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Flashcards in Trade Agreements and Global Governance (KEMENY) Deck (20):

Rational reasons for anti-trade sentiments

1. Freer trade raises distributional costs
2. Free trade agreements may not be fair,
• Not a level playing field for poorer countries?
• Undermine democracies in favour of corporations?


What is the Stolper–Samuelson theorem

A basic theorem in Heckscher–Ohlin trade theory.
It describes the relationship between relative prices of output and relative factor rewards—specifically, real wages and real returns to capital.


At the end of the Atlantic economy

– Politics trumps liberalization
• Slam the gates shut on labour mobility
• Agricultural prices fall, spurring demands for protectionism

– Lack of global coordination thought to have exacerbated political tensions (via exchange rates)

– Major trade barriers through the end of WWII


Post-WWII Economic Order

Two conflicting imperatives

1. Interdependence without so much politics – ie more ‘liberal’ integration
2. National interests must be given voice


Bretton Woods

• 1944 conference of world leaders in a resort in New Hampshire (US)
• System that emerges enshrines this attempt at ‘balance’ between liberalization and national sovereignty
• Manages global economic interdependence until around 1970



- the principle of participation by three or more parties, especially by the governments of different countries.
– creating and enforcing rules would happen through institutions, rather than through political muscle-flexing
– Ok didn’t quite get to the ideal (US is already emerging as super power), but better before


Bretton Woods Institutions

1. International Monetary Fund (IMF) – Manage exchange rates
– Later becomes major lender
2. International Bank for Reconstruction and Development
– Initially funds the rebuilding of Europe
– Later broadens mandate and becomes the World
3. General Agreement on Tariffs and Trade (GATT)
– Precursor to WTO


Bretton Woods and Prosperity

• 1945-1970
– Major period of prosperity
• Ie GDP/capita rising in many countries
– Rise of the middle class in many developed economies
– Large growth in trade (>7%/year)
• Commonly called the ‘golden age’


What's GATT?

General Agreement on Tariffs and Trade (GATT) was a multilateral agreement regulating international trade.


What’s GATT got to do with the ‘golden age’?

Possibly not that much
– Trade rising, but how much because of GATT and how much because of
• Innovation leading to declining transport costs • General economic growth
• Overall international economic stability


Bretton Woods ends (complex reasons) in 1971

– So does fast growth in world prosperity
– (Correlation not equal to causation!)
– We are still all waiting for a return to golden age growth (uh oh)


World Trade Organization

WTO formed in 1995 (after long negotiations through 1980s) as a replacement for GATT
– A member-driven and governed organization – 161 member countries (as of April 2015)
– Still about multilateralism and MFN


Aims of WTO

– ‘Liberalize’ trade rules
– Forum to negotiate trade agreements
– Settler of disputes


Deep vs Shallow Integration

• WTO aims to make national priorities subservient to international integration
– Of goods and services, not labour!

• Not just about WTO here but also WB and
– IMF and WB: loans conditional on ‘Washington Consensus’ ideology: exporting neoliberalism

• WTO gets mired in conflict, bilateral agreements multiply, but with same features/ problems


Problems with WTO

These deals are increasingly not all that focused on trade!
– Trade becomes an entry into bigger set of rules about the global economy

Along with trade comes requirements for broad liberalization of poorer economies
– Often much stricter than the ones that most richer countries have
– and definitely much more than rich countries had at comparable development levels

– Little concern for broader policy impacts in these poorer countries – health, environment etc

Concerns about loss of sovereignty/ democracy


WTO dispute resolution: The Beef War

• 1989: EU enacts rules forbidding sale of beef with growth hormones in them
– Partly fears rooted in mad cow disease of 1980s – Americans exporters become shut out of EU
• US says countries had been using hormones for decades – no evidence hormones harm
– Attempts to get international institution to weigh on safety of hormones
– GATT ruling blocked by EU

• Along comes WTO Appellate Court – 1998 ruling in favour of the US
• No scientific evidence is found to support the ban
– EU supposed to change it laws to allow US beef
• But it does not
– Basically it gets away with it because it is big
and has complicated links to the US


India, Malaysia, Pakistan and Thailand vs USA
– 1973 US Endangered Species Act


Prohibits shrimp imports where catches made without ‘turtle-excluder device’ (TED)
– 1997 joint complaint
• WTO rules against US

Ruled against US because US did not apply rules fairly to all WTO members
• Caribbean nations got transition periods and technical and financial assistance
• Complainants did not
• Violation of MFN principles

In practice it is VERY hard to exercise these rights
• For instance: You first need to have negotiated with ALL potentially affected
• By this time, will all the turtles be gone?


Shallow integration

Reduction or elimination of tariffs, quotas, and other barriers to trade in goods at the border, such as trade-limiting customs procedures.


Deep integration

Means trade agreements which not only contain rules on tariffs and conventional non-tariff trade restrictions, but which also regulate the business environment in a more general sense.


Kemeny view on Deep vs Shallow Integration

The role of WTO as facilitator of multilateralism and neutral arbitration are good, but I favor a shallower kind of integration with more room for varieties of capitalism to flourish.