incité) new regionalism as building bloc to universal free trade and broadened pro-free trade coalitions in developed countries Changing sectoral composition of FDI (decline of natural resources, rise of manufacturing and GVCs) and perceived failure of ISI led to « competition for capital » dynamic and bias in regulatory regime in favor of capital-exporting countries and foreign investors

National treatment clause (art. 3)

Rule GATT/WTO system The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in

Most favoured nation clause (Art. 1)

Rule GATT/WTO system any advantage, favor, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties

TRIMs

The Agreement on Trade-Related Investment Measures (TRIMs) are rules that are applicable to the domestic regulations a country applies to foreign investors, often as part of an industrial policy. The agreement, concluded in 1994, was negotiated under the WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), and came into force in 1995. The agreement was agreed upon by all members of the World Trade Organization. Trade-Related Investment Measures is one of the four principal legal agreements of the WTO trade treaty

Domino effect" (Baldwin 1993)

Status quo = protectionism to please import-competing firms; a third country signs PTA → trade diversion (loss of market share for exporters) → exporters mobilise to demand PTA. Example = Mexico joins NAFTA (1992) → EU exports to Mexico drop from 11% to 6% 1993-97 → EU (Spanish) exporters demand PTA with Mexico → EU - Mexico PTA in 2000 - Regional liberalization sweeps the globe like wildfire while multilateral trade talks proceed at a glacial pace. Why are countries eager to liberalize regionally but reluctant to do so multilaterally? The answer of the GATT-is-dead school is that multilateralism is too cumbersome for contemporary trade issues. This paper proposes a very different answer. Recent regionalism is caused by two idiosyncratic events multiplied by a domino effect. The triggering events - the U.S.-Mexico FTA and the EC's 1992 program - had nothing to do with GATT's health. The domino effect is simple. Political equilibria, which balance anti- and pro-membership forces, determine governments' stances on regional liberalization. Domestic exporters to regional blocs are a powerful pro-membership constituency. An event that triggers closer integration within an existing bloc harms the profits of nonmember exporters, thus stimulating them to boost their pro-membership political activity. The extra activity alters the political equilibrium, leading some countries to join. This enlargement further harms nonmember exporters since they now face a disadvantage in a greater number of markets. This second-round effect brings forth more pro-membership political activity and a further enlargement of the bloc. The new political equilibrium is marked by larger regional trading blocs. In the meantime, regionalism appears to spread like wildfire. - Status quo = protectionism to please import-competing firms

Economic Foreign Policy Making

System-centered -(relative) distribution of power -The function of attributes/capabilities GOLDSTEIN Society-centered -preferences of the dominant group or class of society or as resulting from the struggle that takes place amongst different groups/parties -The function of domestic politics MILNER State-centered -foreign economic policy as constrained by domestic institutional relationships, capacities of political and administrative officials - Institutional domestic structures MORRISON

The "three worlds" model

The "three worlds" model of geopolitics first arose in the mid-20th century as a way of mapping the various players in the Cold War. Today, the powerful economies of the West are still sometimes described as "First World," but the term "Second World" has become largely obsolete following the collapse of the Soviet Union. "Third World" remains the most common of the original designations, but its meaning has changed from "non-aligned" and become more of a blanket term for the developing world.

Asian late crisis 1990s

The Asian financial crisis was a period of financial crisis that gripped much of East Asia and Southeast Asia beginning in July 1997 and raised fears of a worldwide economic meltdown due to financial contagion. o Global financial crisis after 2008

CETA

The Comprehensive Economic and Trade Agreement (CETA) (unofficially, Canada-Europe Trade Agreement) is a free-trade agreement between Canada, the European Union and its member states. It has been provisionally applied, so the treaty has eliminated 98% of the tariffs between Canada and the EU.

GATS

The General Agreement on Trade in Services (GATS) is a treaty of the World Trade Organization (WTO) that entered into force in January 1995 as a result of the Uruguay Round negotiations. The treaty was created to extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade.All members of the WTO are parties to the GATS. The basic WTO principle of most favoured nation (MFN) applies to GATS as well. However, upon accession, members may introduce temporary exemptions to this rule.

EMU

The Economic and Monetary Union (EMU) is an umbrella term for the group of policies aimed at converging the economies of member states of the European Union at three stages. The policies cover the 19 eurozone states, as well as non-euro European Union states.

EMU

The Economic and Monetary Union (EMU) represents a major step in the integration of EU economies. Launched in 1992, EMU involves the coordination of economic and fiscal policies, a common monetary policy, and a common currency, the euro. Whilst all 28 EU Member States take part in the economic union, some countries have taken integration further and adopted the euro. Together, these countries make up the euro area.

EEC

The European Economic Community (EEC) was a regional organization that aimed to bring about economic integration among its member states. It was created by the Treaty of Rome of 1957. Upon the formation of the European Union (EU) in 1993, the EEC was incorporated and renamed the European Community (EC). In 2009, the EC's institutions were absorbed into the EU's wider framework and the community ceased to exist.

Kennedy round (1963)

The Kennedy Round was the sixth session of General Agreement on Tariffs and Trade (GATT) multilateral trade negotiationsheld between 1964 and 1967 in Geneva, Switzerland. Congressional passage of the U.S. Trade Expansion Act in 1962 authorized the White House to conduct mutual tariff negotiations, ultimately leading to the Kennedy Round. Participation greatly increased over previous rounds. Sixty-six nations, representing 80% of world trade, attended the official opening on May 4, 1964, at the Palais des Nations. Despite several disagreements over details, the director general announced the round's success on May 15, 1967, and the final agreement was signed on June 30, 1967—the very last day permitted under the Trade Expansion Act. The round was named after U.S. President John F. Kennedy, who was assassinated six months before the opening negotiations. The main objectives of the Kennedy Round were to: · Slash tariffs by half with a minimum of exceptions · Break down farm trade restrictions · Remove non-tariff barriers · Help developing countries

Latin American debt crisis 1980s

The Latin American debt crisis was a financial crisis that originated in the early 1980s (and for some countries starting in the 1970s), often known as La Década Perdida(The Lost Decade), when Latin American countries reached a point where their foreign debt exceeded their earning power, and they were not able to repay it

TTIP

The Transatlantic Trade and Investment Partnership (TTIP) is a proposed trade agreement between the European Union and the United States, with the aim of promoting trade and multilateral economic growth. According to Karel de Gucht, European Commissioner for Trade between 2010 and 2014, the TTIP is the largest bilateral trade initiative ever negotiated, not only because it involves the two largest economies in the world but also "because of its potential global reach in setting an example for future partners and agreements".

Triad

The Triad refers to the three centers dominating the world economy until the late 1990's: the United States (US) the European Union (EU) and Japan (JP) or somewhat more broadly, North America, (Western) Europe and Japan

MAI

The Multilateral Agreement on Investment (MAI) was a draft agreement negotiated in secret between members of the Organization for Economic Co-operation and Development (OECD) between 1995 and 1998. It sought to establish a new body of universal investment laws that would grant corporations unconditional rights to engage in financial operations around the world, without any regard to national laws and citizens' rights. The draft gave corporations a right to sue governments if national health, labor or environment legislation threatened their interests. When its draft became public in 1997, it drew widespread criticism from civil society groups and developing countries, particularly over the possibility that the agreement would make it difficult to regulate foreign investors. After an intense global campaign was waged against the MAI by the treaty's critics, the host nation France announced in October 1998 that it would not support the agreement, effectively preventing its adoption due to the OECD's consensus procedures.

Closing of « Gold Window » 1971

The Nixon shock was a series of economic measures undertaken by United States President Richard Nixon in 1971, in response to increasing inflation, the most significant of which were wage and price freezes, surcharges on imports, and the unilateral cancellation of the direct international convertibility of the United States dollar to gold While Nixon's actions did not formally abolish the existing Bretton Woods system of international financial exchange, the suspension of one of its key components effectively rendered the Bretton Woods system inoperative. While Nixon publicly stated his intention to resume direct convertibility of the dollar after reforms to the Bretton Woods system had been implemented, all attempts at reform proved unsuccessful. By 1973, the Bretton Woods system was replaced de facto by the current regime based on freely floating fiat currencies.

NAFTA

The North American Free Trade Agreement (NAFTA) is an agreement signed by Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994, and superseded the 1988 Canada-United States Free Trade Agreement between the United States and Canada. The NAFTA trade bloc is one of the largest trade blocs in the world by gross domestic product.

RTAA

The Reciprocal Tariff Act provided for the negotiation of tariff agreements between the United States and separate nations, particularly Latin American countries.[1] The Act served as an institutional reform intended to authorize the president to negotiate with foreign nations to reduce tariffs in return for reciprocal reductions in tariffs in the United States. It resulted in a reduction of duties.

Single European Act (SEA)

The Single European Act (SEA) was the first major revision of the 1957 Treaty of Rome. The Act set the European Community an objective of establishing a single market by 31 December 1992, and codified European Political Cooperation, the forerunner of the European Union's Common Foreign and Security Policy. It was signed at Luxembourg on 17 February 1986, and at The Hague on 28 February 1986. It came into effect on 1 July 1987, under the Delors Commission.

