International Economic Order: Implications for Globalization

1. International Economic Order: Implications for Globalization Tain-Jy Chen Chung-Hua Institutionfor Economic Research

2. Pax Britannica 1815 – 1870 • Gold Standard－First wave of globalization 1871 – 1914 • US Hegemony－Second wave of globalization 1946 – Present • The Future of Multilateralism

3. Pax Britannica 1815 – 1870 • 1815: Battle of Waterloo with Napoleon Bonaparte (June 18, 1815)1870: Franco – Prussian War July 19, 1870 – May 10, 1871 • British Dominance of World Politics and Trade • The Spread of English, British Imperial System of Measures, The Emergence of Commodity Markets, English Common Law • The Supremacy of Royal Navy as a power to maintain the security of trade. • Colonization of the non-European world • Force open the world markets and control commodity flows (Taiwan was open to trade in 1860).

4. Gold Standard 1871 – 1914 • Most major countries adopted the gold standard in the 1870s. • Fixed exchange rate facilitated world trade. • Trading system was based on bilateral treaties. • Capital mobility was substantial, particularly from Britain to its colonies. • Migration from Europe to the New World was substantial. • Globalization caused equalization of income between Europe and the “New World”.

5. US Hegemony • The Bretton Woods System • International Monetary Fund (IMF) established a dollar-based world reserve system, creating a fixed exchange rate until 1971. • International Bank for Reconstruction and Development (World Bank) was established to finance economic development. • International Trade Organization (ITO) was to be establish to manage world trade but failed. Instead General Agreement on Tariffs and Trade (GATT) was created in 1947.

6. US Hegemony • The Contributions of GATT: 1947 – 1995 • Establishing a multilateral trading system under the principle of “most favored nations” (MFN). • Tariff concessions led to an enlargement of world trade. • Removal of non-tariff trade barriers since the Tokyo Round further increased world trade. • Consultation and dispute settlement mechanisms avoided trade wars.

7. US Hegemony • The Positive Roles of US in GATT • Lead the way in market opening • Set the rules and agendas of GATT • Push and punish the non-performers (section 301 and others) • The power of US relies with its market potential in addition to military might

8. US Hegemony • The Negative Roles of US in GATT • Serving its own interests at the expense of the rules – agriculture, textiles, … • Pushing its own agendas without considering the interests of its trading partners – intellectual property rights, environment, labor standards, … • Insufficient care for developing countries – generalized system of preferences (GSP), tariff structure, …

9. The Future of Multilateralism • The threat of bilateralism and plurilateralism (free trade areas, …) • Divide between the South and North – uneven distribution of trade benefits between developed and developing countries • What more can be traded?Agriculture, service, … • The limit of WTO as a ruling body for world trade – Can WTO monitor the environmental standards, labor standards, competition laws …? • The limit of US as hegemony – war against terrorism, … • The rise of China – the return of Empire