Global Economy; market integration; the global interstate system PREPARED BY: FAY GARNETH L. BUSCATO, MPA, JD what is the role of IMF and WTO in economic globalization International Monetary Fund (IMF): Stabilizing Global Economy: The primary role of the IMF is to promote international monetary cooperation and exchange rate stability. It provides a forum for member countries to coordinate their monetary policies and address issues that may affect global economic stability. Financial Assistance: The IMF offers financial assistance to member countries facing balance of payments problems or experiencing crises. This assistance is often provided with conditions aimed at restoring economic stability, such as implementing structural reforms and austerity measures. Policy Advice: The IMF provides economic and policy advice to member countries, conducting regular assessments of their economic and financial policies. This advice is intended to help countries make informed decisions that contribute to global economic stability. World Trade Organization (WTO): Promoting Trade Liberalization: The primary goal of the WTO is to facilitate international trade by promoting the liberalization of trade barriers, including tariffs and quotas. It aims to create a more open and predictable trading system. Negotiating Trade Agreements: The WTO provides a platform for member countries to negotiate trade agreements and settle trade disputes. Trade negotiations under the WTO framework aim to reduce barriers to trade and create a more level playing field for all members. Dispute Settlement: The WTO has a dispute settlement mechanism to resolve trade disputes among its member countries. This mechanism helps ensure that trade conflicts are resolved through a rules-based system, promoting stability and predictability in international trade. Ideally disputes are resolved through negotiations. If this is not possible, WTO Members can request the establishment of a panel to settle the dispute. The panel will issue a report, which can subsequently be appealed before the WTO's Appellate Body on questions of law. The Appellate Body is a standing body of seven persons that hears appeals from reports issued by panels in disputes brought by WTO members. The Appellate Body can uphold, modify or reverse the legal findings and conclusions of a panel If a WTO member does not comply with recommendations from dispute settlement, than trade compensation or sanctions, for example in the form of increases in customs duties, may follow. In the context of economic globalization •Facilitating Cross-Border Transactions: Both the IMF and WTO contribute to the facilitation of cross-border economic activities by providing a framework for international cooperation and rules for trade and finance. •Addressing Economic Challenges: The IMF's focus on economic stability and financial assistance helps countries deal with economic challenges that may arise in the globalized economy, such as currency crises or balance of payments issues. Promoting Open Markets: The WTO's emphasis on trade liberalization contributes to the opening of markets, fostering increased international trade and economic interdependence among nations. An open market is an economic system with little to no barriers to free-market activity. An open market is characterized by the absence of tariffs, taxes, licensing requirements, subsidies, unionization, and any other regulations or practices that interfere with free-market activity. International Trading System •a combination of rules, regulations, and agreements among countries involved in international trade •Globalization makes international trade possible. It is the process where the world becomes an interconnected place through trade and cultural exchange. Spanish sailing vessel that made an annual round trip (one vessel per year) across the Pacific between Manila, in the Philippines, and Acapulco, in present Mexico, during the period 1565– 1815. They were the sole means of communication between Spain and its Philippine colony and served as an economic lifeline for the Spaniards in Manila.This was the first time that the Americas were directly connected to Asian trading routes. Mercantilism •Mercantilism is an economic theory that holds that a nation's wealth can increase when the government regulates the nation's wealth by maximizing exports and reducing imports. Mercantilism was developed in the 16th and 18th centuries. This economic theory maintains that the government should get more involved in international trade by regulating it benefit domestic or local products and businesses. •also a system of global trade with multiple restrictions The 18th Century saw the shift towards liberalism. It was in this period that Adam Smith, the father of Economics wrote the famous book ‘The Wealth of Nations’ in 1776 where in he defined the importance of specialization in production and brought International trade under the said scope. International trade, however, refers specifically to an exchange between members of different nations, and accounts and explanations of such trade begin (despite fragmentary earlier discussion) only with the rise of the modern nation-state at the close of the European Middle Ages. Liberalism A strong reaction against mercantilist attitudes began to take shape toward the middle of the 18th century. In France, the economists known as Physiocrats demanded liberty of production and trade. In England, economist Adam Smith demonstrated in his book The Wealth of Nations (1776) the advantages of removing trade restrictions. Economists and businessmen voiced their opposition to excessively high and often prohibitive customs duties and urged the negotiation of trade agreements with foreign powers. This change in attitudes led to the signing of a number of agreements embodying the new liberal ideas about trade, among them the Anglo-French Treaty of 1786, which ended what had been an economic war between the two countries After Adam Smith, the basic tenets of