Louvre Accord 1987

The Statement of the G6 Finance Ministers and Central Bank Governors, commonly known as Louvre Accord was an agreement, signed on February 22, 1987, in Paris, that aimed to stabilize the international currency markets and halt the continued decline of the US Dollar caused by the Plaza Accord from 1985. It is considered - from a relational international contract view, as a rational compromise solution between two ideal-type extremes of international monetary regimes: the perfectly flexible and the perfectly fixed exchange rates

SALT agreements

The Strategic Arms Limitation Talks (SALT) were two rounds of bilateral conferences and corresponding international treaties involving the United States and the Soviet Union, the Cold War superpowers, on the issue of arms control. The two rounds of talks and agreements were SALT I and SALT II.

TPP

The Trans-Pacific Partnership (TPP), also called the Trans-Pacific Partnership Agreement, is a defunct proposed trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States signed on 4 February 2016, which was not ratified as required and did not take effect. After the United States withdrew its signature, the agreement could not enter into force. The remaining nations negotiated a new trade agreement called Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which incorporates most of the provisions of the TPP and which entered into force on 30 December 2018.

Neoliberal institutionalism to promote free trade

Trade cooperation based on attempt to solve theseproblems by international institutions and rules = applies to trade negotiations since mid-1930s institutionalised in GATT/WTO system after WW II

David Hume's price specie flow model

Trade surpluses lead to rising domestic prices

no multilateral regime for the regulation of international production and investment

Unlike trade / WTO Result is decentralized and asymmetric regime based on proliferation of BITs biased in favor of capital-exporting countries

Gowa (1984): State Power, State Policy: Explaining the Decision to Close the Gold Window

VD: The US decision to close the « Gold window ». VI: Domestic politics (presidential election, administration game power, etc.), domestic political processes (state-level),

Winners and losers of the new regionalism

WINNERS MNCs = multinational cooperation (overwhelmingly Northern) with global value chains suppliers from North and South LOSERS Import-competing firms (both North and South) small/middle-sized firms without global value chains

HISTORICAL BLOCS (historical background)

Zollverein: German customs union and trade coalition of German states, from 1834 (leading up to unification in 1871) Franc zone: franc-based currency area in North and West Africa, from 1901, strengthened in 1928 - stillaround ('Franc CFA') British imperial preference: from 1932 (Ottawa conference) to UK accession to EU (1973)

Absolutism

a political system in which a single ruler, group, or political party has complete power over a country

Economic nationalism

a situation in which a country tries to protect its own economy by reducing the number of imports and investments from other countries

Implications of Domestic trade politics

a. Countries are not per se mercantilist (cf. Milner 1988, lecture 3) b.Trade has serious effects on domestic politics c.Distributional effects (winners vs losers) depend on factor endowment (factor model) and factor mobility (sector model)

NORMS GATT/WTO system

a.Market liberalism (comparative advantage) b.Non-discrimination (MFN and national treatment) c.Transparency (reduce information problems)

BIT

bilateral investment treaty

A zero-sum game

o A zero-sum game is a mathematical representation of a situation in which each participant's gain or loss of utility is exactly balanced by the losses or gains of the utility of the other participants. If the total gains of the participants are added up and the total losses are subtracted, they will sum to zero. Thus, cutting a cake, where taking a larger piece reduces the amount of cake available for others, is a zero-sum game if all participants value each unit of cake equally.

History of IPE : pre-history

o First classical political economy, then separation of economics and politics o Adam Smith, David Ricardo, John Stuart Mill, Friedrich List, Karl Marx: wrote about anything. o 1870 : revolution rises to neoclassical economics. W. Stanely Jevons suggest replacing "political economy" by economics. o 1890: Alfred Marshall publishes "Principles of Economics" à disciplinary separation of social sciences ensues. o IR preoccupied with "high politics" (diplomacy, war, security) - foreign economic relations seen as "low politics". Exceptions after the marginalist revolution, many of their writings inspired later work in IPE: § Marxists and later dependency theory § Institutionalist economists in USA § Functionalist political science in 1950s and 1960s § JM Keynes and his interwar writings and American economists involved in public policy

History of IPE : birth

o Historical context of late 1960s, early 1970s: § Fracturing of Bretton Woods system § Dollar crisis 1968-1971 § Oil shock 1973 § Revival of Western Europe and Japan § Interference of growing international economic flows and domestic policies o 2 different births in USA and UK § USA: Keohane and Nye take over "International Organization" (become the main venue for IPE) in early 1970s, organize 3 conferences/special issues on world politics, international economics and interdependence. § UK: Strange's "Mutual Neglect" article in 1970 and IPE Group in Chatham house in 1971

. In situations described by a Chicken Game, cooperation is difficult because

the gains from cooperation are distributed unequally

GVC in Ravenhill

the term given to the coordination of different stages of production across various countries

Basic rationale of Ricardian trade theory

within each national economy, resources should beallocated to most efficient kinds of production Free trade spurs reallocation of resources towardmost efficient uses If each good is produced in the most efficient waywithin each national economy, then total consumer welfare increases

SHADOW OF POWER (Steinbeck 2002)

on bargaining in GATT/WTO a.GATT/WTO = organised hypocricy (power dynamicsremain = invisible weighting) b.Relative market size; BATNAs c.Asymmetrical concessions (Tokyo and Uruguay; TRIPS and GATS) d.'If power continues to disperse in the WTO, invisible weighting by Brussels and Washington will become more difficult.' (p368)

Gold standard collapse : 2 analyses

polanyi's classic analysis kindleberger's analysis

american ipe, systematic level

power and hegemonic stability international institutions

Bergsten 1996 'competitive liberalisation'

power competition Abstract: A large part of the world has eliminated all barriers to trade or is in the process of doing so. The fifteen members of the European Union have created a "single internal market." Australia and New Zealand have completed their free trade area. Several large groupings are en route to a similar outcome: the North American Free Trade Agreement (Canada, Mexico, United States), Mercosur (Argentina, Brazil, Paraguay, Uruguay), and the ASEAN Free Trade Agreement (Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, and now Vietnam). There are numerous free trade areas among smaller countries. MOTIVATIONS geopolitical interests mercantilist trading strategy discrimination against 3-country exporters; EXAMPLES NAFTA → EU - Mexico → Japan - Mexico EU - Chile → US - Chile → Japan - Chile Japan - Malaysia → EU - ASEAN negotiations → the US - Malaysia negotiations

international monetary cooperation : keys periods

pre-1914 period : gold standard interwar period: return to gold and collapse post 1945: bretton woods and collapse in 1970s post-1970 : hybrib ("non"-) system

solution time inconsistency problem

situation in which the best course of action in the present is not the best course of action in the future - central bank independance - fixed exchange rate regimes

different games

stag hunt - assurance chicken game - coordination prisoner's dilemma - cooperation

ratified the end of the Bretton Woods monetary system.

the Jamaica Accords were a set of international agreements

MERCOSUR (1991)

§ Mercosur, officially Southern Common Market, is a South American trade bloc established by the Treaty of Asunción in 1991 and Protocol of Ouro Preto in 1994. Its full members are Argentina, Brazil, Paraguay and Uruguay. Venezuela is a full member but has been suspended since December 1, 2016. Associate countries are Bolivia, Chile, Colombia, Ecuador, Guyana, Peru and Suriname.[7] Observer countries are New Zealand and Mexico Mercosur's purpose is to promote free trade and the fluid movement of goods, people, and currency. Since its foundation, Mercosur's functions have been updated and amended many times; it currently confines itself to a customs union, in which there is free intra-zone trade and a common trade policy between member countries

GSP

§ U.S. trade preference programs such as the Generalized System of Preferences (GSP) provide opportunities for many of the world's poorest countries to use trade to grow their economies and climb out of poverty. GSP is the largest and oldest U.S. trade preference program. Established by the Trade Act of 1974, GSP promotes economic development by eliminating duties on thousands of products when imported from one of 119 designated beneficiary countries and territories.

Int'l monetary systems : purpose

« The IMS is the glue that binds national economiestogether ... Nations find it difficult to efficientlyexploit the gains from trade and foreign lending in the absence of an adequately functioninginternational monetary mechanism » Eichengreen Globalizing Capital, p3

MNCs and the new regionalism: Overview Baccini « Economics and Politics of PreferentialTrade Agreements » (2019, An. Rev. of Pol. Sc.) sums up IPE research:

« The take-home message ... is that PTAs serve the interests of large, productive firms involved in offshoring activities. Such firms are the key actorsbehind the proliferation of PTAs. ... preferentialliberalization moves hand in hand with the growingimportance of FDI and GVCs. »

§ 4 freedoms of the single market

· Free movement of goods · Free movement of capital · Freedom to establish and provides services · Free movement of person

early example of export-processing zones in Des and Export-Oriented Industrialisation (EOI)

" new international division of labor"

origins liberalism

- 18th and 19th century England - First main figure is Adam Smith. Then Ricardo. -Critique of rent-seeking "mercantile system

Global FDI (stocks) as percentage of world output:

- 1913: 9% - 1960: 4.4% - 1980: 4.8% - 1990: 9.5% - 2005-7 (pre-crisis average): 28.4% - 2017: 39.1% In value: from $693 billion in 1980 to $27 trillion in 2016

EMBEDDED LIBERALISM money

- 1944: Bretton Woods conference o Keynes and White consensus on need to reconcile drive for liberal system (la volonté du libéralisme du système financier) and domestic policy autonomy. - Fixed but adjustable rates - Countervailing finance - Capital control - IMF embodies new monetary order centered around dollar and New York financial markets

Number of MNCs

- 1969: only about 7,300; - 1988, 18,500 - 2010: more than 100,000. These control almost 900,000 foreign affiliates. (Oatley) Economic importance: in 2016, MNCs responsible for 1/3 of global trade and 82 million jobs.

