Globalization: Economic Integration and Its Issues Middle Eastern Partnership Initiative Linda Young Department of Political Science Montana State University

Globalization: Economic Integration and Its Issues

Middle Eastern Partnership Initiative

Linda YoungDepartment of Political ScienceMontana State University

July 27, 2006

Linda Young

What is Autarky?

Matter of degree

Examples?

Policy of national self-sufficiency

Linda Young

Migration of labor and remittances

Economic Integration from…

Trade (goods and services) Level of trade, scope (more services) Rules for trade – Implications for domestic policy,

Intellectual property

Multinational Corporations (MNC)

Foreign Direct Investment (FDI)

Capital Flows

Multilateral Institutions Rules: trade, exchange rates Imposition of particular philosophy

Linda Young

Three Waves of Globalization

Source: World Bank. 2002. “The New Wave of Globalization and Its Economic Effects.” Chapter One in Globalization, Growth, and Poverty: Building An Inclusive World Economy, A World Bank Research Report, Washington, DC, Figure 1.1, p. 23 Available at http://econ.worldbank.org/prr/globalization/.

Linda Young

“Globalization” Waxes and Wanes Could change again Failure of state – expanded markets – expanded

state etc.

First Wave: 1870-1914 transport costs (sail to steamships), tariffs Railways enabled land-intensive exports Foreign capital stock rose – developing countries Exports share of world income 8%

History

Linda Young

Retreat to Nationalism: 1914-1945

Technology continued to reduce transportation costs, but

Great Depression: Protectionism

Diverted demand to domestic markets

United States: Smoot-Hawley tariffs, retaliation

US imports fell 30%; exports 40% between 1929-1933

High income countries imposed capital controls

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Second Wave: 1945-1980

Bretton Woods institutions

Trade liberalization

Further reductions in transport costs, communications

Restored North-South pattern of trade: − Manufactures for primary commodities− Did not restore capital flows or immigration

North-North trade increased much more

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Objective Instrument(s) Responsible Authority Full employment (and low inflation)

Demand management (mainly fiscal)

National Governments

Economic growth Low interest rates Central Banks

Balance of payments adjustment

Pegged but adjustable IMF exchange rates

IMF (with national governments)

Promotion of international trade

Tariff reductions GATT

Economic development

Official international lending

World Bank

Objective Instrument(s) Responsible Authority Full employment (and low inflation)

Demand management (mainly fiscal)

National Governments

Economic growth Low interest rates Central Banks

Balance of payments adjustment

Pegged but adjustable IMF exchange rates

IMF (with national governments)

Promotion of international trade

Tariff reductions GATT

Economic development

Official international lending

World Bank

International Institutional and Policy Framework in the Bretton Woods Era

Source: David Vines and Christopher L. Gilbert. 2004. “The IMF and International Financial Architecture: Solvency and Liquidity.” In D. Vines and C.L. Gilbert (eds.), The IMF and Its Critics. Cambridge University Press, February, Table 1.1. Available at http://titles.cambridge.org/catalogue_excerpt.asp?isbn=9780521821544

Linda Young

Globalization Post 1980

Developing Country Change of Policy*

Foreign Investment− Improved climate− Reduced barriers

Transport Costs: Containerization and Airfreight− More countries in a supply chain

Improved Communications− Manage and control by MNC

“Death of Distance”− Just in time technologies

Collapse of Former Soviet Union

* many policy changes imposed due to structural adjustment programs

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Importance of Trade

Share of international trade in total output (exports plus

imports of goods relative to GDP):

– Developed countries: 32 to 38% between 1990 and 2001

– Developing countries 34 to 49% (same period)

– Varies a lot between countries (Bordo)

Total real exports in 1997 14 times that of 1950 – while

economic activity increased by 6 times (Greico)

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Historical World Merchandise Exports, 1950–2002

0

25

50

75

100

125

150

175

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

Val

ue

ind

ex

Total Ag Products Mining Products Manufactures

Index1995 = 100

(Mining includes fuels)

Note: Total includes unspecified products. World merchandise production differs from world GDP in that it excludes services and construction.Source: World Trade Organization (WTO), Geneva, Switzerland, International Trade Statistics 2003, Appendix Tables, Table A1. Available at http://www.wto.org/english/res_e/statis_e/its2003_e/its03_appendix_e.htm

