Trade, investment, and the environment
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Transcript Trade, investment, and the environment
Globalization, Trade,
Investment, and Environment
Session Objectives:
Debate risks and opportunities of economic
globalization
Identify SD requirements for trade and
investment liberalization
Session Agenda
Globalization overview
Basic trade theory
Trade liberalization
WTO & environment
FDI liberalization
Risks/opportunities
Discussions
What is Globalization?
“A process in which increased
amounts of goods, services,
investments, and financial
capital move across countries.”
Major International Forces
Transnational corporations (TNCs)
OECD governments
WTO, OECD, IMF, World Bank
International Mechanisms
Uruguay Round, Millennium Round
Multilateral Agreement on Investment
Structural adjustment
Policy Instruments
Trade liberalization
FDI liberalization
Capital market liberalization
Currency market liberalization
Government Positions
OECD countries: promote, selectively
Emerging economies: embrace, selectively
Less developed countries: hesitant
Civil Society Concerns
rise in inequality
erosion of jobs and wages
increased vulnerability of economies
plunder of natural resources
destruction of community
erosion of democracy
Some Figures
UNDP Human Development Report
2/3 of the world’s
people left out, hurt, or
marginalized by
globalization
24 rich countries & 12
emerging economies
are benefiting from
globalization
140 countries have
slower growth or no
growth at all
200 top TNCs account
for:
– 28% of world output
– 70% of trade, but hire
– 1% of world’s labor
6 Commandments
Perspectives of some NGOs
Globalization: we are in
one single global market
Privatization: government,
hands up
Liberalization: remove all
barriers and obstacles to
free flows of goods,
services, & capital
Competitiveness: be a
winner, the best, & the
strongest
Technological
innovations: restless,
innovate permanently,
always ahead of others
Deregulation: let the
invisible hand work
Basic Trade Theory:
Absolute Advantage - Adam Smith
US cost
1 unit of
coffee
(C)
$4
South
$2
Africa cost
1 unit of
wheat
(W)
$1
$4
Domestic
TOT
If external
TOT is
1C = 3W
1C = 4W Buy 1C,
save 1W
1C = 0.5W Sell 1C,
gain 2.5W
Basic Trade Theory:
Comparative Advantage - David Ricardo
1 unit of
wheat
(W)
US cost
$20
South
$60
Africa cost
1 unit of
textiles
(T)
$5
Domestic
TOT
$10
1W = 6T
1W = 4T
If external
TOT is
1W = 5T
Sell 1W,
gain 1T
Buy 1W,
save 1T
Traditional Arguments
for Free Trade
Win-win for trading partners
Efficiency from specialization &
competition
Economy of scale: export market
Technological change expands
PPF
Overall increase in welfare
Traditional
Arguments against
Free Trade
Job lost to foreign competitors
National defense
Infant industry
Falling terms of trade
– falling TOT in raw materials in the long run
– no major innovations in primary commodities
– vulnerability of economy dependent on
commodities
Trade Liberalization Measures
Reduce or remove import duty/export tax
Reduce or remove import/export
restrictions
Reduce or remove subsidy for export and
import-substitution industries
Opportunities of Trade
Liberalization
Increase in goods and services available for
consumption - increase in welfare
Jobs in export sector - poverty reduction
Removal of price distortion -> efficiency
Technology transfer - cleaner/upgrade
More revenue for environmental investment
Demand for environmental quality
Risks of Trade Liberalization
Inequitable distribution of trade benefits
Trade-generated wealth not necessarily used to
improve the environment, in time, and for all
Transitional social and economic difficulties
Increased scale of production magnifies
externalities
One-way liberalization
GATT (1948) - WTO (1995)
3 objectives:
help trade flow as freely
as possible
achieve further
liberalization gradually
through negotiation
set up an impartial means
of settling disputes
5 principles:
Non-discrimination
(MFN, national treatment)
Freer trade
Predictable policies
Encourage competition
Extras provisions for
LDCs
WTO & Environment
Conflicts between WTO
agreements & MEAs
Non-discrimination of
like-products, regardless
of their production
methods and processes
Difficulty in biosafety
negotiations
IPRs over biological
resources benefiting
OECD countries
Limited access to
agricultural & textile
markets in OECD
countries
Weak capacity of LDCs to
benefit from WTO
agreements/negotiations
FDI Liberalization Measures
Reduce or remove restrictions on FDI
Increase incentives to attract FDI
Allow currency convertibility
Opportunities of FDI
Liberalization
Source of capital
More jobs if labor intensive
May reduce poverty if in poor areas
Transfer of clean technology & standards
Management skills
Competition and efficiency
Global market connections
Risks of FDI Liberalization
Often focus on manufacturing & service, little on
agricultural & rural development - polarization
Displacement of domestic industries - job loss
Tax holidays - produce more than justified by
production costs
Environmental externalities
SD Requirements
Capital or labor intensive?
Sectors for liberalized trade and FDI?
Measures to mitigate transitional difficulties?
Distribution of benefits?
Control of externalities?
Are tax holidays justified?
Readiness of domestic industries for competition?
Transfer of clean technology?
Access to markets in OECD countries?
Gains from liberalization for environmental investment?