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Globalization: Economic Integration and Its Issues
Middle Eastern Partnership Initiative
Linda YoungDepartment of Political ScienceMontana State University
July 27, 2006
Linda Young
What is Autarky?
Matter of degree
Examples?
Policy of national self-sufficiency
Linda Young
Migration of labor and remittances
Economic Integration from…
Trade (goods and services) Level of trade, scope (more services) Rules for trade – Implications for domestic policy,
Intellectual property
Multinational Corporations (MNC)
Foreign Direct Investment (FDI)
Capital Flows
Multilateral Institutions Rules: trade, exchange rates Imposition of particular philosophy
Linda Young
Three Waves of Globalization
Source: World Bank. 2002. “The New Wave of Globalization and Its Economic Effects.” Chapter One in Globalization, Growth, and Poverty: Building An Inclusive World Economy, A World Bank Research Report, Washington, DC, Figure 1.1, p. 23 Available at http://econ.worldbank.org/prr/globalization/.
Linda Young
“Globalization” Waxes and Wanes Could change again Failure of state – expanded markets – expanded
state etc.
First Wave: 1870-1914 transport costs (sail to steamships), tariffs Railways enabled land-intensive exports Foreign capital stock rose – developing countries Exports share of world income 8%
History
Linda Young
Retreat to Nationalism: 1914-1945
Technology continued to reduce transportation costs, but
Great Depression: Protectionism
Diverted demand to domestic markets
United States: Smoot-Hawley tariffs, retaliation
US imports fell 30%; exports 40% between 1929-1933
High income countries imposed capital controls
Linda Young
Second Wave: 1945-1980
Bretton Woods institutions
Trade liberalization
Further reductions in transport costs, communications
Restored North-South pattern of trade: − Manufactures for primary commodities− Did not restore capital flows or immigration
North-North trade increased much more
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Objective Instrument(s) Responsible Authority Full employment (and low inflation)
Demand management (mainly fiscal)
National Governments
Economic growth Low interest rates Central Banks
Balance of payments adjustment
Pegged but adjustable IMF exchange rates
IMF (with national governments)
Promotion of international trade
Tariff reductions GATT
Economic development
Official international lending
World Bank
Objective Instrument(s) Responsible Authority Full employment (and low inflation)
Demand management (mainly fiscal)
National Governments
Economic growth Low interest rates Central Banks
Balance of payments adjustment
Pegged but adjustable IMF exchange rates
IMF (with national governments)
Promotion of international trade
Tariff reductions GATT
Economic development
Official international lending
World Bank
International Institutional and Policy Framework in the Bretton Woods Era
Source: David Vines and Christopher L. Gilbert. 2004. “The IMF and International Financial Architecture: Solvency and Liquidity.” In D. Vines and C.L. Gilbert (eds.), The IMF and Its Critics. Cambridge University Press, February, Table 1.1. Available at http://titles.cambridge.org/catalogue_excerpt.asp?isbn=9780521821544
Linda Young
Globalization Post 1980
Developing Country Change of Policy*
Foreign Investment− Improved climate− Reduced barriers
Transport Costs: Containerization and Airfreight− More countries in a supply chain
Improved Communications− Manage and control by MNC
“Death of Distance”− Just in time technologies
Collapse of Former Soviet Union
* many policy changes imposed due to structural adjustment programs
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Importance of Trade
Share of international trade in total output (exports plus
imports of goods relative to GDP):
– Developed countries: 32 to 38% between 1990 and 2001
– Developing countries 34 to 49% (same period)
– Varies a lot between countries (Bordo)
Total real exports in 1997 14 times that of 1950 – while
economic activity increased by 6 times (Greico)
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Historical World Merchandise Exports, 1950–2002
0
25
50
75
100
125
150
175
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
Val
ue
ind
ex
Total Ag Products Mining Products Manufactures
Index1995 = 100
(Mining includes fuels)
Note: Total includes unspecified products. World merchandise production differs from world GDP in that it excludes services and construction.Source: World Trade Organization (WTO), Geneva, Switzerland, International Trade Statistics 2003, Appendix Tables, Table A1. Available at http://www.wto.org/english/res_e/statis_e/its2003_e/its03_appendix_e.htm
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History of Tariffs
1875-1913: average tariffs increased
– United States: average 38% for 1871-1913
WW2: about 40% (Greico)
1950s: tariffs remained at 20%, and also quotas, ER controls, currency restrictions
Currently: 4% for manufactures, variable foragriculture 6-15%
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Average Tariffs on Imported Manufactured Goods (%)
1875
1913
1931
1950
Pre-Uruguay Round
Post-Uruguay Round
France 12-15 20 30 18 – –
Germany 4-6 17 21 26 – –
Italy 8-10 18 46 25 – –
United Kingdom 0 0 n.a. 23 – –
European Union – – – – 5.7 3.6
Canada n.a. 26 n.a. – 9.0 4.8
United States 40-50 44 48 14 4.6 3.0
Source: Bordo, M.D., B. Eichengreen, and D.A. Irwin. 1999. “Is Globalization Today Really Different than Globalization a Hundred Years Ago?” Working Paper 7195, National Bureau of Economic Research, Cambridge, MA, June. Available at http://www.nber.org/papers/w7195. Bordo et al. cites source as Bairoch, P. 1993. Economics and World History, University of Chicago Press, Chicago; and Schott, J.J. 1994. “The Uruguay Round: An Assesment,” Institute for international Economics, Washington, DC, November for the last two columns.