Rugman's theory of Regional MNCs based on firm-level data from 2001 Fortune Global 500

- 320/380 regional vs 9/380 « global » MNCs MNCs are essentially organisations with a regionalscope of operations within three poles of « Triad »

Main figures liberalism

- Adam Smith (1723-1790) o Wealth is not equal to trade surplus. Focus energy on something in which state is better). National wealth isn't associated with trade surplus. o Cheaper imports free up purchasing power that can be invested in more productive uses o Prefigures comparative advantage theory - David Ricardo (1772-1823) o Theorizes comparative advantage. Countries should specialize in which sector they are the best. than its competitors and realize stronger sales margins. o Critique corn laws (p.3) o Campaigner for free trade and abolition of tariffs - Richard Cobden (1804-1865) o Leader of Manchester school liberalism o Leader Anti-Corn law league (repeal 1846) o Free trade promotes equality (cheaper food prices for workers) and peace

context liberalism

- American and French Revolution - End of absolutism and beginnings of mass democracy - Rule of law

THE INTERWAR DISINTEGRATION OF GLOBAL CAPITALISM investment

- American big business begin to invest for production abroad. Beginning of new patterns of international investment. Away from hub-and-spokes/North-south to North-North FDI/ intra industry o A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country.[1] It is thus distinguished from a foreign portfolio investment by a notion of direct control. - Sparks talk of "commercial invasion in Europe" and stimulates search for large unified markets to rival American domestic market and imitate size of American corporations - in Europe (idea of customs union) and Japan (Greater East-Asia Co-Prosperity Sphere) o The Greater East Asia Co-Prosperity Sphere was an imperialist concept created and promulgated for occupied Asian populations from 1930 to 1945 by the Empire of Japan. It extended across the Asia-Pacific and promoted the cultural and economic unity of Northeast Asians, Southeast Asians, South Asians and Oceanians. - In less-developed countries: inward turn initiates wave of expropriations of foreign MNEs (=multinational enterprise) in particular in oil (ex. Mexican Oil expropriation creating PEMEX 1948 opening shot

IMS TODAY : KEY DEVELOPMENT

- Breakdown of fixed rates (1973) - Revision of IMF articles in favour of capital account liberalization (1970s) - Waves of financial crises shifting emphasis to emergency lending and conditionality (Latin American Debt crisis 1980s, post-communist transitions early 1990s, Asian Financial Crisis late 1990s, European sovereign debt crisis - see Lecture 11)

The IMS today : Key developments

- Breakdown of fixed rates (1973) - Revision of IMF articles in favour of capital account liberalization (1970s) - Waves of financial crises shifting emphasis to emergency lending and conditionality (Latin American Debt crisis 1980s, post-communist transitions early 1990s, Asian Financial Crisis late 1990s, European sovereign debt crisis)

Class interests : PARTISAN MODEL

- Classes and income sources o Workers earn income from employment o Capital owners earn income from capital return - Goals o Workers and capital owners prefer employment (growth) VS price stability according to income sources - Conflict o if Phillips Curve holds (trade-off between growth and inflation), workers and capitalists have different preferences (workers policy autonomy; capitalists fixed rates)

Later related manifestation of liberalism

- Classical liberalism of pre-1914 global economy with relatively free trade, capital flows and gold standard - Current stage of globalization with advance of free trade and free capital flows, "Washington consensus"

THE FIRST GLOBALIZATIONS: ORIGINS, TRADE, INVESTMENT, MONEY (middle 19th - 1WW) INVESTMENT

- Composition of international investment in golden age (from 1700 to about 1900) : mostly bank loans for infrastructural investment and extracting activities - Multinational corporations in primary sector in a "hub-and-spokes" structure where advances countries exported capital and less-developed countries exported raw materials and commodities - International investment regime based on colonialism and spread of UK Common law as well as Gold Standard (most currencies were fixed in relations to gold)

Morrison (2012): Before Hegemony: Adam Smith, American Independence and the Origins of the First Era of Globalisation

- DV : Commercial strategy versus ''openness'': we want to explain the shift in commercial strategy - ideational versus materials explanations : simply ideas

Goldstein et al. (2007): Institutions in International Relations: Understanding the Effects of the GATT and the WTO on World Trade

- DV : trade flows - IV : institutions

THE SECOND GLOBALIZATION. Middle 1970s. GEOPOLITICAL DEVELOPMENTS

- Debate over decline of American hegemony late 1970s - early 1980s due to dollar crisis in 1970s. - American hegemonic decline debate coupled with debate about European and Japanese challenges - 1990s URSS collapse and economic opening up of 2nd and 3rd worlds. American unipolar moment - Since early 2000s: rise of China (begin in 1979) and Sino-American tensions - Keynesianism on the decline. Importance of fighting inflation becomes more important. Various strands (courants) of neo-liberalism ascendant

THE INTERWAR DISINTEGRATION OF GLOBAL CAPITALISM THE ABSENT HEGEMON:

- Decline of Pax Britannica but absence of replacement - American economy still very inward looking. Not yet liberal internationalist - Issue of war reparations crystallizes - American isolationism in 1920s. trade protectionism. Refusal to act as lender of last resort in Europe. - 1929: withdrawal of American credit and going off gold standard. Crystallize isolationism in 1930s. primacy to domestic considerations. - Decline of free trade and liberal economic doctrines. Rise of Keynesianism (For Keynesians, markets left to their own devices do not necessarily lead to economic optimum. In addition, the State has a role to play in the economic field, particularly in the context of a recovery policy. The importance of this role varies according to Keynesian currents and with the state traditions of the different countries): welfare state and state intervention (domestic policy) + economic nationalism (foreign policy)

Bretton Woods : VARYING FORTUNES

- Early years o Instability of European currencies o Marshall Plan, European Payments Union and suspension of convertibility o Compliance (conformité) by late 1950s - Destabilization o US trade deficit from 1960 o Dollar glut o Conflicts over dollar's « exorbitant privilege » - Collapse o Closing of « Gold Window » 1971 o 1971-73 failed attempt to revive fixed rates

Later related doctrines of mercantilism

- Economic nationalism o 19th century o Response to liberalism and British hegemony in USA (independence) and Germany (unification) related to state-building o State-led industrialization and economic development through public infrastructure investment and protectionism. o Alexander Hamilton (1957-1804) o Friedrich List (1789-1846) - National developmentalism o 20th century o Response to American hegemony in some allied powers (France, Japan, South Korea) and many LDCs (Latin America mostly) o Dependency theory: Raul Prebisch (1901-986)

Definition of mercantilism

- Economic policies based on the premise that national wealth and power are best served by the state acting to increase exports and to run a balance of trade surplus (originally with the intention of accumulating precious metals). (Ravenhill) - A traditional school of political economy dating from (at least) the seventeenth century. It asserts that power and wealth are inextricably connected. Accordingly, it argues that governments structure their international economic transactions in order to enhance (améliorer) their power relative to other states and domestic society. Mercantilism thus depicts (dépeindre) international political economy as inherently conflictual. (Oatley)

world view liberalism

- Enlightenment - Liberty and property (Locke) - Rationality (Kant) - International politics as positive-sum game amenable (propice) to interstate cooperation and harmony.

THE FIRST GLOBALIZATIONS: ORIGINS, TRADE, INVESTMENT, MONEY (middle 19th - 1WW) MONEY

- From silver to gold standard (1844 bank charter Act in UK - then other countries follow British lead after 1870) - London provides international reserve currency and liquidity to stabilize international monetary system - Gold standard as "good housekeeping seal of approval" à adherence to the gold standard during the period from 1870-1914 was a signal of financial rectitude., that facilitated access by peripheral countries to capital from the core countries of western Europe. - External stability and imperative primacy over internal considerations - adjustment entirely domestic and fully elastic prices and wages, fixed exchange rates, free convertibility, international gold flows key regulator of the system

power of gatt/wto : shadow of power (Steinbeck)

- GATT/WTO = organized hypocrisy - relative market size : BATNAS - asymmetrical concessions (Tokyo and Uruguay ; TRIPS ; GATS)

THE FIRST GLOBALIZATIONS: ORIGINS, TRADE, INVESTMENT, MONEY (middle 19th - 1WW) TRADE

- Gradual dismantling of protections until 1880 driven by UK policy. - Bilateral tariff reductions, spread of colonial possessions, dependencies and free trading former colonies (especially Latin America and in particular Argentina à very important state) - Major exceptions: infant industry protection in USA and Germany (post-1879) - Hecksner-Ohlin pattern: free-trading labor and capital opposed landowners in UK. Free trading South (slave and landowners) opposed protectionist North (industry) in USA. Protectionist landowners allied with protectionist industry in Germany after unification against labor. Landowners in USA are for free trade in opposition - 1913: exports as % of world output peak. Economy is the most opened.