mercantilism were no longer considered defensible. This did not, however, mean that nations abandoned all mercantilist policies. Restrictive economic policies were now justified by the claim that, up to a certain point, the government should keep foreign merchandise off the domestic market in order to shelter national production from outside competition. In the middle of the 19th century, a protective customs policy effectively sheltered many national economies from outside competition. The French tariff of 1860, for example, charged extremely high rates on British products A triumph for liberal ideas was the Anglo-French trade agreement of 1860, which provided that French protective duties were to be reduced to a maximum of 25 percent within five years, with free entry of all French products except wines into Britain. This agreement was followed by other European trade pacts. A reaction in favour of protection spread throughout the Western world in the latter part of the 19th century. Germany adopted a systematically protectionist policy and was soon followed by most other nations. Shortly after 1860, during the Civil War, the United States raised its duties sharply; the McKinley Tariff Act of 1890 was ultraprotectionist. The United Kingdom was the only country to remain faithful to the principles of free trade. Extensive economic liberty prevailed by 1913. Quantitative restrictions were unheard of, and customs duties were low and stable. Currencies were freely convertible into gold, which in effect was a common international money. Balance-of-payments problems were few. People who wished to settle and work in a country could go where they wished with few restrictions; they could open businesses, enter trade, or export capital freely. Equal opportunity to compete was the general rule, the sole exception being the existence of limited customs preferences between certain countries, most usually between a home country and its colonies. Trade was freer throughout the Western world in 1913 than it was in Europe in 1970. The “new” mercantilism •World War I wrought havoc on these orderly trading conditions. By the end of the hostilities, world trade had been disrupted to a degree that made recovery very difficult. The first five years of the postwar period were marked by the dismantling of wartime controls. An economic downturn in 1920, followed by the commercial advantages that accrued to countries whose currencies had depreciated (as had Germany’s), prompted many countries to impose new trade restrictions. •The resulting protectionist tide engulfed the world economy, not because policy makers consciously adhered to any specific theory but because of nationalist ideologies and the pressure of economic conditions. In an attempt to end the continual raising of customs barriers, the League of Nations organized the first World Economic Conference in May 1927. Twenty-nine states, including the main industrial countries, subscribed to an international convention that was the most minutely detailed and balanced multilateral trade agreement approved to date. It was a precursor of the arrangements made under the General Agreement on Tariffs and Trade (GATT) of 1947. The Great Depression •However, the 1927 agreement remained practically without effect. During the Great Depression of the 1930s, unemployment in major countries reached unprecedented levels and engendered an epidemic of protectionist measures. Countries attempted to shore up their balance of payments by raising their customs duties and introducing a range of import quotas or even import prohibitions, accompanied by exchange controls. •From 1933 onward, the recommendations of all the postwar economic conferences based on the fundamental postulates of economic liberalism were ignored. The planning of foreign trade came to be considered a normal function of the state. Mercantilist policies dominated the world scene until after World War II, when trade agreements and supranational organizations became the chief means of managing and promoting international trade. The Rise of the Gold Standard •The gold standard is a monetary system in which paper money is freely convertible into a fixed amount of gold. In other words, in such a monetary system, gold backs the value of money. Between 1696 and 1812, the development and formalization of the gold standard began as the introduction of paper money posed some problems. •The first great gold rush came to America in the 15th century. Spain's plunder of treasures from the New World raised Europe's supply of gold by fives times in the 16th century. Subsequent gold rushes in the Americas, Australia, and South Africa took place in the 19th century. •The struggle between paper money and gold would eventually result in the introduction of a gold standard. •The gold standard is a monetary system in which paper money is freely convertible into a fixed amount of gold. In other words, in such a monetary system, gold backs the value of money. Between 1696 and 1812, the development and formalization of the gold standard began as the introduction of paper money posed some problems. •The U.S. Constitution in 1789 gave Congress the sole right to coin money and the power to regulate its value.5 Creating a united national currency enabled the standardization of a monetary system that had up until then consisted of circulating foreign coin, mostly silver. •By 1821, England became the first country to officially adopt a gold standard. The century's dramatic increase in global trade and production brought large discoveries of gold, which helped the gold standard remain intact well into the next century. As all trade imbalances between nations were settled with gold, governments had a strong incentive to stockpile gold for more difficult times. Those stockpiles still exist today. •The international gold standard emerged in 1871, following its adoption by Germany. By 1900, the majority of the developed nations were linked to the gold standard. Ironically, the U.S. was