UTS Business School Lecture 8: Trade (International) 2024

Lecture 8: Trade (International) 21654 Socio Political Context of Management Professor Peter Fleming © UTS Business School Spring 2024 © UTS Business School Spring 2024  Why? © UTS Business School Spring 2024 Informing Framework: PESTLE © UTS...

Lecture 8: Trade (International) 21654 Socio Political Context of Management Professor Peter Fleming © UTS Business School Spring 2024 © UTS Business School Spring 2024  Why? © UTS Business School Spring 2024 Informing Framework: PESTLE © UTS Business School Spring 2024  Subject Overview Session Topic 1 Introduction to 21654 SPCM 2 Relationship between Management, Organisations and Society 3 Socio-political philosophies – Virtue and Pragmatism 4 Socio-political philosophies – Rights, Social Contract and Utilitarianism 5 Political spectrum: Democracy, communism and authoritarianism 6 Economies: Capitalistic, socialist and mixed 7 Social rights 8 Trade - International 9 Law and justice 10 Environmental sustainability 11 Finance – International 12 Conclusion and review © UTS Business School Spring 2024  Lecture Outline National Interest Global Interest Patterns of International Trade Politics – Unilateral – Multilateral – Bilateral Globalisation © UTS Business School Spring 2024  Business is Trade (Riemer, Simon and Romance 2014) Trade is about exchanging goods or services across borders All economies depend on trade – And are affected by events outside their borders “Internationalisation” of the world economy has increasingly occurred in the private and public sectors Open trade relations between countries since WWII has facilitated increased global wealth and peace We are potentially entering into a period of more closed (protectionist) trade relations © UTS Business School Spring 2024 © UTS Business School Spring 2024  Trade, Politics and Ethics Trade is not merely an economic transaction – It has political and social implications – Brexit is a current example of these debates Trade is older than capitalism – Capitalism has grown through trade – Industrialisation has also grown Positives – Greater prosperity and development – International (intercultural) peace As advocated by Voltaire and Mill (lectures 4 and 5) Negatives – Profits can also be squandered by governments and oversees shareholders – Can also involve dangerous work practices and environmental destruction (as argued by Marx) © UTS Business School Spring 2024  National Interest vs. Global Interest (Riemer, Simon and Romance 2014) A central concern to leaders in international relations Protecting fundamental national interest: – Freedom and independence – Security against foreign aggression – Prosperity – Rights and welfare of citizens – Trump, but also look at Sweden and Italy International cooperation does not yet adequately protect the vital needs and interests of all nations and peoples © UTS Business School Spring 2024  Protectionism and Trade Barriers Protection – Shielding a sector of the economy from foreign competition – i.e. Alexander Hamilton (1755-1804) arguing for US tariffs on imported manufactured goods to build US manufacturing Tariffs – Tax on imports Quota – Limit on the quantity of imports Export subsidies – Government payments made to domestic firms to encourage exports – i.e. Chinese government subsidies, tax incentives, loans for manufacturing – i.e. US subsidies for agribusiness companies Dumping – A firm or industry sells products on the world market at prices below the cost of production – Often countered by trade sanctions © UTS Business School Spring 2024 © UTS Business School Spring 2024 © UTS Business School Spring 2024 Free trade © UTS Business School Spring 2024  Trade Balance Surplus (Positive balance) – Exports more than it imports Deficit (Negative balance) – Imports more than it exports © UTS Business School Spring 2024 © UTS Business School Spring 2024 US's Trade Balance recorded a deficit of 98.6 USD bn in Jun 2022, compared with a deficit of 103.5 USD bn in the previous month © UTS Business School Spring 2024  Patterns of International Relations (Riemer, Simon and Romance 2014) 1. Unilateral - Hegemonic Domination – Exploitation of weaker states by stronger ones – militarily, politically and economically – Also described as colonialism (military annexation) or imperialism (political-economic control) 2. Multilateral – Multipolar – Emphasising accommodation, negotiation and collective responsibility 3. Bilateral – Bipolar – Emphasising a pragmatic national interest approach to foreign policy © UTS Business School Spring 2024  1. Unilateral Hegemony (Banerjee 2008; Johnson 2004) Colonialism (military) and Imperialism (political-economic) – Domination of weaker states – The stronger nation benefits more than the weaker nation – Colonial policy in 19th and 20th centuries of Great Britain, France, Holland, Belgium, Spain and Portugal – Justified as civilising “backward people” © UTS Business School Spring 2024 © UTS Business School Spring 2024 © UTS Business School Spring 2024 © UTS Business School Spring 2024 © UTS Business School Spring 2024  2. Multilateralism (Morrison 2015) Groups countries collectively solving problems and conflicts – Belief that a country’s self-interest will be best met through collective efforts Often through formal organisations – Global organs, e.g., the United Nations – Regional organs, e.g., EU and APEC – Resource organs, e.g., OPEC – Special conferences on subjects like arms control, AIDS, the environment, etc. © UTS Business School Spring 2024  The United Nations (Riemer, Simon and Romance 2014) Formed in 1945 to protect society from war, protect human rights, promote economic and social progress and maintain peace via