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ITO/GATT
ITO: Not adopted – U.S. Congress in opposition
However, maintained as a secretariat for nearly 50 years (1948-1995)
Twenty-three of the founding members decided to reduce tariffs: Australia, Belgium, Brazil, Burma, Ceylon, Chile, China, Cuba, Czechoslovakia, France, India, Lebanon, Luxembourg, Netherlands, New Zealand, Norway, Pakistan, Southern Rhodesia, Syria, South Africa, United Kingdom, and the United States
Eight rounds completed, now Doha
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World Trade Organization
In 1994, after seven years of negotiations, the Uruguay Round Agreement (URA) was signed
This formalized the WTO
Functions: Provides rules to govern trade Removes obstacles through negotiations Provides stability Resolves disputes
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WTO Members
149 members
• 75% are developing countries
• more countries in accession
WTO run by member governments
Decisions by consensus
Ministerial conferences held every 2 years
25%
75%Developingcountries
All others
WTO Countries
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WTO Members from the Middle East and North Africa
Members: Bahrain, Egypt, Jordan, Kuwait, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, United Arab Emirates
Observers: Algeria, Iran, Iraq, Libya and Yemen
Source: Gable, Medard and Henry Bruner. 2003. Global Inc. An Atlas of the Multinational Corporation. A Project of the New Global History Initiative, the World Game Institute and osEarth. New York: The New Press.
Linda Young
US Trade as a Percentage ofGross Domestic Product (GDP)
0
5
10
15
20
25
1970 1974 1978 1982 1986 1990 1994 1998 2002
Per
cen
t
US imports and exports of goods (percent of GDP)
Source: Economic Report of the President, February 2004, U.S. Government Printing Office, Washington, DC, Appendix B, Table B-104, p. 404. Available at http://www.gpoaccess.gov/eop/index.html
World Merchandise Trade by Major Region, 2003
Exports Imports
North America$996
North America$1,552
Latin America$377
Latin America$366
Asia$1,734
Asia$1,897
Western Europe$3,141
Western Europe$3,173
Middle East$290
Middle East$188
Africa$173
Africa$165
Transition Economies
$400
Transition Economies
$378
World Total – $7,274 billion World Total – $7,557 billion
(billion dollars)
(Agriculture, mining [including fuels], and manufactures. )
Source: World Trade Organization (WTO), 2004, Recent Trends in International Trade and Policy Developments, World Trade Report 2004, Geneva, Switzerland, Table IA.3, p. 6. Available at http://www.wto.org/english/news_e/pres04_e/press378_annex_e.pdf
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Most US trade is with developed countries –
about 61% (has implications for our discussion about wages)
About 40% from developing countries– Less likely than before to be commodities– Increase in manufactured imports
• i.e., from Mexico 80% manufactured goods
Who Do We Trade With?
Source: Bordo, M.D., B. Eichengreen, and D.A. Irwin. 1999. “Is Globalization Today Really Different than Globalization a Hundred Years Ago?” Working Paper 7195, National Bureau of Economic Research, Cambridge, MA, June. Available at http://www.nber.org/papers/w7195.
Linda Young
OECD Countries’ Share of World Trade (Goods and Services, 2003)
OECD Total73%
Non-OECD27%
OECD TotalOECD Total70%70%
Non-OECD30%
Additional Information
Note: OECD includes 30 countries with individual European members.
