Understanding Global Trade and Economic Integration

The Washington Consensus

Principles of the Washington Consensus

• Fiscal discipline
• Reordering of public spending
• Tax reform
• Interest rate liberalization
• Competitive exchange rate
• International trade liberalization
• Liberalization of direct foreign investment
• Privatization
• Deregulation
• Property rights

WTO Scope

Factors governed by the WTO:

• Intellectual property
• Regulation of business and capital
• Benefits
• FTAs
• Economic integration
• Systems for business services, health, and education

Globalization: Advantages and Critics

Advantages of Globalization

1. Reduced global costs
2. Improved product quality and programs
3. Greater customer choice
4. More effective competitive offerings
5. Poverty reduction

Critics of Globalization

1. Benefits primarily the elite
2. Focuses on growth over equitable development
3. Seeks to increase production and consumption
4. Worsening ratio between business owners and workers
5. Environmental degradation

Free Trade Agreements (FTAs)

A written agreement between two or more sovereign nations, or a nation and an organization.

Validity

Parties must have the capacity to conclude treaties and act with complete freedom. A treaty is void if concluded under threat.

Types of International Treaties

Political Treaties

Mutual defense in case of external attack.

Trade Treaties

Regulate economic issues, such as the reduction of external tariffs.

General Agreement on Tariffs and Trade (GAAT)

General Agreement on Tariffs and Trade

Treaty Obsolescence

1. If the treaty itself establishes a fixed term.
2. Upon reaching a specific date.
3. If a party breaches its obligations.
4. By a Most Favored Nation (MFN) clause.

Purpose of Treaties

• Acquisition of foreign territory
• Cession of own territory
• Border delimitation and ratification
• Promises of mutual aid
• Foreign investment guarantees

Objectives of Free Trade Agreements

1. Remove barriers affecting trade
2. Promote fair competition
3. Increase investment
4. Provide adequate protection for intellectual property rights
5. Establish processes to stimulate domestic production.

Commercial Treaties Defined

An agreement between different countries to grant mutual benefits.

Types of Trade Integration

Free Trade Area (FTA)

Signatory countries agree to eliminate tariffs among themselves.

Customs Union

Eliminates internal tariffs for member countries; non-members face a common external tariff.

Economic Union

Represents the highest degree of trade integration. May involve eliminating national currencies to create a single currency and central bank.

The World Trade Organization (WTO)

Deals with trade rules between countries. Helps producers of goods and services and allows governments to achieve social and environmental objectives.

Dumping Defined

Exporting at prices below cost.