the foundations of globalization motivations and free trade

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The Foundations of The Foundations of Globalization Globalization Motivations and Free Motivations and Free Trade Trade

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Page 1: The Foundations of Globalization Motivations and Free Trade

The Foundations of The Foundations of GlobalizationGlobalization

Motivations and Free TradeMotivations and Free Trade

Page 2: The Foundations of Globalization Motivations and Free Trade

OverviewOverview Building Up to Freer TradeBuilding Up to Freer Trade

Trade on the World StageTrade on the World Stage• Breton WoodsBreton Woods• GATTGATT• WTOWTO

Trade and CanadaTrade and Canada• FTAFTA• NAFTANAFTA

Other Trade BlocsOther Trade Blocs

Case Study: Canada/US Softwood Case Study: Canada/US Softwood Lumber Lumber DisputeDispute

Page 3: The Foundations of Globalization Motivations and Free Trade

Building Up to Freer TradeBuilding Up to Freer Trade

2 Schools of Thought:2 Schools of Thought:

1.)1.) Government should be largely Government should be largely involved in the economyinvolved in the economy

John Maynard KeynesJohn Maynard Keynes

2.)2.) Government should not interfereGovernment should not interferewith the economywith the economyMilton FriedmanMilton FriedmanFriedrich A. HayekFriedrich A. Hayek

Page 4: The Foundations of Globalization Motivations and Free Trade

HayekHayek FriedmanFriedman KeynesKeynesRole of Role of Government in Government in EconomyEconomy

Limited Limited RoleRole

Limited Limited RoleRole

Significant Significant RoleRole

Is Government Is Government Intervention Intervention Required?Required?

NoNoHuman societies Human societies are too complex. are too complex.

Government Government policies cannot policies cannot account for thisaccount for this

NoNoPeople are better off People are better off if they learn to adapt if they learn to adapt

to changes in the to changes in the marketmarket

YesYesGovernment must Government must pull economies out pull economies out

of recession, of recession, through “softening” through “softening”

boom and bust boom and bust cyclescycles

Where would Adam Smith fit in this table?

Page 5: The Foundations of Globalization Motivations and Free Trade

Trade on the World StageTrade on the World StageBreton Woods, the GATT, and the WTOBreton Woods, the GATT, and the WTO

Page 6: The Foundations of Globalization Motivations and Free Trade

Breton Woods AgreementBreton Woods Agreement

•• An agreement coming out of WWII whose An agreement coming out of WWII whose purpose was to both stabilize the world purpose was to both stabilize the world economy and to facilitate world tradeeconomy and to facilitate world trade

• • World BankWorld Bank

• • International Monetary International Monetary Fund (IMF)Fund (IMF)

• • Established the practise Established the practise of using GDP (Grossof using GDP (GrossDomestic Product) as a Domestic Product) as a measure of a country’s measure of a country’s economic performance.economic performance.

Page 7: The Foundations of Globalization Motivations and Free Trade

The GATT The GATT (General Agreement on Tariffs and Trade)(General Agreement on Tariffs and Trade)

• • Established in 1947Established in 1947

•• Used to help continue peaceful relations between Used to help continue peaceful relations between countries through the lowering of trade barrierscountries through the lowering of trade barriers

Operated According to Operated According to Four PrinciplesFour Principles::1.1. Non-discriminatory tradeNon-discriminatory trade2.2. Treat imported goods from a member country the Treat imported goods from a member country the

same as similar domestic goodssame as similar domestic goods3.3. Protect domestic industries through tariffs onlyProtect domestic industries through tariffs only4.4. Require any country that applies for membership Require any country that applies for membership

to show a list of current tariffs and other trade to show a list of current tariffs and other trade restrictionsrestrictions

Page 8: The Foundations of Globalization Motivations and Free Trade

Breton Woods

Agreement

World Bank GATTInternational

Monetary Fund (IMF)

Page 9: The Foundations of Globalization Motivations and Free Trade

WTOWTO(World Trade Organization)(World Trade Organization)

• • Evolved from the GATTEvolved from the GATT

• • An An international organization that looks to international organization that looks to improve trade relations between countries improve trade relations between countries through the removing of tariffs and other trade through the removing of tariffs and other trade barriersbarriers

• • Its Its main purpose is to settle trade disputesmain purpose is to settle trade disputes amongst governmentsamongst governments

