topic2a worldtrade institutions
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INSTITUTIONSOFTHE
INTERNATIONALECONOMY
IMFX 2012
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REFERENCES
1. Amit Bhaduri, Ch 5
2. Age of Uncertainty: The Mandarin Revolution -Keynes
3. The Ascent of Money: Ch 5 Chimerica
4. Amit Bhaduri & Deepak Nayyar An Intelligentpersons guide to liberalisation
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INTERNATIONAL INSTITUTIONS
The Three Main Institutions (IMF, World Bank,WTO) Why They Were Created, and When How They Have Changed Their Reputations Today
Other Institutions United Nations OECD = Organization for Economic Cooperation and
Development Preferential Trading Arrangements
Whats Happening Now? The World Financial Crisis The Doha Round PTAs Trade Disputes
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THE 4 - MAIN INSTITUTIONS
Functions
IMF (International Monetary Fund): FinancialAssistance
World Bank: Development Assistance
WTO (World Trade Organization): Trade PolicyRegulation and Negotiation
WIPO
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THE 4 MAIN INSTITUTIONS
History
Before World War II
Great Depression
High Tariffs on trade
Competitive Devaluationsof currencies
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Beggar ThyNeighbor Policies
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THE 4 MAIN INSTITUTIONS
History
End of World War II
Bretton Woods Meeting (Bretton Woods, NH)
IMF
World Bank ITO (International Trade Organization)
Never ratified
Instead: GATT (General Agreement on Tariffs and Trade)
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WIPO
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MAIN INSTITUTIONS
History Changes since 1940s
IMF
Originally enforced pegged exchange rates
Purpose: To prevent beggar-thy-neighbor exchange-rate policies
Major currencies switched to floating in 1970s IMF still provides financial assistance
Until recently, mostly to developing countries
Subject to conditionality = required policy changes
In 21st century, many countries were paying off their loans, until recently
IMF was wondering about its income, but now is lending to
countries in crisis, such as Greece and Ireland.
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MAIN INSTITUTIONS
History
Changes since 1940s
World Bank
=IBRD (International Bank for Reconstruction and
Development) Originally intended for reconstruction from war
Now mainly assists development
Much of it by funding and assisting with projects
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MAIN INSTITUTIONS
History Changes since 1940s
GATT
Rules of international trade policy
Rounds
of negotiation Uruguay Round
Created WTO in 1995
Currently is/was doing Doha Round
Begun 2001 in Doha, Qatar
Stumbled in 2003 (Cancn) and 2005 (HK)
Suspended July 2006, but restarted 2007Suspended again in 2008
Future uncertain: More on this later
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MAIN INSTITUTIONS
Reputation today, among some:
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MAIN INSTITUTIONS
Reputation Today: Criticized by Opponents of globalization
Opponents of corporations
Some in Developing Countries for dominance
by US by rich countries
by corporations
Some in US for undermining US power
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MAIN INSTITUTIONS
Reputation Today: Criticized by Scholars for institutional flaws
IMF: Has imposed misguided policies
World Bank: Wastes resources on corrupt elites
WTO: Dominated by rich countries, corporations
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OTHER INSTITUTIONS
G-7, G-8, G-20: These are Groups of countries
G-7 = US, Canada, Japan, Britain, France, Germany, Italy
Finance ministers meet
G-8 = G-7 + Russia (since 1998)
Heads of state met annually, until recently
G-20 = G-8 + Australia & EU, + 10 major EMEs (EmergingMarket Economies)
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= 19 Countries+ EU
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OTHER INSTITUTIONS
G-20 Used to meet regularly, but only the finance ministers
First G-20 summit (i.e., heads of state) met November2008, London
Met again September 2009, Pittsburgh Now looks like G-20 summits will be the main regular
meeting, probably once a year Last was in Cannes, France, November 2011
Next, in June 2012, will be in Los Cabos, Mexico
Finance Ministers still meet, as needed 5 times in 2011!
Next in Mexico City, February 201214
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G-20
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OTHER INSTITUTIONS
UN = United Nations UNCTAD (United Nations Conference on Trade and
Development)
ILO (International Labor Organization)
WIPO (World Intellectual Property Organization)16
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OTHER INSTITUTIONS
EU = European Union
NAFTA = North American Free Trade Area
ASEAN = Asso of South East Asian Nations
SAARC = South Asia MERCOSUR = South America
APEC, BIMTECH, Mekong Delta
OECD = Organization for Economic Cooperation
and Development Club of high-income countries
Does research, collects data, drafts policies17
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WHATS HAPPENING NOW?