Linda Young

History of Tariffs

1875-1913: average tariffs increased

– United States: average 38% for 1871-1913

WW2: about 40% (Greico)

1950s: tariffs remained at 20%, and also quotas, ER controls, currency restrictions

Currently: 4% for manufactures, variable foragriculture 6-15%

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Average Tariffs on Imported Manufactured Goods (%)

1875

1913

1931

1950

Pre-Uruguay Round

Post-Uruguay Round

France 12-15 20 30 18 – –

Germany 4-6 17 21 26 – –

Italy 8-10 18 46 25 – –

United Kingdom 0 0 n.a. 23 – –

European Union – – – – 5.7 3.6

Canada n.a. 26 n.a. – 9.0 4.8

United States 40-50 44 48 14 4.6 3.0

Source: Bordo, M.D., B. Eichengreen, and D.A. Irwin. 1999. “Is Globalization Today Really Different than Globalization a Hundred Years Ago?” Working Paper 7195, National Bureau of Economic Research, Cambridge, MA, June. Available at http://www.nber.org/papers/w7195. Bordo et al. cites source as Bairoch, P. 1993. Economics and World History, University of Chicago Press, Chicago; and Schott, J.J. 1994. “The Uruguay Round: An Assesment,” Institute for international Economics, Washington, DC, November for the last two columns.

Linda Young

ITO/GATT

ITO: Not adopted – U.S. Congress in opposition

However, maintained as a secretariat for nearly 50 years (1948-1995)

Twenty-three of the founding members decided to reduce tariffs: Australia, Belgium, Brazil, Burma, Ceylon, Chile, China, Cuba, Czechoslovakia, France, India, Lebanon, Luxembourg, Netherlands, New Zealand, Norway, Pakistan, Southern Rhodesia, Syria, South Africa, United Kingdom, and the United States

Eight rounds completed, now Doha

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World Trade Organization

In 1994, after seven years of negotiations, the Uruguay Round Agreement (URA) was signed

This formalized the WTO

Functions: Provides rules to govern trade Removes obstacles through negotiations Provides stability Resolves disputes

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WTO Members

149 members

• 75% are developing countries

• more countries in accession

WTO run by member governments

Decisions by consensus

Ministerial conferences held every 2 years

25%

75%Developingcountries

All others

WTO Countries

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WTO Members from the Middle East and North Africa

Members: Bahrain, Egypt, Jordan, Kuwait, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, United Arab Emirates

Observers: Algeria, Iran, Iraq, Libya and Yemen

Source: Gable, Medard and Henry Bruner. 2003. Global Inc. An Atlas of the Multinational Corporation. A Project of the New Global History Initiative, the World Game Institute and osEarth. New York: The New Press.

Linda Young

US Trade as a Percentage ofGross Domestic Product (GDP)

0

5

10

15

20

25

1970 1974 1978 1982 1986 1990 1994 1998 2002

Per

cen

t

US imports and exports of goods (percent of GDP)

Source: Economic Report of the President, February 2004, U.S. Government Printing Office, Washington, DC, Appendix B, Table B-104, p. 404. Available at http://www.gpoaccess.gov/eop/index.html

World Merchandise Trade by Major Region, 2003

Exports Imports

North America$996

North America$1,552

Latin America$377

Latin America$366

Asia$1,734

Asia$1,897

Western Europe$3,141

Western Europe$3,173

Middle East$290

Middle East$188

Africa$173

Africa$165

Transition Economies

$400

Transition Economies

$378

World Total – $7,274 billion World Total – $7,557 billion

(billion dollars)

(Agriculture, mining [including fuels], and manufactures. )

Source: World Trade Organization (WTO), 2004, Recent Trends in International Trade and Policy Developments, World Trade Report 2004, Geneva, Switzerland, Table IA.3, p. 6. Available at http://www.wto.org/english/news_e/pres04_e/press378_annex_e.pdf

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Most US trade is with developed countries –

about 61% (has implications for our discussion about wages)

About 40% from developing countries– Less likely than before to be commodities– Increase in manufactured imports

• i.e., from Mexico 80% manufactured goods

Who Do We Trade With?