• • Has been a source of great controversy over the Has been a source of great controversy over the yearsyears

Page 10: The Foundations of Globalization Motivations and Free Trade

Trade and CanadaTrade and CanadaThe Free Trade Agreement and NAFTAThe Free Trade Agreement and NAFTA

Page 11: The Foundations of Globalization Motivations and Free Trade

FTAFTA(Free Trade Agreement)(Free Trade Agreement)

• • An agreement between Canada and the US An agreement between Canada and the US to eliminate trade barriersto eliminate trade barriers

• • Established in 1989Established in 1989

Purpose:Purpose:• • Canada wanted access to the larger US Canada wanted access to the larger US

marketmarket• • US wanted access to Canada’s natural US wanted access to Canada’s natural

resourcesresources

Result:Result:• • Removed most tariffs between Canada and the USRemoved most tariffs between Canada and the US• • Very controversial Very controversial

Page 12: The Foundations of Globalization Motivations and Free Trade

NAFTANAFTA(North American Free Trade Agreement)(North American Free Trade Agreement)

• • An extension of the FTA, An extension of the FTA, established in 1994, established in 1994, toto include include MexicoMexico

• • Served to increase trade between Served to increase trade between the countries involvedthe countries involved

• • Over the years, NAFTA hasOver the years, NAFTA hashelped Canada increasehelped Canada increasethe amount of its exportsthe amount of its exportsinto the United Statesinto the United States

• • There is still ongoing There is still ongoing tensions between workerstensions between workersunions and free trade unions and free trade supporterssupporters

• Some people argue that Free Some people argue that Free Trade has a bigger impact Trade has a bigger impact beyond the economybeyond the economy

Some see NAFTA as a trade Some see NAFTA as a trade bloc, which can be seen to bloc, which can be seen to offeroffer free trade within its free trade within its regional boundaries, but can regional boundaries, but can be seen to practise a form of be seen to practise a form of protectionism with countries protectionism with countries outside its membershipoutside its membership

••

Page 13: The Foundations of Globalization Motivations and Free Trade

The 4 Major Trade BlocsThe 4 Major Trade BlocsNAFTANAFTA

North American Free Trade Agreement

MERCOSURMERCOSURMercado Comun del Cono Sur, also known as Southern Common Markets (SCCM)

ASEANASEANAssociation of Southeast Asian Nations

EUEUEuropean Union

Page 14: The Foundations of Globalization Motivations and Free Trade

Softwood: Not Exactly Free Softwood: Not Exactly Free TradeTrade

•• America began, in the 1980s, to add a tariff to Canadian wood productsAmerica began, in the 1980s, to add a tariff to Canadian wood products

•• In 2002, the US added a 27% duty on Canadian lumberIn 2002, the US added a 27% duty on Canadian lumber

•• In 2003, a NAFTA court ruled that the US duties, now 19%, were still too high In 2003, a NAFTA court ruled that the US duties, now 19%, were still too high and that the US government should review its numbersand that the US government should review its numbers

•• Shortly after the NAFTA ruling, the WTO also ruled that US duties were “too Shortly after the NAFTA ruling, the WTO also ruled that US duties were “too harsh”harsh”

•• In 2005, the US was ordered to return $5 Billion to Canadian lumber In 2005, the US was ordered to return $5 Billion to Canadian lumber companies, but refused to complycompanies, but refused to comply

•• In April of 2006 Canada and the US finally reached an agreement that would In April of 2006 Canada and the US finally reached an agreement that would see the US return 80% of the collected fees, and Canada would agree to see the US return 80% of the collected fees, and Canada would agree to have only a 34% share of the US softwood lumber markethave only a 34% share of the US softwood lumber market

•• In September of 2006 an agreement was finally reached that would see $4 In September of 2006 an agreement was finally reached that would see $4 billion dollars returned to Canadian Lumber companiesbillion dollars returned to Canadian Lumber companies

Page 15: The Foundations of Globalization Motivations and Free Trade

Some Final QuestionsSome Final Questions

How has free trade transformed how How has free trade transformed how globalization is practised?globalization is practised?

How is the purpose of the following How is the purpose of the following influence globalization?influence globalization?

- Breton Woods- Breton Woods

- WTO- WTO Could trade blocs be the beginning of Could trade blocs be the beginning of

a new form of imperialism?a new form of imperialism?