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Lecture 4

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Political Science

1 Course: Poli Sci 2H03 Subject: Global Economy, Trade, and Finance Instructor: Dr. Vermilyea Section: Evening, T01 Date: Oct.3, 2012 Plan for the class  Discuss the world trade regime, with a focus on the transition from the GATT to the WTO  Learn about the current international financial system, and its emerfence from the Bretton Woods system  Consdier how this international financial system contributed to the 2007-2008 financial crisis General Agreement on Tariffs and Trade  Post WWII, the GATT existed as the primary framework governing international trade relations  This persisted until 1995 when the Uruguay round established the World Trade Organization (WTO), which effectively replaced the GATT and served as an indication of a further institutionalization of trade rules  3 key problems with GATT:  (1) failure to reverse the growth of protectionism (embedded liberalism; as opposed to neo- liberalism)  Embedded liberalism: foundational principle of GATT; aim to achieve 2 goals:  (1) promote free-trade/move into open market system of free-trade  (2) protect domestic economies from the negative effects of free-trade and protect them from unemployment  Theory of embedded liberalism stopped certain types of imports and created subsidies for others  Favoured developed countries and worked in their interest  Represented fusion of international power and dominant forms of power (US and UK)  Promoted market liberalization, but only if it was within the limits of the powerful states  The aim of the GATT was not to dismantle the state  State still important figure with GATT/embedded liberalism ideology  (2) the weakness of its dispute settlement procedures  If there was a dispute and there was a decision made on the dispute, if one member didn't like that decision they could veto  Not enforceable  Contracting parties could just block decisions of panels as they wish  GATT was just a contractual agreement among members, lacking institutional backing that was needed to make it enforceable  (3) uneven nature of its trade liberalization process  Something that has extended to the WTO  Further heightened with GATT  Certain sectors were liberalized, which worked in favour of developed countries  e.g., manufacturing  This is a problem because developing countries need to trade agriculture/textiles, but these industries were highly protected and received subsidies from developed countries to protect their markets from the developing countries  Only helped developed nations in areas where they had a comparative advantage 2 Course: Poli Sci 2H03 Subject: Global Economy, Trade, and Finance Instructor: Dr. Vermilyea Section: Evening, T01 Date: Oct.3, 2012 WTO  Increased institutionalization and legalization of trade process  US pushed for legalization of dispute settlement process  Canada and Europe wanted a further institution as a whole structure of the international trade process itself  Introduction of Appellate Appeal Body  If a dispute comes to the WTO, and the decision is made, people have the right to appeal it now  Remodeling of the dispute resolution process  Intensified areas where trade regulation applied  Introduced new issue areas into domain of trade regulation  Resulted in a number of legally-binding agreements  The agreement on trade-related aspects of international property rights  General agreement on trade and services  Dispute settlement understanding provides a framework for a legalistic and orderly way  Panel of judication  Appeals process  Move towards more unbiased, rules-based institution Key principles of WTO  No discrimination  No preferential treatment  All countries treated as equal trading partners  Not to discriminate between its own and international products/services  Freer than GATT  Predictable  Tariffs/non-tariff barriers should not be raised arbitrarily  More competitive  Discourages unfair practices  Export subsidies  Dumping (to gain market shares)  More beneficial for developing countries Key challenges and criticisms  Developing country interests  Agriculture and textile sectors continue to exercise high levels of protectionism from external markets  Developed countries continue to protect their markets, which is against free-trade principles  Results in higher production of agriculture in developing world, which lowers their prices (due to surplus of product)  Also issue with subsidies  Developed countries subsidize their own farmers, gaining an advantage over farmers in the developing world 3 Course: Poli Sci 2H03 Subject: Global Economy, Trade, and Finance Instructor: Dr. Vermilyea Section: Evening, T01 Date: Oct.3, 2012  Problems with the dispute settlement process  Developing countries don't have as many representatives to send to meetings  Also issue of power/knowledge, since the developing world lacks resources to keep up wi
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