Source: Bordo, M.D., B. Eichengreen, and D.A. Irwin. 1999. “Is Globalization Today Really Different than Globalization a Hundred Years Ago?” Working Paper 7195, National Bureau of Economic Research, Cambridge, MA, June. Available at http://www.nber.org/papers/w7195.

Linda Young

OECD Countries’ Share of World Trade (Goods and Services, 2003)

OECD Total73%

Non-OECD27%

OECD TotalOECD Total70%70%

Non-OECD30%

Additional Information

Note: OECD includes 30 countries with individual European members.

Exports Imports

Source: Organisation for Economic Co-operation and Development (OECD). 2004. Main Economic Indicators, Paris, France, August 6. Available at http://www.oecd.org/dataoecd/55/27/18628014.pdf.

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Trade Blocs 1980 1998

APEC 57.9 69.7

EU 60.8 55.2

NAFTA 33.6 51.7

MERCOSUR 11.6 25.1

Regional Trade Agreements and Exports(Percent of Total Exports)

Additional Information

Note: APEC = Asia-Pacific Economic CooperationEU = European UnionNAFTA = North American Free Trade AgreementMERCOSUR = Mercado Comun del Sur (Common Market of the South)

Source: World Bank. 2000. World Development Indicators 2000, Washington, DC, Regional Trade Blocs Table 6.5, p. 327. Available at http://www.worldbank.org/data/wdi2000/pdfs/tab6_5.pdf.

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Source: Allen Dennis, “The Impact of Regional Trade Agreements and Trade Facilitation in the Middle East North Africa Region.” World Bank Policy Research Working Paper 3837, February 2006.

Overlapping Web of Free Trade Areas Involving Middle East and North African Countries

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Trade in Services

Once considered non-tradable

Increasing part of US economy

Services trade growing quickly

– In 1998, 40% of value of US merchandise exportsIn 1900, shipping and tourism 3% of US merchandise exports, now 16%

– Service exports now include shipping and tourism (40% of total), royalties and fees, military transfers, education, finance, insurance, telecommunications, technical services are the fastest growing


Linda Young

World Exports of Merchandise and Commercial Services, 2003

80%

20%

Commercial Services

$1,763 billion

Merchandise

$7,274 billion

Source: World Trade Organization (WTO), 2004, Recent Trends in International Trade and Policy Developments, World Trade Report 2004, Geneva, Switzerland, Table IA.2, p. 5. Available at http://www.wto.org/english/news_e/pres04_e/press378_annex_e.pdf

Linda Young

Importance of Trade to Gross Domestic Product (GDP)of Least-Developed Countries (LDCs)

05

10152025

1995 2001

Goods and Commercial Services

Goods Commercial Services

22% 23%

05

10152025

1995 200105

10152025

1995 2001

18% 20%

4% 3%

Source: World Trade Organization (WTO), Geneva, Switzerland, International Trade Statistics 2003, Trade by Region, Table III.83.Available at http://www.wto.org/english/res_e/statis_e/its2003_e/its03_byregion_e.htm

Linda Young

Why Does It Matter? Or Does It Matter? Importance of trade in the economy

Impact on income Transitions required – resource adjustment

Impacted by events far away – lack of control

Need to compete with other producers

Cultural homogenization

Potential risk – trade deficit

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In groups of four discuss, and then report back:

In your opinion, what are the most important positive, and negative, impacts of economic integration in your country?

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Decision-Making in the WTO

Not like the International Monetary Fund (IMF)and the World Bank

− Voting is tied to quota shares in the Bank (although moderated by other features) Decision-making by consensus!!!!− 147 members, diverse, new

Council of Ministers (every other year)

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Decision-Making (con’t)

Day to Day — General Council− also Dispute Settlement and Trade Policy Review− all countries are members of each

Outcomes are through negotiations

Decisions mostly by consensus− when voting, one country, one vote

No sanctions from the organization− again, different than the IMF/World Bank

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What Are the Principles of the Multilateral Trading Agreement?

