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The Evolution of Trade Institutions and Policies: A Historical Perspective

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  1. Chapter 2 Trade Institutions and Trade Policy

  2. The Historical Dimension • Ancient traders. • Rome and the Pax Romana. • European feudalism in the middle ages. • Protectionism in the 1930’s and Smoot-Hawley Act. • The emergence of global division (1945).

  3. Overview of International Business History • Pax Romana • The “roman peace” ensured that merchants were able to travel safely and rapidly on roads built, protected, and maintained by the roman legions. • European feudalism • By delivering a portion of their “earnings” to a protector, medieval farmers were shielded from the depredations of outsiders. While local economies were largely closed, east-west export /import trade thrived.

  4. Overview of International Business History (Continued) • Protectionism in the 1930’s and the Smoot-Hawley Act: • The act raised import duties to reduce the volume of imports into the united states. • The intent increased domestic employment.

  5. Overview of International Business History (Continued) Global Division (1945) • The post-war east and west ideological split • The soviet union and the eastern bloc • Council for mutual economic assistance (CMEA or COMECON). • 53 western countries • The international trade organization (ITO) - 1948. • Pax Americana • “American peace” driven by the belief that international trade was a key to worldwide prosperity.

  6. Transnational Institutions and World Trade • General agreement on tariffs and trade (GATT) • World trade organization (WTO) • International monetary fund (IMF) • World bank • Regional institutions

  7. WTO HomepageTrade Topics The creation of the WTO has greatly broadened the scope of international trade agreements.

  8. Transnational Institutions and World Trade (Continued) • GATT focused on reducing prevailing high tariffs • Most-favored nation (MFN) clause • “Each member country of the GATT must grant every member country the most favorable treatment it accords to any other country with respect to imports and exports.” • World trade organization (WTO) in 1995 • General agreement on trade in services (GATS). • Trade-related aspects of intellectual property rights (TRIPS). • Trade-related investment measures (TRIMS).

  9. International Monetary Fund (IMF) • Developed out of the Bretton Woods agreement in 1944. • Offers gold and constituent currencies available to members for currency stabilization. • It was the goal originally to provide for fixed exchange rates between countries.

  10. World Bank • The international bank for reconstruction and development • Formed in 1944, it provides economic assistance for the reconstruction of war-torn and, more recently, loans to developing countries.

  11. Regional Institutions • European Coal and Steel Community • Customs Unions • European Union (EU) • North American Free Trade Agreement (NAFTA) • Mercosur - Latin America • Gulf Cooperation Council (GCC)

  12. The Effects of Trade

  13. Policy Responses to Trade Problems • Voluntary import restrictions • Tariffs • Non-tariff barriers

  14. Export Promotion Efforts Reasons • National need to earn foreign currency. • Encouragement of domestic employment. • Increase in domestic economic activity

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