RECOVERYFROM THE WORLD FINANCIALCRISIS
Crisis started in US with burst of housing bubble Loans had been made, counting on rising house prices
With burst, loans went bad
Banks and other institutions were interlinked via Bad loans
Complex financial instruments whose value fell and/or was uncertain
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Crisis spread To most other developed countries through financial
institutions
To some developing countries too
Income and expenditure fell, causing world-widerecession Falling house prices alone reduced wealth
Failures in financial markets made it worse
Banks stopped lending
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Whats Happening Now?
Recovery from The World Financial Crisis
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Recession caused immediate drop in international trade This made matters worse
It spread the recession to countries that had not been exposed
to financial markets
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Whats Happening Now? Recovery from The World Financial Crisis
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Source: IMF & IndexQ.org
0.000
20.000
40.000
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80.000
100.000
120.000
140.000
1970
1972
1974
1976
1978
1980
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2008
2010
World GDP, annual, 2005=100
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200
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World Exports, monthly, $billionJuly 2008
Mar 2009
Source: IMF
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Source: IMF
0
200
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2009Jan
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2009Jul
2009Oct
2010Jan
2010Apr
2010Jul
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2011Jan
2011Apr
2011Jul
World Goods Exports, monthly, $billion
July 2008
Feb 2009
Down43%
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GLOBAL RECESSION STATUSJANUARY 10, 2010
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In RecessionModeratingRecoveringExpanding
Source: Dismal Scientist
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GLOBAL RECESSION STATUSDECEMBER 31, 2010
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Source: Dismal Scientist
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GLOBAL RECESSION STATUSJANUARY 8, 2012
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Source: Dismal Scientist
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What was done about it?
Central banks, cut interest rates and extended credit.
Banks were rescued.
Countries usedStimulus Packages
(tax cuts and spending
increases) to stimulate economies.
G-20 began meeting, first in London
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Whats Happening Now? Recovery from The World Financial Crisis
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What was done about it?
IMF back in business making loans.
Packages already in hand for
Iceland
Hungary
Ukraine.
Many more
G-20 promised more funds to IMF
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What will prevent future problems?
Financial regulation
restraints on bank lending
reform of credit rating agencies
Managed currency policies? (US concern with Chinascurrency.)
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In 2010, starting with Greece, countries in theEurozone found themselves with unmanageabledebts
Markets feared default; interest rates rose
EU and IMF stepped in with loans
Similar things happened later to Ireland, andmarkets now fear the same for Portugal and Spain
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Whats Happening Now? Debt Problems of EU
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Leaders of the EU have met repeatedly
They disagree over
Who will pay for any bailout of Greece and others
Whether the bond holders (those who own sovereign debt of
Greece ad others) should bear some cost Result has been repeated fixes that dont solve the
problem
Some say this all threatens the euro.
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Whats Happening Now? Debt Problems of EU
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WHATS HAPPENING NOW? - IFIS
IFIs = International Financial Institutions IMF and World Bank
See Lachman article: Reputations suffered
IMF from financial crises and mis-management But recent actions have looked better
WB from leadership of Paul Wolfowitz
Roles have been reduced by private lending, but their staffs havegrown, by 50% over last 10 years
What should they be doing?
IMF: surveillance over exchange systems and imbalances WB: alleviate poverty, especially in Africa
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WHATS HAPPENING NOW? - DOHA
Doha Round (of multilateral tradenegotiations under the WTO) Began at Doha, Qatar, 2001
NegotiationsTake place at WTO Headquarters in Geneva,
Switzerland
But periodically occur at Ministerial Meetings (meetingsof trade ministers) in other cities
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WHATS HAPPENING NOW? - DOHA
Doha Round starts and stops Cancn Ministerial, 2003: Failed to agree
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Cancn:
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WHATS HAPPENING NOW? - DOHA
Doha Round starts and stops Cancn Ministerial, 2003: Failed to agree
Hong Kong Ministerial, 2005: Only minimalagreement
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Hong Kong:
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WHATS HAPPENING NOW? - DOHA
Doha Round starts and stops Cancn Ministerial, 2003: Failed to agree Hong Kong Ministerial, 2005: Only minimal
agreement
Negotiations suspended July 2006, restarted2007 US, EU, Brazil and India met in Potsdam,
Germany, but ended in deadlock June 21, 2007 June 30, 2007: US negotiating authority expired
July 29, 2008: Negotiations broke down overagriculture
Future uncertain; dont know when, & whether,talks will resume
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WHATS HAPPENING NOW? - DOHA
Doha Round Objective was: Doha Development Agenda
To achieve substantial further reduction in trade barriers,
In both developed and developing countries,
While for the first time providing meaningful benefits to
developing countries
Conflicts: US and EU agricultural subsidies and tariffs
Developing-country import barriers in manufactures andservices
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WHATS HAPPENING NOW? - DOHA
Doha Round
Reasons for failure of Doha Round:
All countries wanted
other countries to reduce trade-distorting policies,
but not to change their own policies WTO requires agreement by all of its member countries (now
156); thats hard to achieve!