Most Favored Nation (MFN) Status Applies to goods, services, and trade-related aspects of intellectual

property rights (TRIPs)

Cannot discriminate between trading partners

Lower a tariff for one trading partner, lower it for all

Before China became a WTO member, yearly debate on whether or not

to give China MFN status

Exception — regional trade agreements

Linda Young

The EU has favorable trade rules for ex-colonies in Africa,Caribbean, Pacific (ACP)

Continuation of the Lome Convention

Banana Dispute

1993 Two-tier tariffs based on country of origin

ACP duty free up to 857,000 mt (quotas) –over this amount, a duty of 750 European Currency Units (ECU)

Non-ACP imports100 ECU duty per mt up to 2 mmt – over this amount, a 850 ECU duty

Linda Young

Challenges to the EU Regime

United States requested authorization for retaliation

EU to adjust regime

WTO decision on several grounds – including discrimination

WTO challenge by United States, Mexico, Guatemala and Honduras – violated non-discrimination

U.S. challenge –even though workers and product not from the United States

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More Principles

National treatment – treating foreign goods the same as domestic

Dispute: Venezuelan reformulated gasoline higher standards for imports

Predictability• bindings• transparency – obligations to report

No quantitative restrictions

Quotas more trade-distorting than tariffs

Exception: agriculture

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What Are the Elements of the Multilateral Trading System?

Trade-Related Aspects of Intellectual Property Rights (TRIPS)

General Agreement on Tariffs and Trade (GATT)

General Agreement on Trade in Services (GATS)

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Basic Structure of the WTO Agreements:How the Six Main Areas Fit Together

Source: World Trade Organization. 2003. “Understanding the WTO.” Geneva, Switzerland, p. 24. Available at http://www.wto.org/english/thewto_e/whatis_e/tif_e/tif_e.htm

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General Agreement on Tariffs and Trade(GATT)

Multilateral Agreement on Trade in Goods

Agriculture – new in 1994 Uruguay Round Agreements Act (URAA)

Sanitary and Phytosanitary Agreement

Agreement on Textiles and Clothing (ATC)

Product standards – Technical Barriers to Trade (TBT)

Anti-dumping duties, countervailing duties and safeguards

Customs valuation, pre-shipment inspection, rules of origin

Various agreements cover:

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General Agreement on Trade in Services (GATS)

Cross border supply

Consumption abroad

Commercial presence

Presence of natural persons

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Trade-Related Aspects ofIntellectual Property Rights

(TRIPS)

Also technology transfer – balancebetween protection and transfer

Covers copyrights and trademarks, geographical indicators, patents, patents, layouts of integrated circuits, other

Principles: Most Favored Nation (MFN) and national treatment

Linda Young

TRIPS (con’t)

Incorporated previous agreements – Paris Convention for Protection of Industrial Property, Berne Convention for Protection of Literary and Artistic Works for some items

Agreement specifies how it is to be enforced with domestic laws

Implemented in transition periods

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Protests in Seattle

Ag negotiations began anyway,as scheduled in URA

Council of Ministers agreed tolaunch a general round of negotiations in Doha, Qatar, November 2001

Negotiations are most successfulif trade-offs can be made betweencountries

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“The Development Round”

African countries 1/3 of WTO membership

140 countries, roughly 100 developing economies and many economies in transition

Few developing countries playeda significant role in the Uruguay Round Agreements (URA)

Changing composition of the membership of the WTO

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One View:Institute for International Economics

Before: Few players and not a “single undertaking” (which means a country has to sign on to thewhole thing)

Then: Decision-making through consensus, developed by self-selected players, worked reasonably well

Seattle: No longer worked

Linda Young

Dillon

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19

47

19

50

19

53

19

56

19

59

19

62

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

Geneva

Annecy

Torquay

Geneva

Kennedy

Tokyo

Uruguay

Doha

No. MembersRounds

GATT-WTONegotiating Rounds and Number of Members

Source: WTO and the Institute for International Trade Negotiations (ICONE)

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WTO Processes Have Responded

More transparency: information available

More participants

Decisions only after extensive informal

consultations open to all

Lesson from Seattle:avoid last minute proposals

from exclusive groups

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WTO Membership:Increased Number of Developing Countries

0

20

40

60

80

100

120

140

160

1986 1995 2004

Me

mb

ers

DevelopingDeveloped

Source: WTO and the Institute for International Trade Negotiations (ICONE) Elaboration: ABARE-Australia

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Agricultural Negotiations in the Doha Round: Main Coalitions

