The Foundations of Globalization Motivations and Free Trade

Overview n Building Up to Freer Trade n Trade on the World Stage • • • n Breton Woods GATT WTO Trade and Canada • FTA • NAFTA n Other Trade Blocs n 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 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 n 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 1980 s, 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? n How is the purpose of the following influence globalization? - Breton Woods - WTO n Could trade blocs be the beginning of a new form of imperialism? n

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?