Fluent Essays

www.euruni.edu BCO 221: Global Economics Introduction to International Economics, Globalization Dr. Neus Vila www.euruni.edu 1. International economics and trade 2. The Globalization Process 3. Blockchain, AI 4. Universal Basic Income (UBI) Outline www.euruni.edu • What comes to your mind when you think about international economics? What Is International Economics About? www.euruni.edu • International economics is about how nations interact through: – trade of goods and services, flows of money, investment, and movement of people. • Which of the above highlighted variables was initially traded? Why? What Is International Economics About? www.euruni.edu • International trade has roughly tripled in importance compared to the economy as a whole in the past 50 years. • Therefore, not only trade has increased due to GDP growth, but the propensity to trade has increased. • Both imports and exports fell in 2009 and in 2020 due to the recession. • Historically, Governments have taken international trade as an escape goat (blame) during recessions. What is International Economics about? www.euruni.edu Fig. 1-1: Exports and Imports as a Percentage of U.S. National Income www.euruni.edu What would you say that are Hong Kong Exports and Imports as \% of its GDP? This means its degree of openness. What is International Economics about? www.euruni.edu Compared to the United States, other countries are even more tied to international trade. • The below countries imports and exports as a share of GDP are substantially higher. • Why does the United States rely less on international trade than almost any other country? What is International Economics about? www.euruni.edu • The United States, due to its size and diversity of resources, relies less on international trade than almost any other country. What is International Economics about? www.euruni.edu • That there are gains from trade is probably one of the most important insights in international economics. • Countries selling goods and services to each other tend to generate mutual benefits. • Which trade benefits can you identify? Gains from Trade www.euruni.edu • Trade benefits countries by allowing them to: 1. export goods made relatively more efficiently 2. imports goods made with relatively scarce resources 3. trading current resources for future resources (international borrowing and lending) 4. international migration • When countries specialize, they may be more efficient due to larger-scale production (economies of scale). Gains from Trade www.euruni.edu • Trade is predicted to benefit countries as a whole in several ways, but trade may harm particular groups within a country. • Which economic agent(s) (households, firms, government) can be harmed by trade? Why? Gains from Trade www.euruni.edu • Trade is predicted to benefit countries as a whole in several ways, but trade may harm particular groups within a country. i. International trade can harm the owners of resources that are used relatively intensively in industries that compete with imports. ii. Trade can harm consumers that have to pay more for the same product (from a new international partner) iii. Trade can harm governments that do not collect tax from local business profits iv. Trade therefore affects the distribution of income within a country. Gains from Trade www.euruni.edu What factors may limit Gains from Trade: a) Information asymmetry b) Transportation problems c) Barriers to trade – which ones do you know? d) Cultural differences e) All of the above Gains from Trade www.euruni.edu • The pattern of trade describes who sells what to whom. 1. Differences in climate and resources explain why Brazil exports coffee and Saudi Arabia exports oil. 2. … But why does Japan export automobiles, while the U.S. exports aircraft? • Why some countries export certain products is due to differences in: 1. Labor productivity 2. Relative supplies of capital, labor and land and their use in the production of different goods and services 3. Bargaining power Patterns of Trade www.euruni.edu • What is globalization? • How did globalization unravel? = Why did globalization expand during these periods? The Globalization Process www.euruni.edu • What is globalization? – Globalization is increasing economic integration among countries due to trade, migrations and capital flows. • How did globalization unravel? – We can identify three waves in the globalization process: • First wave - after industrial revolution: 1870-1914 • Second Wave (after wars): 1945-1980 • Third Wave: 1980-today • Why did globalization expand during these periods? The Globalization Process www.euruni.edu The Globalization Process • The first wave of globalization - 1870-1914 - Falling transport costs and new technologies (railways) - Improvement in communication (telegraph) - Increase in capital stock in developing countries - First waves of migration to North and South America and Australia - Typical pattern of trade: North – South (Manufactures vs primary commodities) - Reduction in poverty www.euruni.edu The Globalization Process • The interwar period - 1919-1939 - Policy went back to nationalism and protectionism. The crisis of ‘29 was characterized by beggar-thy-neighbor policies: increases in trade barriers, competitive devaluations. - International trade fell and capital controls imposed in developed countries hurt international financial flows - Anti-immigrant sentiment - Rise in poverty www.euruni.edu The Globalization Process • The second wave of globalization - 1945-1980 - Tariff reduction agreements: GATT, EFTA etc.: these however mainly influenced trade among developed countries - Further reduction in transportation costs - Developed countries (DC): spectacular growth in manufacturing, cost savings due to economies of agglomeration and economies of scale - DC grew fast, poverty fell. LDCs were not growing or even getting poorer → world inequality increased - Some Asian economies started rising. www.euruni.edu The Globalization Process • The third wave of globalization - 1980-today?? - Further Tariff reduction agreements (WTO, 1995; NAFTA, 1994) - A group of developing countries enter global markets and exploited their labor-abundance - IBM introduces the first personal computer (1980) à ICT - Share of Western EU, North America and Japan of world exports in merchandise started to decline… - … And the rise of China (initially in textiles and other L-intensive goods) was a major explanation for that - Changes in the paths of exports (trade) • Services trade and merchandise trade increased in importance www.euruni.edu The Globalization Process Source: WTO, World Trade Report (2008 ) 1870-1914 1945-1980 1980-today? www.euruni.edu The Globalization Process www.euruni.edu The Globalization Process Source: WTO, World Trade Report (2008 ) Globalization can be seen from the constant increase in trade, FDI and higher migration flows. www.euruni.edu The Globalization Process • The economic winners and losers of globalization 1. Developed countries represent the largest share of international trade, and mainly trade with each other. 2. Asian countries have become more important. The Asian Tigers first (Hong Kong, Singapore, South Korea and Taiwan), and China and India more recently. 3. Developing countries mainly depend on developed ones for their exports. 4. Some developing countries still rely more on raw materials exports. 