Global Economics Test 2
Three Dilemmas of Globalization (Barriers of Coordination)
-Enforcement problems ---> adjustment costs -Assurance problems ---> Free-riding -Distributional tensions ---> Inhibiting fears
Trade Liberalization
Global Trade Regime Principle #1: prime directive of Gatt, that trade should be organized as liberal trade theory suggests according to comparative advantage.
Non-discrimination
Global Trade Regime Principle #2:every trading advantage or privilege a GATT member gives any state must be extended, immediately and unconditionally, to all other GATT members (Regional trade agreements pose a large threat to nondiscrimination) -External-->Most Favored Nation (MFN) -Internal-->National Treatment
Common Market
Type of RTA that removes all tariffs among members, has a common external tariff, and has free movement of labor and capital. ex. European Union
Economic Union
Type of RTA that removes all tariffs among members, has a common external tariff, has free movement of labor and capital, and harmonizes economic policies. ex. European Union
Political Union
Type of RTA that removes all tariffs among members, has a common external tariff, has free movement of labor and capital, harmonizes economic policies, and has political unification.
Customs Union
Type of RTA with removal of all tariffs among members and a common external tariff ex. European Community(EC); European Free Trade Association (EFTA)
IPE emerged in the 1970s as a response to what real world events?
-By 1973, the long boom cycle of the immediate post-war era that benefited developed and developing countries alike had ended. -Beginning in the 1960s, the US economy began encountering a variety of different issues as a result of a slowing economy, balance of payments problems, and the Vietnam War. -In 1973, the Organization of the Petroleum Exporting Countries (OPEC), what we in IPE call a cartel, adopted a voluntary export quota drastically causing the price of oil to spike over night. -In 1979, another oil shock occurred after the fall of the Shah of Iran. -Developing countries were pressing in the United Nations (UN) for a New International Economic Order (NIEO) which took their interests seriously.
Key Differences between Post-1945 World Economy and preceding Eras
-Embedded Liberalism -Institutionalization (KEIOs) -Multilateralism -Trans/Multinational Coporations (TNCs)
Club Model, Adaptive Model, Multitask-holder Model
-an organization, such as the WTO, where only governments have standing -an organization where governments regularly consul with private business groups, but not NGOs -org model that reflects varied interests of governments, business groups, and civil society
OECD (Organization for Economic Cooperation and Development)
-located in Paris, was created in 1961 as an alternative forum to promote DC policy coordination -exists in order to promote the liberalization of international transactions such as trade and capital flows
Havana Charter
-meant to create an intergovernmental organization like the IMF or World Bank to manage the global trade regime -however, the protracted and difficult negotiations killed the prospects of an international trade organization (ITO) -Inhibiting fear (US protectionists) and free riding (US free traders) -the General Agreement on Trade and Tariffs (GATT) approved in October 1947 is the product of multilateral negotiations emerging from the meetings in Havana.
Civil Society
-seek to advance the rights of interest groups such as labor, women, the environment, and human rights -not generally addressed by business or intergovernmental groups like WEF or KEIOs Three Types: -Conformist -Reformist -Rejectionist/Transformist
Cobden-Chevalier Treaty
1860 treaty between Britain and France that introduced the principle of "most favored nation" (MFN) status. The treaty was an important first step in the creation of a series of agreements that would help liberalize trade prior to 1913.
TRIPS (Trade-Related Intellectual Property Rights)
An agreement under the Two that establishes minimum standards of protection for copyrights, patents, and other intellectual property, and offers remedies to member to protect these rights.
ASEAN Free Trade Agreement
Association of Southeast Asian Notaions (ASEAN) Free Trade Area (AFTA)
BRICS
Brazil Russia India China South Africa
Heckscher-Ohlin Theory
Countries have a comparative advantage in producing those goods that use their most abundant factor of production most intensely
OPEC (Organization of Petroleum Exporting Countries)
Formed in the 1960s, this group has tried to manipulate oil prices in order to extract political gain
Types of RTA
Free Trade Area Customs Union Common Market Economic Union Political Union
Group of 77
G created in 1964, the caucus of LDCs
WEF (World Economic Forum)
Emerged from the European Management Forum, a group of business leaders that started meeting in Davos, Switzerland in 1971. -Goal was to help Europe reclaim some modicum of global leadership in business -group gradually shifted to global orientation and changed its name to the World Economic Forum in 1987 -is now a forum in which a variety of players get together and discuss global political, social, and economic issues.
