Global Business Past, Present, Future - PDF

GLOBAL BUSINESS, PAST, PRESENT, FUTURE 1. GLOBALIZATION Action, process or fact of matter of making something global. Businesses or organizations develop int. presence & operations. Considered at the expense of national identity. What? 1. Economic Globalization: Trade 2. Political Globalization...

GLOBAL BUSINESS, PAST, PRESENT, FUTURE 1. GLOBALIZATION Action, process or fact of matter of making something global. Businesses or organizations develop int. presence & operations. Considered at the expense of national identity. What? 1. Economic Globalization: Trade 2. Political Globalization: Decisions are influenced by global forces (trade agreements & int. org). a) Smaller countries are more impacted 3. Cultural Globalization: Music (K-pop), films (Hollywood), television, sports (Premier League), fast food styles (KFC). SILK ROAD (130 BC-1400 AD) TO BELT ROAD Early: Original Silk Road (Venice + Mediterranean Area to China and the points between). East to West: Silk and spices. West to East: Mainly Gold & Silver. Also, horses, honey, weapons. Cultural Exchange: Language, culture, religion (buddhism spread from south asia to china and west to india, christianity & islam went east). Disease spread back & forth. People who live close get immunity, people who don't do not (AMericas, Australia) so when Europeans come they die. Technology advancement in Europe during the 1400s ended the silk road like big ships. Interruptions: Often bcz of blockades by local enemies of Rome or China. During the period of the roman empire, which lasted for the majority of time of the silk road, the roman empire was in control so it was the center of control.  After it collapsed city states like venice, florence and genoa gain much more economic power, especially venice Consequently, Venice through military power and diplomatic ways gained control over trade ways like, so it became a source for spices and goods to Europe. When empires fell after several centuries, the silk road also closed. Reopening in Marco Polo’s late medieval time, it was because of the rise of a new hegemonic empire: the Mongols. It is a pattern we’ll see throughout the history of trade: it thrives when nations protect it, it falls when they don’t. The collapse of the Roman Empire meant that economic control from Rome waned in what had been their empire. Demand in Europe and Italy in particular for exotic goods was still high. Control of the western end of the Silk Road came to be held by Florence, Genoa and especially Venice. They used this to create markets in Europe for spices and silk. The Silk Road thrived because of its attractiveness and storing desire for foreign goods at reasonable prices. Venice’s place at the center of this exchange helped change the way globalized business would be conducted. People who actually worked in the silk road very rarely traveled to far lands like venice to china They used this dominance to create markets in Europe for spices and silk. As business spread, new methods of control needed to be created. Two of the most important were the notion of the “company” and the development of double entry bookkeeping. The name silk road was not used during the silk road period. It was named Silk Road. In the mid 1800 , a European entrepreneur wanted to build a railway from Vienna to Shanghai so he coined the word silk road to suggest the property that may be renewed by the construction of this project and the term stuck. The Spice Route: The main focus of Islamic trade in those Middle Ages were spices. Unlike silk, spices were traded mainly by sea since ancient times. But by the medieval era they had become the true focus of international trade. Chief among them were the cloves, nutmeg and mace from the fabled Spice islands – the Maluku islands in Indonesia. They were extremely expensive and in high demand, also in Europe. But as with silk, they remained a luxury product, and trade remained relatively low volume. Globalization still didn’t take off, but the original Belt (sea route) and Road (Silk Road) of trade between East and West did now exist. Age of Discovery: Truly global trade kicked off in the Age of Discovery. It was in this era, from the end of the 15th century onwards, that European explorers connected East and West – and accidentally discovered the Americas. Aided by the discoveries of the so-called “Scientific Revolution” in the fields of astronomy, mechanics, physics and shipping, the Portuguese, Spanish and later the Dutch and the English first “discovered”, then subjugated, and finally integrated new lands in their economies. Potatoes, tomatoes, coffee and chocolate were introduced in Europe, and the price of spices fell steeply. Rapid Growth 1850 - Start of WW1. Industrial Revolution: Exchange of supplies & shipping of technologies between countries. Waste supply of inexpensive goods , exporting faster and cheaper on steam ships using economies of scale. Communication via Telegraph: Created the ability to instantly message all over the world, later the telephone became a part of that process, as well as the internet nowadays. London, York , European centers have the ability to control an economy at a global scale more efficiently WW1 ended the golden era of globalization as nationalism was stoked up, people were specious of trade, and saw global activity as the cause of the war. First wave of globalization (19th century-1914): By the end of the 18th century, Great Britain had started to dominate the world both geographically, through the establishment of the British Empire, and technologically, with innovations like the steam engine, the industrial weaving machine and more. It was the era of the First Industrial Revolution. The “British” Industrial Revolution made for a fantastic twin engine of global trade. On the one hand, steamships and trains could transport goods over thousands of miles, both within countries and across countries. On the other hand, its industrialization allowed Britain to make products that were in demand all over the world, like iron, textiles and manufactured goods. The world wars: It was a situation that was bound to end in a major crisis, and it did. In 1914, the outbreak of World War I brought an end to just about everything the burgeoning high society of the West had gotten so used to, including globalization. The ravage was complete. Millions of soldiers died in battle, millions of civilians died as collateral damage, war replaced trade, destruction replaced construction, and countries closed their borders yet again. In the years between the world wars, the financial markets, which were still connected in a global web, caused a further breakdown of the global economy and its links. The Great Depression in the US led to the end of the boom in South America, and a run on the banks in many other parts of the world. Another world war followed in 1939-1945. By the end of World War II, trade as a percentage of world GDP had fallen to 5% – a level not seen in more than a hundred years. Second and third wave of globalization: The story of globalization, however, was not over. The end of World War II marked a new beginning for the global economy. Under the leadership of a new hegemon, the United States of America, and aided by the technologies of the Second Industrial Revolution, like the car and the plane, global trade started to rise once again. At first, this happened in two separate tracks, as the Iron Curtain divided the world into two spheres of influence. But as of 1989, when the Iron Curtain fell, globalization became a truly global phenomenon. In the early decades after World War II, institutions like the European Union, and other free trade vehicles championed by the US were responsible for much of the increase in international trade. In the Soviet Union, there was a similar increase in trade, albeit through centralized planning rather than the free market. The effect was profound. Then, when the wall dividing East and West fell in Germany, and the Soviet Union collapsed, globalization became an all-conquering force. The newly created World Trade Organization (WTO) encouraged nations all over the world to enter into free-trade agreements, and most of them did, including many newly independent ones. At the same time, a new technology from the Third Industrial Revolution, the internet, connected people all over the world in an even more direct way. The orders Keynes could place by phone in 1914 could now be placed over the internet. Instead of having them delivered in a few weeks, they would arrive at one’s doorstep in a few days. What was more, the internet also allowed for a further global integration of value chains. You could do R&D in one country, sourcing in others, production in yet another, and distribution all over the world. Globalization 4.0: That brings us to today, when a new wave of globalization is once again upon us. In a world increasingly dominated by two global powers, the US and China, the new frontier of globalization