multilateral relations Basic Organs: – General Assembly – International Court of Justice – Trusteeship Council – Security Council – Secretariat – Economic and Social Council © UTS Business School Spring 2024  Removing Trade Barriers In the 1930s the world economy went into recession and many countries closed their barriers to trade with other states. Leading to: – Mass unemployment – Social upheaval – Rise of fascism and the Second World War Global powers thereafter set up bodies to support international trade – International Monetary Fund (1945) – World Bank (1945) All countries encouraged to join these organisations, or face exclusion from benefits of free world trade © UTS Business School Spring 2024  Multilateral Finance Bodies The International Monetary Fund (IMF) – Lends to countries with balance of payments problems – Pushes for economic reforms – Reports on policies in member states The World Bank – Aims to help development by advising and lending with many conditions – Countries encouraged to lift import and export barriers, cut subsidies and remove price controls © UTS Business School Spring 2024 Criticisms of the IMF & World Bank (Riemer, Simon and Romance 2014) IMF only lends money if countries agree to: – Sell their resources cheaply – Cut public spending – Critics say this increases the problems of poverty in poor member countries Loans from The World Bank depend on countries agreeing a ‘Structural Adjustment Programmes’ – Leads to rapid increase in price of goods in country – Increases poverty – Lowers investment and cuts social spending Questionable if these policies work © UTS Business School Spring 2024 The World Trade Organisation (WTO) Officially commenced on 1 January 1995 161 participating countries Based in Geneva Switzerland Oversees the implementation and administration of Multilateral agreements Provides forum for negotiations and dispute settlement © UTS Business School Spring 2024  WTO Challenges Australian Plain Packaging Laws (ABC News 2014) Plain packaging enacted by Australia in 2012 Tobacco companies can’t bring claims directly in the WTO, but can help countries lodge claims – Four countries have done so: Cuba, Ukraine, the Dominican Republic and Honduras Australia won the dispute in a ruling in May 2017 Had Australia lost it would have had to change its plain packaging laws to accord with WTO rulings © UTS Business School Spring 2024  Criticism of WTO Accused of widening the social gap between rich and poor it claims to be fixing UNCTAD estimates that the market distortions cost the developing countries $700 billion annually in lost export revenue Issues of labor and environment are “steadfastly ignored” Decision making critiqued as unrepresentative and non-inclusive © UTS Business School Spring 2024 Asian Infrastructure Investment Bank New Development Bank – 57 member states (all "Founding Members") – Was proposed as an initiative by the government of China – China is the single largest stakeholder, holding 26% of voting rights – Entered into force on 25 December 2015 © UTS Business School Spring 2024  One Belt One Road (New Silk Road) Underlines China's push to take a bigger role in global affairs Aims to reshape geopolitics through infrastructure development and trade Focuses on connectivity and cooperation between China and the rest of Eurasia Two main components – Land-based "Silk Road Economic Belt" (SREB) – Oceangoing "Maritime Silk Road" (MSR) Was unveiled in September and October 2013 © UTS Business School Spring 2024  Trans-Pacific Strategic Economic Partnership Agreement Trans-Pacific Strategic Economic Partnership US withdrew 2017 (Trump) Trade agreement between 12 Pacific Rim countries (including Australia) to: – Lower trade barriers – Establish a common framework for intellectual property – Enforce standards for labour law and environmental law – Goal of wrapping up negotiations in 2012 Signed into law in February 2016 Yet to be ratified and enter into force Has been torn up by Donald Trump Criticisms of secrecy, criminalisation of copyright infringement © UTS Business School Spring 2024  The Case for Free Trade Theory of comparative advantage says when countries specialise and trade based on comparative advantage – Consumers pay less and consume more – Resources are used more efficiently When tariffs and quotas are imposed, some gains from trade are lost In principle promotes peace and prosperity © UTS Business School Spring 2024  The Case for Protection Saves jobs Some countries engage in unfair trade practices Cheap foreign labor makes competition unfair Safeguards national security Safeguards infant industries Costs and benefits of openness are not symmetrical – Larger more developed states benefit more © UTS Business School Spring 2024  3. Bilateral (Riemer, Simon and Romance 2014) Political, economic, or cultural relations between two sovereign states In politics bipolar power (balance of power) - Distribution of power in an equilibrium so no single nation (or group) is dominant Exercised as – Hard power: military or economic might – Soft power: diplomacy, charisma and persuasion emphasising mutual benefit Bilateral relations as neo-imperialism? – Current example might be direct foreign investment by China in Africa? © UTS Business School Spring 2024  Australian Bilateral Free Trade Agreements (FTA) Department of Foreign Affairs and Trade (DFAT) – Promotes Australian trade internationally – Supports Australian businesses Australia has pursued many bilateral free trade agreements – Australia New Zealand Closer Economic Relations Trade Agreement (ANZCERTA) 1983 – Australia–United States FTA (ASUFTA) 2004 – Australia–China FTA 2014 – Australia-South Korea FTA in 2011 © UTS Business School Spring 