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Total GDP AgriculturalGDP

TotalPopulation

RuralPopulation

AgriculturalExports

AgriculturalImports

G-20 USA EU (15) G-10

Notes: Data for GDP (2001) population (2001) and trade (2003). EU excludes intra-trade.Source: FAO, Worldbank, and Institute for International Trade Negotiations (ICONE) Elaboration: ICONE

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The World Bank

Founded in 1944 – helpedrebuild Europe after the war

First loan of $250 million was to France in 1947 for post-war reconstruction

Reconstruction has remained an important focus of the Bank’s work

Includes natural disasters, humanitarian emergencies, and post conflict rehabilitation needs

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Structure of the Bank

International Bank for Reconstruction and Development (IBRD)

International Development Association

International Finance Corporation

Multilateral Investment Guarantee Agency

International Center for Settlement of Investment Disputes

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International Bank for Reconstruction and Development (IBRD), 1945 (the original bank)

Provides credit to middle-income and credit-worthy countries

184 member countries

Raises most funds in financial markets

IBRD sells AAA rated bonds and other debt securities

Charges interest that reflects its cost of borrowing– Development impact not profit max– Positive income every year since 1948

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Source: The World Bank. 2003. “A Guide to the World Bank.” Washington, DC. Figure 2.2, page 9.

Voting Power of the Largest Shareholders of the International Bank for

Reconstruction and Development (IBRD)

United States 16.4%

Japan 7.87%

Germany 4.49%

France 4.31%

United Kingdom 4.31%Others 62.61%

Linda Young

World Bank Today

One of the largest sources of development assistance:$17.3 billion in loans in 2001 Largest external funders of education, against HIV/AIDS,

health and one of the largest funders of biodiversity

Now working in 100 countries

Owned by 180 member countries Members are shareholders who make decisions

Linda Young

The IMF

Central institution of the international monetary system: a system of international payment and exchanges rates that enable business to take place between countries

Attempts to prevent crises by encouraging adoption of “sound” economic policies, and by providing funds to address balance of payments problems.

Linda Young

Functions of the IMF

Surveillance– Promote exchange rate stability– Annual consultations– Expansion of economic variables evaluated– Policy advice

Lending– Nature of lending changed– First, short term, balance of payments– Then, long term, structural adjustment– Now, also debt relief lending – conditional

Linda Young

IMF Functions con’t

Technical assistance– Helped Baltic nations set up treasury systems for

central banks Dialogue – international discussion of policies,

involved in almost all countries Strengthen legal, regulatory and supervisory

framework of banks Review minimum capital requirements for banks Core set of international accounting standards

Linda Young

Where Does IMF Get Its Money?

From quota (capital) subscriptions that countries paywhen they join the IMF (184 member countries)

Quotas determine: Countries’ payments Voting power How much they can borrow

U.S. has 17.14%, Seychelles is 0.004 % of quotas

Board of governors: all 184 member countries represented, but vote in proportion to their quota

Day-to-day work done by executive board (24 members)

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IMF Executive Directors and Voting Power

Source: International Monetary Fund. 2004. “IMF Executive Directors and Voting Power.” Washington, DC, October 21. Available at http://www.imf.org/external/np/sec/memdir/eds.htm

United States – 17.14%

Japan – 6.15%

Germany – 6.01%

France – 4.96%

United Kingdom – 4.96%

Other – 60.78%

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IMF Staff:

International civil servants (responsible to the IMF)

2,800 employees from 13 countries

2/3 are economists!



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International Capital Flows

Motivations: reduced barriers, desire of investors to diversify, new financial instruments

Categories: – Foreign direct investment (less volatile, about ¼ total now)

• 10% or more of the publicly traded shared of an enterprise in another country

• Establishment of a firm – lasting influence

– Portfolio (stocks and bonds)• Cross border sales of bonds, money market accounts,

purchase of foreign equity securities, financial derivatives such as future contracts and options

– Bank deposits bank loans, short term in nature

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Huge Increase

9% US GDP in 1980, 223% in 1998 Average daily turnover was $1.5 trillion

in April 1998, compared to $0.6 trillion in April 1989

Overstates changes in ownership (trading and retrading of same securities)

Cross border transactions in bonds and

equities:

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Does It Matter??

Yes, Asian Financial Crises

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What Are MNCs?

