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Trade Institutions and Trade
Policy
Chapter 2
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The Historical Dimension
• Ancient traders.
• Rome and the Pax Romana.
• European feudalism in the middle ages.
• Protectionism in the 1930’s and Smoot-Hawley Act.
• The emergence of global division (1945).
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Overview of International
Business History
• Pax Romana
– The “roman peace” ensured that merchants
were able to travel safely and rapidly on
roads built, protected, and maintained by
the roman legions.

• European feudalism
– By delivering a portion of their “earnings” to
a protector, medieval farmers were shielded
from the depredations of outsiders.
While local economies were largely closed,
east-west export /import trade thrived.
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Overview of International
Business History (Continued)
• Protectionism in the 1930’s and the Smoot-
Hawley Act:
– The act raised import duties to reduce the
volume of imports into the united states.
– The intent increased domestic employment.
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Overview of International
Business History (Continued)
• The post-war east and west ideological split
– The soviet union and the eastern bloc
• Council for mutual economic assistance (CMEA or
COMECON).
– 53 western countries
• The international trade organization (ITO) - 1948.
• Pax Americana
– “American peace” driven by the belief that
international trade was a key to worldwide prosperity.
Global Division (1945)
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Transnational Institutions and
World Trade
• General agreement on tariffs and trade (GATT)
• World trade organization (WTO)
• International monetary fund (IMF)
• World bank
• Regional institutions
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WTO Homepage
Trade Topics
The creation of the WTO has greatly broadened the scope of international
trade agreements.
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Transnational Institutions and
World Trade (Continued)
• GATT focused on reducing prevailing high tariffs
• Most-favored nation (MFN) clause
– “Each member country of the GATT must grant every
member country the most favorable treatment it accords
to any other country with respect to imports and exports.”
• World trade organization (WTO) in 1995
– General agreement on trade in services (GATS).
– Trade-related aspects of intellectual property rights
(TRIPS).
– Trade-related investment measures (TRIMS).
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International Monetary Fund
(IMF)
• Developed out of the Bretton Woods agreement in
1944.
• Offers gold and constituent currencies available to
members for currency stabilization.
• It was the goal originally to provide for fixed
exchange rates between countries.
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World Bank
• The international bank for reconstruction and
development
– Formed in 1944, it provides economic assistance
for the reconstruction of war-torn and, more
recently, loans to developing countries.
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Regional Institutions
• European Coal and Steel Community
• Customs Unions
• European Union (EU)
• North American Free Trade Agreement (NAFTA)
• Mercosur - Latin America
• Gulf Cooperation Council (GCC)
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The Effects of Trade
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Policy Responses to Trade
Problems
• Voluntary import restrictions
• Tariffs
• Non-tariff barriers
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Export Promotion Efforts
Reasons
• National need to earn foreign currency.
• Encouragement of domestic employment.
• Increase in domestic economic activity