International Trade System

About the ITS Goods & Services System of exchange of goods & services bt. countries 2 Types: Merchandise trade Primary goods Foods, fuels, fibers, minerals, water Manufactured goods Finished products Service trade Direct relationship: buyer <--> seller Foreign commercial presence ¤ Goods & Services 1913 $20 B = $55 k/ day 2013 $18 T = $50 k/day

Factors Why has trade has increased between countries? Industrial Revolution Resource requirement Transportation, communication Materialism Free trade philosophy Absolute versus comparative advantage ¤

Export-Driven Economies GS Lack domestic sector Heavily rely on production for export Cash crops Labor as comparative advantage Tourism Many lack diversified market GN as buyers of goods, source GS labor ¤

What are China’s production advantages? Internal issues, but… Low-cost manufacturing model Factory Asia Regionalism Linchpin of demand Domestic market Contractor supply Centralized policy control ¤

Why can’t other GS follow China’s model? Lack large economy Fewer jobs out of manufacturing Require more diverse production Lack policy control Lack infrastructure, education ¤

Dominance Post-CW Industrial Revolution Post –WWI Post-WWII European, US Post –WWI Protectionism Post-WWII US economic hegemony in ‘free world’ Post-CW EEs brought into loop with G-20 Rest of GS lags Uneven trade~25% dominate ¤

Agreements & Institutions

Free Trade Agreement (FTA) Types Bilateral US FTAs- 20 countries EU FTAs Multilateral NAFTA, CAFTA-DR, Lomé, TPP, TTIP EU WTO ¤ http://en.wikipedia.org/wiki/File:African,_Caribbean_and_Pacific_Group_of_States_member_nations_map.svg

Regional FTA IGO European Coal & Steel Community (ECSC) Regional IGO (1951) of 6 states Purpose: Promote regional trade Present-day EU-now 28… …until UK leaves Significance to IMS Eurozone- 19 members ¤ http://www.economist.com/blogs/graphicdetail/2015/02/european-economy-guide

Regional Economic IGOs EU SAARC ECOWAS ASEAN EAC SADC Mercosur

GATTWTO General Agreement on Tariffs & Trade (GATT) (1947) Eliminate tariffs, non-tariff barriers (NTBs) Principle of Nondiscrimination ‘Normal trade relations’= same treatment Pressure on US as hegemon Japan, Germany, then also EU bloc CW ends, more members Created WTO ¤

GATT WTO World Trade Organization (1995) Formal organization Director General Dispute Settlement Body Tend to comply 162 members China, Russia Doha Round- (2001) Still in 1st Round Objective: Open trade Challenges: Eliminate non-tariff barriers ¤ Roberto Azevêdo, 2013-2017

WTO Challenges Service Intellectual Property Rights (IPRs) Patents India Trademarks Copyrights

WTO Challenges (cont.) All members try to cheat Sometimes tariffs More covert policies: NTBs Quotas Set standards Domestic content rules Joint venture requirements Subsidies ¤

WTO Challenges: Subsidies Agriculture Industry Automaker bailouts Solar panels Steel ¤ Country Market price Subsidy Farmer’s income US $2 $1 $3 Brazil $0 http://www.worldbank.org/en/publication/global-economic-prospects/policy/structural

Sugar Subsidies How does the U.S. government protect its sugar industry? Direct tariffs on imports, quotas Except from Mexico- NAFTA How is Mexico protecting its sugar industry? Subsidizing its industry ‘Dumping’ cheap sugar in U.S. How do these tactics affect free trade? U.S. prices higher U.S. companies, consumers end up paying more NAFTA- U.S. HFCS to Mexico; Excess MX sugar to U.S. John Oliver on Sugar Subsidies ¤

Disputes Trade wars EU- US ‘Banana War’ EU- US ‘Beef War’ 1991 (Pre-WTO) to 2009 EU- US ‘Beef War’ Hormones v. mad cows Russia –US; India, China- U.S. Steel tariffs China-US Solar panel subsidies US-EU Airbus subsidies Mexico & Canada v. US Meat labeling by country; $3 B ¤

WTO Dispute Resolution Use WTO to file complaints 524 dispute cases filed since 1995 Overwhelming majority GN, EEs WTO has power to enforce decisions Sanctions, fines Antigua and Barbuda v. U.S. DS 285 ¤

WTO Dispute Resolution: Antigua Case What is at issue? US online gambling ban Violated trade treaties Antigua’s recourse Approval to suspend IP rules 10 years later! Why did the WTO make this decision? Enforcement What factors determine whether the US will comply? Status: Open case ¤

4 Most Important ITS Things Trade in goods & services ITS is highly interdependent GN dominates Bilateral, multilateral FTAs