A Multinational Corporation (MNC) is an international corporation with headquarters in one country and branches in a wide range of developed and developing countries.

Examples include General Motors, Coca-Cola, Firestone, Philips, Volkswagen, British Petroleum, and Exxon.


Linda Young

Role of Multinationals

Important since the East India company

In 1914, only a few MNCs – even in 1970s, not as important

US based MNCs account for 19% of US GDP– Account for 63% of US goods exports and 40% imports

Now, 60,000 parent operations and 500,000 foreign affiliates– 25% of global output

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Does It Matter?

Ability of big companies to influence governments

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Foreign Direct Investment (FDI)

Mostly FDI complements trade in goods (does not

substitute) – MNCs are conduits for trade In 1994, 36% of U.S. exports were intra-

multinational transactions (sales to affiliates abroad) also, 43% imports

Exposes services to international competition– Can deliver services through sales by foreign

affiliates– Increases competition in sectors difficult to

exchange across borders

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Global Flows of FDI

Flows increased– from US$324 billion 1995 to US$1.5 trillion in 2000

Largest form of private capital inflow into developing countries

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0

50

100

150

200

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

0

400

800

1200

1600

Developing countries Global total

FDI to developing countries Global FDI

FDI to Developing Countries is Resilient(US$ billions)

Sources: World Bank, staff estimates, Washington, DC, http://www.worldbank.org; United Nations Conference on Trade and Development (UNCTAD), World Investment Report 2001, Geneva, Switzerland. Available at http://www.unctad.org/en/docs/wir01ove_a4.en.pdf.

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US Foreign Direct Investment(Percent of US GDP)

0

5

10

15

20

25

1914 1929 1960 1996

Pe

rce

nt

US FDI Abroad FDI in US


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Does It Matter?

Fear about security of US investments– Foreign policies matter

Concern over foreign investment in the United States

Saudi investment in the United States

Previously, Japanese investment a concern

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Organisation for Economic Co-operation and Development (OECD)

30 largely developed country members

Policy reviews and coordination

Issues of interest to developed countries– tax evasion – recommended policies, no teeth– Export credits

OECD looking for purpose

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G-5, G-7, G-10

Belgium

Netherlands

Sweden

Switzerland

Italy

Canada

United States

Japan

Germany

France

United Kingdom

G-5

G-7

G-10

The G-8 also includes Russia, but Russia is not in the G-10 or OECD.Currently the G-10 has 11 members.

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Gleneagles Summit Perthshire, Scotland

July 6-8, 2005

Members: US, Japan, Germany, UK, Italy, Canada, Russia, France and European Commission Representative

Outreach Leaders: Brazil, China, India, Mexico and South Africa

Agreements: Climate ChangeDebt Relief

Gleneagles July 2005

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New Economy

Both political and economic conditions to create it

Overarching question: Are we better off?

Gilpin: argues that globalization and its impacts overstated

Conceptual framework to understand the role of different factors

Increasing reliance on the market (not the state) brings with it an intense debate on the role of each

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Tension

Between the gains from trade and other national objectives

A trade-off or an imperative?

Case studies: trade in genetically modified organisms (GMOs) government procurement foreign direct investment and the right of establishment

Linda Young

Sanitary (animal) and Phytosanitary (plant) Agreement of the WTO

Regulations setting standards for imports are allowed, and must meet these requirements

Import regulations based on science, use risk assessment

Based on international regulations – not likely to be successfully challenged

Higher standards if consistent Least trade-restricting as possible Precautionary principle if science is unclear

Linda Young

Genetically Modified Organisms

Trade rules and restrictions based on based on the characteristics of the good in question, not the characteristics of the production process

GMOs have same characteristics in the product –indistinguishable, but a different production process

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European Union

De facto moratorium on imports of GMOs– ended recently with some approvals– approved canned sweet corn – first GMO approved

in 5 years, ‘The maize imports, authorised for a period of 10 years "have been subjected to the most rigorous pre-marketing assessment in the world," according to EU Health and Consumer Protection Commissioner David Byrne.’

