Download 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?