International Political Economy (IPE)

1. International Political Economy (IPE) International College KhonKaenUniversity 2012 Week 6 – International Trade The Political Economy of International Trade

2. The Political Economy of International Trade • We know from the last two weeks that governments face conflicting pressures: • to secure the benefits of free trade (efficiency, economies of scale, consumer benefits, employment) • to respond to domestic pressure to protect jobs and domestic industries • This week we look at how governments try to reconcile these conflicting pressures

3. The Political Economy of International Trade • Governments need to agree on rules for fair and freer trade between countries • They need to negotiate and cooperate with other countries to achieve this • They sign agreements and join international trade groupings which provide structure to international dialogue and cooperation

4. The Political Economy of International Trade • This week we will look at inter governmental networks and cooperation – the ways in which governments from different countries work together, and why: • bilateral relationships and diplomacy • regional and multilateral institutions • trade negotiations

5. Bilateral Relationships in IPE • The issues covered in bilateral relations can be very varied and broad • The nature of the relationship between the two countries will dictate the issues • Neighboring states sharing a common border generally have a wider range of issues to talk about than geographically distant states • In our more globalized world this distinction is fast disappearing

6. Bilateral Relationships in IPE • Some examples of bilateral IPE issues: • Trade and investment • Border management (people and goods) • Resource issues – water, fishing rights, oil and gas • Transport and communications • Environmental issues – haze, pollution of shared rivers • Development assistance and cooperation • Border disputes • Security

7. Bilateral Relationships in IPE • The main institutions of bilateral IPE relationships include: • Embassies and trade promotion offices • Bilateral trade and investment agreements (FTAs) • Bilateral cooperation and technical agreements • Ministerial visits • Trade missions • Familiarization visits • Joint commissions • Regular trade and economic consultations – often scheduled on an annual basis

8. Bilateral Relationships in IPE • Most bilateral meetings or negotiations are held in one of the two capital cities • With only two parties, there is no need for the large, formal organizations and structures which feature in global and regional organizations • If the two countries need to make a formal commitment to each other, they will negotiate an agreement or treaty

9. Free Trade Agreements (FTAs) • FTAs have an increasingly important role in economic and political relationships between states in the modern era • So what are FTAs? • An FTA is a signed trade and economic agreement between two or more countries • FTA agreements have treaty status in international law

10. Free Trade Agreements (FTAs) • The purpose of an FTA is to: • Reduce barriers to trade and investment between the countries signing the agreement • Help establish a set of rules to create a more stable and secure economic relationship • FTAs can be either: • A bilateral FTA (between two countries) • A regional FTA (between several countries)

11. Free Trade Agreements (FTAs) • Why are FTAs important? • FTAs are negotiated by governments to assist businesses to expand by: • Increasing the size of their markets • Reducing production costs through creating international supply chains • FTAs help businesses to maintain their comparative advantage over competitors from other countries

12. Free Trade Agreements (FTAs) • FTAs help to ensure the countries which are party to the agreement: • Will continue to receive foreign investment • Will be able to create new jobs • Will be able to improve living standards • Countries which do not negotiate FTAs will likely see their share of regional and global trade and investment declining

13. Free Trade Agreements (FTAs) • Singapore has signed more FTAs than any other country in Southeast Asia, and is now the region’s richest country • North Korea has signed no FTAs and is one of Asia’s poorest countries with many people dying from malnutrition and hunger • Its neighbor, South Korea is outward-looking, and is now in the top 25 richest countries in the world

14. Regional Relationships in IPE • Cooperation and collective action on a regional basis has increased sharply since the 1980s • States can advance their economic, social and security welfare by working with neighboring states to: • establish regional organizations which support and service their cooperative efforts • sign regional treaties and trade agreements to provide a binding legal framework for their decisions

15. Regional Relationships in IPE • Regional relationships are generally concerned primarily with: • Trade and economic cooperation (ASEAN, EU, NAFTA, Mercosur, APEC, etc) • Security (NATO, ASEAN Regional Forum, etc) • Development and social cooperation (ADB, ESCAP, SEAMEO, etc) • The region covered by each grouping may be an entire continent, or as few as three or four countries which see benefit in working together

16. Asian Regional Institutions of IPE • For the purposes of this IPE course we will look more closely at the following Asian regional groupings in weeks 13/14: • ASEAN (including AFTA and AEC) • Asia Pacific Economic Cooperation (APEC) • The Asian Development Bank (ADB) • Economic and Social Commission for Asia and the Pacific (ESCAP) • The Greater Mekong Subregion (GMS) Program

17. Multilateral Institutions of IPE • For most multilateral (global) issues, the most important intergovernmental organization is the United Nations and the many agencies, funds and programs of the “UN family” • In international economic relations, three major inter-governmental organizations are important: • The World Trade Organization (WTO) • The International Monetary Fund (IMF) • The World Bank group

18. The World Trade Organization (WTO) • The World Trade Organization is the only international organization regulating trade between states • Created in 1995 to implement the General Agreement on Trade and Tariffs (GATT) • Is not formally part of the UN • Has three main goals: • Help the free flow of world trade • Help negotiate further opening of markets • Settle trade disputes between its members

19. The World Trade Organization (WTO) • The GATT/WTO establishes a framework for trade policies: • The GATT sets out all the rules of international trade as agreed between WTO member states • The WTO helps member states to meet and negotiate further trade liberalization • The main principles: • Non-discrimination – the most favoured nation (MFN) rule and the national treatment rule • Reciprocity • Binding and enforceable commitments • Transparency

20. The WTO : Principles • The MFN rule requires that a member must apply the same conditions for all WTO member countries • The national treatment rule requires that imported goods must be treated no less favorably than domestically produced goods • Reciprocity means that in every negotiation every party must make concessions

21. The World Trade Organization (WTO) • Since its establishment, the WTO has worked hard to secure trade deals, particularly in areas like services and agricultural products • The WTO’s policing, enforcement and dispute resolution mechanisms are having a positive effect • Most countries have adopted WTO recommendations for trade disputes • Membership has increased to 155, which represents around 96% of world trade

22. The World Trade Organization (WTO) • WTO Ministers launched a new round of trade talks at Doha, Qatar, in 2001 • The Doha Development Round is now into its tenth year and is already the longest trade round • The Doha agenda includes: • cutting tariffs on industrial goods and services • phasing out subsidies to agricultural producers • reducing barriers to cross-border investment • limiting the use of anti-dumping laws • increased emphasis on trade as a development tool

23. The World Trade Organization (WTO) • Negotiations in the Doha Development Round have stalemated over: • European Union and US differences over agricultural tariffs and subsidies • Emerging economies reduction of industrial tariffs • “BRIC’s Factor” (Brazil, Russia, India, China) pushing for better services access to developed countries • The WTO suspended negotiations in late 2008 but informal negotiations have continued since