2024  Australia New Zealand Closer Economic Relations Trade Agreement (DFAT 2014) ANZCERTA Came into force on 1 January 1983 Key interests and benefits – All tariffs on trade in goods originating in the Free Trade Area prohibited – Minimise market distortions in trade in goods, including through domestic industry assistance and export subsidies and incentives – Harmonise Trans-Tasman food standards creating lower compliance costs for industry, fewer regulatory barriers, and more consumer choice – Mutual recognition of goods and occupations removes technical barriers to trade and impediments to the movement of skilled personnel between jurisdictions Two-way investment between Australia and New Zealand is worth more than $110 billion © UTS Business School Spring 2024 Australia-United States (AUSAFTA) 1 January 2005 All tariffs have eliminated for imported products from the US into Australia Most tariffs have been eliminated for exported products from Australia to the US Harmonised System Code: This is the tariff number for each product Staging Category: Different tariffs are eliminated at different stages © UTS Business School Spring 2024 The Australia-United Kingdom Free Trade Agreement (A-UKFTA), 2021 © UTS Business School Spring 2024  China–Australia Free Trade Agreement (ChAFTA) Signed on 17 July 2015 Came into force on 20 December 2015 96 percent of Australian exports to China tariff free, Including: – Many agricultural products – Liberalisation of market access for Australia's services sector – Investments by private companies from China under 1,078 million AUD will not be subject to FIRB approval An Investor State Dispute Settlement mechanism under the treaty Has been highly criticized by Unions © UTS Business School Spring 2024  Globalisation Intense global integration of international economic activity based on three factors: 1. Striking increase in economic global transactions and interdependence 2. The proliferation of high-tech communications systems 3. Rapid flows of finance across the globe © UTS Business School Spring 2024  Challenges of Globalization (Riemer, Simon and Romance 2014) A challenge to sovereignty – Due to increased interdependence – Growing power of Multi National Companies Political instability – Due to winners and losers of globalisation Environmental degradation and the plight of labor – No central organising authority – Companies can shift their operations from one country to the next © UTS Business School Spring 2024 © UTS Business School Spring 2024 Right-wing populism The banking and political systems are working “hand in glove” in an attempt to disband nation states. “Globalists” are trying to engineer a world war as a means to introduce a worldwide government. Climate change is a “scam” intended to push forward this transnational government. © UTS Business School Spring 2024 © UTS Business School Spring 2024  Key Nonstate Actors Nongovernmental organizations (NGOs) – Attempt to raise public awareness on issues such as Human and Animal Rights and the Environment Multinational corporations – Perhaps the most powerful non-state actor – More than half of the biggest economies in the world are MNCs as opposed to countries – Provide prosperity in countries where they operate But because profit is the main object – don’t always operate in the public interest – Sometimes meddle in state affairs in a manner that is contrary to the public good © UTS Business School Spring 2024  Fair Trade A social movement Aimed at helping producers in developing countries achieve better trading conditions Promotes sustainable development by offering better trading conditions to marginalized producers Focuses on commodities typically exported from developing countries to developed countries: – handicrafts, coffee, cocoa, sugar, tea, bananas, honey, cotton, fresh fruit, chocolate and flowers – Criticisms? © UTS Business School Spring 2024  Portfolio Prompts: Trade Are the international trade frameworks needed to carry out the organisation’s work available? Does government facilitate international trade? Is the organisation participating in fair trade? © UTS Business School Spring 2024  Conclusions Global community lacks agreement on but one point – the importance of trade Hegemony is clearly exploitative and hence not a recipe for international wellbeing Multilateral arrangements have had some success but have been difficult to implement as nations are afraid of losing strategic advantage – There is much tension and inbalance between the developed and developing worlds Bilateral agreements have emerged as the preference although multilateral agreements remain a longer term objective ‘Good’ management seeks to take advantage of the overall benefits while minimising the exploitation inherent in global trade © UTS Business School Spring 2024  References ABC 2014, Indonesia to challenge Australia's plain-packaging tobacco laws at World Trade Organisation, http://www.abc.net.au/news/2014-03- 27/new-wto-challenge-to-australia-plain-packaging-tobacco-law/5348078 (9 Sept 2015) Banerjee, S.B. 2008, 'Necrocapitalism', Organization Studies, vol. 29, no. 12, pp. 1541-63. DFAT 2014, Australia-New Zealand Closer Economic Relations Trade Agreement, http://dfat.gov.au/trade/agreements/anzcerta/pages/ australia-new- zealand-closer-economic-relations-trade- agreement.aspx (Accessed 9 Sept 2015) Johnson 2014, The sorrow of empire, Verso, London. Morrison, J. 2015, Business ethics: New challenges in a globalized world, Palgrave Macmillan, New York. Riemer, N., Simon, D. W., and Romance, J. 2014, The Challenge of Politics: An introduction to political science, Sage, Thousand Oaks. © UTS Business School Spring 2024 Thank You © UTS Business School Spring 2024