IB Tutorial 5

8/14/2019 IB Tutorial 5

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Doha Round of multilateral trade negotiations launched in 2001 :-Price of oil - $25 a barrel, Price of rice - $170 a ton- Chinas 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 andoblivion-With all these changes, governments, Nero-like, dwell on minorissues 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 byincreasing global

integration- These challenges have significant global implications that


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Doha talks resumed in Geneva:- Richer developing countries proposed reforms that left

average tariff rates

for agricultural goods unchanged, slight reduction formanufacturing goods.( 6.4% to 5.6%)

- Supporters of Doha concede goals to lowering tradebarriers modest, argue that real purpose is to providesecurity 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 importtariffs.

Dohas limited relevance:- Groups traditionally at forefront private corps in

intellectual-property, manufacturing, service sectors arenow notable by their absence from this process

- Too modest


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Between 2002 and 2007 World economyenjoyed the most prominent growth

Year 2007 Abundant supplies gave way towidespread of shortages.

Between 2005 and 2007 Increased food pricespush almost 100 million into poverty.

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


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Pressure of high food prices Due to restrictions onagricultural exports and by biofuel policies in industrialcountries.

18 developing countries imposed limitations on exports Resulting in contraction of global food supplies and highprices.

WTO was of little help because it permits taxes andquotas 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 landbeing used to produce corn for biofuel

Other countries have also enacted similar policies accounting 70% of the increase in food prices

Therefore, trade agenda needs to be enlarged to includediscussion of all trade barriers


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New trade agenda will include a discussion on energy

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

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.

Rising oil prices prompted a number of unilateral reponses

Oil importing countries attempt to cushion consumers against highprices by subsidization.

They have also sustain high world prices by dampening incentives toreduce consumption

States are considering in taking action against OPEC in retaliation fortheir collusion on export quotas but there is no protection offeredcurrently.

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


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Problem of undervaluation of major currencies,especially the yuan.

Undervalued currencies are import tax and exportsubsidies.

Companies relocate capital low skilled labourbear the impact

Some American economists and lawmakers havecalled for imposing a duty on imports fromcountries with undervalued exchange rates. unilateral action


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multilateral approach IMF can influence membercountries that borrowed from it but cannot affecteconomic policy in countries that do not need IMFmoney

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

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

IMF continue to provide technical expertise to assessthe valuation of currencies.

WTO enforcement mechanism, which is credible andeffective.


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Governments in the developing world are holding increasingly

large amounts of wealth in the form of foreign exchange reserves. Macroeconomic concern funds can easily destabilize global

currency and bond markets.

Microeconomics concern sovereign wealth funds (swFs) couldend up controlling sensitive or strategic industries in othercountries.

United States is tightening scrutiny of investments by foreigngovernments, the European Commission is considering to preventcorporate takeovers.

Exporters of capital want secure access to investmentopportunities in foreign markets, and importers of capital havelegitimate concerns about the motivations of state investors andthe consequences of such transactions.

One way to manage such investments not to impose too muchrestrictions on investments.


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Major changes shook US financial system in 2008Many icons of capitalism disappeared or fell under government

control in a matter of weeks

Crisis will lead to a reexamination of national policies andinternational rules

What rocked the system?Lax regulationLax regulation

Macroeconomic cause Excess Liquidity which allowed for cheaploans 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 area 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.


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Copenhagen Summit Conference 2009 12/12Hosted by Danish government to unite international business around a

few strong messages

A global climate change agreement is necessary so that we can limitthe negative man made effects on the climate system. Globalwarming at a faster rate and increase of man made emissions.

In US , the most discussed bill is on restricting imports from countriesthat do not act adequately to protect the environment.

Key objectives is to ensure participation of all major carbon emittingcountries including developing nations. Negotiations should excludetrade sanctionstrade sanctions, even if there is a provision for it, they should serve

as enforcement to be place only after cooperation and not to threatenfor cooperation in the first place .

Trade sanctionstrade penalties imposed.


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The framework of WTO is to harness exportersinterest in liberalization to overcome opposition fromdomestic producers fearful of foreign competition.

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

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

Challenge is to resolve differences between theworlds traditional powers and its new powers.


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The proposed new trade agenda would createmore common interests and greater scope forgive-and-take between existing and risingpowers.

All large consumers share an interest in an openenergy market without artificial restrictions onsupplies.

If such a market is achieved, China and Indiawould be less tempted to secure supply sourcesthrough costly bilateral deals.


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

It may not be necessary for all countries to beinvited to discuss all issues and are bound by anyresulting rules.

Some issues such as investment by SWFS would bebest resolved by the countries which are directlyinvolved.

Questions on exchange rate issues WTO and IMF

Energy issues both organization that representoil exporters such as OPEC and those thatrepresent importers.


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

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

Despite the difficulties, it is time to start working on anew agenda instead of trying to resuscitate aninconsequential enterprise.

This calls for a new approach to internationalcooperation and reallocation of responsibilities amonginternational institutions.

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IB Tutorial 5