is the cyber world. The digital economy, in its infancy during the third wave of globalization, is now becoming a force to reckon with through e-commerce, digital services, and 3D printing. It is further enabled by artificial intelligence, but threatened by cross-border hacking and cyberattacks. At the same time, negative globalization is expanding too, through the global effect of climate change. Pollution in one part of the world leads to extreme weather events in another. And the cutting of forests in the few “green lungs” the world has left, like the Amazon rainforest, has a further devastating effect on not just the world’s biodiversity, but its capacity to cope with hazardous greenhouse gas emissions. Venice: The collapse of the Roman Empire meant that economic control from Rome waned in what had been their empire. Demand in Europe and Italy in particular for exotic goods was still high. Control of the western end of the Silk Road came to be held by Florence, Genoa and especially Venice. They used this to create markets in Europe for spices and silk. The Silk Road thrived because of its attractiveness and storing desire for foreign goods at reasonable prices. Venice’s place at the center of this exchange helped change the way globalized business would be conducted. They used this dominance to create markets in Europe for spices and silk. As business spread, new methods of control needed to be created. Two of the most important were the notion of the “company” and the development of double entry bookkeeping. Tools of globalization Europe was becoming prosperous and rich and they wanted nice things at reasonable prices like spices and silk, the route that came through venice fed those appetites, so it become a center of change Companies: The idea of a company started on the foundation of family businesses which shared liability. In a time when default often led to imprisonment or sentences of servitude it was important that all members trust each other. It also allowed shared risk. The origins of the word company are two Latin words meaning “breaking bread together”. – Micklethwait and Woolridge. - Bookkeeping: Double entry bookkeeping was the culmination of the evolution of bookkeeping techniques that developed in the 14th and 15th centuries, especially in Venice and other Italian cities. The system of bookkeeping was codified and explained by Luca Pacioli who called it “double entry”; it was quickly used by businesses in Venice. It became and remains standard. This system also allowed record keeping of more complex organizations like the new companies and allowed records of transactions in distant locations to be related. - Sail Power: New ship designs like the caravel and the galleon played a significant role as well. These ships were faster, more maneuverable and capable of carrying more cargo, increasing efficiency and profitability of transoceanic trades. From the 1400s until the end of the 1800s ship technology improved considerably. - Navigating: The first wave of European trade with Asia and the Pacific was fueled by advances in ship building and navigation. Navigational tools like the compass and astrolabe improved ship designs and accurate cartography were crucial in long-distance exploration and efficient trade. - The sextant: In the mid 1700s the sextant allowed navigators to determine their position on the ocean with great accuracy. - Container ships: “The shipping container has been more of a driver of globalization than all trade agreements in the past 50 years together”. - The Economist. - The telephone: The success of the telegraph inspired a race for more efficient transmission of information. That led to the telephone. - Internet growth: Internet usage grew dramatically after 1995 as home computing and technology expanded. Total users in 1995 was about 16 million or.4% of the world’s population. In March 2017 3.8 billion, of half the world population. Anti-globalization: Globalization usually has winners and losers, various aspects of people or companies within various economies will be losers, their efficiency won't be enough and that will make them economic losers. Globalization can only succeed in the long term if institutions and governments, and others recognize that some people need to be protected somewhat from the implications of that loss. Anti-globalization movements: The modern anti-globalization movement gained public attention in later 1999 when a World Trade Organization meeting in Seattle attracted widespread protests. Protesters argued that multinational businesses and corporations were using their influence to push governments to lower corporate taxes as well as environmental, social and labor standards. Also concerns that globalizing cultural industries would destroy local culture and traditions. Background of anti-globalization: The anti-globalization movement had a longer history. After World War One the rise of nationalism and then the hardship of depression led many to blame big companies and argue for tariff protected national economies. Many of the connections, colonial and otherwise, broke down in this period. READING: China’s Massive Belt and Road Initiative: China’s Belt and Road Initiative (BRI), sometimes referred to as the New Silk Road, is one of the most ambitious infrastructure projects ever conceived. Launched in 2013 by President Xi Jinping, the vast collection of development and investment initiatives was originally devised to link East Asia and Europe through physical infrastructure. In the decade since, the project has expanded to Africa, Oceania, and Latin America, significantly broadening China’s economic and political influence. China is planning on these new projects to facilitate the connections and trades between China and other countries. In the past China used to move goods such as Chinese silk, spices, jade and others while China received gold and other precious metals, ivory and glass products. Use of this route peaked during the first millennium under the leadership of the first Roman and Byzantine Empires and the Tang Dynasty in China. President Xi announced the initiative during official visits to Kazakhstan and Indonesia in 2013. The plan was two-pronged: the overland Silk Road Economic Belt and the Maritime Silk Road. The two were collectively referred to first as the One Belt, One Road initiative but eventually became the Belt and Road Initiative. Xi’s vision included creating a vast network of railways, energy pipelines, highways, and streamlined border crossings, both westward—through the mountainous former Soviet republics—and southward, to Pakistan, India, and the rest of Southeast Asia. Such a network would expand the international use of Chinese currency, the renminbi, and “break the bottleneck in Asian connectivity,” according to Xi. Control: China expects not only privileged access to agricultural lands and mineral deposits in the countries but it also wants to export its own surveillance security models and content from state-controlled media. The Belt or land routes would follow the old Silk Road paths towards Europe and connect to Africa. It refers to the sea routes that connect with Asian ports, Africa and through the Middle East to Europe. It will also be controlled by China, but facilitate two-way trade. Countries in the Middle East support Belt Road because it would be easier for them to access products that are not usually accessible for them. QUESTIONS TO HELP WITH ARTICLE SUMMARIZATION - Write down the Section: How has the US responded? and answer them briefly. - Write a list of 5-10 keywords from the text. - Pick a quote that is interesting or made you think. Tell us why. - Identify the major stakeholders discussed and a summary of their position. If it has changed over time, note this. - Is the author trying to convince us of something? How do you know? - What positions does the text assume or not assume? Why do you think that's the case? The U.S. tried to join China’s plans while financing it for it to build connections with other third countries and get something back from it, resources and money. Each president has their own thoughts about BRI. It also created a new version of it, called the “Build Back Better World Initiative”, the U.S could not compete with China because of lack of financing. GLOBAL BUSINESS, PAST, PRESENT, FUTURE LECTURE 2. MULTINATIONAL ENTERPRISES (MNEs) “A multinational enterprise, also called international corporation or multinational corporation is a company delivering goods and services in more than one country” – European Commission. It: Manages production Delivers services In more than one country A multinational enterprise has their headquarters in one (or rarely more) than one country, while also operating in other countries. Apple and Microsoft are famous examples of multinational enterprises. The U.S. is the home for about ⅓ of the world’s multinational enterprises. Japan, India, China and Western Europe - McDonalds is an example of a multinational corporation: It has about 34,000 restaurants in 118 countries and territories across the world, serving more than 69 million customers every day worldwide. Brothers Maurice and Richard McDonald opened their first restaurant in San Bernardino, California in 1948. Bought multiple appliances to sell a high volume of milkshakes. At 15 cents basic hamburger sold for half the price of the competition Created self-serve counter with cooked hamburgers kept warm Salesman Ray Kroc got involved in 1953, opening the first franchise in Illinois a year later. Bought out the brothers in 1961 Innovative marketing strategies increased sales, restaurant services: - Clown Ronald McDonald, kid’s toys created family appeal - Branding with double arch - Emphasis on low prices Dramatic expansion–today roughly 38,700 outlets in 120 countries, more than $328 U.S. in assets. THE BIG MAC Index: Was invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their correct level. It is based on the theory of purchasing power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalize the prices of an identical basket of goods and services in any two countries. Challenges of an MNE: Even the biggest ones can face challenges from the jurisdictions they want to operate in. The tech sector has a few examples of this: Apple has lost legal battles in the EU over streaming services. Challenges of the new markets continued: China has provided a good example of how MNEs are affected by local regulatory challenges. When Western cosmetics MNEs tried to enter the Chinese market in the 1990s and early 2000s they were confronted with regulations that required animal testing of their products. This was anathema to the attitudes of the western markets. Chinese regulation is changing, slowly but still presents a challenge. Important to note that previous companies involve large and powerful economies. They have some leverage over the activities of the MNEs in their jurisdictions. Smaller national companies may have difficulties in attempting to enforce their standards on the multinational market, they may have limits with regulations or taxation. Multinational enterprises background: Small groups of individual voyages could be wildly profitable but also end in ruin if the ship sank or was captured. Risk is mitigated by joining investors in an “adventure” to trade Two great examples of this were the Dutch East India Company (known as the VOC) and the British East India Company, but other examples existed from many European Countries, all attempting to control trade through these large companies, often with monopoly protection. Dutch East India Co. In part because of the European rivalry, in part because of the desire for pepper and spices, the Dutch began sending expeditions to the Pacific to seek spice. In 1599 four-ship exploratory expedition to West Java, there was a fight between indigenous Indonesians and the Portuguese, despite these frequent battles most of the ships returned with enough spices to make a profit. Then, in March of the same year a fleet of eight ships was the first Dutch fleet to reach the “Spice Islands” of Maluku, the source of pepper. The ships returned to Europe in 1599 and 1600 and the expedition made a 400% profit. Creating the company: The United East India Company (Dutch) or the VOC was created in 1602 by the government of the Dutch Republic. They were given a monopoly on all trade in the Pacific and Asia. One of the keys of its success was that shares could be bought and sold by Dutch citizens. They were able to raise an army and enforce their own laws. The VOC, nutmeg and Banda: In the Early 1600s the Dutch East India Co. used their military power to seize and enslave the Indonesian Islands of Banda. These small groups of islands held the nutmegs production in the world. The Bandas were expert traders and enjoyed successful trading with a wide range of customers, including the VOC. Resistance by the Bandas was met with extreme military force. In 1621 the Dutch company launched a major military campaign that eliminated the population in Banda Islands, from around 15,000 people to 1,500/1,000 remaining across the 11 islands. In 1982 a group of locals in the Banda’s took over the state owned nutmeg growing enterprise which still made a major part of the local company. They split the groves equally among local families. The end of the Dutch East India Company. As time went on the VOC suffered from local conflict and corruption, but most of all it suffered from the fallout of European battles. As the Dutch fought with the British the VOC paid a price as the rival BEIC (British) rose in power and influence. This caused that in the end of the 1700s (1774) the company was in ruins and absorbed by the Dutch government. In 1813 The Charter Act proclaimed British sovereignty over new territory captured by the East India Company. The decline continues: English examples: The British created other companies in the same period. - The Virginia Company was created to plant tobacco and settlers in the Virginia colony in the early 1600s. - In 1670 the Hudson Bay’s company was created to conduct the fur trade and other business in what is now northern and western Canada. - It lives on as HBC and the Bay stores. These were private joint stock companies, but they were endowed with their rights by the governments that created them and could control them, symbolizing the stage in the development of colonialism. Nestle’ from Switzerland to MNE In 1866 two Americans in Switzerland created a company, Anglo-Swiss, to make condensed milk. A year later Henri Nestle’ began selling a mix of milk and flour as a baby formula. The following year the company helped Daniel Peter develop a milk chocolate product. The two companies later united. In 1905 the companies united and started producing chocolate milk. Post World War I: Nestle began to expand their chocolate business in Europe and the U.S. Despite the setbacks of the Depression, they found success in selling Nescafe, an instant coffee that they sold to the U.S. Army. Expansion: In the period of the 1960s and after, Nestle began an aggressive campaign of international expansion through acquisitions and product development. Since 2014 Nestle has been the largest food company in the world by revenue. Their products now include bottled water, pharmaceuticals and a range of other products. Controversies: - Most notably in the 1970s the company was found selling baby formula in Africa as a replacement for, rather than a supplement to breastfeeding. Poor water supply and incorrect usage led a large number to infant deaths. - The company’s status as an MNE made it difficult for local governments to regulate and only a global boycott campaign forced some change. - The company was also found using chocolate made by forced child slave labor in Africa. - It was only international outrage that achieved action. The American Supreme Court in 2016 found that MNEs could be held liable for violations of international law in American Courts. Traditionally MNEs are associated with America and Western Europe, but there are several examples of MNEs from India, China and other countries which challenge that stereotype. - One of the oldest is called Tata, it was founded in 1868 after some earlier ventures had failed. Its founder Jamshedji Nusservanji Tata sought to achieve different goals, including hydroelectric plants, steel companies, hotels and education. His son would accomplish those goals. - As the company expanded they opened a new office in London and began doing business there. In 1938 the 3rd generation of the Tatas took over. By 1988 these had expanded to 95 individual companies, including chemical, cosmetics, engineering and tea. In 1932 they had launched an airline. The government of India took controlling interest in the airline in the 1950s, but J.R.D remained the chairman. - Currently Tata Group is the largest conglomerate with products and services in over 150 countries, and operates in 100 countries. Reasons for being a multinational corporation: Access to lower production costs. Proximity to target international markets:. Access to a larger talent pool: Avoidance of tariffs Models of MNEs 1. Centralized: Companies have an executive headquarters in their home country and then build various manufacturing plants and production facilities in other countries. 2. Regional: States that a company keeps its headquarters in one country and supervises a collection of offices that are located in other countries. 