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WHATS HAPPENING NOW? - DOHA
Doha Round
Reason for collapse in 2008 : Disagreement inagriculture
US trade distorting subsidies: US would cap these, but not at
a low enough level to satisfy India and China Special safeguards for India: Permission to raise tariffs if
imports rise above some threshold
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WHATS HAPPENING NOW? - DOHA
Doha Round: What will happen next?
The Round may be able to restart. This willrequire leadership, probably from U.S.
Likely to be increased move toward PTAs/RTAsamong pairs and small groups of countries
Who loses? Developing countries (see Blusteinarticle)
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WHATS HAPPENING NOW? - PTAS
PTAs (Preferential Trade Agreements)
Most countries are in some of these and are negotiatingto form more
Typical PTA is Free Trade Area (FTA) such as
NAFTA (North American Free Trade Area) Well study the effects of these later in the course
They are not necessarily economically beneficial
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WHATS HAPPENING NOW? - PTAS
Recent United States Free Trade Agreements
Completed since 2001 Being Negotiated
Australia, Bahrain, Chile,Costa Rica, DominicanRepublic, El Salvador,Guatemala, Honduras,Jordan, Morocco,Nicaragua, Singapore
Signed and ratified 2011:
S. Korea, Colombia,Panama
Ecuador, Malaysia, Oman,Peru, Thailand, United ArabEmirates, + SACU (Southern
African Customs Union)
Also Trans-PacificPartnership (TPP)
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WHATS HAPPENING NOW? - PTAS
Trans-Pacific Partnership (TPP)
Started in 2006 as Trans-Pacific Strategic EconomicPartnership: Singapore, Brunei, Chile and New Zealand
In 2008, US said it would negotiate to join, and this
brought in 4 more countries: Australia, Peru, Malaysia,and Vietnam.
In 2001, Japan and Canada indicated an interest injoining.
The countries are extremely diverse.
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WHATS HAPPENING NOW? - PTAS
Objective of the TPP
To negotiate a state of the art trade agreement
It would go beyond existing agreements
It would permit additional countries to join
US claims it will Enhance competitiveness
Promote US employment
Demand high standards
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Regional Trade Agreements (RTAs) Notified to GATT/WTO
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WHATS HAPPENING NOW? - PTAS
Most recently, in 2011:
February 2011: India and Japan sign FTA
June 2011: 26 African nations launch talks for FTA
October 2011: US Congress approves FTAs with
Korea, Colombia, Panama October 2011: 8 former Soviet states sign FTA
November 2011: US-Korea FTA approved by Korea
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WHATS HAPPENING NOW? -DISPUTES
Trade Disputes
Boeing-Airbus: US vs EU over aircraft subsidies
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W H N ?
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WHATS HAPPENING NOW? -DISPUTES
Trade Disputes
Byrd Amendment: US redistribution of anti-dumpingduties, ruled illegal by WTO
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WHATS HAPPENING NOW? -DISPUTES
Trade Disputes
Chinas currency (the yuan)
Was pegged to US $ at 8.2765 /$ and consideredundervalued
Allowed to rise as of July 21, 2005. It rose 2.1% Rose steadily until July 2008, to 6.8363 /$ about 20%
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W H N ?
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WHATS HAPPENING NOW? -DISPUTES
Trade Disputes
Chinas currency (the yuan)
In July 2008, dollar itself started to rise, and yuan went back tobeing fixed to dollar
Many, in US and especially in EU, think yuan should rise muchmore. China says no!
Yuan did start to rise, a little in summer 2010
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HOW CHINAS EXCHANGE RATE BEHAVESUS$/YUAN EXCHANGE RATE
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RECENT MOVEMENTSOFTHE YUAN
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