– October 2004 – EC approved Monsanto’s Round Up Ready maize for human consumption

Strict process for approval Huge controversy with consumers, activists,

environmentalists

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US Concerns

Lost export market for corn – most US corn consumed domestically

Estimate for corn – around 600-700 million bushels of corn sales lost between 1994-2003, at $2.50-3.50/bushel

Concern over labeling – should the WTO uphold requirements that all products with more than .9 of 1% of GMO material be labeled as such?

Linda Young

What Do You Think?

Are you concerned about GMOs? What regulations should govern the imports of GMOs?

– Ban on imports?

– Labeling requirements?

– Very cautious approval process? Do you know regulations concerning GMOs in your

country? What about international food aid? Should countries be

able to refuse GMO grains?

Linda Young

Government Procurement

Accounts for 20% GDP in the United States– OECD estimates 4,733 billion US$– Close to 80% of 1989 goods and services trade

All levels of government are large purchasers

Subtract defense then smaller 8-12% GDP

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Government Goals

Value for money: promoted by open and transparent systems

Desire to keep government dollars in the economy– price preferences for nationally produced goods– whole or partial import bans on imports for

government use– selective tendering favoring domestic suppliers– technical specifications biased to domestic producers

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Buy America Act

Passed in 1933 – preference for American goods over foreign

President has authority to waive – reciprocal agreements

US provides access to other countries in specific agreements, but not generally

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Social Policy

Discrimination in favor of regions or groups Quota for suppliers with particular

qualifications (hire minorities or women) Firms hired to provide services may have

to hire an “equal opportunity officer”

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Treatment in GATT/WTO

Discussed since 1947 – excluded government procurement from national treatment

Tokyo Round in 1981 – 26 members included agreement on government procurement for contracts over SDR 130,000 for central government entities – not inc. defense

URA in 1996 – plurilateral agreement – European Commission and 12 other countries– Non-discrimination: must give foreign suppliers

treat no less favorable than to own suppliers– Must not treat local supplier less favorably due to

a foreign affiliation and ownership

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URA Agreement (con’t)

US kept small business program as exception

Canada excluded procurement by provincial and local government

Positive lists – only what's on the list is covered (different than exceptions)

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What do you think?

1) Should the government have to give equal treatment to foreign supplier of goods bought by the government?

2) What would it be like to have government goods procured by imports? School lunches from Canada, state highway patrol cars from Japan, and etc?

Linda Young

Foreign Direct Investment (FDI): The Right of Establishment

OECD negotiations 1995 – failed in 1998 OECD like minded countries, not WTO Developing countries could have signed

Multilateral Agreement on Investment We discuss foreign direct investment only Pre-establishment rights, so that governments

could not – Raise barriers to foreign investors seeking

to establish subsidiaries– Could not discriminate once established

Governments could file exceptions

Linda Young

National Treatment of FDI

Draft clause in the OECD “Each contracting party shall accord to investors of another Contracting Party and to the investments, treatment no less favorable than the treatment it accords [in like circumstances] to its own investors and their investment with respect to the establishment, acquisition, expansion, operation, operation, management, maintenance, use, enjoyment, and sale or other disposition of investments”

Source: Edward M. Graham, Fighting the Wrong Enemy, Institute of International Economics, September 2000, p. 58.

Linda Young

Do we need it? FDI is growing anyway

Total stock of FDI increased 6 times between 1985-1998

Linda Young

Examples of Barriers to FDI

Restrictions on foreign ownership Limiting shares of equity ownership for

non-residents For example, airlines in EU and North

America Telecommunications in Japan Iceland bans foreign ownership in

fishing and energy sectors Mexico (oil sector)

Linda Young

Examples of Barriers to FDI (con’t)

Screening and approval procedures Stipulations of demonstrating economic benefits

– in Japan, and Mexico for ownership of more than 49%

Constraints on foreign personnel and operational freedom Nationals must be majority on board of directors

– Insurance companies in EU, financial services in Canada

Linda Young

FDI Restrictions in OECD Countries, 1998-2000: Breakdown by Type of Restriction1

Linda Young

What do you think?

1) Should the government have the right to put special requirements on foreign investors?

2) To put it another way: should Wal-Mart, MacDonald's, Pizza Hut, Bank of America, be given the same rights to establish and operate a business in your country that the domestically owned firms?

Documents

Globalization: Economic Integration and Its Issues Middle Eastern Partnership Initiative Linda Young Department of Political Science Montana State University