3. Multinational: A parent company operates in the home country and puts up subsidiaries in different countries. The difference from the previous two models is that the subsidiaries and affiliates are generally allowed more independence in their operations. Advantages of being a multinational corporation 1. Efficiency 2. Development 3. Employment 4. Innovation Disadvantages of being a multinational corporation 1. Increased legal burden 2. Increased tax compliance 3. Public relations 4. Political instability Impact areas for MNEs: Glocalization in employment: By hiring local employees MNEs can provide not only an increase in their economy, but also they get a sense of knowledge about the local cultures and they cultivate a multicultural approach to conducting business by transferring knowledge and employees from the operating region. Investment and Capital Flows: Developing countries worldwide actively encourage foreign companies to invest in their economies through incentive policies to attract more capital. The presence of multinational companies not only brings technical expertise but also provides access to foreign markets, creating fresh business opportunities. Exports and Imports: Multinational companies engage in exporting their products and services to various countries while also importing goods and services from different nations. R&D, Innovation, and Technology Transfer: As key players in technology transfer, multinational companies exert significant influence on the competitiveness and welfare levels of the countries in which they operate through their investments in capital and technology-intensive sectors. Managing Environmental Impacts: In the present era of sustainability, multinational companies play a crucial role in extending their actions and measures to mitigate environmental impacts internationally. They serve as influential examples within the countries they operate, showcasing their commitment to areas such as energy efficiency, water conservation, waste management, and carbon emission reduction. Contribution to Social and Economic Development: Multinational companies play a vital role in driving social and economic development in their operating regions. They actively contribute to social progress by creating jobs, promoting inclusion in local supply chains, supporting education, and fostering talent development. Global Value Chains and Collaboration: As vital participants in global value chains, multinational companies assume an active role in developing a culture of collaboration among suppliers and other stakeholders. All stakeholders can collectively contribute to environmental and social sustainability objectives by building value chains rooted in sustainability principles. Investing in and Financing Projects: Multinational companies actively support sustainable development by investing in and financing projects that prioritize sustainability. These investments encompass vital areas like renewable energy, clean water, education, and healthcare, promoting the sustainable growth of local communities and nations. Origins of the East India Company: The last day of 1600 Queen Elizabeth the first granted a royal charter to a new East India Company was a monopoly, no other British subjects could legally trade in that territory, but it faced competition from the Spanish and Portuguese. LECTURE 3. INTERNATIONAL TRADES. What is mercantilism? Mercantilism was an economic system of trade that spanned during the 16th and 18th centuries. Based on the idea that the world's wealth was static, that the supply of gold and silver was finite. Governments had to regulate trade to build their wealth and national power. Due to the nationalistic nature of mercantilism nations frequently used military might to protect local markets and supply sources. Fixed amounts of wealth in the world, governments wanted to ensure their country got the largest share. Promotes exports, restricts imports = favorable balance of trade. A theory and practice, “mercantile system”. A country’s wealth is measured by the treasures it holds, for example gold. Absolute advantage: A country’s wealth is based on its available goods and services rather than on gold. Trade should be unrestricted so that each country may specialize in products for which it has an advantage. Comparative advantage: Established by David Ricardo in 1817. He argued that if a country was more efficient producing every single thing than another country it was beneficial for the two countries to trade. Gains from trade will occur even when a country has no absolute advantages with its trading partners. Competitive advantage is something an individual firm has, some advantage over their competitors, usually by way of cost that allows a firm to produce and sell something. Comparative advantage vs absolute advantage. Relative efficiency Focused on labor costs. Factor proportions theory: A country will specialize in what it has lots of, relative to other countries and trade with countries that specialize in something different. A country with a lot of capital but short on labor might focus on machines to help lower the cost of producing goods. Heckscher-Ohlin theory Factor endowments New trade theory: Why would similar countries trade with one another? Importance of growing returns to scale. The U.S and Canada are a good example of this. An advantage from one country to another is why they could trade with each other. One big implication is that it is an advantage to moving quickly. New trade tries to understand trade in which one firm has a lot of market power in contrast to Ricardo who didn't think a lot about monopolies. Strategic trade theory: It is called that because it is strategic, it's a targeted intervention by the government in a specific firm that can help them compete in a global market.e Developed in the 1980’s and 1990’s. It asks if there are only a few firms that dominate the industry for the whole world, either because they have greater economies of scale that are more efficient as a result or perhaps and relatedly they could be first movers. How to account for single firms that dominate the global market? How should countries respond? Examples: Only Airbus and Boeing competing for the global market in airplanes. Role of colonialism: The most ardent users of the mercantilist system were European colonial powers. They embraced the idea that economic strength came from reducing imports and emphasizing exports in order to hold on to and increase their gold supply. To facilitate this they strove to develop colonial systems that would allow them to extract resources. Triangle of trade: The imperial power constructs a system in which all economic activity is conducted with the purpose of extracting resources from the colony to benefit the mother country. How does it work? - The need to maintain a trade surplus - The importance of a large population - Large populations represented wealth. Increasing a nation’s population was integral to supplying a labor force, supporting domestic commerce and maintaining armies. - Protectionism, protecting a nation’s ability to build and maintain trade surpluses, encompasses prohibiting colonies from trading with other nations and imposing tariffs on imported goods. The Navigation Acts from 1660 England passed the navigation acts which prevented their colonies from selling directly to other European countries. The first Navigation Act forced European nations to buy goods in England – they couldn’t go to the American colonies seeking goods or raw materials. For the colonists, this stripped away any notion of free trade and restricted their markets severely. Was made to benefit European countries. Corn Laws: From the late 1700s until 1848 England placed tariffs on the import of grains and other foodstuffs to protect domestic producers. Eventually they gave preferential rates to colonies like Canada but maintained their protection. In the 1840s it had become clear to many that food was too expensive. The people were hungry, so the Robert Peel government repealed the corn laws to get more inexpensive food to Britain. The decline of mercantilism: Adam Smith's idea in the 1800s was that trade helped everyone more than taking hold. The U.K. moved towards free trade, helped by the fact that they were a powerful and established economy. CANADA’S TRADE Trade overwhelmingly is still oriented to the United States. The stagnation of exports to Europe and Japan in recent years was offset by increases to Asia. Because Canada exports to Asia, notably natural resources, it has a relatively small trade deficit with Asia compared with the US. Canada has little direct trade with Mexico. Both exports and imports are beneficial to economic growth, largely by boosting productivity. Firms in Canada that export have significantly higher productivity than firms that do not export. Imports of intermediate inputs contributed over half of Canada’s recent productivity growth. However, trade does create winners and losers, which has fuelled protectionist sentiment. It is easy to exaggerate the threat to world trade from the failure of the Doha round and the troubled outlook for the CETA and the TPP. Trade expert Michael Hart observed that the rules governing international trade under the auspices of the WTO and various regional trade deals may be sufficiently developed that no major improvements are needed to sustain a trade regime that would be very supportive of economic growth. The benefits of the CETA for Canada would be limited anyway