1. Free Trade and Globalization What is the state of world trade? Does it support the globalization thesis? Arguments in support of globalization thesis –economic, political, ideological Alternative thesis: increasing lines of fracture undermining free trade –competing national capitalisms –rising regionalisms –September 11

2. Evolution of Free Trade Logic of free trade –comparative advantage –formulated by David Ricardo, 19th century economist Basis for General Agreement on Tariffs and Trade (GATT) regime –4 cornerstones of GATT tariff concessions; no quotas; MFN; national treatment –evolution of GATT

3. Simple Version of Ricardo

4. Free Trade Summary Scope of liberalization greater –tariffs lower; trade freer; more areas covered Broader geographic scope Greater institutionalization with WTO Is it that simple?

5. Competing National Capitalisms Undermine rules of free trade Use of “strategic trade policies” –states pick winners and protect industries without violating GATT Example 1 - China –transitional economy with state trading enterprises Example 2 - Japan –strong state with concentrated industrial structure

6. Rising Regionalism Preferential Trade Areas (PTAs) create tension for GATT/WTO system –Free Trade Areas and Customs Unions –violate MFN but permitted by exception –Examples: EU, NAFTA, Mercosur, ASEAN Problems caused by PTAs –trade diversion; political tensions; protectionist regional blocks

7. Spectrum of Free Trade

8. Trade Diversion

9. The Future of Free Trade Will multilateral free trade system survive and thrive, or fragment? Will we see globalization and harmonization, or increasing fracture and growing national/regional differences? Trends –WTO law; national trade laws; regional trade law

10. Impact of September 11 Reasons to expect trade, investment and migration to grow less quickly But is globalization at risk? –US withdrawal; rising transaction costs; globalization associated with US New technologies and organizational changes can enhance security and minimize disruptions

11. Historical Forms of Trade Globalization