Mercantilism
Era when political power was equated to wealth, and wealth was power. Wealth, in the form of gold either generated by trade or seized from enemies, enabled monarchs to build administrative apparatus of their states and to finance the construction of military forces.
Three Pillars of the EU
European Monetary Union Common Security and Foreign Policy Common Social Policy
Reciprocity
Global Trade Regime Principle #3: stipulates that a state benefitting from another state's trade concessions should provide roughly equal benefits in return. -Specific Reciprocity: simultaneous exchange of strictly equivalent benefits or obligations. Also called aggressive reciprocity, it's like conditional MFN treatment, in that state A will only extend concessions to state B, if and only if B promptly extends the same benefits to A. -Diffuse Reciprocity: does not require an immediate response to an action; instead it imposes a more general obligation on the recipient for repayment in the future. Cannot coexist w MFN treatment.
Safeguards
Global Trade Regime Principle #4:Once tariffs are lowered through MTNs, they are bound at that lower level and cannot be raised. However, safeguards have been built into the GATT to help protect countries. -Safeguards Agreement: designed to help limit import surges which caused serious damage to a national economy. Demonstrates serious injury. applies to all member countries. -Antidumping Duties (ADDs): duties cane be raised when dumping threatens or causes material injury to domestic producers -Countervailing Duties (CVDs)
Development
Global Trade Regime Principle #5: response to subsidies home governments give domestic firms. duties can be raised when dumping threatens or causes material injury to domestic producers.
Intra-firm trade
Globally integrated MNCs purchasing parts from their subsidiaries to keep costs down. ex: an American automobile manufacturer shipping an engine from one of its factories in the United States to an assembly plant it owns in Mexico for placement in an automobile that is being built there.
Bretton Woods Conference
Held July 1944, included 44 countries w 27 LDCS. Allied Powers got together and discussed institutions and organizations that would frame the post-war political economy. Created: -International Monetary Fund -International Bank for Reconstruction and Development (IBRD/World Bank) -General Agreement on Tariffs and Trade (GATT) -Keystone International Economic Organizations (KIEOs)
NAFTA
RTA between Canada, Mexico, and the US.
IPE
International political economy studies the interaction between the state, a sovereign territorial unit, and the market, a coordinating mechanism where buyers and sellers exchange goods and services at prices determined by supply and demand. Seeks to answer the question of politics: who gets what, when, and how.
Why RTAs?
Liberals argue that small states will benefit more from liberalized trade because of economies of scale and increased demand for their exports Realists expect the distribution of benefits from these agreements to reflect lack of equality in power, wealth, and technology among member states. Marxist/Historical Materialists predict MNCs will use liberal capital and trade regimes to locate their production in those areas of the world with the lowest wages, environmental standards, and taxes, then export their products freely.
Mercosur
RTA of South America: The Common Market of the Southern Cone.
Regime
Meta-regime Regime
WTO Bodies
Ministerial Conference General Council Trade Policy Review Board Dispute Settlement Body Appellate Body Director General
Reason for Globalization
Optimal allocation of the factors of production
Stopler Samuelson Theory
Owners of abundant factors of production in a country will support freer trade than owners of scarce factors of production
GATT Article 24
Permits FTA and CUs that do not adhere to MFN treatment, as long as these agreements meet specific conditions. Trade and investment diversion Trade creation Efficacy/Problems
World Bank
Provided loans to support the reconstruction of Europe following WWII, but also supports development projects in less developed countries (LDCs)
Single European Act
SEA was the agreement to form a monetary union amongst Western European countries and the first major revision of the 1957 Treaty of Rome. The Act set the European Community an objective of establishing a single market, abolish nontariff barriers, liberalize trade in services, and facilitate the movement of capital and labor by 31 December 1992.
Ministerial Conference
WTO body Includes all members and can make decisions on all matters under multilateral trade agreements.
The Prisoner's Dilemma
What is it? How does it apply to IPE?
Politics
Who gets what, when, and how?
TRIMS (Trade-Related Investment Measures)
a rather weak and narrowly defined agreement under the WTO to impose some discipling over trade-related investment issues.
Comparative Advantage
a state doesn't need to have an absolute advantage in any specific product to benefit from trade. Ricardo argued all a country needed was comparative advantage in the production of some goods with its prospective trading partners.
Globalization
a term that refers to the broadening and deepening of interdependence among people and states throughout the world.
Cotonou Agreement
a treaty between the European Union and the African, Caribbean and Pacific Group of States ("ACP countries"). It was signed in June 2000 by 78 ACP countries (Cuba did not sign) and the then fifteen Member States of the European Union.