since the pact retains supply management, protection of cultural industries, and the net benefit test for foreign investment. The growth in protectionist sentiment reflects a misunderstanding of how trade benefits the economy. The benefit does not come from a mercantilist maximizing the surplus of exports over imports. Treating exports as “good” and imports as “bad” for the economy ignores how imports contribute to rising living standards as much or even more than exports. Import competition lowers prices, forces domestic firms to become more productive, and increases the choices available to consumers and businesses. Countries that chose autarky (economic independence), such as post-war Latin America, China before 1978, India before 1991, or Cuba and North Korea, remained near the bottom of global rankings of economic development (Ridley, 2010: 187). Countries that promote exports but discourage imports, such as Japan and several other Asian nations, invariably have low levels of productivity in their domestic economy and high consumer prices (APO, 2015: 54, 127). From an economist’s point of view, the benefit of trade is based on comparative not competitive advantage; that is, about maximizing each country’s strengths so that all nations benefit, not beating others in a zero sum competition. Of course, trade inevitably creates winners and losers in terms of both incomes and jobs. As well, it can increase the inequality of incomes, although this has been more of a factor in the US than in Canada because of the boom in our resource sector over much of the past 13 years. After Britain, Germany is the next largest market for Canada’s exports in Europe at $3.8 billion, reflecting the relatively healthy state of its economy. However, Canada’s exports to Germany are less than one-quarter of its sales to Britain. In 2015, Canada’s exports were more evenly distributed than in the previous three decades. Autos again were the leading export at $87.3 billion, just ahead of machinery and equipment ($84.9 billion) and energy ($83.8 billion). Close behind were metals and minerals ($77.0 billion) and consumer goods ($70.1 billion). Forestry products ($39.8 billion) and agriculture ($32.1 billion) trail, though they have risen markedly in recent years. The recovery of agriculture and forestry even as prices slumped for energy and metals products is a reminder that natural resource markets do not move in unison. Canada’s imports are distributed equally between machinery and equipment, services, consumer goods, autos and industrial inputs, such as chemicals and metals. Canada should resist any temptation to emulate a withdrawal within its own borders that some of its trading partners rashly may be contemplating. Indeed, the threat of protectionism may even be a benefit; by drawing attention to how external trade has boosted our economy, it makes a powerful argument for the provinces to lower the many barriers to trade within Canada. The Global South: Since the end of the cold war the rich world's corporate giants have been the dominant force in global commerce. Today consumers and workers in almost every country are touched in some way by the world-spanning operations of multinational firms from America, Europe and, to a lesser extent, Japan. These leviathans are now under threat, as Chinese firms in industries from cars to clothing expand abroad with startling speed. A new commercial contest has begun. Its battleground is neither China nor the rich world, but the fast-growing economies of the global south. The precise shape of Chinese expansion is, however, a consequence of policies of governments in the West and China. As rich countries erect trade barriers to keep out Chinese goods, including solar panels and EVs, some Chinese firms are attempting to skirt restrictions by shifting production to the global south. At the same time, selling to emerging markets in their own right has become more attractive, too. Much of the business being done by Chinese firms in the global south today involves only final assembly. Many firms are reported to bring in Chinese workers, rather than hire locally. For developing economies to truly benefit, they should press Chinese firms to employ more local workers, share technology and heed local environmental and labor standards. For decades the West was the world's fiercest advocate for globalization. The consequences of its decision to turn inward to shield itself from Chinese competition will take years to become completely clear. But the world is not standing still. Western multinationals have long been the main agents of cross-border trade and investment, and some of the biggest beneficiaries of openness. Today they are surrendering ground in the world's fastest-growing and most populous markets. China is already reaping the rewards. LECTURE 4. INSTITUTIONS, AGREEMENTS AND TRADES. Trade agreements: Evans Distribution Systems has published a handy guide to various types of trade agreements: - Unilateral trade agreement: This is a one sided, non-reciprocal agreement that helps developing countries improve economic development. - Bilateral trade agreement: A mutually beneficial agreement between two countries to reduce trade barriers. - Multilateral trade agreement: Also referred to as regional trade agreement, acts in the same way as a bilateral or free trade agreement, but with three or more countries. Example: USMCA or the European Union. Background: We will focus on the post-World War Two. The motivation for free trade agreement was the fear of economic trade chaos that marked the post WW1 period and the Great Depression. In the post 1919 world the United States followed an “America First” policy which imposed ever increasing tariffs on goods entering the USA. The person who has to pay the tax for having foreign goods and it makes it more expensive. The Americans were late to the Second World War. In 1930 the “Smoot-Hawley Tariffs” were introduced in the beginning of the Great Depression, more than 100 economists petitioned the president of the United States at that time, “Hoover” and told him to veto that bill because it could cost a fortune to Americans, and he chose not to, the Economists were right. This reduced international trade, because when the Americans increased their tariffs on goods being imported to the United State, the countries they were trading with said, well, we’ll have to do that as well. So American Exports declined precipitously because of that. Economies all over the world started to slow down because there wasn’t too much economic activity. That and the Great Depression caused global trade. Colonialism had an impact on this as well. The European Imperial powers wanted to maximize their trade while restricting that of their rivals. Sometimes that meant war, sometimes economic sanctions and tariffs. Colonies could provide food and raw materials at a reduced trade allowing the mother country to have an economic advantage. The colonial system begins to die at the end of the second World War, colonialism goes into decline but it is replaced by structures that are heavily influenced by the way colonialism structured the world. The push for change: Monetary policy, tariffs and other levers of trade were to be restricted in the interests of stability. What is the IMF? The International Monetary Fund works to achieve sustainable growth and prosperity for all of its 190 member countries. It does so by supporting economic policies that promote financial stability and monetary cooperation, which are essential to increase productivity, job creation and economic well-being. The IMF is governed by and accountable to its member countries. Missions: Furthering international monetary cooperation. Encouraging the expansion of trade and economic growth.  Discouraging policies that would harm prosperity. To fulfill these missions, IMF member countries work collaboratively with each other and with international bodies. The IMF fosters international financial stability by offering: Policy advice Financial assistance Capacity development How does the IMF give policy advice? To maintain stability and prevent crises in the international monetary system, the IMF keeps a regular policy dialogue with the governments of its member countries. It assesses economic conditions and recommends policies that enable sustainable growth. The IMF also monitors regional and global economic and financial developments. What kind of financial assistance does the IMF offer? Providing loans and concessional financial assistance to member countries experiencing actual or potential balance-of-payments problems is a core responsibility of the IMF. What other types of assistance does the IMF offer? The IMF provides capacity development which is technical assistance and training of government officials to help member countries strengthen economic institutions and statistics as well as capacities in areas such as taxation and administration, expenditure, management, monetary and exchange rate policies, financial system supervision and regulation, and legislative frameworks. What are SDR’s? The IMF issues an international reserve asset known as Special Drawing Rights, or SDRs that can supplement the official reserves of member countries. Total global allocations are currently about SDR 204.2 billion, about 293 billion. IMF members can voluntarily exchange SDRs for currencies among themselves. IMF funds come from three sources: member quotas, credit arrangements, and bilateral borrowing agreements. FROM GATT TO WTO International organizations were created to restore economic cooperation and peace, only 23 countries signed GATT (the general agreement on tariffs and trade) but it turned out to be a major contributor to world economic security. 