The Foundations of
Globalization
Motivations and Free Trade
Overview

Building Up to Freer Trade

Trade on the World Stage
• Breton Woods
• GATT
• WTO

Trade and Canada
• FTA
• NAFTA

Other Trade Blocs

Case Study: Canada/US Softwood
Lumber Dispute
Building Up to Freer Trade
2 Schools of Thought:
1.) Government should be largely
involved in the economy
John Maynard Keynes
2.) Government should not interfere
with the economy
Milton Friedman
Friedrich A. Hayek
Role of
Government in
Economy
Is Government
Intervention
Required?
Hayek
Limited
Role
Friedman Keynes
Limited Significant
Role
Role
No
No
Yes
Human societies
are too complex.
Government
policies cannot
account for this
People are better off
if they learn to adapt
to changes in the
market
Government must
pull economies out
of recession,
through “softening”
boom and bust
cycles
Where would Adam Smith fit in this table?
Trade on the World Stage
Breton Woods, the GATT, and the WTO
Breton Woods Agreement
• An agreement coming out of WWII whose
purpose was to both stabilize the world
economy and to facilitate world trade
• World Bank
• International Monetary
Fund (IMF)
• Established the practise
of using GDP (Gross
Domestic Product) as a
measure of a country’s
economic performance.
The GATT
(General Agreement on Tariffs and Trade)
• Established in 1947
• Used to help continue peaceful relations between
countries through the lowering of trade barriers
Operated According to Four Principles:
1.
Non-discriminatory trade
2.
Treat imported goods from a member country the
same as similar domestic goods
3.
Protect domestic industries through tariffs only
4.
Require any country that applies for membership to
show a list of current tariffs and other trade
restrictions
Breton Woods
Agreement
World Bank
GATT
International
Monetary
Fund (IMF)
WTO
(World Trade Organization)
• Evolved from the GATT
• An international organization that looks to
improve trade relations between countries
through the removing of tariffs and other
trade barriers
• Its main purpose is to settle trade disputes
amongst governments
• Has been a source of great controversy over the
years
Trade and Canada
The Free Trade Agreement and NAFTA
FTA
(Free Trade Agreement)
• An agreement between Canada and the US
to eliminate trade barriers
• Established in 1989
Purpose:
• Canada wanted access to the larger US market
• US wanted access to Canada’s natural
resources
Result:
• Removed most tariffs between Canada and the
US
• Very controversial
NAFTA
(North American Free Trade Agreement)
• An extension of the FTA,
established in 1994, to include
Mexico
• Served to increase trade between
the countries involved
• Over the years, NAFTA has
helped Canada increase
the amount of its exports
into the United States
• There is still ongoing
tensions between workers
unions and free trade
supporters
•
Some people argue that Free
Trade has a bigger impact
beyond the economy

Some see NAFTA as a trade
bloc, which can be seen to
offer free trade within its
• regional boundaries, but can
be seen to practise a form of
protectionism with countries
outside its membership
The 4 Major Trade Blocs
NAFTA
North American
Free Trade Agreement
MERCOSUR
Mercado Comun del
Cono Sur, also known
as Southern Common
Markets (SCCM)
ASEAN
Association of Southeast
Asian Nations
EU
European Union
Softwood: Not Exactly Free
Trade
• America began, in the 1980s, to add a tariff to Canadian wood products
• In 2002, the US added a 27% duty on Canadian lumber
• In 2003, a NAFTA court ruled that the US duties, now 19%, were still too
high and that the US government should review its numbers
• Shortly after the NAFTA ruling, the WTO also ruled that US duties were “too
harsh”
• In 2005, the US was ordered to return $5 Billion to Canadian lumber
companies, but refused to comply
• In April of 2006 Canada and the US finally reached an agreement that would
see the US return 80% of the collected fees, and Canada would agree to
have only a 34% share of the US softwood lumber market
• In September of 2006 an agreement was finally reached that would see $4
billion dollars returned to Canadian Lumber companies
Some Final Questions
How has free trade transformed how
globalization is practised?
 How is the purpose of the following
influence globalization?
- Breton Woods
- WTO
 Could trade blocs be the beginning of
a new form of imperialism?

Follow Up Activity
For Homework:
1. Which school of economic thought do you subscribe too?
Do you agree with Keynes or do you agree with Friedman
and Hayek? Explain your answer.
2. Answer question #3 in “Explore the Issues” on page 216 of
your textbook. Do identify one political party, Don’t create
a graphic organizer.
3. Read Pgs 209-211 of your textbook and create a Venn
Diagram, comparing the similarities and differences
between the World Bank and the IMF. Your diagram should
have multiple points in each of the three areas of it.
4. Read “EU Expansion: Prosperity for All?” on Pgs 254-255 of
your textbook. Explain, in a couple paragraphs, what’s the
dilemma that faces the EU? How is this similar to the
issues that surround developed and developing economies?