5. Some countries are increasingly marginalized: why? www.euruni.edu Blockchain & Artificial Intelligence, 4th Globalization wave? Universal Basic Income (UBI)? www.euruni.edu BCO 221: Global Economics Trade Theories & WTO Dr. Neus Vila www.euruni.edu Outline 2 1. The Benefits of trade 2. Factor Endowment Theory 3. Intra-Industry Trade and the Country Similarity Theory 4. WTO 5. Government intervention in trade www.euruni.edu • Today we will look at alternative theoretical models that try to explain why we observe specific patterns in international trade. • They were formulated in different historical periods so they also reflect the changes in the patterns of trade • These three models are: 1. The Ricardian Model -> Theory of absolute and comparative advantage 2. The theory of Factor endowment 3. Intra-Industry Trade and Economies of scale Introduction www.euruni.edu • Commentaries on international trade and its consequences are often based on the comparison of labor productivity across different countries. • Based on these ideas, only the countries with the highest level of labor productivity, or the lowest unit labor costs, can be competitive: this is the meaning of the concept of absolute advantage – A country has an absolute advantage in producing one good if it can produce more units of the good than its competitors using the same amount of labor. – However, what matters comparative, not absolute advantage Absolute advantage www.euruni.edu France can build one truck with 10 hours of labor and one car with 6 hours. Italy can build one truck with 12 hours of labor and one car with 5 hours. Answer in the poll: Who has absolute advantage in producing trucks? And cars? 1. France in cars, Italy in Trucks 2. France has absolute advantage in both 3. Italy has absolute advantage in both 4. Italy in cars, France in Trucks Absolute Advantage www.euruni.edu • The Ricardian model uses the concepts of opportunity cost and comparative advantage. Comparative advantage is one of the key concepts in trade theory. • The opportunity cost of producing something measures how much of any other good we have to give up producing in order to produce the former. – For example, a limited number of workers could produce either meat or vegetables. The opportunity cost of producing meat is the amount of vegetables not produced; the opportunity cost of producing vegetables is the amount of meat not produced. Comparative Advantage and Opportunity Cost www.euruni.edu • Suppose that in the United States 10 kg of meat could be produced with the same amount of labor as 1 kg of vegetables. • Suppose that in Colombia 10 kg of meat could be produced with the same amount of labor as 5 kg of vegetables. • USA has a lower opportunity cost of producing meat: has to give up producing fewer vegetables than Colombia. Comparative Advantage and Opportunity Cost (cont.) www.euruni.edu • A country has a comparative advantage in producing a good if the opportunity cost of producing that good is lower in the country than in other countries. – The United States has a comparative advantage in vegetables production. – Colombia has a comparative advantage in meat production. • The idea behind the Ricardian Model is that, if each country only produced the good in which it has a comparative advantage, everyone would be left better off. Comparative Advantage and Opportunity Cost (cont.) www.euruni.edu Answer the following question in the chat: • Suppose that in the United States 1 million kg of potatoes could be produced with the same amount of labor as 5m flowers. • Suppose that in Mexico 1 million kg of potatoes could be produced with the same amount of labor 3m flowers. • Who has lower opportunity cost in producing potatoes? And flowers? Comparative Advantage and Opportunity Cost www.euruni.edu The factor endowment theory • The Ricardian Model assumes that there is only one factor of production, and there are only differences in technology. • But we know that in the real world countries are also different for the production factors they have available – Labor-abundant countries – Capital-Abundant countries (but also countries rich in natural resources…) • Factor Abundance is a relative concept. – The US is capital abundant with respect to Bangladesh, because the ratio K/L is higher in the US. – In this sense, also Luxembourg is Capital-Abundant wrt, for example, Bangladesh www.euruni.edu The factor endowment theory (cont.) • The goods produced are different in terms of the (relative) amount of each factor they need. For example: – Cloth is labor-intensive – Food is capital-intensive (in the developed countries) • Now suppose that the Home country is labor-abundant and the Foreign country is capital-abundant… • As a result, in absence of trade: – In Home, Cloth is less expensive. Moreover, since there is abundance of labor, workers earn a low wage. – In Foreign, Food is less expensive. Moreover, since there is abundance of capital, capital owners earn low rents. www.euruni.edu The factor endowment theory (cont.) Even in such a simplified world, when the two countries decide to trade with each other some important effects will be witnessed. These are summarized by some theorems which are the core of the factor endowment theory. 1. Heckscher-Ohlin Theorem. Each country will export the good that uses intensively the factor of which the country is relatively well-endowed. – Home will export clothe, Foreign will export food. www.euruni.edu The factor endowment theory (cont.) When the countries start trading, the prices will tend to converge. Cloth price at Home will increase relative to Food, and the opposite will happen in Foreign. This will affect income distribution. 2. Stolper-Samuelson theorem. The increase in the relative price of a good increases the income of the factor that is used intensively in the production of that good and reduces the income of the other factor. – In Home, wages will increase and rents will decrease. In Foreign, wages will decrease and rents will increase. www.euruni.edu The factor endowment theory (cont.) The factor endowment theory thus shows a crucial consequence of trade: opening up to trade hurts some groups and benefit others. Since trade causes a convergence in relative prices, this will have strong effects on income distribution. • Home: price of clothe increases → income of workers in clothe sector ↑ • Foreign: price of food increases → income of landowners ↑ Owners of a country’s abundant factors gain from trade, while owners of a country’s scarce factor lose. www.euruni.edu The factor endowment theory (cont.) • Answer the following question in the chat: Suppose there are only two goods: computers and rice. Computers are capital intensive and rice is labor intensive. Australia is capital abundant while India is labor abundant. According to the Factor Endowment model, who will export what? 1. Australia exports both 2. Australia – computers and India – rice 3. Australia – rice and India – computers www.euruni.edu The factor endowment theory (cont.) Answer the following question in the chat Suppose there are only two goods: computers and rice. Computers are capital intensive and rice is labor intensive. Australia is capital abundant while India is labor abundant. • Who will benefit from international trade in Australia? 1. Owners of capital 2. Workers www.euruni.edu Economies of Scale • We have economies of scale in the production of one good when, increasing the amount of inputs we use, the output produced increases more than proportionally. • In other words, the average amount of input used to produce 1 unit of good falls as total output increases. Input-Output relationship in a hypothetical industry producing Beer Output Total Labor Input Average Labor Input/Output 10 15 1.5 20 25 1.25 40 40 1 100 90 0.9 200 150 0.75 www.euruni.edu Economies of Scale (cont.) • Why do economies of scale foster international trade? With the same amount of labor, total output is higher thanks to economies of scale even if the two economies are identical. To increase output of one good, a country normally has to give up the other good, thus trade arises. • Which Economies of Scale? External Economies of Scale (the number of producers of one good increases, but firm size stays the same) vs. Internal Economies of Scale (the size of the firms increases). www.euruni.edu Economies of scale and comparative advantage • Due to economies of scale, there will be two kinds of trade: (1) Inter-industry: trade of goods of different industries (cloth vs. food) (2) Intra-industry: trade of different varieties of the same good (cloth vs. cloth) HOME (labor-abundant) FOREIGN (capital-abundant) FO O D CLO TH E HOME (labor-abundant) FOREIGN (capital-abundant) FO O D CLO TH E www.euruni.edu Outline • International trade agreements and the WTO. • International Trade Policy: forms of protectionism and their impact on welfare. www.euruni.edu Bretton Woods System: 1944–1973 • In July 1944, 44 countries met in Bretton Woods, NH, to design the Bretton Woods system: – an adjustable exchange rate (peg) against the U.S. dollar – a fixed dollar price of gold ($35 per ounce) -> the Dollar Exchange Standard. - Centralized pool of gold and national currencies www.euruni.edu Bretton Woods System: 1944–1973 • They also established other institutions: 1. The International Monetary Fund (IMF) 2. The World Bank (WB) 3. General Agreement on Trade and Tariffs (GATT), the predecessor to the World Trade Organization (WTO). www.euruni.edu • WTO negotiations address trade restrictions in at least 3 ways: 1. Reducing tariff rates through multilateral negotiations. 