50 years later the World Trade Organization has 132 members. It has taken over the duties of the old GATT but it's also handling new areas of trade, international banking, telecommunications, high technology and inventions. GATT also became a forum for countries to settle disputes and to negotiate lower trade barriers. Trade negotiations took place under GATT, all this meant a better climate for investment and job creation. In its 47 years GATT saw trade barriers fall and an unprecedented growth in world trade. GATT members grew eventually from the original 23 to 128. Most were developing countries and were given special treatment to help them adjust to the rules. In the 1970s a first major attempt to revise GATT rules was only partly successful, relatively few countries signed all the new agreements of the Tokyo Ranked meanwhile the global economy was going through a rough period because of sharp rises in oil prices and financial troubles, protectionism threatened to return to world trade. In 1986 in Punta del Este, Uruguay ministers from all around the world gathered to launch an event that was to transform world trade in the eighth round of GATT, negotiations lasted seven and a half years and at the end 125 countries participated. The Uruguay RUNG became the largest and most complex negotiation in history, it covered some of the most sensitive subjects of the time so the stakes were high. During that time the world went through more political and economic changes. The Uruguay Round Agreement: - Creation of a new organization with full legal status, the World Trade Organization. - The WTO’s agreement formed a single package with unprecedented broad coverage. The first major reform of trade in agricultural products, the gradual elimination of long-standing restrictions on textiles and clothing, further substantial reduction of tariff levels, the first international trade rules for services and intellectual property and the more effective means of settling disputes. The WTO essentially represents a contract between countries. In 1996 the Singapore conference gave them a major boost, so in 1997 three new agreements have been signed covering international markets worth trillions of dollars on telecommunication services such as computers, on financial services such as banking and insurance, products and services in these sectors will be cheaper of better quality and more widely available. Over the coming years the WTO has several other negotiations to take, many of them are inherited from the Uruguay Round, others were added later. Major new negotiations in agriculture, services and other subjects are scheduled for the turn of the century. All of these are essential to keep the system up to date. In addition, the WTO members are studying competition and anti-monopoly practices, transparency in government procurement, investment and other issues. They want to see if new rules are needed. World trade is now 15 times larger than it was 50 years ago. In 1950 the United States was the most wealthy country, Canada was behind them, the Europeans were at half that level and the Japanese had a sixth. Today the wage levels are pretty similar all around the developed world. The great appeal of an open trading system is that it is a mechanism for remedying the imbalances and the inequality that we have in the world economy. Poverty remains the least developed, countries have developed difficulty tapping into the benefits of the trading system potential sources. The WTO, the international monetary fund and three other sources have joined to try and reinforce development in the poorest countries, give them training assistance and help them diversify and improve their services and industrial production. All the jobs created during this last decade are resulting in economic growth, in their turn, standards of living stimulate growth within companies which have been pushed into recruiting, everything is interlinked. Increasingly the trading system is asked to take into account other broad issues that spill across national borders. It is important for the WTO to increase their ability to learn from the global civil society. The challenges of the last century are the challenges from the last century and the new challenges for the future. Challenges: Poverty Malnutrition and Hunger Global warming Biodiversity The trade rules give governments the freedom to protect their environment, follow social policies to protect their people and to pursue these goals through other international organizations if they wish. The role of the WTO is to ensure that all these objectives do not turn into protectionism in disguise. The World Trade Organization faces several challenges: 1. To keep pace with the new priorities in a rapidly changing trade environment. 2. Ensure that the rules are applied in as much as the world as possible, that means bringing new countries into the system including the big trading nations that are still outside, such as China and Russia. 3. WTO members want to ensure that regional economic groups that are set up around the world support the global system. 4. Being global means looking after the interests of the poorest countries, so that they can benefit fully from the opportunities presented by a vibrant up-to-date trading system. 5. Ensure that the system responds to the aspirations of every member country. These challenges cannot be met by imposing policies or values on one another. The main challenge is to build a universal system, a system in which includes all the nations of the world, inside a rule-based system, not a power system where their relation will be made because of the rules that they have agreed together and not because of their power relations. The world has changed over the last half century but the basic choices we face have not. Governments have accepted non-discrimination and consensus as the basis for their economic relations, they have helped to make the world a safer place. Regional Trade Agreements: In principle 24 of the WTO states that it is allowed for Free Trade Agreements and Customs unions to go through. The problem is that they proliferated on such an enormous scale, they have become a systemic problem for the World Trade Organization, the spaghetti bowl problem in the sense that there are a lot of crisscrossing tar rules of origin, because you have to identify which product is whose and that gets very complicated. A lot of people are yearning for simplicity, which is what you could get with the mfn treatment in the WTO, so while it's legal WTO compatible historically. Trade ministers are worried about the downside for the developing countries because the big corporations can get around, they are worried about it but they can surmount it, it just adds to the cost of production but it's not something that stops them in their tracks. Disadvantages: The whole purpose of the trade system is to lower barriers and the best way for that is unilaterally, so each country can trade its barriers for the other country’s barriers, that’s good but not the best. Free trade agreements enable countries to really get those barriers way down to zero in many cases as Europe, NAFTA and some other agreements, they do it a lot faster than WTO, what is wrong with that is that it has exploded or proliferated, 350 or 400 now in existence, there has been more in the last 10 years than in the previous 10 years and so on, the cause of that is the very stalemated situation in the WTO and that’s where the countries are turning, who want to liberalize and get the benefits of trade including many developing countries. This is the way they get there quicker, the turnpike method, it's not the best but it's better than keeping the barriers up. It wasn’t used to be fast, like the one about Chile and the United States, it took almost twice as long as the Uruguay round which was dealing with a great length of issues. There’s an enormous growth of all types of templates, a lot more countries so it's inevitable that time is going to increase. Preferential trade agreements are different, they’re not multilateral free trade. When you have a single undertaking system you have built a stalemate, liberalization pays enormous dividends and it's the best thing a country can do for