Bretton Woods : background

- History o Keynes and White debate at 1944 Bretton Woods conference - Features o Fixed, but adjustable rates o Gold-Dollar standard; capital control o Priority to domestic autonomy o International countervailing financing (IMF) - Adjustment o Symmetric o External if « fundamental disequilibrium »

EMBEDDED LIBERALISM trade

- IO to promote multilateral trade liberalization - IT : international trade organization. Never ratified by US Senate - 1947: GATT (ancestor WTO) à several rounds of multilateral trade liberalization. - Norms and rules o Gradual liberalization o Non-discrimination o MFN rule § The term means the country which is the recipient of this treatment must nominally receive equal trade advantages as the "most favored nation" by the country granting such treatment o National treatment rule § imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the market. o Several safeguards against destabilizing effect of trade liberalization - BUT biggest trade liberalization is not multilateral and is discriminatory in europe o Custom union in 1957 with the Treaty of Rome à prefigures new regionalism in 1980s-1990s.

topics liberalism

- Individuals interest/rights - Collective welfare - Freedom of trade prices, market and competition - Government as organizer of markets - Individuals economic freedoms

EMBEDDED LIBERALISM investment

- International Bank for Reconstruction and Development (World Bank) to provide public funds dor infrastructural investment in lieu of private funds of past - American initiatives for reconstruction o Marshall plan o Japanese equivalent o Boost local economies by Korean war spending - Investment trends from interwar period gather pace (s'accélère) o Rise of MNE (multinational enterprises) o Reorientation of flows o Intra developed world FDI dominates (as opposed to hub and spokes) and intra-industry FDI (linked to rise in intra-firm trade) - Rest of world shuns developed country FDI. Expropriations peak in 1970s.

evolution

- Long-term historical evolution from hub-and-spokes to North-North and intra-industry pattern - From colonialism and spread of UK Common Law to new regionalism and BIT (bilateral investment treaty)

fourth stage of global capitalism:

- Market entry - Product specialization - Value chain disaggregation - Value chain reengineering - Creation of new market

EMBEDDED LIBERALISM new hegemon

- Pax Americana replaces Pax Britannica. - Liberal internationalism prevails over isolationism just as turn away from protectionism in 1930s and conversion of American industry to free trade. - USA promotes multilateral liberalization. Keeps its domestic market open for allies. Source of international investment for reconstruction. Stabilizes international economic system. Creates space to reconcile external imperatives and domestic policy autonomy - 2nd and 3rd worlds stand aside. Pursue inward-oriented industrialization (ISI)

THE SECOND GLOBALIZATION. Middle 1970s. money

- Post Bretton Woods non-system (collapse of Bretton Woods system in 1971) - Exorbitant privilege of dollar - Ad hoc cooperation: o Bonn Summit 1978 o Plaza Accord 1985 o Louvre Accord 1987 - European monetary cooperation and then unification - Capital controls almost universally lifted in advanced countries. - Financial openness increases du to turn away from developmentalist policies in Japan, LDCs etc. - China maintains capital controls in place to large extent - Wave of financial crises due to rebirth of global finance o Latin American debt crisis 1980s o Asian late crisis 1990s

Ricardo-Viner (specific factors) model :

- Unlike in Stolper-Samuelson theorem, factors are 'specific' to sectors/industries that employ them because 'inter-industry factor mobility' is low (i.e. workers in sector X cannot easily move to sector Y if they are laid-off; same for capital) - Benefits of openess tied to sectors, not factors

THE INTERWAR DISINTEGRATION OF GLOBAL CAPITALISM money

- Restoration of modified gold standard in 1920s - Keyne's polemic against it. - New reality in interaction between external imperatives and domestic policies à rise of labor movement means internal adjustment becomes much more difficult and domestic policies need autonomy over external imperatives. - Macroeconomics stages o Inflation early 1920s o Return to gold 1924-1931 o Great depression 1929-1937 - End of gold standard : o 1931 : UK o 1933 : FDR (Franklin Delano Roosevelt) declares primacy of domestic policies over external commitments o 1936 : tripartite agreement (USA-UK-France) is the first attempt to restore international monetary system. Base on cooperation between central bank to stabilize exchange rate. § The Tripartite Agreement was an international monetary agreement entered in September 1936 to stabilize their nations' currencies both at home and in the international exchange markets.

The IMS today : cooperation and conflict

- Rise of G7 o Rambouillet (1975) § G6 summit o Bonn (1977) § 3rd G7 summit o Plaza (1985) § G5 o Louvre (1987) - attempts to revive cooperation § G7 - Benign neglect o Dollar depreciation in 1970s o « The dollar is our currency but your problem » (John Connally, Nixon's Treasury secretary); o « Once in a while I think about those things, but not much » (Bush senior, 1990s) - Conflict o We're in the midst of an international currency war » (Mantega, 2010) o Clash over Chinese exchange rate

Average scores for regional sales and assets 1999-2008 (Rugman and Oh 2014)

- Sales: 70% - Assets: 72% - 80% regional vs 4% global MNCs

THE SECOND GLOBALIZATION. Middle 1970s. investment

- Spread of BITs = bilateral investment treaty - Rise of competition to attract capital. Spurred (incité) by abandonment of ISI and opening up of Central and Eastern Europe and Russia - Expropriations of MNE (multinational entreprises) in LDCs decline (least developed countries) - Companies product in developing countries and no more in developed countries.

Exchange rate regimes : Free floating

- The currency's value is determined by supply and demand in the market, rather than policy. Countries often permit a free float only as a temporary solution, because it could result in excessive fluctuations. Such fluctuations disrupt international transactions. - A free floating exchange rate, sometimes referred to as clean or pure float, is a flexible exchange rate system solely determined by market forces of demand and supply of foreign and domestic currency, and where government intervention is totally inexistent.

Exchange rate regimes :Currency peg

- The currency's value is pegged to a basket of currencies or to another country's currency. Countries ofter peg their exchange rates to the currency of an industrial country with which they traded heavily. - A currency peg is a country or government's exchange rate policy whereby it attaches, or links, the central bank's rate of exchange to another country's script. Also referred to as a fixed exchange rate or a pegged exchange rate, a currency peg stabilizes the exchange rate between countries. Doing so provides long-term predictability of exchange rates for business planning and can anchor rates at advantageous levels for large importers.

THE SECOND GLOBALIZATION. Middle 1970s. trade

- The new protectionism late 1970s fails to curb (freiner) trade liberalization - Economic internationalization and rise of MNEs strengthens (renforce) pro-free trade coalition - Liberalization spurred by less developed countries (LDC) abandoning import substitution industrialization (ISI) - Multilateral trade liberalization gives way to the new Regionalism. Trend begun with EU Common market deepens (s'approfondit). USA turns to regionalism too after 1970s (CUFTA, NAFTA). Mercosur. EU deepening and debate on "fortress Europe". Japan pursues its own network of PTAs AsEAN. Dynamic of "competitive liberalization" (PTA = preferential trade area) - Characteristics : « deep liberalization » often coupled with BITs = bilateral investment treaty

Exchange rate regimes : Managed floating

- This type is similar to free floating exchange rates, but a government intervenes by buying or selling its own currency to minimize fluctuations. Australia, Canada, Jamaica, Japan, the Philippines, the United States and others adopted this type of exchange rate. - A managed floating exchange rate is a regime that allows an issuing central bank to intervene regularly in FX markets in order to change the direction of the currency's float and shore up its balance of payments in excessively volatile periods. This regime is also known as a "dirty float".

Main figures mercantilism

- Thomas Mun (1571-1641) o Private merchant o Director of East India Company o Member of Standing commission on Trade - Jean-Baptiste Colbert (1619-1683) o Louis XIVs finance minister o State-led manufacturing o Import-substitution and export-promotion o Favorable trade balance o Founder French India CIe

THE FIRST GLOBALIZATIONS: ORIGINS, TRADE, INVESTMENT, MONEY (middle 19th - 1WW) ORIGINS

- Transport revolution (18th) and market integration/ price convergence. Free trade development in England and diffuses in the rest of Europe. - 1820s as globalization big bang - Rise of liberalism and decline of mercantilism. Development of comparative advantage prescriptions by Smith and Ricardo. Manchester school liberalism (Richard Cobden=liberal stateman) dominates - Pax Britannica and blogal economy centred around London and the UK. Has the biggest market and the biggest export marlet A hegemon who anchored the system by providing free access to its domestic maket, capital for investment across globe and anchor international monetary system - Today NYC is the capital of global capitalism

THE INTERWAR DISINTEGRATION OF GLOBAL CAPITALISM TRADE

- Turn to protectionism in 1920s. Peak in early 1930s. - Leads to general form to economic nationalism and autarky o USA: Smoot-Hawley tariff 1930. Highest point of protectionism in USA. § raised import duties to protect American businesses and farmers, adding considerable strain to the international economic climate of the Great Depression. o UK: imperial preferences system 1932. France does the same. § free trade agreements between the dominions and colonies of the British Empire o GERMANY and JAPAN: attempt at closed regional trade blocs in 1930s. o URSS: turn inward after Stalinist "socialism in one country" doctrine prevails in mid-1920s. § The theory held that given the defeat of all the communist revolutions in Europe in 1917-1923 except Russia, the Soviet Union should begin to strengthen itself internally. This turn toward national communism was a shift from the previously held position by classical Marxism that socialism must be established globally o LATIN AMERICA: abandon free trade in 1930s as terms of trade for raw materials turn sour - Attempts to restore free trade after 1934 with RTAA - from that point onwards American industry abandons protection for free trade

high level of factor mobility

- class coalition - internally unified on the trade issues - adopt coherent protectionnisme or free trade positions - effect on industry groups is inactive

large MNCs main organizational form (in GVC)

- outsourcing, intrafirm trade - trade in components - GVCS

Revival IMF role

- overseeing structural adjustment programs meant IMF key vector of Washington Consensus - During European sovereign debt crisis, huge increase in IMF resources

low level of factor mobility

- industry coalition - internally divided over trade issues - adopt ambitious policy positions - lobby actively for protection in import-competing industries and for free trade export industries

Baccini et al. (2018) : tariffs

- show tariffs on intermediate goods fall more quickly than those on finished goods, indicating importance of GVCs

power of gatt/wto : Shadow of law (Steinbeck)

- sovereign equality and consent-based decision making - launche phase requires specification of issues covered and proposition of broad deals beneficial to all parties (Example : Kennedy round (1963), some recognition of LDC demands (GSP), inclusion of agriculture ) = la phase de lancement nécessite de préciser les questions couvertes et de proposer des accords généraux avantageux pour toutes les parties

central bank indépendance

- take away authority for monetary policy away from government because they face elections (SR) and delegate it to independent central banker (LR) - CB can establish credibility/reputation for low inflation over time and break inflationary anticipations - result should be law inflation and no long term negative effect on employment

neorealism: date, auteur, theme

1960 Waltz Security and power

A positive sum game

A positive sum game refers to the outcome of a decision or a policy or a negotiation involving at least one agent. And in this outcome a positive sum game occurs when no one wins at someone else's expense - indeed the sum of positives and negatives (wins and losses) is positive.