2. Binding tariff rates (agreement on maximum level) 3. Eliminating nontariff barriers: quotas and export subsidies are changed to tariffs. • Exceptions: Subsidies for agricultural exports; “market disruptions” caused by a surge in imports. World Trade Organization www.euruni.edu World Trade Organization www.euruni.edu World Trade Organization www.euruni.edu WTO explained with maps (5min 49sec) https://www.youtube.com/watch?v=3Gqq2sBWai4 World Trade Organization https://www.youtube.com/watch?v=3Gqq2sBWai4 www.euruni.edu Tariff barriers Non-tariff barriers: red tape Excessive regulation that hinders or prevents actions or decision-making. World Trade Organization www.euruni.edu Non-tariff barriers: red tape • Import licensing • Rules for the valuation of goods at customs • Unreasonable standards pertaining to quality and safety • Pre-shipment inspection: further checks on imports • Rules of origin: made in… where? • Investment measures Source: https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm9_e.htm World Trade Organization https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm9_e.htm www.euruni.edu World Trade Organization Agriculture Negotiations: Domestic support: Amber, Blue and Green Boxes In WTO terminology, subsidies in general are identified by “Boxes” which are given the colors of traffic lights: green (permitted), amber (slow down — i.e. be reduced), red (forbidden). In agriculture, things are, as usual, more complicated. The Agriculture Agreement has no Red Box, although domestic support exceeding the reduction commitment levels in the Amber Box is prohibited; and there is a Blue Box for subsidies that are tied to programs that limit production. There are also exemptions for developing countries (sometimes called an “S&D Box”). Source: https://www.wto.org/english/tratop_e/agric_e/negs_bkgrnd13_boxes_e.htm https://www.wto.org/english/tratop_e/agric_e/negs_bkgrnd13_boxes_e.htm www.euruni.edu World Trade Organization www.euruni.edu World Trade Organization www.euruni.edu International Negotiations of Trade Policy Trade negotiations are done through trade rounds = large groups of countries get together to negotiate a set of common rules and tariffs in several consecutive meetings. Rounds since WW II: 32 1. Geneva Round, 1947 (23) 6. Kennedy Round, 1964-67 (62) 2. Annecy Round, 1949 (13) 7. Tokyo Round, 1973-79 (102) 3. Torquay Round, 1951 (38) 8. Uruguay Round, 1986-94 (123) 4. Geneva Round (2), 1956 (26) 9. Doha Round, 2001 - ? (tbd) 5. Dillon Round 1960-61 (26) Note: number of participating countries in parenthesis www.euruni.edu • Multilateral negotiations also help avoid a trade war between countries, where each country enacts trade restrictions. • A trade war could result if each country has an incentive to adopt protection, regardless of what other countries do. – All countries could enact trade restrictions, even if it is in the interest of all countries to have free trade. – Countries need an agreement that prevents a trade war or eliminates the protection from one. International Negotiations of Trade Policy www.euruni.edu Which countries do you think that have higher tariffs? www.euruni.edu Source: World Bank http://data.worldbank.org/indicator/TM.TAX.MRCH.WM.AR.ZS/countries/1W?display=map http://data.worldbank.org/indicator/TM.TAX.MRCH.WM.AR.ZS/countries/1W?display=map www.euruni.edu Government Intervention in Trade www.euruni.edu Introduction – Demand ... increases quantity demanded Price 0 2.50 2.00 1.50 1.00 0.50 1 2 3 4 5 6 7 8 9 10 11 Quantity $3.00 12 A decrease in price ... The law of demand states that, other things equal, the quantity demanded of a good falls when the price of the good rises. The demand curve is a graph of the relationship between the price of a good and the quantity demanded. Quantity demanded is the amount of a good that buyers are willing and able to purchase. www.euruni.edu Introduction – Supply Quantity supplied is the amount of a good that sellers are willing and able to sell. The law of supply states that, other things equal, the quantity supplied of a good rises when the price of the good rises. Price 0 2.50 2.00 1.50 1.00 1 2 3 4 5 6 7 8 9 10 11 Quantity $3.00 0.50 An increase in price ... increases quantity supplied. The supply curve is the graph of the relationship between the price of a good and the quantity supplied www.euruni.edu Introduction – Equilibrium Equilibrium refers to a situation in which the price has reached the level where quantity supplied equals quantity demanded. Equilibrium Price - the price that balances quantity supplied and quantity demanded (market clears). On a graph, it is the price at which the supply and demand curves intersect. Equilibrium Quantity - the quantity supplied and the quantity demanded at the equilibrium price. On a graph it is the quantity at which the supply and demand curves intersect. Price 0 1 2 3 4 5 6 7 8 9 10 11 Quantity Equilibrium quantity Equilibrium price Equilibrium Supply Demand 2.00 www.euruni.edu Introduction – Equilibrium Surplus - When price > equilibrium price, quantity supplied > quantity demanded : excess supply or surplus. Suppliers will lower the price to increase sales. Price 0 Supply Demand Excess Supply Quantity demanded Quantity supplied Surplus Quantity4 $2.50 10 2.00 7 Shortage - When price < equilibrium price, quantity demanded > quantity supplied : excess demand or shortage. Suppliers will raise the price due to too many buyers chasing too few goods. Price 0 Quantity Supply Demand Excess Demand Quantity supplied Quantity demanded 1.50 10 $2.00 74 Shortage www.euruni.edu Protectionism What are the main reasons for protectionism? www.euruni.edu Protectionism Main reasons for protectionism: 1. Response to “dumping” – selling below the costs of production 2. Response to the chronic trade gap 3. Employment protection 4. Protecting infant sectors 5. Protecting key / strategic industries 6. Raise revenues for government 7. Response to the recession / low demand Main tools are tariffs and quotas. www.euruni.edu Types of Tariffs A tariff is a tax levied when a good is imported. • A specific tariff is levied as a fixed charge for each unit of imported goods (e.g. $3 per barrel of oil). • An ad valorem tariff is levied as a fraction of the value of imported goods (e.g. 25\% tariff on the value of imported trucks). Consider how a tariff affects a single market, say that of wheat. • Suppose that in the absence of trade the price of wheat is higher in Home than it is in Foreign. • With trade, wheat will be shipped from Foreign to Home until the price difference is eliminated. www.euruni.edu Effects of a Tariff A tariff acts like a transportation cost, increasing the Home price of imported goods by the amount of the tariff: PF + t = PT A tariff makes the price rise in the Home market to PT and fall in the Foreign market to PT – t = PT* WHY? With the tariff in place, shippers are not willing to move goods from Foreign to Home unless the Home price exceeds the Foreign price by at least t. If no goods are shipped, there will be an excess demand in Home and an excess supply in Foreign. Thus the price in Home will rise and that in Foreign will decrease until the price difference is t. www.euruni.edu Effects of a Tariff In your opinion, what happens to the total volume of trade between Home and Foreign when a Tariff is raised? a. Volume of trade is not affected b. Volume of trade increases c. Volume