itself. In the WTO there’s 150 people. The developing countries can do things and they’re doing, but when it comes to big countries it's not a surprise they go fast. The developing countries are the ones that worry us because they have the spaghetti problem and they are signing up to things, with trade we have to make sense, be careful, what are you buying. Small developing countries are willing to reduce their tariffs to zero and it's just benefiting one of them. The regional and multilateral system are here to stay and the challenge is how you can mesh the regionals and bring these small developing countries and give them a fair trade. NAFTA: The North American Free Trade Agreement (NAFTA) was a three-country accord negotiated by the governments of Canada, Mexico and the United States. NAFTA eliminated most of the tariffs on products traded between the 3 countries with a major focus on liberalizing trade in agriculture, textiles and automobile manufacturing, the deal also sought to protect intellectual property, establish dispute resolution mechanisms and implement labor and environmental safeguards. NAFTA reshaped North American relations, driving unprecedented integration between Canada, the U.S. and Mexico’s economies. NAFTA originally enjoyed bipartisan backing, it was negotiated by Republican president George H.W. Bush, passed by a democratic-controlled congress and implemented by Democratic President Bill Clinton. Regional trade tripled under the agreement, and cross-border investment among the three countries also grew significantly. President Donald J. Trump says it undetermined U.S jobs and manufacturing and in December 2019 he completed an updated version of the pact of Canada and Mexico, known as the U.S.-Mexico-Canada agreement (UMSCA). The USMCA won support on Capitol Hill and entered into force in July 2020. The hope was that free trade brought steadier and stronger economic growth to Mexico, so illegal migration would be discouraged. For Canada and the U.S. Mexico was seen as a promising marker for exports and as a lower-cost investment location. The U.S, and Canada had already completed a free trade agreement in 1998 (FTA). U.S. presidential candidate Ross Perot argued in 1992 that trade liberalization would lead to a “giant sucking sound” of U.S. jobs fleeing across the border. Supporters such as Presidents Bush and Clinton countered that the agreement would create hundreds of thousands of new jobs a year, while Mexican President Carlos Salinas de Gortari saw it as an opportunity to modernize the Mexican economy so that it would “export goods, not people.” Economists largely agree that NAFTA benefited North America’s economies. Regional trade increased sharply [PDF] over the treaty’s first two decades, from roughly $290 billion in 1993 to more than $1.1 trillion in 2016. Cross-border investment also surged, with U.S. foreign direct investment (FDI) stock in Mexico increasing in that period from $15 billion to more than $100 billion. In the years since NAFTA, trade between the United States and its North American neighbors more than tripled, growing more rapidly than U.S. trade with the rest of the world. Canada and Mexico are the two largest destinations for U.S. exports, accounting for more than one-third of the total. The Center for Economic and Policy Research’s (CEPR) Dean Baker and the Economic Policy Institute’s Robert Scott argue that the surge of imports after NAFTA caused a loss of up to six hundred thousand U.S. jobs over two decades, though they admit that some of this import growth would likely have happened even without NAFTA. The U.S. auto sector lost some 350,000 jobs since 1994—a third of the industry—while Mexican auto sector employment spiked from 120,000 to 550,000 workers. Some jobs are lost due to imports, but others are created, and consumers benefit significantly from falling prices and often improved quality of goods. In fact, NAFTA helped the U.S. auto sector compete with China, says Hanson. By contributing to the development of cross-border supply chains, NAFTA lowered costs, increased productivity, and improved U.S. competitiveness. This meant shedding some jobs in the United States as positions moved to Mexico, he says, but without the pact, even more could have been lost. NAFTA boosted Mexican farm exports to the United States, which have tripled since the pact’s implementation. Hundreds of thousands of auto manufacturing jobs have also been created in the country, and most studies have found that the agreement increased productivity and lowered consumer prices in Mexico. The pact catalyzed Mexico’s transition from one of the world’s most protectionist economies to one of the most open to trade. Mexico had reduced many of its trade barriers upon joining the General Agreement on Tariffs and Trade (GATT), the precursor to the WTO, in 1986, but still had a pre-NAFTA average tariff level of 10 percent. In addition to liberalizing trade, Mexico’s leaders reduced public debt, introduced a balanced-budget rule, stabilized inflation, and built up the country’s foreign reserves. So although Mexico was hard hit by the 2008 financial crisis due to its dependence on exports to the U.S. market—the next year, Mexican exports to the United States fell 17 percent and its economy contracted by over 6 percent—its economy bounced back relatively quickly, returning to growth in 2010. Between 1993 and 2013, a period when Latin America was undergoing a major economic expansion, Mexico’s economy grew at an average rate of just 1.3 percent yearly. Poverty remains at the same levels as in 1994. And the expected convergence of U.S. and Mexican wages didn’t happen, with Mexico’s per capita income rising at an average of just 1.2 percent annually in that period—far slower than Latin American countries such as Brazil, Chile, and Peru. Unemployment also rose, which some economists have blamed on NAFTA for exposing Mexican farmers, especially corn producers, to competition from heavily subsidized U.S. agriculture. A study led by CEPR economist Mark Weisbrot estimated that NAFTA put almost two million small-scale Mexican farmers out of work, in turn driving illegal migration to the United States. (Migration to the United States, both legal and illegal, more than doubled after 1994, peaking in 2007. The flow reversed after 2008, as more Mexican-born immigrants began leaving the United States than arriving.) University of Pennsylvania economist Mauro Guillen has argued that Mexico’s rising inequality stemmed from NAFTA-oriented workers in the north gaining much higher wages from trade-related activity.Canada saw strong gains in cross-border investment in the NAFTA era: Since 1993, U.S. and Mexican investments in Canada have tripled. U.S. investment, which accounts for more than half of Canada’s FDI stock, grew from $70 billion in 1993 to more than $368 billion in 2013. However, the most consequential aspect for Canada—opening its economy to the United States, by far Canada’s largest trading partner—predated NAFTA, with 1989 entry into force of the Canada-U.S. Free Trade Agreement (CUSFTA). Overall Canada-U.S. trade increased rapidly in the wake of Canada’s trade liberalization. Post-NAFTA, Canadian exports to the United States grew from [PDF] $110 billion to $346 billion; imports from the United States grew by almost the same amount. Agriculture, in particular, saw a boost. Canada is the leading importer of U.S. agricultural products, and Canadian agricultural trade with the United States has more than tripled since 1994, as did Canada’s total agriculture exports to NAFTA partners. Canadian manufacturing employment held steady, but the productivity gap between the Canadian and U.S. economies wasn’t closed: by 2017, Canada’s labor productivity remained at 72 percent [PDF] of U.S. levels. The Obama administration sought to address the issues with NAFTA in negotiations for the Trans-Pacific Partnership, a massive trade deal with eleven other countries including Canada and Mexico. The TPP was deeply unpopular—Hillary Clinton ultimately came out against the deal during her 2016 presidential run—and President Trump withdrew the United States from the TPP in one of his first acts in office. Much of the debate among policy experts has centered on how to mitigate the negative effects of deals such as NAFTA, including whether to compensate workers who lose their jobs or provide retraining programs to help them transition to new industries. Experts say programs such as the U.S. Trade Adjustment Assistance (TAA), which helps workers pay for education or training to find new jobs, could help quell anger directed at trade liberalization. Many economists argue that current TAA funding levels are far from sufficient to address the increase in trade-related job losses. The USMCA will keep the Chapter 19 dispute panel, which Canada relies on to shield it from U.S. trade remedies. It also avoided a proposed five-year sunset clause, instead using a sixteen-year time frame with a review after six years. Yet