Exports Imports
Source: Organisation for Economic Co-operation and Development (OECD). 2004. Main Economic Indicators, Paris, France, August 6. Available at http://www.oecd.org/dataoecd/55/27/18628014.pdf.
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Trade Blocs 1980 1998
APEC 57.9 69.7
EU 60.8 55.2
NAFTA 33.6 51.7
MERCOSUR 11.6 25.1
Regional Trade Agreements and Exports(Percent of Total Exports)
Additional Information
Note: APEC = Asia-Pacific Economic CooperationEU = European UnionNAFTA = North American Free Trade AgreementMERCOSUR = Mercado Comun del Sur (Common Market of the South)
Source: World Bank. 2000. World Development Indicators 2000, Washington, DC, Regional Trade Blocs Table 6.5, p. 327. Available at http://www.worldbank.org/data/wdi2000/pdfs/tab6_5.pdf.
Linda Young
Source: Allen Dennis, “The Impact of Regional Trade Agreements and Trade Facilitation in the Middle East North Africa Region.” World Bank Policy Research Working Paper 3837, February 2006.
Overlapping Web of Free Trade Areas Involving Middle East and North African Countries
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Trade in Services
Once considered non-tradable
Increasing part of US economy
Services trade growing quickly
– In 1998, 40% of value of US merchandise exportsIn 1900, shipping and tourism 3% of US merchandise exports, now 16%
– Service exports now include shipping and tourism (40% of total), royalties and fees, military transfers, education, finance, insurance, telecommunications, technical services are the fastest growing
Source: Bordo, M.D., B. Eichengreen, and D.A. Irwin. 1999. “Is Globalization Today Really Different than Globalization a Hundred Years Ago?” Working Paper 7195, National Bureau of Economic Research, Cambridge, MA, June. Available at http://www.nber.org/papers/w7195.
Linda Young
World Exports of Merchandise and Commercial Services, 2003
80%
20%
Commercial Services
$1,763 billion
Merchandise
$7,274 billion
Source: World Trade Organization (WTO), 2004, Recent Trends in International Trade and Policy Developments, World Trade Report 2004, Geneva, Switzerland, Table IA.2, p. 5. Available at http://www.wto.org/english/news_e/pres04_e/press378_annex_e.pdf
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Importance of Trade to Gross Domestic Product (GDP)of Least-Developed Countries (LDCs)
05
10152025
1995 2001
Goods and Commercial Services
Goods Commercial Services
22% 23%
05
10152025
1995 200105
10152025
1995 2001
18% 20%
4% 3%
Source: World Trade Organization (WTO), Geneva, Switzerland, International Trade Statistics 2003, Trade by Region, Table III.83.Available at http://www.wto.org/english/res_e/statis_e/its2003_e/its03_byregion_e.htm
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Why Does It Matter? Or Does It Matter? Importance of trade in the economy
Impact on income Transitions required – resource adjustment
Impacted by events far away – lack of control
Need to compete with other producers
Cultural homogenization
Potential risk – trade deficit
Linda Young
In groups of four discuss, and then report back:
In your opinion, what are the most important positive, and negative, impacts of economic integration in your country?
Linda Young
Decision-Making in the WTO
Not like the International Monetary Fund (IMF)and the World Bank
− Voting is tied to quota shares in the Bank (although moderated by other features) Decision-making by consensus!!!!− 147 members, diverse, new
Council of Ministers (every other year)
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Decision-Making (con’t)
Day to Day — General Council− also Dispute Settlement and Trade Policy Review− all countries are members of each
Outcomes are through negotiations
Decisions mostly by consensus− when voting, one country, one vote
No sanctions from the organization− again, different than the IMF/World Bank
Linda Young
What Are the Principles of the Multilateral Trading Agreement?
