Ib Tutorial 5

Doha Round of multilateral trade negotiations launched in 2001 : -Price of oil - $25 a barrel, Price of rice - $170 a ton - China’s current account surplus – two percent of their GDP In 2008 ( with changes unfolding ) : -Price of oil - $65 a barrel, Price of rice - $515 a ton - U.S. financial system teetering between socialization and oblivion -With all these changes, governments, Nero-like, dwell on minor issues ignoring burning questions. New economic system : -Doha round collapse after negotiations failed at Geneva -British Prime Minister, Gordon Brown proposed Bretton Woods II -Doha agenda does not respond to challenges imposed by increasing global integration -These challenges have significant global implications that

World trade : - Since mid-1990s, world trade grown rapidly (6 percent a year) - WTO has not adjusted max level of tariffs & other barriers - Overall trade flourished, multilateral process that governs trade languished Why has world trade grown : - Many believe openness promotes long-term development - Many unilaterally liberalized their regulations on goods & services Multilateral process: - These unilateral & regional efforts at liberalization ended up robbing

Doha talks resumed in Geneva: Richer developing countries proposed reforms that left average tariff rates for agricultural goods unchanged, slight reduction for manufacturing goods.( 6.4% to 5.6%) Supporters of Doha concede goals to lowering trade barriers modest, argue that real purpose is to provide security for trading partners.( to ensure trade policies will not be reversed ) However Doha talks did not even consider guarantees against states suddenly resorting to punitively high import tariffs. Doha’s limited relevance: Groups traditionally at forefront – private corps in intellectual-property, manufacturing, service sectors are now notable by their absence from this process Too modest

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Between 2002 and 2007 – World economy enjoyed the most prominent growth

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Year 2007 – Abundant supplies gave way to widespread of shortages.

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Between 2005 and 2007 – Increased food prices push almost 100 million into poverty.

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Current recession led to a decline in agricultural prices but food prices speculated to remain high

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Pressure of high food prices – Due to restrictions on agricultural exports and by biofuel policies in industrial countries. › 18 developing countries imposed limitations on exports – Resulting in contraction of global food supplies and high prices. › WTO was of little help because it permits taxes and quotas on agricultural export › Under normal conditions – Subsidies introduce huge distortions › Under abnormal conditions – Countries prevent export, liberalize import regulations › Ethanol mandates, tax credits for ethanol producers, tariffs on imported Brazilians ethanol led to more land being used to produce corn for biofuel › Other countries have also enacted similar policies – accounting 70% of the increase in food prices

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Therefore, trade agenda needs to be enlarged to include discussion of all trade barriers

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New trade agenda will include a discussion on energy

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Uncertainty about supplies and demand have resuscitated fears about energy and increased prices

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Another factor – The cartelization of oil markets by exporters – –

Power wielded by OPEC grows with demand A striking gap in the trading system is the absence of formal rules to prevent collusion by oil producing states.

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Rising oil prices prompted a number of unilateral reponses

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Oil importing countries attempt to cushion consumers against high prices by subsidization.

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They have also sustain high world prices by dampening incentives to reduce consumption

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States are considering in taking action against OPEC in retaliation for their collusion on export quotas but there is no protection offered currently.

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New trade rules should target cartels – E.g.: Drafting new rules on global energy trade, outlaw collusions on supply quotas

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Problem of undervaluation of major currencies, especially the yuan.

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Undervalued currencies are import tax and export subsidies.

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Companies relocate capital  low skilled labour bear the impact

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Some American economists and lawmakers have called for imposing a duty on imports from countries with undervalued exchange rates.  unilateral action

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multilateral approach  IMF can influence member countries that borrowed from it but cannot affect economic policy in countries that do not need IMF money

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IMF failed to provide enough money to countries in need and attached tough conditions to its loans.

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Possible solution: IMF and the WTO to cooperate on exchange-rate issues.

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IMF  continue to provide technical expertise to assess the valuation of currencies.

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WTO  enforcement mechanism, which is credible and effective.

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Governments in the developing world are holding increasingly large amounts of wealth in the form of foreign exchange reserves.

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Macroeconomic concern funds can easily destabilize global currency and bond markets.

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Microeconomics concernsovereign wealth funds (swFs) could end up controlling sensitive or strategic industries in other countries.

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United States is tightening scrutiny of investments by foreign governments, the European Commission is considering to prevent corporate takeovers.

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Exporters of capital want secure access to investment opportunities in foreign markets, and importers of capital have legitimate concerns about the motivations of state investors and the consequences of such transactions.

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One way to manage such investments not to impose too much restrictions on investments.

Major changes shook US financial system in 2008 Many icons of capitalism disappeared or fell under government control in a matter of weeks Crisis will lead to a reexamination of national policies and international rules What rocked the system? Lax regulation Macroeconomic cause – Excess Liquidity which allowed for cheap loans and poor lending standards and kept afloat an unsustainanably leveraged housing market. Such global imbalance calls for a multilateral approach. Cooperation on exchange rates and excessive commodity prices are a good way to start, followed by multilateral cooperation in regulating the financial sector. Efforts require coordination between WTO and IMF to help guarantee states’ financial openness and, Bank for International Settlements and Financial Stability Forum to deal with financial regulation.

Copenhagen Summit Conference 2009 12/12

Hosted by Danish government to unite international business around a few strong messages A global climate change agreement is necessary so that we can limit the negative man made effects on the climate system. Global warming at a faster rate and increase of man made emissions. In US, the most discussed bill is on restricting imports from countries that do not act adequately to protect the environment. Key objectives is to ensure participation of all major carbon emitting countries including developing nations. Negotiations should exclude trade sanctions, sanctions even if there is a provision for it, they should serve as enforcement to be place only after cooperation and not to threaten for cooperation in the first place. Trade sanctions- trade penalties imposed.

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The framework of WTO is to harness exporters’ interest in liberalization to overcome opposition from domestic producers fearful of foreign competition.

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Impose agricultural export taxes, increase fuel subsidies and tighten anti-inflationary policies.

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Next step for government to cooperate on furthering the security-minded interests of their constituents.

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Challenge is to resolve differences between the world’s traditional powers and its new powers.

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The proposed new trade agenda would create more common interests and greater scope for give-and-take between existing and rising powers.

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All large consumers share an interest in an open energy market without artificial restrictions on supplies.

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If such a market is achieved, China and India would be less tempted to secure supply sources through costly bilateral deals.

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2 questions remained: - which countries should participate in the negotiations? - what is the appropriate forum for the talks?

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It may not be necessary for all countries to be invited to discuss all issues and are bound by any resulting rules.

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Some issues such as investment by SWFS would be best resolved by the countries which are directly involved.

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Questions on exchange rate issues  WTO and IMF

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Energy issues  both organization that represent oil exporters such as OPEC and those that represent importers.

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Doha Round was one of the serious attempts at multilateral cooperation despite its latest failure.

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Multilateral cooperation is needed to prevent any protectionist measures that these issues may provoke.

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Despite the difficulties, it is time to start working on a new agenda instead of trying to resuscitate an inconsequential enterprise.

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This calls for a new approach to international cooperation and reallocation of responsibilities among international institutions.