some critics have complained that the new rules of origin and minimum wage requirements are onerous and amount to government-managed trade. The CPTPP Is a free trade agreement between Japan, Malaysia, Vietnam, Australia, Singapore, Brunei, New Zealand, Canada, Mexico, Peru and Chile. It is one of the biggest trading blocs in the world, worth 15% of the global GDP once the UK joins. The UK is the first European country to join the agreement, and the largest economy after Japan. The CPTPP started life as the Trans-Pacific Partnership, with the US negotiating to join under President Obama. This would have made the club the world’s largest free trade deal. But in 2017, Trump withdrew from the deal on his first day in office. The remaining countries continued talks, eventually signing the CPTPP in March 2018. There are currently 11 CPTPP members, accounting for 14% of the global GDP. The CPTPP gives signatory countries greater access to one another’s markets and reduced tariffs on trade on the vast majority of items. Tariffs remain on some particularly sensitive areas to some countries - for example, Japan’s rice industry. In return, countries cooperate on regulations and standards. In the year to September 2022, UK exports to CPTPP countries totalled £60.5 billion. Key UK exports to these countries include services, dairy, whisky and cars. For example, tariffs on UK exports of whisky to Malaysia will be reduced from 80% to 0%, while car exports tariffs of 30% will be gradually removed. By making it easier and less expensive to trade, the UK government hopes to expand its exports to the growing economies in the trading bloc. The UK already had bilateral trade agreements with all countries in the CPTPP bar Brunei and Malaysia, some of which had been carried over from its EU membership. The UK government’s own estimate says the reduced red tape and improved market access will boost GDP by £1.8 billion - 0.08% - over 10 years. Together with concerns that the UK will come under pressure to reduce standards on food and the environment to compete with CPTPP countries, this means the deal has drawn some criticism from unions and others. However, if additional countries were to join the CPTPP, this could be beneficial. Costa Rica and Ecuador have also applied to join its Pacific rim counterparts, while Uruguay, Thailand, the Philippines and South Korea have also expressed an interest. China launched a bid to join in 2021, but it does not currently appear the US is reconsidering its stance. China and the WTO: China was one of the original contracting parties to the General Agreement on Tariffs and Trade (GATT) in 1947 but its status was deactivated in 1950 after the formation of the People’s Republic. For the next three decades, China had practically no contact with the agreement. But the situation changed in the late 1970s and early 1980s, following Den Xiaoping’s economic reforms. China formally sought the resumption of its status as a contracting party to the GATT in 1986, with accession negotiations starting the following year. Despite 20 rounds of negotiations, China and the incumbent GATT members failed to reach an agreement by 1995, when the WTO succeeded GATT. It then took another 18 rounds of negotiations for the two parties to agree on China’s ‘Protocol of Accession’ to the WTO. Today, newspapers headlines concerning China – in the Western world at least – are consistently negative. Increasingly, there is a feeling that perhaps China and the WTO are mutually incompatible. How can a seemingly happy marriage turn so sour so quickly? The answer is multi-faceted. China did not change. The problem is largely one of false expectations. The answer can also be seen as being a case of ‘sub-optimal contracting’. The GATT entered the world of international relations as an interim organization that was meant to be eventually incorporated into the International Trade Organisation (ITO). The ITO was supposed to become a multilateral organization. The GATT followed suit even though the ITO never saw the light of day. The GATT/WTO liberal understanding was still implicit when China knocked on its door. WTO incumbents assumed that with Deng’s reforms China had entered a one-way street, with market economy being the end destination. Buoyed by Fukuyama’s (1992) pronouncement of ‘the end of history’, they seemed to espouse the view that the definitive victory of liberalism had arrived, and the fall of the Berlin wall was only the beginning. Even those who did not buy into the ‘China changes’ story could see the huge potential economic benefits of accessing the world’s fastest growing market with the biggest population (soon to become the world’s biggest market). For many, China was the biggest prize of the 21st century. It is not possible to incorporate into the trading system a very large and very fast-growing economy without friction. But what is different with China is that it has retained substantial state involvement in the working of its economy, which is in direct contradiction with the WTO’s implicit liberal understanding. China describes its economic system as ‘socialist market economy’. It is a mix of private initiative and state planning, where, unlike in Western economies, the state’s (or the Communist Party’s) role is paramount. Dominated by state-owned enterprises (SOEs), and omnipresent industrial policies, the Chinese economy leaves some room for the private sector. But according to official Chinese statistics (stats.gov.cn), the public sector made up 63% of total employment in 2019. While some opening of the economy has occurred over the years, and it is now possible to have ‘wholly-owned foreign enterprises’ (known as ‘Woofers’), privatization has been slow (or at least slower than expected by China’s trade partners). TUTORIAL 4. EFFECTIVE PRESENTATIONS AND BRETTON WOODS. Keys to great presentations: Know your audience Structure: - Hook - Big Idea - Roadmap - Body - Conclusion with 1-3 takeaways Divide the workload however you want but don’t make it look disorganized, work together. When it comes to slides, less is more. Aim for conversational explanation/delivery Speak slowly Vary your pitch, tone and volume Try to ask open ended questions Focus on meaning, not details. Moderating discussion is important too Bretton Woods: Why should we care about Bretton Woods? The economic health of every country is a proper matter of concern to all its neighbors, near and distant. Only through a dynamic and soundly expanding world economy can the living standards of individual nations be advanced to levels which will permit a full realization of our hopes for the future. – United Nations Monetary and Financial Conference. Statement by the president, 29 June 1944. Bretton woods was primarily a currency system, it pegged the U.S. dollar to gold, and other major currencies to the dollar. It restricted capital mobility as well. Why Bretton woods? Avoid tradeoffs of 19th C gold standard Avoid disorder and pain of 1930s protectionism. Supporters believed it led to many benefits like: - High investment - Economic growth - Full employment When was Bretton Woods? - From the 50s to the early 70s was when it ended - 1944 to 1973 or 1958 to 1968 LECTURE 6. THE ALCOHOL INDUSTRY. - FINAL EXAM FROM NOW ON. The business of alcohol: Alcohol, spirits and wine have traditionally been a profitable business. Gin was an early example on the impact of trade policy and unintended consequences on alcohol policy. Rum’s history and development has always been influenced by politics. Gin craze: For many years alcohol has been mixed with juniper berries and other herbs, for flavoring and medicinal purposes. 16th century Dutch created “genever” = gin, shorted by the British It was inexpensive to make and very popular, but also political William III, the king of England in the late 1600s placed large tariffs on French brandy and wine, he also gave tax breaks to British distillers of Gin. William III was annoyed because of France’s alcohol competition and the amount of money they made from it. William III introduced the idea of Gin in the 1600s. Gin Lane in London, shops around England, people struggling with public drunkenness. Gin became very expensive (cheaper than beer) and regularly abused. This led to a backlash that included temperance movements and new government licensing to control production. Gin Act of 1751: Granted retail licenses only to larger establishments, such as inns and taverns. This restriction put the small unlicensed distillers and retailers out of business. With less competition worries, innkeepers were better able to control the amount and quality of the gin they sold. In the 1800s gin recovered as a popular drink. This was in part because it was mixed with quinine water as an anti-malaria potion. This became gin and tonic. The british remained huge players in the Gin industry Rum: Rum is distilled from molasses, a by-product of sugar manufacturing. Rose to popularity in the late 1600s but especially in the 1700s.