Absolute Advantage
all states specialize in the goods they produce best and trade with each other
Smoot-Hawley Tariff Act (1930)
an act sponsored by Senator Reed Smoot and Representative Willis C. Hawley and signed into law on June 17, 1930, that raised U.S. tariffs on over 20,000 imported goods to record levels
GATS (General Agreement on Trade in Services)
an agreement under the WTO that begins the process of creating principles and rules for policies affecting access to service markets
Central bank
an institution that manages a state's currency, money supply, and interest rates.
Treaty of Rome
an international agreement that led to the founding of the European Economic Community (EEC) on 1 January 1958. It was signed on 25 March 1957 by Belgium, France, Italy, Luxembourg, the Netherlands and West Germany.
Lisbon Treaty
an international agreement which amends the two treaties which form the constitutional basis of the European Union (the Constitutional Treaty and the Maastricht Treaty). Created the High Representative position to give the EU a higher international profile. It was signed by the EU member states on 13 December 2007, and entered into force on 1 December 2009.
The G20
an international forum for the governments and central bank governors from 20 major economies. The members include 19 individual countries—Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom and the United States—along with the European Union (EU).
Multinational Corporation (MNC)
are the main agents of globalization as they produce and distribute goods across national borders; plan their operations on a global scale; and spread ideas, tastes, and technology globally
Lomé Convention
born out of former colonial relationships, it offered preferential trade and aid between the European Economic Community (EEC) and 71 African, Caribbean, and Pacific (ACP) countries. There have been 4 so far.
Keystone International Economic Organization (KIEOs) name them
created to facilitate international policy coordination, also named Bretton Woods Institutions bc were negotiated there o The General Agreement on Tariffs and Trade/World Trade Organization (GATT/WTO) o The International Monetary Fund (IMF) o The World Bank
Greenfield Investment
creation of new facilities and productive assets by foreigners
Maastricht Treaty
changed the name from the EC to the European Union and contained three pillars.
Embedded liberalism
compromise governments made after 1945 o Keynes at home: a commitment to maintaining full employment and safeguard domestic objectives o Ricardo abroad: opening up to reap the gains to be had from international trade
Trade Policy Review Board
conducts regular reviews of member states trade policies to ensure they are accord with the GATT/WTO and promotes policy coordination.
Enabling Clause
created a permanent legal basis for LDC trade preferences, which included permanent GSPs, preferential RTAs among LDCs, and graduation (when preferences would be phased out of countries who had made development progress).
Liberal Trade Theories
defines the world in which we all live and the global trade regime liberal trade theory views international trade as an unalloyed good, that brings higher quality goods at cheaper prices into the global market. Adam Smith ---> Absolute Advantage David Ricardo --->Comparative Advantage Eli Huckster and Bertil Ohlin --->Heckscher-Ohlin Theory Wolfgang Stolpert and Paul Samuelson --->Stolper-Samuelson Theory
Emerging Market Economies
developing and transition economies that have adapted well to the global free market, can be members of OPEC, NIEs, or BRICs
UNCTAD (United Nations Conference on Trade and Development)
effort led by a group od LDCs to use UN as forum to address the development needs of LDCs All the usual barriers to collective action apply however and this forum has produced little tangible results
G organizations functions
g10, g5, g7, g8, and g20 are informal groups of the most "systematically important" countries that meets in order to help manage the global economy -smaller informal groups w/o formal constitutions -include the most powerful DCs in the global economy -top political authorities w/ decision making authority attend these meetings
GDP (Gross Domestic Product)
measures the economic efficiency/prodcutivity of a country does not tell us about the standards of living across countries, because the exchange rate does not accurately reflect the purchasing power of local currencies
GATT (General Agreement on Tariffs and Trade)
helped promote trade liberalization by lowering tariffs in multilateral trade negotiations, established rules for conducting international trade, and provided procedures for addressing international trade disputes.
Beggar-thy-neighbor policies
is a term coined by Adam Smith to describe efforts to pass national economic problems off on other countries.