Most Favored Nation (MFN) Status Applies to goods, services, and trade-related aspects of intellectual
property rights (TRIPs)
Cannot discriminate between trading partners
Lower a tariff for one trading partner, lower it for all
Before China became a WTO member, yearly debate on whether or not
to give China MFN status
Exception — regional trade agreements
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The EU has favorable trade rules for ex-colonies in Africa,Caribbean, Pacific (ACP)
Continuation of the Lome Convention
Banana Dispute
1993 Two-tier tariffs based on country of origin
ACP duty free up to 857,000 mt (quotas) –over this amount, a duty of 750 European Currency Units (ECU)
Non-ACP imports100 ECU duty per mt up to 2 mmt – over this amount, a 850 ECU duty
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Challenges to the EU Regime
United States requested authorization for retaliation
EU to adjust regime
WTO decision on several grounds – including discrimination
WTO challenge by United States, Mexico, Guatemala and Honduras – violated non-discrimination
U.S. challenge –even though workers and product not from the United States
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More Principles
National treatment – treating foreign goods the same as domestic
Dispute: Venezuelan reformulated gasoline higher standards for imports
Predictability• bindings• transparency – obligations to report
No quantitative restrictions
Quotas more trade-distorting than tariffs
Exception: agriculture
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What Are the Elements of the Multilateral Trading System?
Trade-Related Aspects of Intellectual Property Rights (TRIPS)
General Agreement on Tariffs and Trade (GATT)
General Agreement on Trade in Services (GATS)
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Basic Structure of the WTO Agreements:How the Six Main Areas Fit Together
Source: World Trade Organization. 2003. “Understanding the WTO.” Geneva, Switzerland, p. 24. Available at http://www.wto.org/english/thewto_e/whatis_e/tif_e/tif_e.htm
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General Agreement on Tariffs and Trade(GATT)
Multilateral Agreement on Trade in Goods
Agriculture – new in 1994 Uruguay Round Agreements Act (URAA)
Sanitary and Phytosanitary Agreement
Agreement on Textiles and Clothing (ATC)
Product standards – Technical Barriers to Trade (TBT)
Anti-dumping duties, countervailing duties and safeguards
Customs valuation, pre-shipment inspection, rules of origin
Various agreements cover:
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General Agreement on Trade in Services (GATS)
Cross border supply
Consumption abroad
Commercial presence
Presence of natural persons
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Trade-Related Aspects ofIntellectual Property Rights
(TRIPS)
Also technology transfer – balancebetween protection and transfer
Covers copyrights and trademarks, geographical indicators, patents, patents, layouts of integrated circuits, other
Principles: Most Favored Nation (MFN) and national treatment
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TRIPS (con’t)
Incorporated previous agreements – Paris Convention for Protection of Industrial Property, Berne Convention for Protection of Literary and Artistic Works for some items
Agreement specifies how it is to be enforced with domestic laws
Implemented in transition periods
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Protests in Seattle
Ag negotiations began anyway,as scheduled in URA
Council of Ministers agreed tolaunch a general round of negotiations in Doha, Qatar, November 2001
Negotiations are most successfulif trade-offs can be made betweencountries
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“The Development Round”
African countries 1/3 of WTO membership
140 countries, roughly 100 developing economies and many economies in transition
Few developing countries playeda significant role in the Uruguay Round Agreements (URA)
Changing composition of the membership of the WTO
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One View:Institute for International Economics
Before: Few players and not a “single undertaking” (which means a country has to sign on to thewhole thing)
Then: Decision-making through consensus, developed by self-selected players, worked reasonably well
Seattle: No longer worked
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Dillon
0102030405060708090100110120130140150
19
47
19
50
19
53
19
56
19
59
19
62
19
65
19
68
19
71
19
74
19
77
19
80
19
83
19
86
19
89
19
92
19
95
19
98
20
01
20
04
20
07
Geneva
Annecy
Torquay
Geneva
Kennedy
Tokyo
Uruguay
Doha
No. MembersRounds
GATT-WTONegotiating Rounds and Number of Members
Source: WTO and the Institute for International Trade Negotiations (ICONE)
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WTO Processes Have Responded
More transparency: information available
More participants
Decisions only after extensive informal
consultations open to all
Lesson from Seattle:avoid last minute proposals
from exclusive groups
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WTO Membership:Increased Number of Developing Countries
0
20
40
60
80
100
120
140
160
1986 1995 2004
Me
mb
ers
DevelopingDeveloped
Source: WTO and the Institute for International Trade Negotiations (ICONE) Elaboration: ABARE-Australia
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Agricultural Negotiations in the Doha Round: Main Coalitions
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Total GDP AgriculturalGDP
TotalPopulation
RuralPopulation
AgriculturalExports
AgriculturalImports
G-20 USA EU (15) G-10
Notes: Data for GDP (2001) population (2001) and trade (2003). EU excludes intra-trade.Source: FAO, Worldbank, and Institute for International Trade Negotiations (ICONE) Elaboration: ICONE
Linda Young
The World Bank
Founded in 1944 – helpedrebuild Europe after the war
First loan of $250 million was to France in 1947 for post-war reconstruction
Reconstruction has remained an important focus of the Bank’s work
Includes natural disasters, humanitarian emergencies, and post conflict rehabilitation needs
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Structure of the Bank
International Bank for Reconstruction and Development (IBRD)
International Development Association
International Finance Corporation
Multilateral Investment Guarantee Agency
International Center for Settlement of Investment Disputes
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International Bank for Reconstruction and Development (IBRD), 1945 (the original bank)
Provides credit to middle-income and credit-worthy countries
184 member countries
Raises most funds in financial markets
IBRD sells AAA rated bonds and other debt securities
Charges interest that reflects its cost of borrowing– Development impact not profit max– Positive income every year since 1948
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Source: The World Bank. 2003. “A Guide to the World Bank.” Washington, DC. Figure 2.2, page 9.
