International Trade Negotiations Strategy

Negotiation Strategies

• Leading and coordinating parallel negotiations at different levels requires substantial resources.
• This strategy has been crucial for advanced industrialized countries in pushing through the TRIPS Agreement in the Uruguay Round.
• It has been used to promote "TRIPS-plus" provisions, while the WTO moved to create more flexibility on TRIPS.

Structural Shifts and IOs

• There is a structural trend towards less dominance of advanced industrialized countries in the international economy.
• However, further fragmentation seems to be under way.
• While structural shifts suggest changing order, it is too early for conclusions.
• New dynamics of governance are emerging, such as the BIC alliance and recent isolations of China.
• There are tensions over "reform" in the WTO, particularly with the US contestation of the Appellate Body.

Trade Governance Beyond WTO

• Regional agreements have been used to bridge the gap, but also strategically, especially by advanced industrialized countries.
• These agreements promote preferred regulatory agendas, including through forum-shifting.

The IMF and EMU Before, During, and After the Eurozone Crisis

• The global financial crisis of 2008-2009 was triggered by the 1st half of the 2000s, which saw years of easy money, low interest rates, and easy access to mortgages.
• The crisis was exacerbated by the rise in interest rates from 2004, leading to defaults on subprime mortgages.
• The result was a widespread reluctance to give credit, and risk of insolvency for many financial firms.
• Heavy government and central bank involvement was needed to address the crisis.

The IMF's Response

• New IMF loans surged from virtually nothing in 2007-2008 to the highest levels in history in 2009.
• There was extensive cooperation amongst central banks to address the crisis.

The EU's Experience

• The EU members were amongst the first to suffer the crisis.
• All major European economies experienced recession (negative GDP growth) between 2007 and 2011.
• Core factors contributing to the recession in the EU include:
  • Losses of financial institutions exposed to "toxic" US assets.
  • Decline in trust in financial markets.
  • Decline in external demand.
• In some cases, homemade real estate bubbles and other factors contributed to the recession.Here are the study notes:

Large Government Deficits and Public Debt

• Several new EU members needed emergency lending to tackle high levels of external public debt and refinancing difficulties
• Examples: Hungary (Oct 2008), Latvia (Dec 2008), Romania (May 2009)
• Other EU members required emergency lending due to large government deficits, high public debt, and inability to refinance
• Examples: Greece (May 2010, March 2012, July 2015), Ireland (Dec 2010), Portugal (May 2011), Spain (July 2012), Cyprus (April 2013)

Impact on the IMF and Global Economic Governance

• IMF reacted quickly to the crisis, adopting new lending facilities and instruments
• IMF lending multiplied by 73 between spring 2008 and spring 2009
• New arrangements for borrowing from members and concessional loans for low-income countries
• Broader shifts in global economic governance, with the G20 emerging as a center of international macroeconomic coordination
• The crisis marked a shift away from the Washington Consensus, with a more multipolar economic elite emerging

EMU Governance and the Crisis

• The "M" in EMU (Economic and Monetary Union) refers to monetary policy, but does not account for differences in growth performance among members
• No exchange rates to help adjustment, and no common fiscal policy or "bailout" clause
• The ECB acted to support governments, purchasing government bonds and providing non-standard measures to preserve the Euro
• Concerns about excessive financial and political risks led to pressures on states to develop their own support mechanisms

Changes during the Crisis

• "No bailout" clause (Art. 125 TFEU) was circumvented through ad hoc solutions, such as the Greek Loan Facility and the European Financial Stability Mechanism (EFSM)
• The European Stability Mechanism (ESM) replaced the EFSM and EFSF, providing a permanent stability mechanism with strict conditionality
• TheSix Pack, Fiscal Compact, and Two Pack reforms aimed to strengthen fiscal discipline and surveillance
• The European Semester was introduced to provide a framework for coordination and surveillance of national economies

The Role of the IMF

• The IMF contributed to lending programs in Greece, Ireland, Portugal, and Cyprus
• The IMF was part of the "troika" with the European Commission and ECB, with differing views on debt sustainability and fiscal targets
• The IMF shifted away from the Washington Consensus, focusing on limited, "macro-relevant" measures and Keynesian ideas

EMU and the Crisis

• The ECB was key in creating stability during the sovereign debt crisis
• Incomplete fiscal union remains a challenge, with piecemeal reforms installed to create financial support mechanisms and strengthen the SGP
• The EMU has become more supranational in some areas, but more intergovernmental in others
• The EU has undergone profound changes, with a shift towards more integration of economic policies across the entire EU

Conclusions

• Global connectedness makes it easier for crises to spread
• The crisis highlights the need for international cooperation and innovation in economic governance
• Major IOs have adapted to the crisis, but more slow reforms are needed
• The crisis underlines structural shifts in global economic governance