· Refers to the public international law, treaties, and legal institutions that constitute the multilateral trading system and the implementation of these public international law obligations into domestic law.
o Economic and commercial activities that cross national boundaries
The Law of International Trade: Levels of Analysis:
· (1) National law
o These laws apply to the interests of private parties in their transactions (i.e. national contract law)
· (2) International Rules established by the Multilateral trading system
o Treaties, agreements,
· (3) *Public Law:
o public law regulation at the national law (laws made regarding tarrigs, quotas, anti-dumping, export controls)
o Usually implementation of international obligations.
Multilateral Trading System: (moving away from purely opportunistic economic behavior – co-operation to set rules)
· Embodied in
o Provide the basis for the way nations deal with each other in trade and economic matters.
o Establish the legal framework and set of rules and guidelines that concern the conduct of international trade and the resolution of disputes between members.
Channels of International Trade: (flows)
· Trade in goods
o Most basic and oldest channel- Governed by GATT (General Agreement on Trade and Tariffs)
o Largest flow
· Trade in services
o Governed by GATS (General Agreement on Trade in Services)
o Experience significant growth
· Technology Transfer
o Governed by TRIPS (Trade Related Aspects of International Property)
o Highest rate of growth
· Foreign Direct Investment
o Governed by TRIMS (Trade Related Investment Measures) Not a comprehensive agreement like the three above.
o Mostly between wealthier countries
· FDI mostly between wealthier countries
· The rules favor wealthier countries
· The US was not pushed to open their markets during its industrial growth period to the extent that developing countries are pushed to be open in todays global economy.
· the relatively free movement of goods, services, capital, technology, information and people all over the world.
The Creation of the Multi-Lateral Trading System
· period following WWII – a group of nations led by the US held a conference in Bretton Woods to establish a set of international institutions that would help to avoid the disastrous economic policies that contributed to war.
· Passed in 1932: put extremely high tariffs on incoming goods; followed by similar acts in many other nations. “Nations which are economic enemies are not likely to remain political friends for long”- may have led to WWII.
· Quickly approved – designed to ensure the stability of the international monetary system and to assist countries with balance of payment obligation
· Coordinated monetary policy until 1970s
After currencies float – however some country’s central banks intervene to peg currency.
· Current Role à lends to countries in emergencies. Designed to insure stability of the international monetary system so loans are usually conditioned on accepting economic policies (Western Adhesion)
o Encourages the convertibility of its member currencies and generally supervises but has no power to control
o Alleviates poverty through poverty reduction lending.
(2) World Bank
· Quickly approved – Original purpose to rebuild Europe post WWII
· After Marshall plan (reconstructing Europe – focus turned to the third world
· Funded by member nations:
o President of the World Bank has always been an American appointed by POTUS
· Make up
o International Bank for Reconstruction and Development; International Development Association; International Finance Corporation; Multilateral Investment Guarantee Agency; International Center for the Settlement of Investment Disputes
· Types of Loans
o Investment Loans: support economic development
o Development Policy Loans: support policy and institutional reforms
· Created to monitor GATT
· US Congress opposed
(4) GATT (General Agreement of Tariffs and Trade):
· Countries decoded to move ahead with a multi-lateral treaty to reduce tariff barriers:
o Technically a treaty not an international org., it was administered by the contracting parties
· A defacto international organization in Geneva until WTO in 1995
o Move away from protectionist legacy in 1930s and move towards trade liberalization.
Emergence of WTO:
o Significant new trade agreements would need a better system for resolving disputes
§ Create a UN that specialized in organizational structure and dispute settlement mechanisms. A forum for discussion and dispute settlement!
o Specific goals
§ (1) Forum for negations among members as to current and future agreements
§ (2) Administer system of dispute settlement
§ (3) Administer the trade policy review mechanism
§ (4) cooperate as needed with the IMF and World Bank
o Marrakesh Agreement:
§ Package of documents annexed to a single document started the WTO
o Multiple parts
§ 1A: Goods: GATT 1994 (if IA agreement is in conflict with GATT 1994, IA controls)
§ 1B: GATS: (General agreement of trade in services)
§ 1C: TRIPS (trade related aspects of Intellectual property rights)
§ 2: DSU (Dispute Settlement Understanding)
§ 3: Trade Policy Review Mechanism
· periodic review of each members compliance
§ 4: Plurilateral Trade Agreements
o Agreements are voluntary (only vol
s by bringing people into contact with one another
§ trade promotes peace
· Montesquieu – “the natural effect of commerce is to lead to peace because nations that trade with each other become reciprocally dependent.”
· increased productivity
· access to larger markets – competition
· comparative advantages (efficiency in production and global resource allocation)
· lower costs of goods
· Increases the availability (in terms of supply) of goods and services (more diverse products available)
· Defeat prejudicies – bringing people and ideas in contact with one another.
· Promote peace
Issues that affect comparative advantage:
· Natural resources
· Intellectual Property
· More favorable government policies
o Subsidies- Not supposed to do that under the WTO
o Favorable parts of the tax code- not a good policy under the WTO. There are some permissible government activities that can shape comparative trade.
· Proximity to the market
· Forms of government which promote stability
· Cheap labor
Affect on Jobs:
· Overall effect is actually neutral
o Trade destroys and Creates jobs!
o Exports and foreign investment creates new jobs
§ Foreign jobs are created
§ Domestic jobs in industries that have higher comparative advantages.
Wages and Jobs
· Imports destroy bad low wage jobs.
o Wages in exporting industries are well above average compared to wages in importing industries.
· Policies that limit overall trade tends to increase employment in low wage industries and reduce employment in high wage industries
o Shifts workers away from things they produce well to things that they don’t produce as well.
· America is in the middle of restructuring.
· Unprecedented technological advantage… US exports technology – workers need high level of education.
· Labor force that is ill equipped to change to emerging industries.
· What can the gov’t do?
o (1) Stimulate more job creation
o (2) Make sure displaced workers have a safety net
§ job training – job search and relocation.
o (3) Pressure governments to upgrade the rights of workers in their domestic countries.