of trade decreases www.euruni.edu Costs and Benefits of Tariffs A tariff raises the price of a good in the importing country, so it hurts consumers and benefits producers there. In addition, the government gains tariff revenue. How to measure these costs and benefits? www.euruni.edu Costs and Benefits of Tariffs Producer surplus Consumer surplus Price Quantity Equilibriumprice Equilibrium quantity Supply Demand Consumer surplus, the amount that buyers are willing to pay for a good minus the amount they actually pay for it, measures the benefit that buyers receive from a good as the buyers themselves perceive it. Producer surplus is the amount a seller is paid for a good minus the seller’s cost. It measures the benefit to sellers participating in a market. www.euruni.edu Costs and Benefits of a Tariff for the Importer A tariff raises the price in the importing country: §consumer surplus decreases (consumers worse off) §producer surplus increases (producers better off). §the government collects tariff revenue equal to the tariff rate times the quantity of imports with the tariff (gov’t better off). www.euruni.edu Costs and benefits of a Tariff Who among the following benefits the most from the introduction of a tariff in your country? a. Government b. Foreign producers c. Consumers www.euruni.edu Tariff Examples EU import tariff on Chinese garlic: two British citizens stand accused of illegally importing €10m (£8m) worth of cut-price Chinese garlic into the European Union via Norway. The EU imposes as 9.6 per cent duty on imported foreign garlic in an attempt to prevent the continent’s growers from being driven out of business by Chinese farmers who have captured large swathes of the global market by producing crops at knock down prices. https://www.rte.ie/news/2013/0326/378524-paul-begley-released-garlic/ South Korea tariff on rice: http://youtu.be/cqIqXbLAinE EU tariffs on solar panels: http://youtu.be/G1V_NtrMSgM https://www.rte.ie/news/2013/0326/378524-paul-begley-released-garlic/ http://youtu.be/cqIqXbLAinE http://youtu.be/G1V_NtrMSgM www.euruni.edu Dumping Dumping: A strategy to take your competition out (1min 54’’) https://romanjosea.wordpress.com/2013/11/27/219/ Examples: Wallmart US agricultural subsidies Iran and steel Chinese solar panels https://romanjosea.wordpress.com/2013/11/27/219/ www.euruni.edu US Furniture Market What happened next was probably not in the plans of US lawmakers and the local furniture manufacturers who supported the tariffs. Imports from China fell sharply, but many Chinese manufacturers moved their plants to different countries, as Vietnam. As of 2010, imports accounted for 70\% of the market! In 2005 the US government slapped anti-dumping tariffs on the imports of Chinese furniture. At the time, imports accounted for 58\% of the market for beds and similar items. www.euruni.edu Import Quota An import quota is a restriction on the quantity of a good that may be imported. This restriction is usually enforced by issuing licenses or quota rights. A binding import quota will push up the price of the import because the quantity demanded will exceed the quantity supplied by Home producers and imports. When a quota instead of a tariff is used to restrict imports, the government receives no revenue. Instead, the revenue from selling imports at high prices goes to quota license holders. – These extra revenues are called quota rents. www.euruni.edu Import Quota Due to the Ukranian crisis and tensions with NATO countries, the Russian government introduced a food ban. What are going to be the consequences of this ban for Russians? a. Consumers will gain b. The govt. will gain c. Producers will gain www.euruni.edu Export subsidy • An export subsidy can also be specific (per unit exported) or ad valorem (as the proportion of the value exported) • An export subsidy raises the price in the exporting country, decreasing its consumer surplus (consumers worse off) and increasing its producer surplus (producers better off). • Also, government revenue falls due to paying for the export subsidy. • An export subsidy lowers the price paid in importing countries PS* = PS – s. www.euruni.edu Export Subsidies in the European Union • The European Union’s Common Agricultural Policy set high prices for agricultural products and subsidized exports to dispose of excess output. –Subsidized exports reduce world prices of agricultural products. • The cost of this policy for European taxpayers was almost $30 billion more than its benefits in 2007. • The EU now offers direct payments to farmers, independent of the amount produced, to help lower EU prices and output. www.euruni.edu Voluntary Export Restraint • A voluntary export restraint works like an import quota, except that the quota is imposed by the exporting country rather than the importing country upon the insistence of the importing country. • These restraints are usually requested by the importing country. • The profits or rents from this policy are earned by foreign governments or foreign producers. – Foreigners sell a restricted quantity at an increased price. Example of the US and Japan with vehicles. Japan agreed on an export cap and then moved part of its Toyota production in the US. It helped US trade balance and brought jobs to the US. www.euruni.edu Other Trade Policies • Export credit subsidies 1. A subsidized loan to exporters 2. U.S. Export-Import Bank subsidizes loans to U.S. exporters. • Government procurement – Government agencies are obligated to purchase from home suppliers, even when they charge higher prices (or have inferior quality) compared to foreign suppliers. • Bureaucratic regulations (red tape) – Safety, health, quality, or customs regulations can act as a form of protection and trade restriction. www.euruni.edu Effects of Alternative Trade Policies www.euruni.edu GLOBAL ECONOMICS World Bank, International Monetary Fund, Multinationals Dr. Neus Vila www.euruni.edu Outline • International financial markets and their players • The role of the International Monetary Fund (IMF) • The role of the World Bank (WB) • Definition of Multinationals (MNC) • Interests of Multinationals • Role of Multinationals in Globalization • Sovereignty and Multinationals – Conflict or Coincidence • Investor-State Dispute Settlement (ISDS) • Government Policy and Multinationals – Taxation, Subsidies and Arbitrage www.euruni.edu Bretton Woods System: 1944–1973 • General Agreement on Trade and Tariffs (GATT), the predecessor to the World Trade Organization (WTO). • They also established other institutions: 1. The International Monetary Fund (IMF) 2. The World Bank (WB) 3. The United Nations (UN) www.euruni.edu Questions IMF 1. Which are the 3 main functions of the IMF? 2. How many countries are members of the IMF? 3. Which countries are not members of the IMF? 4. How much funding did the IMF have in 2016? 5. How is the IMF funded? 6. What it means ‘IMF conditionality’? 7. How are decisions taken in the IMF? Do some countries have more influence than others? Why yes? Why not? WB 1. Which is the main goal of the WB? 2. How many countries are members of the WB? 3. Which countries are not members of the WB? 4. How much funding did the WB have in 2016? Which is the relationship of this funding with respect to the IMF funding? 5. How is the WB funded? 6. How are decisions taken in the WB? Do some countries have more influence than others? Why yes? Why not? 7. In which type of projects does the WB invest the most? www.euruni.edu International Monetary Fund At the center of the regime was to be the IMF, which was expected to perform three important functions: 1. regulatory (administering the rules governing currency values and convertibility – approving devaluations) 2. financial (supplying supplementary liquidity when current account deficits) 3. consultative (providing a forum for cooperation among governments) www.euruni.edu International Monetary Fund • In 2016 the funds available were $668 billion. • Where does it get the money from? www.euruni.edu International Monetary Fund • In 2016 the funds available were $668 billion. • Where does it get the money from? 1. Loans (short and mid term) are made from a fund paid for by members in gold and currencies. 