Voting Power of the Largest Shareholders of the International Bank for
Reconstruction and Development (IBRD)
United States 16.4%
Japan 7.87%
Germany 4.49%
France 4.31%
United Kingdom 4.31%Others 62.61%
Linda Young
World Bank Today
One of the largest sources of development assistance:$17.3 billion in loans in 2001 Largest external funders of education, against HIV/AIDS,
health and one of the largest funders of biodiversity
Now working in 100 countries
Owned by 180 member countries Members are shareholders who make decisions
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The IMF
Central institution of the international monetary system: a system of international payment and exchanges rates that enable business to take place between countries
Attempts to prevent crises by encouraging adoption of “sound” economic policies, and by providing funds to address balance of payments problems.
Linda Young
Functions of the IMF
Surveillance– Promote exchange rate stability– Annual consultations– Expansion of economic variables evaluated– Policy advice
Lending– Nature of lending changed– First, short term, balance of payments– Then, long term, structural adjustment– Now, also debt relief lending – conditional
Linda Young
IMF Functions con’t
Technical assistance– Helped Baltic nations set up treasury systems for
central banks Dialogue – international discussion of policies,
involved in almost all countries Strengthen legal, regulatory and supervisory
framework of banks Review minimum capital requirements for banks Core set of international accounting standards
Linda Young
Where Does IMF Get Its Money?
From quota (capital) subscriptions that countries paywhen they join the IMF (184 member countries)
Quotas determine: Countries’ payments Voting power How much they can borrow
U.S. has 17.14%, Seychelles is 0.004 % of quotas
Board of governors: all 184 member countries represented, but vote in proportion to their quota
Day-to-day work done by executive board (24 members)
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IMF Executive Directors and Voting Power
Source: International Monetary Fund. 2004. “IMF Executive Directors and Voting Power.” Washington, DC, October 21. Available at http://www.imf.org/external/np/sec/memdir/eds.htm
United States – 17.14%
Japan – 6.15%
Germany – 6.01%
France – 4.96%
United Kingdom – 4.96%
Other – 60.78%
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IMF Staff:
International civil servants (responsible to the IMF)
2,800 employees from 13 countries
2/3 are economists!
Source: Gable, Medard and Henry Bruner. 2003. Global Inc. An Atlas of the Multinational Corporation. A Project of the New Global History Initiative, the World Game Institute and osEarth. New York: The New Press.
Source: Gable, Medard and Henry Bruner. 2003. Global Inc. An Atlas of the Multinational Corporation. A Project of the New Global History Initiative, the World Game Institute and osEarth. New York: The New Press.
Linda Young
International Capital Flows
Motivations: reduced barriers, desire of investors to diversify, new financial instruments
Categories: – Foreign direct investment (less volatile, about ¼ total now)
• 10% or more of the publicly traded shared of an enterprise in another country
• Establishment of a firm – lasting influence
– Portfolio (stocks and bonds)• Cross border sales of bonds, money market accounts,
purchase of foreign equity securities, financial derivatives such as future contracts and options
– Bank deposits bank loans, short term in nature
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Huge Increase
9% US GDP in 1980, 223% in 1998 Average daily turnover was $1.5 trillion
in April 1998, compared to $0.6 trillion in April 1989
Overstates changes in ownership (trading and retrading of same securities)
Cross border transactions in bonds and
equities:
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Does It Matter??
Yes, Asian Financial Crises
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What Are MNCs?