Preferential Trade Agreement (PTA)
is a trading bloc that gives preferential access to certain products from the participating countries. This is done by reducing tariffs but not by abolishing them completely
Strategic Trade Theory
is the one effort by political economists to address the bias inherent in liberal trade theory. Focusing on the relative gains of trade, proponents of strategic trade theory argue that state's create their comparative advantage, it is not a function of divine providence. -Competitive Advantage
Fordney-McCumber Act (1922)
law that raised American tariffs on many imported goods in order to protect factories and farms
General Council
manages WTO affairs on a day to day basis and oversees -Council for Trade in Goods -Trade-Related Aspects of Intellectual Property Rights -Trade in Services
Human Development Index (HDI)
measures social and economic development along these three dimensions: -Life Expectancy at Birth -Knowledge (adult literacy rates and school enrollment) -Decent Standard of Living (PPP) Major problem w HDI is we don't have data for many countries we want to know about
Dependency Theory
notion resource flow from DCs to underdeveloped LDCs will prevent them from achieving genuine, autonomous development; thus, LDCs should decrease or sever trade ties with the core. Raul Perish: argued that LDCs will remain poor because of declining terms of trade Aghiri Emmanuel: DCs are rich because labor is not mobile and the core produces higher value added goods
Name the 4 Eras of Globalization
o Golden Era of Liberalism (late 1700s-1914) ---> British Hegemony o Inter-war Period (1918-1939) ---> Collapse of British Hegemony, Unwilling U.S. o Bretton Woods Era (1945-1971) --->U.S. Hegemony o Post-Bretton Woods Era (1971-Present) --->U.S. relative decline
Reciprocal Trade Agreements Act (RTAA)
passed by Congress in 1934, delegated tariff setting authority to the president, because he had the ability to resist some of the pressure from interest groups in the negotiation of trade and investment treaties
Policy of Differentiation
prior to the 1980s, a tactic designed to reward Eastern European states for adopting foreign and domestic policies independent of Moscow.
IMF (International Monetary Fund)
provides short term loans to help countries resolve their balance of payments and problems without resorting to strategies of competitive devaluation, as was the cause in the Inter-War period
Bank of International Settlements (BIS)
set in 1930 and is the first economic international organization (IO) It had 2 functions: -collect reparations from Germany -promote economic coordination between national central banks
TANs (Transnational Advocacy Networks)
some scholars believe TANs are more successful than Civil Society groups in addressing non-mainstream issues -TANs bring together diverse collection of actors, including international business, NGOs, and representatives from international organizations
Policy Coordination
the ability of different organizations, groups, and institutions to make general agreements on foreign policy
1648 & the Treaty of Westphalia
the beginning of modern era defined by Westphalian State System. Treaty of Westphalia was a series of peace treaties signed between May and October of 1648 in Osnabrück and Münster. These treaties ended the Thirty Years' War (1618-1648) in the Holy Roman Empire, and the Eighty Years' War (1568-1648) between Spain and the Dutch Republic. Westphalian sovereignty is the concept that all nation-states have sovereignty over their territory, with no role for external agents in domestic structures.
Multilateralism
the collaboration between three or more states where the economic players all have some rule making power.
Intra-Industry trade
the exchange of similar products belonging to the same industry, , where the same types of goods or services are both imported and exported. ex: Germans selling BMWs and Mercedes to the Japanese, who in turn are able to sell cars made by Acura and Lexus in Germany.
democratic deficit
the fact that the WTO makes decisions with important implications for the lives of everyday people, but no one is able to elect representatives to the WTO.
PPP (Purchasing Power Parity)
the number of units of a country's currency required to buy the same amount of goods and services in the domestic market as a US dollar would buy in the US -The economic Magazine and the "Big Mac index" Utility for comparison could be diminished by the fact that these numbers assumes "like" goods can be had in all countries
Exchange rates
the number of units of one currency that can be exchanged for another currency.
Mergers & Acquisitions
the purchase of stocks in an existing firm with the purpose of participating in its management
Principles of Global Trade Regime
trade liberalization non-discrimination reciprocity safeguards development
Free Trade Area
type of RTA with removal of all tariffs among members. Ex. NAFTA
Newly Industrializing Economies (NIEs)
was a group of rapidly expanding industrializing countries in the early 1980s that had presented a growing challenge to the North. Good examples include Hong Kong, Singapore, South Korea, Taiwan, Argentina, and Brazil
Council for Mutual Economic Assistance (CEMA)
was created by Soviet Russia in 1949 as a counterweight to the Bretton Woods Institutions -emphasized central economic planning, nationalization of the factors of production such has capital and natural resources, the collectivization of agriculture, and the insulation of the domestic economy from external influences Main Goal: to reorient Eastern European trade away from the West and to solidify Soviet-Eas European economic linkages
Dumping
when a firm sells products in an export market for less than the home market or for prices below the cost of production
Regional Trade Agreement (RTA)
when geographic proximity and a sense of cultural, economic, political, and organizational cohesiveness culminate into an agreement between states.