one of the last countries to join. In fact, a strong silver lobby prevented gold from being the sole monetary standard within the U.S. throughout the 19th century. The global financial crisis (GFC) refers to the period of extreme stress in global financial markets and banking systems between mid 2007 and early 2009. During the GFC, a downturn in the US housing market was a catalyst for a financial crisis that spread from the United States to the rest of the world through linkages in the global financial system. Many banks around the world incurred large losses and relied on government support to avoid bankruptcy. Millions of people lost their jobs as the major advanced economies experienced their deepest recessions since the Great Depression in the 1930s. Recovery from the crisis was also much slower than past recessions that were not associated with a financial crisis. Main Causes of the GFC In the years leading up to the GFC, economic conditions in the United States and other countries were favourable. Economic growth was strong and stable, and rates of inflation, unemployment and interest were relatively low. In this environment, house prices grew strongly. Expectations that house prices would continue to rise led households, in the United States especially, to borrow imprudently to purchase and build houses. A similar expectation on house prices also led property developers and households in European countries (such as Iceland, Ireland, Spain and some countries in Eastern Europe) to borrow excessively. Many of the mortgage loans, especially in the United States, were for amounts close to (or even above) the purchase price of a house. A large share of such risky borrowing was done by investors seeking to make short-term profits by ‘flipping’ houses and by ‘subprime’ borrowers (who have higher default risks, mainly because their income and wealth are relatively low and/or they have missed loan repayments in the past). Neoliberalism & its Discontents Traditionally ‘neoliberalism’ refers to a system of economic and political thought that prioritizes the deregulation of national economies, the private ownership of infrastructure and the extension of marketplace ideas to many domains of life including education, healthcare and even personal relationships. Usually associated with economists such as Milton Freidman and Friedrich Hayek and with the politics of figures such as Margaret Thatcher in Britain, Ronald Regan in the United States and Deng Xiaoping in China, many believe that since the 1970s and 1980s neoliberalism has been a dominant force in most nations and international institutions. It favors private enterprise and seeks to transfer the control of economic factors from the government to the private sector. Many neoliberal policies concern the efficient functioning of free market capitalism and focus on limiting government spending, government regulation, and public ownership. Key actors in market integration Government and Regulatory Bodies •National Governments: Governments play a central role in market integration by formulating and implementing policies that promote economic openness. They negotiate trade agreements, remove trade barriers, and adopt regulatory frameworks to facilitate cross-border transactions. •Regional Economic Blocs: Regional organizations, such as the European Union (EU) or the Association of Southeast Asian Nations (ASEAN), work towards deeper economic integration among member countries. These blocs often establish common regulations, standards, and policies to enhance intra-regional trade. International Organizations: World Trade Organization (WTO): The WTO plays a key role in promoting global market integration by facilitating trade negotiations, resolving trade disputes, and overseeing the implementation of trade agreements. It provides a platform for countries to engage in multilateral trade negotiations. International Monetary Fund (IMF): While primarily focused on monetary and financial stability, the IMF's role in providing policy advice and financial assistance can contribute to economic stability and integration. Multinational Corporations (MNCs): MNCs and Transnational Corporations (TNCs): These entities are major players in market integration as they operate across borders, establishing production facilities, supply chains, and distribution networks in multiple countries. They benefit from and contribute to the interconnectedness of global markets. Financial Institutions: •Central Banks: Central banks play a role in market integration by influencing monetary policy, exchange rates, and financial stability. Coordination among central banks can contribute to smoother financial interactions across borders. •International Financial Institutions: Institutions like the International Monetary Fund (IMF) and the World Bank provide financial assistance, policy advice, and technical support to countries, fostering economic stability and integration. Non-Governmental Organizations (NGOs): Advocacy Groups: NGOs focused on economic and trade issues may advocate for policies that promote fair and sustainable market integration. They often play a role in raising awareness about social and environmental impacts of economic integration. Consumers and Civil Society: •Consumers: Individuals and consumer groups influence market integration by demanding a wider variety of goods and services from global markets. Consumer preferences can drive cross-border trade and influence the strategies of businesses. •Civil Society Organizations: These organizations may monitor and advocate for social and environmental aspects of market integration, ensuring that economic integration is pursued in a sustainable and socially responsible manner. Technology and Innovation: Technological Innovators: Advances in technology, including digitalization and communication technologies, contribute to market integration by reducing barriers to information flow, enabling e-commerce, and facilitating global communication and collaboration.
