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Berkeley ENVECON 131 - Notes

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September 7, 20041 Notes based on Ox fam, page 1- 18Thetextemphasizesthepotentialfortradetoreducepoverty. Itclaimsthattrade is not inheren tly unfair, but that the rules under which trade takes placeare unfair. As an example, it states that trade barriers faced by dev elopingcountries are 4 times higher than those faced by rich coun tries. (They don’tgive a source for this n umber or define what it means; I’m sk eptical of it.)ThetextstatesthatthecostofthesebarriersforLDC’sis100billionperyear — compared to aid receipts of 50 billion.[Oxfam gives insufficient weigh t to the fact that LDC ’s suffer not onlyfrom trade restrictions imposed b y the ric h count ries, but also b y their o wnrestrictions. CGE models (explain what these are) hav e been used to esti-matetheeconomiccostsoftradebarriers. Thesemodelsshowthatpoorcountries wo uld obtain substantial benefits from global trade liberalization.Som e of these benefits arise from OECD liberalization, which w ou ld incr easepoor countries’ access to OECD markets and would also reduce dow nwardpressure on the prices of commodities produced in poor countries (e.g. cot-ton). Ho wev er, the same models estimate that the greatest benefits arisefrom liberalization within LD C s. This liberalization would redu ce domesticLD C distortion s, thereby raising income in those countries; it would also in-crease trade amongst LDC countries, thereby benefiting LDC exports. T hepointhereisthatbothimportersandexportersbenefit from liberalized trade— contrar y to the mercantilist view that is often implicitly adop ted . (explainthe meaning of mercantilism). ]Oxfam claim s system is unfair because of:• U nequ al market access. (They probably mean that developing coun-tries hav e less access to OECD mark ets than vice-versa . Th is claim istrue for some agricultural commodities (e.g. sugar) and for textiles (theMulti-F ib re Agreemen t, or MFA). The 1994 agreement that resulted inthe WTO prom ised developing countries increased access for these t wosectors, in return for LDC agreem ent to TRIPS. This increased accesswas "back loaded". Some LDC coun tries benefit from OECD traderestrictions, when they are giv e n prefer en tia l access. The preferential1agreements mean that there is unequal market access (to OECD mar-kets)amongst theLDCs. OneobjectiveoftheWTOistoreducethiskind of inequality of access, throughtheMostFavoredNations(MFN)clause. The MFA im poses q uotas for differen t dev elo pin g coun t ries.The trade restrictio ns increase do mestic price within OEC D , and pref-eren tial access enables a coun try to capture some of these quota r ents,possibly benefitin g the country (but harming other LDC competitors),relativ e to the free trade equilibrium. Bananas example: Europeansallo w preferential imports of bananas from Caribbean countries, whic hharms banana imports from other Latin Am erican countries — whereproduction is controlled by large US companies. In this case, pref-eren tial access is seen to benefit poor farmer s at the expense of largeagricultural corporations.)• L D C ’s required by WB and IMF to liberalize quickly. (It is usefulto distinguish bet ween a policy that is imposed by the IMF or WB ascondition for loan and a rule that a country agrees to as a part of W TOnegotiations. The three global institutions are distinct. One migh toppose a specific W B or IM F policy without necessarily opposing acountry’s righ t to sign an agreement comm itting itself to a particulartrajectory of liberalization. Why do countries agree to liberalize?)• L ack of controls on transnational corporations (TN Cs). (Should aglobal institution impose regulations on TNC? For example, shouldthere be interna tional labor standards? Why should these standards beimposed b y a global institution , rather than by a nation al government?Developing countries tend to oppose global labor standards; they fearthat such standards w ou ld reduce incen tives for foreign investme nt intheir coun tries, and that the standards w ould pro vide an opportunityfor disguised protectionism . Often claimed that manufacturing asso-ciated with trade has poor w orking conditions, lack of worker rights.It is importan t to compare these w orkers’ situation when employ ed b yMN C ’s with their best alternativ es. Some standa rds are universally ac-cepted, e.g. prohibition of imports of products produced by slave labor.Ther e are other (non-la bor-related) issues inv olv in g control of TNC.Example: infan t formula. Infant form ula w as distributed in third w orldcountries using the same methods as in rich countries. The bab y was giventhe formula in the hospital and the moth er w as give n a free sample when2she left. M a ny women diluted the formula to save money, and did not hav eaccess to clean water. A lso, breast feeding, unlike formula feeding , prov idedthe bab y with certain kinds of immunity against disease. The World HealthOrga nization (WH O ) developed Intern ationa l Code of Marketing of BreastMilk Substitutes. The US objected to this code and persuaded some coun-tries not to enforce it. The Code forbade companies from using pictures ofbabies on their pac kages and from idealizing the use of infant formula. In -formationonthepackagewasrequiredtostatethatbreastmilkwasthebestalternative for the bab y. In the early 80s Guatemala tried to enforce this p ro-vision. Gerber objected that it violated a trademark agreem ent (rememberthe "Gerber Bab y"). The US backed Gerber and threatened to tak e awayGuatem a la’s MFN status unless it revok ed the law. Guatem a la’s supremecourt decided the issue in favor of Gerber. In 1998 an in ternational groupthat mo nitors breast-feeding claimed that 39 countries w ere still violating orstretching WHO rules.Example: cigarettes in Thailand. The Thai go v ernm en t had a monopolyon dom estic cigarette sales and tried to restrict imports and adv ertising of U Scigarettes. A 1990 GATT panel ruled against Thailand on the ground thatforeign and domestic products w ere being treated unequally. This ruling w a sconsistent with GATT rules, but it ignored the fact that the Thai monopolydid not advertise, and that most w om en and young people, who would bethe targets of foreign advertising, did not smoke. En try by US firms wouldincrease consumptio n, not merely shift it from the Thai to the US product.The US firms lobbied to promote the view that tobacco exports w er e aneconom ic rather than a health issue. US trade


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