A Multinational Corporation (MNC) is an international corporation with headquarters in one country and branches in a wide range of developed and developing countries.
Examples include General Motors, Coca-Cola, Firestone, Philips, Volkswagen, British Petroleum, and Exxon.
Source: Gable, Medard and Henry Bruner. 2003. Global Inc. An Atlas of the Multinational Corporation. A Project of the New Global History Initiative, the World Game Institute and osEarth. New York: The New Press.
Linda Young
Role of Multinationals
Important since the East India company
In 1914, only a few MNCs – even in 1970s, not as important
US based MNCs account for 19% of US GDP– Account for 63% of US goods exports and 40% imports
Now, 60,000 parent operations and 500,000 foreign affiliates– 25% of global output
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Does It Matter?
Ability of big companies to influence governments
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Foreign Direct Investment (FDI)
Mostly FDI complements trade in goods (does not
substitute) – MNCs are conduits for trade In 1994, 36% of U.S. exports were intra-
multinational transactions (sales to affiliates abroad) also, 43% imports
Exposes services to international competition– Can deliver services through sales by foreign
affiliates– Increases competition in sectors difficult to
exchange across borders
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Global Flows of FDI
Flows increased– from US$324 billion 1995 to US$1.5 trillion in 2000
Largest form of private capital inflow into developing countries
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0
50
100
150
200
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
0
400
800
1200
1600
Developing countries Global total
FDI to developing countries Global FDI
FDI to Developing Countries is Resilient(US$ billions)
Sources: World Bank, staff estimates, Washington, DC, http://www.worldbank.org; United Nations Conference on Trade and Development (UNCTAD), World Investment Report 2001, Geneva, Switzerland. Available at http://www.unctad.org/en/docs/wir01ove_a4.en.pdf.
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US Foreign Direct Investment(Percent of US GDP)
0
5
10
15
20
25
1914 1929 1960 1996
Pe
rce
nt
US FDI Abroad FDI in US
Source: Bordo, M.D., B. Eichengreen, and D.A. Irwin. 1999. “Is Globalization Today Really Different than Globalization a Hundred Years Ago?” Working Paper 7195, National Bureau of Economic Research, Cambridge, MA, June. Available at http://www.nber.org/papers/w7195.
Linda Young
Does It Matter?
Fear about security of US investments– Foreign policies matter
Concern over foreign investment in the United States
Saudi investment in the United States
Previously, Japanese investment a concern
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Organisation for Economic Co-operation and Development (OECD)
30 largely developed country members
Policy reviews and coordination
Issues of interest to developed countries– tax evasion – recommended policies, no teeth– Export credits
OECD looking for purpose
Linda Young
G-5, G-7, G-10
Belgium
Netherlands
Sweden
Switzerland
Italy
Canada
United States
Japan
Germany
France
United Kingdom
G-5
G-7
G-10
The G-8 also includes Russia, but Russia is not in the G-10 or OECD.Currently the G-10 has 11 members.
Linda Young
Gleneagles Summit Perthshire, Scotland
July 6-8, 2005
Members: US, Japan, Germany, UK, Italy, Canada, Russia, France and European Commission Representative
Outreach Leaders: Brazil, China, India, Mexico and South Africa
Agreements: Climate ChangeDebt Relief
Gleneagles July 2005
Linda Young
New Economy
Both political and economic conditions to create it
Overarching question: Are we better off?
Gilpin: argues that globalization and its impacts overstated
Conceptual framework to understand the role of different factors
Increasing reliance on the market (not the state) brings with it an intense debate on the role of each
Linda Young
Tension
Between the gains from trade and other national objectives
A trade-off or an imperative?
Case studies: trade in genetically modified organisms (GMOs) government procurement foreign direct investment and the right of establishment
Linda Young
Sanitary (animal) and Phytosanitary (plant) Agreement of the WTO
Regulations setting standards for imports are allowed, and must meet these requirements
Import regulations based on science, use risk assessment
Based on international regulations – not likely to be successfully challenged
Higher standards if consistent Least trade-restricting as possible Precautionary principle if science is unclear
Linda Young
Genetically Modified Organisms
Trade rules and restrictions based on based on the characteristics of the good in question, not the characteristics of the production process
GMOs have same characteristics in the product –indistinguishable, but a different production process
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European Union
De facto moratorium on imports of GMOs– ended recently with some approvals– approved canned sweet corn – first GMO approved
in 5 years, ‘The maize imports, authorised for a period of 10 years "have been subjected to the most rigorous pre-marketing assessment in the world," according to EU Health and Consumer Protection Commissioner David Byrne.’