SWF

A sovereign wealth fund (SWF) is a state-owned investment fund or entity which comprises of pools of money derived from a country's reserves. Reserves are funds set aside for investment to benefit the country's economy and its citizens. The funding for an SWF comes from central bank reserves which accumulate because of budget and trade surpluses, official foreign currency operations, money from privatizations, governmental transfer payments and revenue generated from the exporting of natural resources.

definition liberalism

A traditional school of political economy that emerged in Britain during the 18th century as a challenge to mercantilism. Liberalism asserts that the purpose of economic activity is to enrich individuals, and that the state should thus play little role in the economic system. Liberalism gave rise to the theory of comparative advantage. It suggests that international political economy is cooperative rather than conflictual (Oatley)

Definition on Global Value Chain Initiative website

A value chain can be contained within a single geographic location or even a single firm (think about a fruit that is grown, packaged, sold and consumed within one country). A global value chain is divided among multiple firms and geographic spaces. For example, a computer uses labor and materials from multiple suppliers in different countries, is assembled in another country, and was designed and will ultimately be sold in other places. The GVC Initiative is particularly interested in understanding value chains that are divided among multiple firms and spread across several locations, hence the term "global value chain.

GCC:

An internationally integrated process of economic links between corporations and workers whereby commodities are gathered, transformed into goods and services, and distributed to consumers across the world. A process used by firms to gather resources, transform them into goods or commodities, and finally, distribute them to consumers. It is a series of links connecting the many places of production and distribution and resulting in a commodity that is then exchanged on the world market. In short, it is the connected path from which a good travels from producers to consumers. Commodity chains can be unique depending on the product types or the types of markets. Different stages of a commodity chain can also involve different economic sectors or be handled by the same business

Exchange rate politics : Credibility/« technocratic » approach Fixed exchange rate regime

Another solution to time inconsistency problem: fixed exchange rates - Building anti-inflationary credibility (in particular for investors) = commit to a simple, widely observed indicator - Fixed XR signals commitment to price stability (just as Gold Standard was « good housekeeping seal of approval » and eurozone accession for Southern European member states) = priority given to external stability over domestic policy autonomy - Credibility problem depends on various factors: historical record of inflation; left vs right governments (left governments less credible hence less likely to devalue to build up credibility)

BRICs

BRIC is an acronym for the developing nations of Brazil, Russia, India, and China - countries believed to be the future dominant suppliers of manufactured goods, services, and raw materials by 2050

Development of the new regionalism : strategic shift

Background: failure of ISI shift to free trade competition for FDI Problem: history of economic instability 'time consistency' problem Solution: international legal commitment through agreements

the Cobden-Chevalier Treaty considered a milestone in international political economy

Because it included a most-favored nations clause

Gold Standard : VARYING SUCCESS

Before 1914: confidence in government commitments to external stability stabilising flowsand flexible wages and prices After 1918: doubts about government commitment destabilising capital flows and growing wage and price stickiness Collapse: More than 40 countries on Gold in 1930 0 in 1937. UK goes off in 1931.

MNCs and the new regionalism : MNCs and NAFTA

Chase work on NAFTA: Why did US drop commitment to multilateralism (MFN principle) in early 1980s and concludes major preferentialagreements with Canada (1988) and Mexico (1993) - NAFTA in 1994 « This ... first and foremost, reflected marketinterests of firms in industries dependent on large-scale, multinational production ... Increases in MES [minimum efficient scale] or failure to keep pacewith rival abroad amplified the need for largervolume in industries producing for the U.S. market... Second, firms moved labor-intensive stages of manufacturing out of the United States and outsourced components or final assembly to cutfactor costs ... companies developed regionalprocurement networks to specialize production across different locations. » Deep integration = includes rules on FDI, IP and services

PTA : risk for investor, solution

Clause protecting property rights - clauses on regulatory transparency and non-discrimination for foreign investor - clauses protecting property rights - create stake in host-s economy for home country - lock in zero-tariffs of host country - lock in zero-tariffs of home country

Gold standard :KINDLEBERGER'S ANALYSIS

Collapse of Gold Standard and length of Depression due to collapse of international cooperation. Lack of hegemonic power to stabiles the system and induce cooperation. Britain no longer capable, America not yet willing

Comparative advantage

Comparative advantage is an economic term that refers to an economy's ability to produce goods and services at a lower opportunity cost than that of trade partners. A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins.

Traditional explanations of the new regionalism

DEMAND SIDE Neofunctionalism: Bottom-up process through spillover Actors: Interest groups firms citizens Motivations: Economic gains transaction costs uncertainty SUPPLY SIDE Intergovernmentalism: Top-down process through bargaining Actors: National governments policymakers Motivations: Political gains and leadership linked to geopolitics

Institutions : Domestic trade politics

DEMOCRACY Economic performance more important than vestedinterests; trade agreements as signals of commitment to promote general (consumer) welfare ELECTORAL SYSTEM Majoritarian systems promote political organisation along sectoral/industry lines; proportional systems promote organisation along class lines VETO PLAYERS Systems that grant fewer political actors access to policymakers find it easier to change (lower) tariffs

Helen Milner (1988): Trading Places: Industries for Free Trade

DV: US resistance to protection in the 1970s IV: Increased economic interdependence

Frieden (1991): Invested Interests: the politics of national economic policies in a world of global finance

DV: policy preferences of the different social economic groups IV: 1. Tradable VS non-tradable goods→Tradability of good 2. International vs domestic orientation→export or import oriented

PTA : risk for investor

Expropriation : - regulatory takings (regulations depriving owners of effective property rights) - local content requirement; employment of local labour, minimum exports - economic instability - trade barriers loss of export market

THEORETICAL EVOLUTION liberalism/mercantilism

From 1620s: Mercantilism From 1770s: Liberalism From 1790s: Economic nationalism From 1870s: Marxism Neoclassical economics From 1900s: IR Liberalism/idealism Since 1930s: Realism and Neorealism Since 1970s: Neoliberal institutionalism

Global value chains

From hub-and-spokes to global value chains a.Sharp decline in share of primary sector and sharpgrowth in share of manufacturing and services (from 25% in 1970s to ½ by 2000). b.Large MNCs main organisational form; - outsourcing, intrafirm trade (20% in 1970 to more than 40% in 2000) -trade in components - GVCs c.FDI stocks concentrated in North America, Europe and Japan with a striking rise of flows into China and most recently out of China d.Policy environment based on spread of RTAs and BITs

GATT PROVISIONS (historical background)

GATT article XXIV(5): "Accordingly, the provisions of this Agreement shall not prevent, as between the territories of contracting parties, the formation of a customs union or of a free-trade area or the adoption of an interim agreement necessary for the formation of a customs union or of a free-trade area; ..." in favor of European custom union Enabling clause (1979): "Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries" - allows preferential treatment for developing countries Develop countries promote development of developing countries

which GVC are we interested in?

GVCs mostly focus of efficiency-seeking FDI that took off after 1970s as ISI and developmentalism were abandoned and countries opened-up. ( donc s'interesse a FDI après que les pays se soient ouverts et s'en branle de ISI et developmentalism)

GVCs: Recent developments

Gereffi 2014 GVCs in a post-Washington consensus world a.Large emerging economies less dependent on EOI since 2008 crisis and more inward-looking. Growing share of final demand. Growing shareof global production. b.Growing consolidation of suppliers (reducesasymmetry of power relations in favour of lead firms) c.Geographic concentration in proximity to emerging markets. Rise of some emergingmarket lead firms. In summary: large emerging countries no longer dependent on export markets in developed countries but become independent poles of economicdevelopment

Bretton Woods: Triffin Dilemma COMPETING GOALS

International reserves: - Aim to provide extra supply of US$ to world economy to keep up with expansion of int'l trade - Dollar shortage could pull world economy into deflationary spiral - Requires current account deficit (outflow of US$) Confidence: - Requires reducing supply of US$ to stabilize gold price - Otherwise, undermines confidence in dollar and its role as reserve currency leading to instability - Requires current account surplus (inflow of US$)

Exchange rate politics : Credibility/« technocratic » approach Breakdown of postwar consensus

Key underlying belief of postwar consensus: possibility to fine-tune (affiner) economy based on Phillips Curve/trade-off between inflation and unemployment Belief delegitimized by stagflationary 1970s Rational expectations and neutrality of money critiques: - if economic agents anticipate what governments will do (allow for higher inflation), Phillips Curve does not work - Monetary policy cannot have positive impact on real economy Typical « time consistency problem »; definition in Oatley: Situations in which the best course of action in the present is not the best course of action in the future = government promises not credible

Models of trade politics

LIBERAL MODEL MERCANTILIST MODEL

But are BITs working for host countries?