2. Each country had a quota, which determined its contribution and the maximum amount it could borrow. 3. Interest rate on loans. www.euruni.edu International Monetary Fund • Large loans are conditional on the supervision of domestic policies by the IMF (IMF conditionality). • Devaluations could occur if the IMF determined that the economy was in a “fundamental disequilibrium.” www.euruni.edu International Monetary Fund IMF Conditionality – USA perspective, basic distinctive points of view between John Maynard Keynes and Friedrich Hayek Fear the Boom and Bust: Keynes vs. Hayek - The Original Economics Rap Battle! (7’ 32’’) https://www.youtube.com/watch?v=d0nERTFo-Sk&t=379s Fight of the Century: Keynes vs. Hayek - Economics Rap Battle Round Two (10’) https://www.youtube.com/watch?v=GTQnarzmTOc&t=2s https://www.youtube.com/watch?v=d0nERTFo-Sk&t=379s https://www.youtube.com/watch?v=GTQnarzmTOc&t=2s www.euruni.edu • Voting power in the IMF is based on a quota system. The quota is the country’s monetary contribution and it is based on the country’s relative size in the global economy. This system follows the logic of a shareholder-controlled organization: wealthy countries have more say in the making and revision of rules. Which are the top 5 IMF contributors? International Monetary Fund www.euruni.edu IMF www.euruni.edu IMF Which countries are not part of the IMF? www.euruni.edu IMF Which countries are not part of the IMF? 1. Cuba 2. Liechtenstein 3. Monaco 4. North Korea The former Czechoslovakiawas expelled in 1954 for failing to provide required data and was readmitted in 1990, after the Velvet Revolution. Taiwan – province of China Andorra – joined IMF in October 2020 www.euruni.edu International Monetary Fund • Due to borrowing and occasional devaluations, the IMF was believed to give countries enough flexibility to attain an external balance (quite balanced Balance of Payments, X vs. M), yet allow them to maintain an internal balance (full employment and price stability) and stable exchange rates. – The volatility of exchange rates during 1918–1939, caused by devaluations and the lack of a consistent gold standard, was viewed as a source of economic instability. www.euruni.edu International Monetary Fund SBA, STAND-BY ARRANGEMENT EFF, EXTENDED FUND FACILITY FCL, FLEXIBLE CREDIT LINE PCL, PRECAUTIONARY AND LIQUIDITY LINE www.euruni.edu World Bank The World Bank is an international financial institution that provides loans to countries for capital programs. It comprises two institutions: 1. International Bank for Reconstruction and Development (IBRD), 2. International Development Association (IDA). The World Bank is a component of the World Bank Group, which is part of the United Nations system. • In 2016 the funds available were $1 billion (around 1/10 of the IMF). www.euruni.edu Official goal is the reduction of poverty. However, according to its Articles of Agreement, all its decisions must be guided by a commitment to the promotion of foreign investment, international trade and to the facilitation of capital investment. World Bank www.euruni.edu • 1944-1974: few loans for reconstruction after WW II • 1974-1980: focus developing world, loan targets expanded from infrastructure into social services and other sectors • 1980-1989: structural adjustment policies designed to streamline the economies of developing nations (privatizations of public services through FDI). • 1989-present: in response to harsh criticism from many groups, the bank began including environmental groups and NGOs in its loans to mitigate the past effects of its development policies that had prompted the criticism. World Bank www.euruni.edu In 2010 voting powers at the World Bank were revised to increase the voice of developing countries, notably China. The countries with most voting power are (same top 5 as IMF): United States (15.85\%), Japan (6.84\%), China (4.42\%), Germany (4.00\%), United Kingdom (3.75\%), France (3.75\%), India (2.91\%), Russia (2.77\%), Saudi Arabia (2.77\%) and Italy (2.64\%). World Bank www.euruni.edu Which nationalities do you think that represent the presidents of the World Bank since 1946? World Bank www.euruni.edu World Bank www.euruni.edu World Bank Which countries are not part of the World Bank? www.euruni.edu World Bank Which countries are not part of the World Bank? 189 countries are part of the WB out of current 195 UN recognized countries (2018) 6 countries left are: 1. Andorra (yes UN) 2. Cuba (yes UN) 3. Liechtenstein(yes UN) 4. Monaco(yes UN) 5. North Korea(yes UN) 6. Taiwan (UN sees it as part of China) 7. Hong Kong (UN sees it as part of China) 8. Palestine (UN observer) 9. Vatican City (UN observer) www.euruni.edu www.euruni.edu What Is The International Monetary Fund (IMF)? (3min 32’) https://www.youtube.com/watch?v=MhrC2_Hak08 What Does The World Bank Actually Do? (4min 46’) https://www.youtube.com/watch?v=F59fF-xu-bY The World Bank (WB) & The International Monetary Fund (IMF) (3min 16’) https://www.youtube.com/watch?v=_xgxCf05Kmw World Bank https://www.youtube.com/watch?v=MhrC2_Hak08 https://www.youtube.com/watch?v=F59fF-xu-bY https://www.youtube.com/watch?v=_xgxCf05Kmw www.euruni.edu Multinationals www.euruni.edu Multinationals www.euruni.edu Multinationals Role of Multinational corporations in 6 globalization dimensions: 1. economic 2. political 3. democracy 4. ecological 5. cultural 6. religious www.euruni.edu Multinationals Based on the Forbes billionaires 2019 list, which are the companies and nationalities of the top 9 billionaires? www.euruni.edu Multinationals Based on the Forbes billionaires 2019 list, which are the companies and nationalities of the top 9 billionaires? www.euruni.edu Interests of Multinationals Which is the ultimate goal of current multinationals? www.euruni.edu Interests of Multinationals The net worth of the worlds billionaires increased from less than $1 trillion in 2000 to over $7 trillion in 2015. www.euruni.edu Interests of Multinationals www.euruni.edu Interests of Multinationals Which do you think that is the ratio of CEO pay to average worker pay? www.euruni.edu Interests of Multinationals www.euruni.edu What do these graphs mean? www.euruni.edu Interests of Multinationals www.euruni.edu Interests of Multinationals www.euruni.edu Interests of Multinationals The net worth of the worlds billionaires increased from less than $1 trillion in 2000 to over $7 trillion in 2015. www.euruni.edu Interests of Multinationals What do the previous graphs tell us about the changes in GDP expenditure components contribution (C, I/S, G, X-M)? www.euruni.edu Interests of Multinationals General economic growth has increased global income -> C increases Part of the profit generated by the increase in labor productivity has gone to compensate the top CEOs and top executives -> wages -> stimulates C; can also stimulate S or I. Part of the profit generated by the increase in labor productivity has gone to compensate the owners of capital, shareholders, that invested in the company -> Capital rents -> stimulates S or I www.euruni.edu Interests of Multinationals Part of the profit generated by the increase in labor productivity has gone to the company -> stimulates S or I Part of the profit generated by the increase in labor productivity has gone to the Government (taxes) -> stimulates G Households are saving less and incurring more debt - > reduces S www.euruni.edu www.euruni.edu Govt. Policy and Multinationals Have you heard about “Revolving Doors”? www.euruni.edu Govt. Policy and Multinationals Have you heard about “Revolving Doors”? www.euruni.edu Govt. Policy and Multinationals Monsantos Permanent Revolving Door in Washington (3min 43’’) http://www.herinst.org/BusinessManagedDemocracy/government/national/ revolving.html http://www.herinst.org/BusinessManagedDemocracy/government/national/revolving.html www.euruni.edu Govt. Policy and Multinationals ISDS (Investor-State Dispute Settlement) www.euruni.edu Govt. Policy and Multinationals ISDS (Investor State Dispute Settlement) What is an Investor-State Dispute Settlement clause? (3min 