– October 2004 – EC approved Monsanto’s Round Up Ready maize for human consumption
Strict process for approval Huge controversy with consumers, activists,
environmentalists
Linda Young
US Concerns
Lost export market for corn – most US corn consumed domestically
Estimate for corn – around 600-700 million bushels of corn sales lost between 1994-2003, at $2.50-3.50/bushel
Concern over labeling – should the WTO uphold requirements that all products with more than .9 of 1% of GMO material be labeled as such?
Linda Young
What Do You Think?
Are you concerned about GMOs? What regulations should govern the imports of GMOs?
– Ban on imports?
– Labeling requirements?
– Very cautious approval process? Do you know regulations concerning GMOs in your
country? What about international food aid? Should countries be
able to refuse GMO grains?
Linda Young
Government Procurement
Accounts for 20% GDP in the United States– OECD estimates 4,733 billion US$– Close to 80% of 1989 goods and services trade
All levels of government are large purchasers
Subtract defense then smaller 8-12% GDP
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Government Goals
Value for money: promoted by open and transparent systems
Desire to keep government dollars in the economy– price preferences for nationally produced goods– whole or partial import bans on imports for
government use– selective tendering favoring domestic suppliers– technical specifications biased to domestic producers
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Buy America Act
Passed in 1933 – preference for American goods over foreign
President has authority to waive – reciprocal agreements
US provides access to other countries in specific agreements, but not generally
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Social Policy
Discrimination in favor of regions or groups Quota for suppliers with particular
qualifications (hire minorities or women) Firms hired to provide services may have
to hire an “equal opportunity officer”
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Treatment in GATT/WTO
Discussed since 1947 – excluded government procurement from national treatment
Tokyo Round in 1981 – 26 members included agreement on government procurement for contracts over SDR 130,000 for central government entities – not inc. defense
URA in 1996 – plurilateral agreement – European Commission and 12 other countries– Non-discrimination: must give foreign suppliers
treat no less favorable than to own suppliers– Must not treat local supplier less favorably due to
a foreign affiliation and ownership
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URA Agreement (con’t)
US kept small business program as exception
Canada excluded procurement by provincial and local government
Positive lists – only what's on the list is covered (different than exceptions)
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What do you think?
1) Should the government have to give equal treatment to foreign supplier of goods bought by the government?
2) What would it be like to have government goods procured by imports? School lunches from Canada, state highway patrol cars from Japan, and etc?
Linda Young
Foreign Direct Investment (FDI): The Right of Establishment
OECD negotiations 1995 – failed in 1998 OECD like minded countries, not WTO Developing countries could have signed
Multilateral Agreement on Investment We discuss foreign direct investment only Pre-establishment rights, so that governments
could not – Raise barriers to foreign investors seeking
to establish subsidiaries– Could not discriminate once established
Governments could file exceptions
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National Treatment of FDI
Draft clause in the OECD “Each contracting party shall accord to investors of another Contracting Party and to the investments, treatment no less favorable than the treatment it accords [in like circumstances] to its own investors and their investment with respect to the establishment, acquisition, expansion, operation, operation, management, maintenance, use, enjoyment, and sale or other disposition of investments”
Source: Edward M. Graham, Fighting the Wrong Enemy, Institute of International Economics, September 2000, p. 58.
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Do we need it? FDI is growing anyway
Total stock of FDI increased 6 times between 1985-1998
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Examples of Barriers to FDI
Restrictions on foreign ownership Limiting shares of equity ownership for
non-residents For example, airlines in EU and North
America Telecommunications in Japan Iceland bans foreign ownership in
fishing and energy sectors Mexico (oil sector)
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Examples of Barriers to FDI (con’t)
Screening and approval procedures Stipulations of demonstrating economic benefits
– in Japan, and Mexico for ownership of more than 49%
Constraints on foreign personnel and operational freedom Nationals must be majority on board of directors
– Insurance companies in EU, financial services in Canada
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FDI Restrictions in OECD Countries, 1998-2000: Breakdown by Type of Restriction1
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What do you think?
1) Should the government have the right to put special requirements on foreign investors?
2) To put it another way: should Wal-Mart, MacDonald's, Pizza Hut, Bank of America, be given the same rights to establish and operate a business in your country that the domestically owned firms?