No decisive evidence BITs lead to larger inward FDI flows in relation to countries without BITs

Free trade area (type of regional trade agreements)

No inside barriers Each member sets its own external tariff

NTBs

Non-tariff barriers to trade (NTBs) or sometimes called "Non-Tariff Measures(NTMs)" are trade barriers that restrict imports or exports of goods or services through mechanisms other than the simple imposition of tariffs.

Bretton Woods : Norms

Norms: - Trade promotion (Art 1.2, 4.1) - Domestic autonomy (Art 4.3, Schedule C.4 and C.7) - Public international finance (Art 1.4) - Symmetric adjustment (Art 1.5, 4.4) - Monetary stability (Art 1.3)

Gold Standard: Keynesianism

Observations: - persistent unemployment and trade competition in 1920s/30s Interpretation: - Failure of internal adjustment and free trade - Recourse to protectionism (tariffs) as alternative Priority to internal stability: - « It is the policy of an autonomous rate of interest, unimpeded by international preoccupations, and of a national investment program directed to an optimum level of domestic employment which is twice blessed in the sense that it helps ourselves and our neighbors at the same time » (General Theory, ch. 23)

old and new IPE

Old : international level New : domestic sources of foreign economic policy

Other electoral effects : reconciling sector and factor model

POLITICAL REALIGNMENT Losers demand compensation and hence align withleft parties (e.g. Che et al. 2016) or vote againstincumbents (e.g. Jensen et al. 2017) POLITICAL POLARISATION Trade opening (e.g. Chinese imports following the 'China shock') lead to rise of politicians withextreme views on both sides (e.g. Autor et al. 2016)

Key periods

PRE-A914 PERIOD: Gold standard INTERWAR PERIOD: Return to Gold and collapse POST-1945: Bretton Woods and collapse in 1970s POST-1970s: Hybrid ('non-') system

Debate about effect of PTAs on multilateral system

PTAs as "stumbling blocks" (=a circumstance that causes difficulty or hesitation) (Bhagwati, Krishna) undermining multilateral system VS PTAs s "building blocks" (=the basic things that are put together to make something exist) (Summers. Baldwin) So PTAs promote trade VS PTAs block trade

2 levels games

PUTNAM 1988 classic study domestic policy can be constrained by international commitments international bargaining can be constrained by domestic pattern of interests

Exchange rate politics : Credibility/« technocratic » approach Time consistency problem

Political economy model: - Actors o Government and labor unions - Aims o Employment (both) o Price stability (government) o Real income (unions) - Sequence o a. Government says it will keep inflation low (≈ 2%) o b. Unions bargain for wage increases above 2% (rise in real incomes) o c. Government breaks promise of 2% inflation Outcome: - Dilemma o incentive to cheat for government = increase inflation after wage agreement = create employment - Expectations o unions anticipate government cheating = ask for greater wage increases - Result o high inflation spiral and no or little effect on employment (see figure)

liberal model of trade

Political model of int'l trade derived from Ricardianand liberal theory assumes governments act on basis of consumer welfare considerations In game theoretical terms: Harmony

PTAs and political risk (Büthe and Milner 2014 (World Politics 66/1))

Question: PTA design effects on political risk and FDI flows Answer: PTAs provide commitment and enforcement mechanisms that domestic reforms on their own don't Analysis: PTAs with stronger investment clauses lead to greater FDI inflows ('institutional diversity matters')

regional agreement : ex

RCEP : regional comprehensive economic partnership between 10 members of the association of southeast Asian nations

2 important exceptions to MFN

RTAs : · A regional trade agreement (RTA) is a treaty between two or more governments that define the rules of trade for all signatories GSP : · The Generalized System of Preferences, or GSP, is a preferential tariff system which provides tariff reduction on various products.

Realpolitik

Realpolitik is politics or diplomacy based primarily on considerations of given circumstances and factors, rather than explicit ideological notions or moral and ethical premises. In this respect, it shares aspects of its philosophical approach with those of realism and pragmatism. It is often simply referred to as "pragmatism" in politics, e.g. "pursuing pragmatic policies". The term Realpolitikis sometimes used pejoratively to imply politics that are perceived as coercive, amoral, or Machiavellian.

Bretton Woods : rules

Rules: - Fixed but adjustable rates (Art 4.4) - Negotiated rate adjustment if « fundamental disequilibrium » (Art 4.4, Schedule C.6, Art 8.3) - Capital controls (Art 6.3) - Emergency lending (Art 5) = prêt d'urgence - Surveillance (Art 4.3, 8.5)

The Group of 77 (G77)

The Group of 77 (G77) at the United Nations is a coalition of 135 developing nations, designed to promote its members' collective economic interests and create an enhanced joint negotiating capacity in the United Nations

Bonn Summit 1978

The Group of Seven (G7) was an unofficial forum which brought together the heads of the richest industrialized countries: France, West Germany, Italy, Japan, the United Kingdom, the United States, Canada (since 1976) and the President of the European Commission

AFTA

The ASEAN Free Trade Area (AFTA) is a trade bloc agreement by the Association of Southeast Asian Nations supporting local trade and manufacturing in all ASEAN countries, and facilitating economic integration with regional and international allies It stands as one of the largest and most important free trade areas (FTA) in the world, and together with its network of dialogue partners, drove some of the world's largest multilateral forums and blocs, including Asia-Pacific Economic Cooperation, East Asia Summit and Regional Comprehensive Economic Partnership

Plaza Accord 1985

The Plaza Accord was a joint-agreement, signed on 22 September 1985, at the Plaza Hotel in New York City, between France, West Germany, Japan, the United States, and the United Kingdom, to depreciate the U.S. dollar in relation to the Japanese yen and German Deutsche mark by intervening in currency markets. The U.S. dollar depreciated significantly since the agreement until it was replaced by the Louvre Accord in 1987. The Plaza Accord is a 1985 agreement among the G-5 nations—France, Germany, the United States, the United Kingdom, and Japan—to manipulate exchange rates by depreciating the U.S. dollar relative to the Japanese yen and the German Deutsche mark.

RCEP

The Regional Comprehensive Economic Partnership (RCEP) is a proposed free trade agreement in the Asia-Pacific region between the ten member states of the Association of Southeast Asian Nations (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) and their five FTA partners (Australia, China, Japan, New Zealand, and South Korea). India, ASEAN's sixth FTA partner, opted out of the agreement in 2019.

Triffin dilemma

The Triffin dilemma or Triffin paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies. This dilemma was identified in the 1960s by Belgian-American economist Robert Triffin,[1] who pointed out that the country whose currency, being the global reserve currency, foreign nations wish to hold, must be willing to supply the world with an extra supply of its currency to fulfill world demand for these foreign exchange reserves, thus leading to a trade deficit.

The Unholy Trinity def

The Unholy Trinity is an international economic principle that the policymakers of a country may pursue only two out of three policy directions. The three policy directions are the free movement of capital, an independent monetary policy, and a fixed or pegged exchange rate policy. Out of the three policy directions, states would most likely wish to pursue an independent monetary policy and exchange rate stability. However, as most governments now know, capital controls are hard to enforce as economic actors are easily able to find ways to evade such restrictions. Furthermore, capital controls discourage foreign economic actors from investing their capital in a country since they may not be able to freely remove their capital in the future. As a result, most governments simply cannot impose workable capital controls, which all but ensures that the free movement of capital is one of the two policy directions that governments will choose. This servers as the basis for Milton Friedman's declaration that flexible exchange rates are necessary for free trade, as foreign and domestic investors must be permitted to freely move capital across international borders to satisfy balance of payments and for governments to retain independent monetary policies, especially as an anti-recessionary measure. Benjamin Cohen argues that although international coordination may solve the problem of the Unholy Trinity with coordinated state action in regard to exchange rates, states are induced by ever-changing incentives to cheat or cooperate on such arrangements in order to further their own short-term policy priorities. Such uncertainty thus makes exchange rate coordination untenable.

The Washington Consensus

The Washington Consensus is a set of 10 economic policy prescriptions considered to constitute the "standard" reform package promoted for crisis-wracked developing countries by Washington, D.C.-based institutions such as the International Monetary Fund (IMF), World Bank and United States Department of the Treasury.[1] The term was first used in 1989 by English economist John Williamson.[2] The prescriptions encompassed policies in such areas as macroeconomic stabilization, economic opening with respect to both trade and investment, and the expansion of market forces within the domestic economy.