56’’) https://www.youtube.com/watch?v=2SbO2zDDpDA Who really won the legal battle between Philip Morris and Uruguay? https://www.theguardian.com/global-development/2016/jul/28/who-really-won-legal-battle-philip-morris-uruguay-cigarette- adverts World Bank-hosted international centre for the settlement of investment disputes announced that the tobacco giant has to pay $7m to the small South American nation in a dispute over cigarette adverts. But the case could still set a worrying precedent https://www.youtube.com/watch?v=2SbO2zDDpDA https://www.theguardian.com/global-development/2016/jul/28/who-really-won-legal-battle-philip-morris-uruguay-cigarette-adverts www.euruni.edu Govt. Policy and Multinationals Investment Dispute Settlement Navigator: http://investmentpolicyhub.unctad.org/ISDS http://investmentpolicyhub.unctad.org/ISDS www.euruni.edu Sovereignty and Multinationals The Corporation – trailer (1min 53’’) https://www.youtube.com/watch?v=exY4u0XsEGI The Corporation (Full Documentary) (2h 24min 3’’) https://www.youtube.com/watch?v=xHrhqtY2khc The World According to Monsanto (Full Documentary) (1h 50min) https://www.youtube.com/watch?v=zfOSFaaLx_o https://www.youtube.com/watch?v=exY4u0XsEGI https://www.youtube.com/watch?v=xHrhqtY2khc https://www.youtube.com/watch?v=zfOSFaaLx_o www.euruni.edu Interests of Multinationals Large environmental footprint specially in countries with looser or non-existent environmental regulations: soil pollution, water pollution, air pollution natural resources depletion soil degradation Examples: Coca-Cola straining water resources in India https://www.theguardian.com/world/2017/mar/01/indian-traders-boycott-coca-cola-for-straining-water-resources https://www.theguardian.com/world/2017/mar/01/indian-traders-boycott-coca-cola-for-straining-water-resources www.euruni.edu Interests of Multinationals MNC Environmental impacts Examples: Nike, Adidas, Puma, H&M suppliers are polluting waters in China with toxic chemicals www.euruni.edu Interests of Multinationals MNC Environmental impacts Examples: Cradle to Cradle, Circular Economy (William McDonough, Michael Braungart) http://www.c2ccertified.org/ http://www.c2ccertified.org/ www.euruni.edu Interests of Multinationals MNC Environmental impacts Examples: Cradle to Cradle, Ford Rouge living roof by William McDonough + Partners www.euruni.edu Interests of Multinationals MNC Environmental impacts Examples: New type ice paper wrap, which will be dissolved into liquid a few hours after being taken out of the freezer. Moreover, the ice paper wrack contains seeds from rare plants, thus helping to increase biodiversity, when you eat ice cream. www.euruni.edu Interests of Multinationals Cultural impacts: • Workers: • When diversity is properly managed, workers learn more from people from other countries and cultural diversity may be valued. • When diversity is not properly managed, groups and internal segregation may occur. • Communities that receive the products/services: • Some cultural convergence towards western influences. www.euruni.edu Interests of Multinationals Religious impacts: • Workers: • When diversity is properly managed, workers learn more from people from other countries and religious diversity may be valued. • Google: meditation/relaxing room www.euruni.edu To what extent is globalization driven by multinationals? Please identify, if possible, the weight of large, medium and small multinationals in the process. (Use data to argue your answer). www.euruni.edu Interests of Multinationals Religious impacts: • Workers: • When diversity is not properly managed, groups and internal segregation due to religion may occur. • Communities that receive the products/services: • No reliable information on this area. • MNC that produce weapons have an incentive to maintain the current religious tensions among regions so that they can keep selling products. www.euruni.edu Step 1: Clarifying what we are talking about: Globalization: is increasing economic integration among countries due to trade, migrations and capital flows. Trade: Imports and Exports of goods and services Imports and Exports of licenses, patents, copyrights -> licensing, franchising market entry modes Migrations: movement of people -> remittances, working visas Capital flows: Inward and outward Foreign Direct Investment, FDI (long term, owning and controlling assets); -> mergers, acquisitions, equity alliances Inward and outward Foreign Portfolio Investment, FPI (short term speculative investment) www.euruni.edu Step 1: Clarifying what we are talking about: Multinationals: head quarters located in one country and at least one international office owned (or partially owned) by the company located in a different country. Facilities and assets in at least one country other than its home country. Companies size classification by # of employees: Sole proprietor Micro: 1 to 9 employees Small: 10 to 250 employees Medium: 251 to 499 Large: > 500 www.euruni.edu Step 2: identify data sources where to find data from these variables Trade: Imports and Exports of goods and services -> WTO Imports and Exports of licenses, patents, copyrights, trademarks -> licensing, franchising market entry modes -> WTO, IFA Migrations: movement of people -> remittances, working visas - >UNCTAD, ILO Capital flows: Inward and outward Foreign Direct Investment, FDI (long term, owning and controlling assets); -> mergers, acquisitions, equity alliances -> UNCTAD Inward and outward Foreign Portfolio Investment, FPI (short term speculative investment) -> UNCTAD www.euruni.edu Step 2: identify data sources where to find data from these variables Multinationals: head quarters located in one country and at least one international office owned (or partially owned) by the company located in a different country. Facilities and assets in at least one country other than its home country. Companies size classification by # of employees: -> OECD Sole proprietor Micro: 1 to 9 employees Small: 10 to 49 employees Medium: 50 to 249 Large: > 250 Exports and Imports by Business Size -> OECD, Eurostat Transnationality Index (TNI) -> UNCTAD Ratio of foreign assets to total assets Ratio of foreign sales to total sales Ratio of foreign employment to total employment www.euruni.edu Step 4: Organize the data based on the research question www.euruni.edu BCO 221: Global Economics Economic Integration Dr. Neus Vila www.euruni.edu Outline 1.Economic Integration 2.Types of Economic Integration 3.The EU 4.Brexit 5.USMCA 6. Mercosur 7. ASEAN 8. African Union 2 www.euruni.edu Review www.euruni.edu Questions 1. What does the concept of Economic Integration mean? 2. Which are the types of economic integration and what each type of economic integration entails? 3. In which level of economic integration does the EU belong to? Why? 4. In which level of economic integration does the USMCA belong to? Why? 5. In which level of economic integration does Mercosur belong to? Why? 4 www.euruni.edu Economic Integration “The removal of any kind of restriction to the free mobility of goods, services and production factors (capital and labor) between two or more countries”. • Integration: a process with multiple meanings 1. For people (proximity, mobility, culture) 2. For companies (markets, currency) 3. For governments (cooperation, federalism) 5 www.euruni.edu Types of economic integration Regional vs. Multilateral Trade Liberalization: • Multilateral Trade Liberalization: GATT and WTO • Regional Trade Liberalization: different models – FREE TRADE AREA: removal of tariffs and quotas (USMCA). – CUSTOMS UNION: Common external tariff (EEC, 1968). – COMMON MARKET: Free movement of factors (L,K,Tech) (EU 1993). – ECONOMIC AND MONETARY UNION: Common monetary policy and co-ordination of economic policies (EMU, 1999). 