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POLS 2080 (26)
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Chapter Fifteen Summary

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University of Guelph
Political Science
POLS 2080
Adam Sneyd

Chapter Fifteen: FreeTrade and Fair Trade Introduction  Free trade is the dominant view of major international organizations, premised on key notions: o removal of trade barriers o the state‘s role in society and economy is limited since the state chokes individual liberty o an unregulated market is seen as a ‗hidden hand‘ and the best device to mobilize the individual for the benefit of all  Neoliberals argue that, historically, economic growth in the North stemmed from 18th- and 19th-century devotion to free trade principles: o Principles like comparative advantage spark international competition—nations specialize, all benefit  New trade theorists are also free market proponents, yet less optimistic of the overall benefits of comparative advantage (South eventually benefits over North)  Fair trade Perspective is not optimistic about win-win in international trade: o Historically, markets have always been regulated to benefit the rich in the North and NICs in order to ensure a dominant position in the world market  Market regulation is needed to protect the weak in order to create equal international trading  The strongest proponents of the fair trade perspective stem from dependency and underdevelopment theories (1960 to 1970s) o Fair trade theorists argue colonialism created First World imperialism and Third World neo-colonial nations (the South) o Development in the South is restricted by unequal exchange  Fair traders criticize free trade for ignoring political and market conditions (high technology vs. agricultural and low wage goods) underlying comparative advantage  Win–lose outcome: Fair traders argue that poor nations cannot develop industries without active government support to protect them from global market forces  Fair trade ideas influenced international trade policies of the 1960 and 1970s, and waned in influence during the domination of the neoliberal (free trade) paradigm Free Trade and Fair Trade Since 1945  Contrary to debates, both free and fair trade perspectives involve the state as a ‗major player‘ in the market o The state is still in charge of creating the rules surrounding the economy and how business is conducted in it o The tension is less about the amount of state intervention and more focused on the manner of intervention  In 1945, state leaders (dominated by US interests) established regulations for international trade and development at Bretton Woods o The people at the conference believed that the protectionism leading to the 30s caused the crash and it should be transitioned into a period of liberalization o GATT was established to achieve reduction in trade barriers o IMF and World Bank were formed to oversee the international monetary system (short term loans and long term development focus, respectively) o The new international monetary system was fixed to the US dollar and gold, and was promised to provide stability to trading  Embedded liberalism (state intervention within a liberal free trade framework) emerged from Bretton Woods o Mechanisms were established to ensure stability for southern commodities o Commodity control schemes (1948) were managed by the UN  Entailed the use of buffer stocks that could be built up in times of surplus and reduced in times of shortage  When prices were low countries would withhold stock to regulate prices again and vice versa o International Coffee Agreement (1963–1989)  By 1960s commodity control schemes failed to bring export earnings to the South, leading to the UN Conference on Trade and Development-UNCTAD (1964)  UNCTAD members from North voted against key resolutions for ―fairer trade, not aid‖ and for the elimination of northern protectionist policies on primary goods  Demands of the South were reflected in: o the UN Programme of Action for the Establishment of a New International Economic Order (1974) o the UN Charter of Economic Rights and Duties of States (1976).  UNCTAD was successful in promoting compensatory finance schemes such as Export Earnings Stabilization Agreements (STABEX)  By the late 1970s, embedded liberalism was abandoned for free trade/neoliberal policies  There was a move to eliminate the state‘s role in the economy and to access southern markets and cheap labour  Foreign debt crises emerged, forcing over 100 nations to implement (ineffective) IMF Structural Adjustment Policies (SAPs), ushering in a new era of free trade  In 1994, the World Trade Organization (WTO) formed with 120 member states to police and promote free trade and deregulation  WTO opposed any links with U
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