CHARACTERISTICS GATT/WTO system

a.Multilateral structure; global and permanent membership -> + repeated interaction b.Decision making by consensus (one country = one vote) -> + legitimacy c.Regulations on all aspects of trade (tariffs, NTBs, IPRs, ...) d.Trade policy review -> + info for countries e.Dispute settlement mechanism

POLITICAL

introduces domestic and international political variable(s) to understand economic processes and outcomes, in particularbattle between winners and losers of international economicinteraction; investigates economic dimension of world politics

MNCs and the competition for capital: Historical background

The policy environment before the era of competition for capital: a.Nationalizations in the 1960s and 1970s b.Constraining regulatory regimes (« regulatory takings ») - joint ventures, profit repatriation limits, limits to prices paid for technology transfers, performance requirements (exports, local input, local R&D) c.This environment most frequent in ISI countries - EOI pioneers in East Asia more friendly to FDI = pioneered export-processing zones (subsidies for foreign firms for exporting purposes only) d.Developed countries more open to FDI with two important partial exceptions: France and, in particular, Japan A theoretical framework for understanding bargaining between MNCs and host countries: obsolescing bargain. Definition in Oatley: Explains how a multinational corporation (MNC) and a host country government divide the income generated by an MNC investment in the host country. It asserts that the MNC has a bargaining advantage in the pre-investment negotiations. Consequently, the initial investment agreement will direct a larger share of the resulting income to the MNC and a smaller share to the government. Once the investment is made, however, the government gains bargaining power at the expense of the MNC. The government uses its enhanced bargaining power to renegotiate the initial agreement and claim a larger share of the investment income. The initial bargain is thus rendered obsolete by post-investment changes in relative bargaining power. Best apply to natural-resource FDI because host countries usually have monopoly power over resources; not so well to low-skilled manufacturing- hence decline in host country bargaining power over time

Rule of law

The rule of law is defined in the Oxford English Dictionary as: "The authority and influence of law in society, especially when viewed as a constraint on individual and institutional behavior; (hence) the principle whereby all members of a society (including those in government) are considered equally subject to publicly disclosed legal codes and processes." The term "rule of law" is closely related to "constitutionalism" as well as "Rechtsstaat", and refers to a political situation, not to any specific legal rule.

Conflicts over dollar's « exorbitant privilege »

The term exorbitant privilege refers to the benefit the United States has due to its own currency (i.e., the US dollar) being the international reserve currency. Accordingly, the US would not face a balance of payments crisis, because it purchased imports in its own currency. Exorbitant privilege as a concept cannot refer to currencies that have a regional reserve currency role, only global reserve currencies

Definition of GVCs in Ravenhill

The term given to the coordination of different stages of production across various countries.

global value chain GVC

The value chain refers to the set of productive activities carried out by enterprises in different geographical locations around the world to bring a product or service from the design stage to the production stage and delivery to the final consumer. These activities include, as appropriate, research and development, design, production, marketing, distribution, retailing, and sometimes even waste management and recycling. Increasing globalization of value chains has led to an unprecedented level of interdependence between countries involved in supply chains. Translated with www.DeepL.com/Translator (free version)

MNCs and the new regionalism: Overview Kerry Chase's work the pionnering study in the field

a.New regionalism helps MNCs reap economies of scale and benefits from offshoring production (efficiency-seeking FDI). Chase shows tariffs are eliminated most quickly in industries with large economies of scale potential and high levels of intra-firm trade b.Baccini et al. (2018) show tariffs on intermediategoods fall more quickly than those on finishedgoods, indicating importance of GVCs c.Recent studies show « firm-level heterogeneity » within industries. Only the largest firms withinindustries push for preferential liberalization d.Manger (Investing in Protection 2009) shows PTAs mostly about FDI, not trade and thatMNCs use them to discriminate against third-country MNC competitors

WTO stagnation : recent explanation of the rise of new regionalism

WTO EVOLUTION Membership: from 23 to 164 members and decisions based on consensus Growing heterogeneity: regional associations sectoral associations LDCs transition/emerging markets Growing complexity: sectors trade restrictions (NTBs,IPRs) institutional procedures

MINISTERIAL CONFERENCE

WTO organ Role: highest authority, decides on trade agreements Consensus: equal voting power; de facto veto power Selected majority voting: interpretation; waiver of obligations; amendments; admissions

GENERAL COUNCIL

WTO organ Role: on behalf od Ministerial conference, as Dispute Settlement Body (DSB) or Trade Policy Review Body (TPRB) DSB: oversees dispute settlement mechanism; adoptspanel rulings TPRB: regular review of all members; oversees reviewprocess

Challenges of the new regionalism

WTO/multilateral system: regionalism as an alternative to multilateralism partiallydiscriminatory both trade-creating and trade-diverting effects Regulation: race to bottom to attract investment lower common denominator threat to national standards and regulatory traditions Developing countries: asymmetrical bargains competition to attract FDI detrimental to South-South integration

Exchange rate politics : Credibility/« technocratic » approach Central bank independence

What is the solution this? Central bank independence ("Conservative Centrale Banker") - A conservative central banker, who puts more weight on inflation stabilization than the social planner, solves the stabilization bias of discretionary monetary policy. This note shows that the welfare costs of deviating from the optimal degree of monetary conservatism are asymmetric. A too conservative central banker is more costly than a too liberal central banker. a. Take authority for monetary policy away from governments because they face elections (short time horizon) and delegate it to independent central banker (long time horizon) b. CB can establish credibility / reputation for low inflation over time and break inflationary anticipations c. Result should be low inflation and no long term negative effect on employment.

Bretton Woods: End of Keynesianism

a. Stagflationary context of 1970s invalidates Phillips Curve assumption b.Milton Friedman and monetarism: monetarypolicy can at best be neutral; should focus on money supply, not spurring demand c.Rise of « neo-liberalism »: set of doctrines stressing superiority of laissez-faire over interventionism - best embodied in Washington Consensus. Leads to idea floating rates betterthan fixed rates

MNCs and the competition for capital : The missing multilateral regime

a. Unlike trade / WTO, no multilateral regime for the regulation of international production and investment b.The clash between capital-exporting and -importing countries: former want guarantees of property rights, latter rights to control inward investment c.Failed attempts: i. ITO's investment articles; ii. debate on UN codes for foreign investment in 1970s-1992; iii. US push to include trade-related investment measures (TRIMs) in GATT; iv. OECD-only multilateral agreement on investment (MAI) in the 1990s d.The result is a decentralized and asymmetric regime based on the proliferation of BITs biased in favor of capital-exporting countries e.BITs also favors investors: private firms have the right to sue states; in WTO regime, only states bring cases to the dispute-settlement mechanism

The hub-and-spokes world

a.1914: around half of global FDI in naturalresources and 1/3 in services (« especially financing, insuring, transportingcommodities, and foodstuffs »), remainder in manufacturing (Geoffrey Jones) b.Important role of free-standing companies c.Main host countries in Latin America (≈ 1/3) and Asia (≈ 1/5); main source country UK (≈ 45%) d.Policy environment based on legalisation throughtreaties, extraterritorial rights and colonialism of full property rights for foreign investors. No large-scale expropriations before 1914

POLITICAL FACTORS THEORISED IN AMERICAN IPE

a.Distribution of power in int'l system b.International institutions (information provision; enforcement) c.Strategies (reciprocity; issue linkage) d.Domestic interests (interest groups; voter attitudes) e.Organizational capacity of domestic interests(resources; group size and homogeneity) f.Domestic institutions (democracy; interest group access)

historical evolution : Since 2008 crisis, new developments in favour of developing East Asia

a.During 1980s, US, Europe, Japan = about 90% of FDI; Between 1990 and 2009 = about 80%; between 2010 and 2016 60%. Cause: rise of Asian MNCs as important foreign investors. b.Emerging market countries increasingly home bases for MNCs. Hong Kong, China, South Korea, Singapore, Taiwan, Venezuela, Mexico, and Brazil. Sixty of the top 100 MNCs from developing countries are based in Southeast and East Asia. Another six are based in India. Most of these developing-world MNCs are considerably smaller than developed country MNCs. Only nine developing-country MNCs ranked among the world's 100 largest MNCs in 2017. c.FDI outflows from China: 4.6 billion USD in 2000, 216.4 billion USD in 2016

GVCs typology

a.GCC binary typology criticized for missing important features of chain governance b.Drawing on transaction cost economics and organizational sociology, Gereffi, Humphrey and Sturgeon (2005) refine the typology by developing the notion of « network governance»: forms of governance between the polar opposites of « arm's length markets » and « hierarchies » (i.e. large vertically integrated corporations) c.Transaction cost economics argues that asset specificity, opportunism, and coordination costs push firms to internalize transactions; but organizational sociology (and economic geography) show that these can be resolved without internalisation by network forms of governance d.Five types: markets; captive; relational; modular; hierarchy. o Markets § Transactions easy to codify § Product specifications simple; capable suppliers ≠ asset specificity, opportunism, coordination costs o Captive § High product complexity § No codification § Low supplier capabilities = lead firms need to exercise tight control but short of internalization o Relational § Complex transactions § Product specifications cannot be codified but suppliers are capable = coordination costs can be solved by trust generated by close relations. E.g. apparel o Modular § specifications of complex products and components can be easily codified/standardized. E.g. consumer electronics o Hierarchy § Product complexity § Cannot codify specifications § No competent suppliers = internalization. E.g. aerospace

GVC typology : 2 general observations

a.General trend toward increasing supplier capabilities (economic upgranding in developingcountries) pushes GVCs away from hierarchyand captive networks and toward relational, modular and market forms. Rise in offshoringand standardisation. b.As a result « As standards, information technology, and the capabilites of suppliresimprove, the modular form appears to be playingan increasingly central role in the global economy. Positive assessment of economic effects of globalisation close to liberal view

GCC framework of typology of GVCs

a.Gereffi counters world-systems view by claimingGCCs are a new organisational form associatedwith opening-up of DCs since 1970s. Alsofocuses on activities of firms in a sectoralapproach and less on overall dynamics of capitalism b.Binary typology in Gereffi's GCC framework: Producer-driven and buyer-driven commodity chains c.PDCCs typical of capital-intensive manufacturingindustries such as automobiles d.BDCCs typical of consumer goods industries and retail (Wal-Mart key example)

GVCs : Origins

a.Global Value Chain concept developed to make sense of international production in fourth stage of global capitalism b.In previous stages, int'l production was natural-resource- and market-seeking; MNCs wentabroad for natural resources (classical era) and to jump tariff walls (during ISI and national developmentalism period) c.GVCs mostly focus of efficiency-seeking FDI that took off after 1970s as ISI and developmentalism were abandoned and countries opened-up. Earlyexamples of export-processing zones in DCs and Export-Oriented Industrialisation (EOI) = « new international division of labour ». Notes that FDI and offshoring are both means of internationalising production d.Hugely influential in scholarly circles but alsowith IOs

Two opposing views on MNC and GVC

a.Liberal view: MNCs as productive instruments of a liberal economic order: ship capital to where it is scarce, transfer technology and management expertise from one country to another, and promote the efficient allocation of resources in the global economy. b.Alter-globalization view: MNCs as instruments of capitalist domination: control critical sectors of their hosts' economies, make decisions about the use of resources with little regard for host-country needs, and weaken labor and environmental standards.

