POL 202 Int. Relations Lecture 18 Outline of Last Lecture I. International Tradea. Comparative Advantagei. Definitionb. Absolute Advantagei. Definition c. Opportunity Costi. Definition d. International Tradee. Protectionismi. Definitionf. Trade Barriersi. Definitiong. Formsi. Tarifii. Quotaiii. Nontarifh. Trade RestrictionsII. Why do governments restrict trade?a. Domestic concernsb. Direct cost of protectionIII. Distributional efects of tradea. Tarif increases domestic price of goodb. Two new regions of interestIV. Winners and Losers of international tradea. Protectionb. 3 groupsV. Protecting American Sugar Industrya. US provides subsidies to sugar powersb. Studyc. How much we really pay for sugarVI. Economic interest and trade policya. Theories of trade policyi. Stopler-samuelson approach1. Defined and examplesii. Ricardo-viner approach1. Defined and examplesVII. Domestic Institutions and Trade Policiesa. Help or harm groupsb. Policiesc. Logicd. Support and Protecte. Political InstitutionsVIII. Costs, Benefits, and Compensation in National Trade Policiesa. Trade and unskilled workersb. Wages and profits1. Factor price equalization2. Prices of factors of production tend to become more equalc. Trade liberalizationd. CompensationOutline of Current Lecture I. Strategic interactions in international trade relationsa. Consider trade policies when tradingb. Trade bargaining can resemble prisoners dilemmac. Prefer not to remove barriers unilaterallyd. Inability to ensure compliancee. Trade disputes impede cooperationf. Dumping i. DefinitionII. Overcoming problems of Strategic interactionsa. Several factors help facilitate cooperation and coordination1. Small numbers 2. Information3. Repeated interaction4. Linkage politicsii. Afect international trade relationsiii. Governments monitor trade behaviorsiv. Hegemonyv. Information crucial in tradingvi. Repeated interaction between governments prevents cheatingvii. Linking issuesIII. Institution in International Tradea. Institutions can:i. Set standards of behaviorii. Monitor and enforce complianceiii. Reduce transaction costsb. Facilitate Tradec. MFN Statusd. WTO and GATTe. General Agreement on Tarifsf. Have an equal voteg. Panelh. Dispute settlements and MechanismsCurrent LectureI. International Political Economya. Strategic interactions in international trade relationsi. Governments also consider other states likely responses when making trade policyii. International trade bargaining problems can resemble prisoners dilemma1. Both sides better of reducing trade barriers2. But concerns about cheating Cause both sides to act non cooperativelyiii. Governments prefer not to remove trade barriers unilaterallyiv. An inability to ensure compliance can make mutually-beneficial trade agreements difficult to strikev. Trade disputes can impede cooperationvi. For instance: disputes often can involve accusations that one country’s exporterscare dumping goodsvii. Dumping: goods are imported and sold for below the cost it takes to make them;implies selling goods below the true cost of production in order to drive out competitors and gain market shareb. Overcoming Problems of Strategic Interactionsi. Several factors help facilitate cooperation and coordination1. Small numbers 2. Information3. Repeated interaction4. Linkage politicsii. These all afect international trade relationsiii. Small numbers make it easy for governments to monitor others behavioriv. Hegemonic stability can ensure cooperation when numbers are large1. The existence of one very powerful nation helps solve collective action and free riding problems2. Britain in 19th century3. US post WWIIv. Information is crucial in trade negotiations1. Failures of trade cooperation are often due to fears about unseen behaviorvi. Repeated interaction between governments provides incentives to avoid cheatingvii. Linking issues allows governments to trade cooperative policies1. If you cooperate on my issue I’ll cooperate on yoursviii. International institutions can help overcome collective action and other strategicproblems1. World trade organization2. North American Free Trade agreementII. Institutions in International Tradea. Institutions can:i. Set standards of behaviorii. Monitor and enforce complianceiii. Reduce transaction costsb. Institutional arrangements facilitate trade:i. Often based on the principle of reciprocity:1. Concessions granted by one government must be matched by anotherc. Most favored nation MFN status:i. Countries that grant MFN status agree to extend the same concessions that theyprovide to all other nationsd. The World Trade Organization succeeded the General Agreement on Tarifs and Trade GATT in 1995i. Both have been enormously successful in reducing barriers to trade among nationse. General Agreement On Tarifs and Tradei. Founded as provisional organ in 1948ii. Harvana Conference 19471. International trade organization2. 3rd Bretton woods institution World Bank IMF3. ITO charter very ambitious beyond trade issues4. Rejected to US congressiii. GATT was side agreement by 23 parties1. Focused solely on tarif reductioniv. Proceeded in a series of negotiating roundsv. The World Trade Organization1. Now 159 members IGO founded un 19952. Headquarters in Geneva3. Responsible for world trading system4. Subsumes all of GATT5. Core Principlesa. Market liberalismb. Nondiscriminationi. Most favored nationii. National treatmentf. All members in WTO have an equal votei. But negotiations are generally dominated by the largest trading statesg. The WTO encourages cooperation by collecting info about trade policies and monitoring non complianceh. Countries can file complaints with the WTO i. Sent to a dispute settlement bodyi. Panel of trade experts established to hear disputei. Panel investigates and issues a report that becomes ruling within 60 daysii. Of not overturned the ruling becomes bindingiii. Enforced the WTO authorized retaliatory tarifsj. WTO Dispute in Settlement Mechanismi. US and EU frequently file WTO disputes1. US steel tarifs case- Bush2. Chinese Tires- Obama3. Airbus v Boeing4. Banana Wars 6