6 H igher integration www.euruni.edu Types of economic integration in Regional Markets 7 Source: Czinkota and Ronkainen, 2007 www.euruni.edu Unlike in a free trade area, in a customs union: a. Countries have a common external tariff b. Countries don’t have a common external tariff c. Countries have a common currency Types of economic integration www.euruni.edu Which of the following is a stronger economic integration? a. Customs Union b. Free Trade Area c. Common Market Types of economic integration www.euruni.edu Regional Trade Agreements are also called Preferential Trading Agreements because the involved countries lower tariffs for each other but not for the rest of the world. Other Regional Trade Agreements: 1. MERCOSUR 2. ASEAN Preferential Trading Agreements www.euruni.edu Preferential Trading Agreements Preferential Trading Agreements generate Static and Dynamic effects. www.euruni.edu • Are preferential trading agreements always good for national welfare? Static effects of economic integration www.euruni.edu • Are preferential trading agreements always good for national welfare? ü No, it is possible that national welfare decreases under a preferential trading agreement. • How? ü Rather than gaining tariff revenue from less expensive imports from world markets, a country may import expensive products from member countries but not gain any tariff revenue. (trade diversion) Static effects of economic integration www.euruni.edu • Preferential trading agreements tend to increase national welfare when new trade is created, but not when existing trade from the outside world is diverted to member countries. • Trade creation – occurs when high-cost domestic production is replaced by low- cost imports from other members. (e.g.: EU with some food) • Trade deviation – occurs when low-cost imports from nonmembers are diverted to high-cost imports from member nations. (e.g.: UK with butter from EU) Static effects of economic integration (cont.) www.euruni.edu Dynamic effects of economic integration Economic integration brings about positive changes in factors’ endowment and productivity → boost to economic growth. These changes are highly significant, but difficult to quantify and uncertain. 1. Effects linked to market enlargement • Producing on a bigger scale improves efficiency 2. Effects stemming from the elimination of barriers between markets • More competitive pressure, more incentive for innovation, relative price gap btw countries narrows. www.euruni.edu The European Union • “The EU is a strange political entity in the International environment” – It is neither a federal state nor an international organization. It is a supranational entity. • In 2017 it was the world’s second economic player (total GDP) (World Bank): – USA $19.4 trillion – EU $17.3 trillion – China $12.2 trillion – Japan $ 4.9 trillion www.euruni.edu The European Union • The EU currently has 27 member states – It has a complex political architecture: • an executive or governing arm, the Commission, • an institution representing the interests of Member States’ Governments, the Council, • a legislative institution elected by the population every 5 years, the Parliament – 19 countries out of 27 have adopted a common currency, the Euro. www.euruni.edu The European Union www.euruni.edu The European Union Population Area (sq. km) GDP per capita* European Union 507,416,000 4,381,376 34,060 $ U.S.A. 319,305,000 9,826,675 53,001 $ China 1,367,250,000 9,596,961 6,959 $ Russia 146,300,000 17,098,242 14,591 $ * Source: IMF. Data are from 2013. The income per capita is calculated in PPP terms, that is, taking differences in price levels into account) www.euruni.edu The European Union Who do you think that had the largest GDP per capita in the EU in 2017? And Who do you think that had the smallest GDP per capita in the EU in 2017? www.euruni.edu A look inside the European Union www.euruni.edu EU Unemployment Which European country do you think that had the lowest rate of youth unemployment in 2015? Which European country do you think that had the highest rate of youth unemployment in 2015? www.euruni.edu www.euruni.edu European Economic Integration • Why did European integration begin in the 1950s? 1. The ‘Iron Curtain’ (Winston Churchill, 1946, Fulton, USA) 2. French-German cooperation for economic reconstruction (Robert Schuman, 1950) 3. Integration as opposed to conflict www.euruni.edu Some history of European integration 1951: Treaty of Paris established the European Coal and Steel Community 1957: Treaty of Rome → 6 countries found the European Economic Community (EEC) and EURATOM (Belgium, France, Italy, Luxembourg, Netherlands, West Germany) 1968: Internal trade barriers successfully eliminated (Customs Union) 1992: Treaty on European Union (Maastricht) → schedule is established for forming the Economic and Monetary Union www.euruni.edu Some history of European integration (cont.) 1993: European Single Market comes into force 1999: Monetary Union comes into force on January 1 2002: Euro notes and coins are introduced 2009: Treaty of Lisbon comes into force, changes the functioning to adapt it to a Union of 28 (less unanimity required to take decisions…) 2019: The UK will leave the EU www.euruni.edu Some history of European integration In general, European integration has deepened in periods of economic expansion. Vice versa, in periods of crisis it has stopped. 1. Eurosclerosis; second half of the ‘80s and early ‘90s: stagnation in the european integration process: eurosclerosis and europessimism. 2. Great Recession and Euro crisis, 2008-today: fears of Euro breakdown, tensions among member states. www.euruni.edu Free mobility of Labor and Capital in the EU The EU is a single market, therefore: • Trade of goods and services is free of any barrier • Workers can move freely across the Union to seek for jobs • Financial capital can move freely with no limitations • Firms can establish a branch in any EU country www.euruni.edu Free mobility of Labor and Capital in the EU • This is ensured by the Treaties of the European Union, however some times there are tensions. – Free mobility of labor: some countries (UK before) fear that other EU citizens move there only to enjoy their social services. – Free trade: countries have adopted along the years measures that favored national producers, then declared illegal by the EU Commission. www.euruni.edu Monetary integration: the Euro • Modern EU integration reached its peak with the creation of the Euro • Currently 19 countries use it (plus some non-EU: Montenegro, Kosovo as a facto currency) • Adoption of the Euro is subject to a number of requisites… • ...And it implied giving up independent monetary policy to a new institution, the European Central Bank www.euruni.edu Monetary integration: the Euro www.euruni.edu Monetary integration: the Euro • The ECB is now also the single supervisor of European Banks, and its action during the 2011-2013 crisis was crucial to avoid the break-up of the Euro – The ECB had to react rapidly and strongly while national governments were slow or fighting with each other on how to reform the EU • Countries in the Euro are still too different from each other: single monetary policy is complicated www.euruni.edu The EU and the Euro Area • Which of the following countries did not adopt the euro? a. Findland b. Italy c. Norway www.euruni.edu Challenges for the EU in the near future • “Brexit”: after the referendum in June 2016, the UK left the EU on January 31st 2020. • The “refugee crisis” is demonstrating that the EU has no common strategy to handle migrations and international crises. • Wave of anti-EU nationalist movements in some countries proposing break-up of the Union (France, Finland, Greece, Denmark, Italy) • Democratic reform of the EU: it is perceived as a “bureaucratic institution” with no democratic base, because the EU Parliament still does not have much power. www.euruni.edu USMCA – old NAFTA • The USMCA entered into force on July 1, 2020. NAFTA preferential treatment cannot be claimed on July 1, 2020 or afterwards. www.euruni.edu USMCA – old NAFTA www.euruni.edu The Mercosur Accord • In 1991, the governments of Argentina, Brazil, Paraguay, and Uruguay signed the Mercosur Accord, an agreement to create a customs union among themselves. • Chile and Bolivia later joined the Mercosur as associate members. • To date, the Mercosur nations have been a magnet for FDI. Particularly noticeable is the expansion of the area’s automotive industry. www.euruni.edu The