PTAs and economic reforms (Baccini and Urpelainen 2014)

a.Literature shows democratization → demand for openness (cheaper imports) b.New leaders in newly democratic states want to reform but face domestic opposition from potential losers c.International agreements (creating legal commitments) help mobilise potential winners and suppress (force of law) or compensate(promise of export markets) potential losers

Rules GATT/WTO system

a.Most favored nation clause (Art. 1) b.National treatment clause (art. 3) c.Dispute settlement (Annex 2) d.Trade policy review (Annex 3) 2 important exceptions to MFN: RTAs and GSP

PURPOSE GATT/WTO system

a.Propmote repeated interaction; centralised forum; issue linkage b.Increase legitimacy; encourage compliance with global trade rules c.Set standards of appropriate behaviour; clarify rights and obligations in oder to define 'defections' d.Monitor behaviour and gather information; detect'defections' e.Clarify rules in case of disagreement; enforce cooperation through blaming; authorise retaliation; institutionalise reciprocity

Conclusion for the politics of MNCs

a.Rise of manufacturing MNCs spurred new regionalism as building bloc to universal freetrade and broadened pro-free trade coalitions in developed countries b.Changing sectoral composition of FDI (decline of natural resources, rise of manufacturing and GVCs) and perceived failure of ISI led to « competition for capital » dynamic and bias in regulatory regime in favour of capital-exportingcountries and foreign investors Isthisnowchanging?RememberGereffi's«GVCspost-Washington consensus »thesis-parallel

MNCs : political issues

a.Role of MNCs in new regionalism: whichindustries and/or firms win from and argue for new regionalism? What does this means for the international trading system? b.Politics of competition for capital: how do developing countries compete for capital? c.Politics of regulation of MNC activity in developed countries: rise of DC MNCs and itspolitical consequences in developed countries

SHADOW OF LAW (Steinbeck 2002)

a.Sovereign equality and consensus-based decision making b.Launche phase requires specification of issues covered and proposition of broad deals beneficial to all parties c.Some examples: Kennedy round (1963); somerecognition of LDC demands (GSP); inclusion of agriculture

Effect on trade of GATT/WTO

a.Statistical analysis confirming that effective GATT/WTO participation (formal (net of waivers) and informal (colonies, newlyindependent states) = 'institutional standing') increased trade flows between participants; including developing countries (previousresearch based on de jure criteria of participation had concluded the opposite) b.But effect of GATT/WTO on trade declines over time. Effect of PTAs increases over time c.But GATT/WTO effect compelements effects of colonialism (in the past,) and PTAs

Electoral consequences : reconciling sector and factor model

a.Support for factor model: 'Lower skill is strongly correlated with support for new trade barriers; employment in industries more exposed to trade is not' b.Preferences affected by asset values 'home ownership in counties with a manufacturing mix concentrated in comparative-disadvantage industries is strongly correlated with support for trade barriers'

Intellectual genealogy of GVC concept according to Jennifer Bair

a.World-systems tradition of macro- and long-range historical analysis of commodity chains and global division of labor since the emergence of capitalism (Wallerstein) b.Global Commodity Chains framework (GCC) developed by Gary Gereffi as a blend of organizational sociology and comparative development studies (1994) c.Global Value Chains framework developed by Gereffi, John Humphrey and Timothy Sturgeon (2005) drawing on GCC and transaction cost economics

Reminder on neorealism

a.anarchic int'l system; b.basic variable is distribution of power among states; c.states as unitary actors with "national interest"; d.relative gains and IR as zero-sum game; e.int'l relations basically conflictual; f.in line with basic tenets of mercantilist and economic nationalist thought g.focus on high vs low politics (war, security, diplomacy vs economic relations) Neorealism dominant IR paradigm in 1930s-1970s; coincides with interwar breakdown and rise of economic nationalism, national developmentalism and primacy to domestic policy autonomy over externalstability In 1970s, the 3 lasts points come under challenge: - Many cases of cooperation and not rivalry. o Détente o SALT agreements o Integration among states (trade cooperation, European integration, etc.) - Gradual emergence from economic nationalism and opening up of national economies o Basis for take-off of 2nd globalization in 1970s - Higher salience (plus grande importance) of low politics o End of Bretton Woods o Dollar crisis o Challenge from G77 on new on new International Economic order o European monetary cooperation

history of global capitalism

a.long-term historical evolution from hub-and-spokes to North-North and intra-industry pattern b.From colonialism and spread of UK Common Law to new regionalism and BITs

European Customs Union

an alliance formed by the members of the European Union that fulfill two primary functions for its members: It ensures the tariff-free movement of goods within the territory, whether those goods are made within the union or imported, and implements standardized rates of customs duties on goods imported from outside the union. The EU Customs Union also enforces a comprehensive system of regulations for the region's imports and exports

An arm's length market

describes a financial market consisting of parties that have no relationship or contact with one another aside from the transaction at hand. In the United States, the majority of exchanges are considered to be arm's length, where buyers and sellers are matched according to only to the details of a transaction. The two parties will often remain anonymous - never knowing they were involved with each other. Arm's length markets go a long way in determining fair market values for assets.

electoral consequences : 3 studies

individuals voter attitudes (Scheve and Slaughter 2001) economic self-interest and role of knowledge (Rho and Tomz 2017) Trade and presidential votes (Jensen et al. 2017)

structure for the exam

intro causal mechanism/ logic of at least one explanation evaluation

Network governance

is "interfirm coordination that is characterized by organic or informal social system, in contrast to bureaucratic structures within firms and formal relationships between them.[1] The concepts of privatization, public private partnership, and contracting are defined in this context." Network governance constitutes a "distinct form of coordinating economic activity" (Powell, 1990:301) which contrasts and competes with markets and hierarchies

Neoclassical economics:

is a broad theory (=théorie Générale) that focuses on supply and demand as the driving forces behind the production, pricing, and consumption of goods and services. It emerged in around 1900 to compete with the earlier theories of classical economics

Neoclassical economics

is a broad theory that focuses on supply and demand as the driving forces behind the production, pricing, and consumption of goods and services. It emerged in around 1900 to compete with the earlier theories of classical economics.

Marxism

is a social, political, and economic philosophy named after Karl Marx, which examines the effect of capitalism on labor, productivity, and economic development and argues for a worker revolution to overturn capitalism in favor of communism. Marxism posits that the struggle between social classes, specifically between the bourgeoisie, or capitalists, and the proletariat, or workers, defines economic relations in a capitalist economy and will inevitably lead to revolutionary communism.

WTO/GATT, institutional design Characteristics

multilatéral structure decision making by consensus regulations on all aspects of trade trade policy review dispute settlement mechanism

History of IPE : evolution

o "Tale of two heterodoxies" (Murphy and Nelson 2001) o IPE "heterodox" in relation to mainstream economics and political science. Methodological and thematic divergences § Boarder divergences: · American IPE: more state-centric, suspicious of normative judgements and growingly positivist and quantitative, sees itself as a branch of IR · British IPE: GPE (global political economy), critical, methodologically and thematically eclectic, refuses sub Sumption under IR and espouses multidisciplinary, more ambitious agenda à introduced concept of "globalization" and approaches such as environmental, cultural and feminist. § Old and new American IPE · Main debate of old IPE: complex interdependence, hegemonic stability theory and hegemonic decline, international organizations and governance of global system à international level · Main themes of new IPE: determining relationships between key political and economic variable in global system, open economy politics approach à domestic sources of foreign economic policy o Lake : adopts assumptions of neoclassical economics and international trade theory and incorporates political variable to bridge gap between economics and political sciences o OPE = domestic interests + institutions + international bargaining o Main characters: Robert Keohane, Stephen Krasner, Peter Katzenstein, Charles Kindleberger, Robert Gilpin, Helen Milner, Jeffry Frieden, David Lake, Beth Simmons, Susan Strange, Robert Cox, John Ravenhill

Global capitalism

structure and dynamics of international economic relations. Global capitalism is a qualitatively new stage in the open ended evolution of capitalism characterised by the rise of transnational capital, a transnational capitalist class, and a transnational state

Meaning international anarchy

the absence of a superordinate enforcement authority