Andean Pact • The Andean Pact is a 1969 agreement to promote free trade among five South American countries—Bolivia, Chile, Colombia, Ecuador, and Peru—in order to make them more competitive with the continent’s larger countries. • In response to the threat posed by the Mercosur Accord, in 1991 the Andean Pact members agreed to reinvigorate their agreement. www.euruni.edu The Australia-New Zealand Agreement • The Australia-New Zealand Closer Economic Relations Trade Agreement, known as ANZCERTA or simply as CER, took effect on January 1, 1983. • Although some areas have been excluded from the CER, such as broadcasting, postal services, and air traffic control, most analysts believe the CER has been one of the world’s most successful free trade agreements. www.euruni.edu African Union The African Union (AU) is a continental union consisting of 55 member states. The AU was announced in the Sirte Declaration in Sirte, Libya, on 9 September 1999, calling for the establishment of the African Union. The bloc was founded on 26 May 2001 in Addis Ababa, Ethiopia, and launched on 9 July 2002 in Durban, South Africa. www.euruni.edu African Union www.euruni.edu African Union Midterm Assessment Written assignment Activity brief BCO221 – Global Economics Online campus Professor: Dr. Neus Vila | [email protected] Description Report Topic 1: You work at the Ministry of Economy, Trade and Industry of Mexico. Your supervisor has requested that you prepare a policy note on the effects of the recent USMCA trade agreement. Your task is to prepare a policy note that covers, the following points using the relevant economic concepts you have seen during the course up to this point and relevant data. The report should be organized by the below sections: - Cover Page - Table of Contents - Introduction (1 or 2 paragraphs) - Section 1. Describe the most relevant USMCA agreements for Mexico’s imports and exports. (provide data to prove your points) - Section 2. Provide evidence of which Mexican sectors and producers have benefited the most out of the agreement. (provide data to prove your points) - Section 3. Provide evidence of which Mexican sectors and producers have benefited the least out of the agreement. (provide data to prove your points) - Section 4. Provide evidence of which Mexican consumers have benefited the most out of the agreement. (provide data to prove your points) - Section 5. Provide evidence of which Mexican consumers have benefited the least out of the agreement. (provide data to prove your points) - Section 6. Provide evidence of how the pandemic has affected the international trade (imports and export) with the US. (provide data to prove your points) Format Your submission must meet the following formatting requirements: • Individual Report. • Upload one file in only. • File format allowed: PDF. • The minimum amount of words to be used is 1500 and the maximum is 1800. • Bibliography, Cover Page, and Table of Contents will not count towards the final wordcount. • You may want to include images/graphics to make your reasoning and argumentation more visual and explicative. • Font: Arial. Size: 12pts. Line spacing: 1,5. Text align: Justified. • Harvard’s referencing style is mandatory. - Conclusions - References § References and the Bibliography must be in Harvard’s citation style. Make sure you provide an objective analysis, and that the analysis is backed up with actual data and proper analysis of the trends and figures. Recommended sources: • Data: Office of the United States Trade Representative o https://ustr.gov/trade-agreements/free-trade- agreements/united-states-mexico-canada- agreement/fact-sheets/modernizing You should use additional relevant sources: specialized press, internet material, etc. Goal(s) This task evaluates the application of general concepts and theories learned throughout the entire course. Due date Date: Monday 23rd of August 2021 Time: 12:00 CEST Weight towards final grade This activity has a weight of 40\% towards the final grade. Learning outcomes Type the learning outcomes that students will be meeting with this assessment here. Please refer to the course outline course outcomes. 1. develop a complex understanding of the main concepts of international economics and how to apply them. 2. understand and analyze the different global economic theories. 3. Evaluate real life situations with a practical application of the acquired tools and knowledge. Assessment criteria See rubric on next page. Rubric: written assignment Criteria Accomplished (A) Proficient (B) Partially proficient (C) Borderline (D) Fail (F) Problem identification The business issue has been correctly identified, with a competent and comprehensive explanation of key driving forces and considerations. Impact on company operations has been correctly identified. Thorough analysis of the issue is presented. The student correctly identified the issue(s), taking into account a variety of environmental and contextual drivers. Key case information has been identified and analyzed. The student correctly identified the case (issues), considering obvious environmental/contextual drivers. There is evidence of analysis, but it lacks depth. The student correctly identified the issue(s) but analysis was weak. An absence of context – the work is basically descriptive with little analysis. The student failed to correctly identify the issue(s); analysis was incorrect or too superficial to be of use; information was misinterpreted. Information gathering The student showed skill in gathering information and analyzing it for the purposes of filling the information gaps identified. Comprehensive and relevant. Relevant information gaps were identified and additional relevant information was found to fill them. At least two different types of sources were used. The student demonstrates coherent criteria for selecting information but needs greater depth. The student correctly identified at least one information gap and found relevant information, but which was limited in scope. Some evidence of sound criteria for selecting information but not consistent throughout. Needs expansion. An information gap was identified and the student found additional information to fill it. However, this was limited in scope. Weak criteria for the selection of necessary information. Information was taken at face value with no questioning of its relevance or value. Gaps in the information were not identified or were incorrect. Conclusions The student evaluated, analyzed, synthesized all information provided to create a perceptive set of conclusions to support the decisions and solutions. The student evaluated, analyzed and synthesized to create a conclusion(s) which support decisions and solutions. The student reached conclusions, but they were limited and provided minimal direction for decision-making and solutions. The conclusion was reasonable but lacked depth and would not be a basis for suitable strategy development. The student formed a conclusion, but it was not reasonable. It was either unjustified, incorrect or unrelated to the case in hand. Solutions The student used problem solving techniques to make thoughtful, justified decisions about difficult and conflicting issues. A realistic solution was chosen which would provide maximum benefit to the company. Alternative solutions were explored and ruled out. The student used problem solving techniques to make appropriate decisions about complex issues. Relevant questions were asked and answered. A realistic solution was chosen. Alternatives were identified, explored and ruled out. The student used problem- solving techniques to make appropriate decisions about simpler issues. The solution has limited benefit but does show understanding of implications of the decision. Alternatives were mentioned but not explored. The student used problem solving techniques to make decisions about simpler issues but disregarded more complex issues. Implications of the decision were not considered. Alternatives were not offered. The student formed a conclusion, but it was not reasonable. It was either unjustified, incorrect or unrelated to the case in hand.