COMMERCIAL POLICY

1. COMMERCIAL POLICY BY ALEJANDRO VELEZ, PH.D. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

2. COMMERCIAL POLICY • A WHOLE HOST OF ACTIONS BY SOVEREIGN GOVERNMENTS WHICH TRADITIONALLY HAVE CENTERED ON REGULATING IMPORTS (AND SOMETIMES EXPORTS, E.G., US SUPER COMPUTERS) BUT WHICH CAN ALSO INCLUDE POLICIES ON INVESTMENTS, THE ENVIRONMENT. LABOR, ETC. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

3. COMMERCIAL POLICY • HOW DOES THE US PROPOSE AND AND ENACT COMMERCIAL POLICY LEGISLATION? • DIFFERENTLY FROM OTHER DME’S! • HOW? • ______ AUTHORITY S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

4. COMMERCIAL POLICY • POLITICAL PARTIES AND PRESIDENTS HAVE VARIED IN APPROACHES BUT THERE HAS BEEN UNEXPECTED COMMONALITIES. I THINK ECONOMISTS HAVE BEEN A MAJOR REASON. CEA MAGNIFIED OUR INFLUENCE. GOOD RESEARCH AND PRESTIGE OF PROFESSION, ETC. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

5. COMMERCIAL POLICY • THE STRANGE CONVERSION OF WILLIAM J. CLINTON TO A FREE TRADER. • AL GORE MAY NOT BE SO CONVINCED?? • NADER, BUCHANAN MAY BODE POORLY FOR FREE TRADE? S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

6. US COMMERCIAL POLICY • PRE-GATT S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

7. US COMMERCIAL POLICY • GATT UP TO COLLAPSE OF SOVIET UNION S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

8. US COMMERCIAL POLICY • 1989 TO LAUNCHING OF WTO S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

9. US COMMERCIAL POLICY • WTO • URUGUAY ROUND • ISSUES (INTELLECTUAL PROPERTY, SERVICE TRADE, BANKING/INVESTMENT, AGRICULTURAL SUBSIDIES, STEEL-CHEMICALS, • ACCOMPLISHMENTS S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

10. REFORM OF IMF, WORLD BANK: A CASE STUDY • MELTZER REPORT • BACKGROUND (R.V.,R.A.,L.C.,T.P.) • PROPOSALS (E.G.,S.H.,D.B.) • PROS AND CONS(J.H.,K.C.,D.S.,J.M.) • CONCLUSIONS (S.T., A.V.) S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

11. Meltzer Commission (Background) International Economics S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

12. International Financial Institution Advisory Commission • Established in 1998 to oversee American funding in International Financial Institutions • Had a very short life (6 months) and made many findings S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

13. Reasons for Establishment • Congress wanted to know what good was coming from money that was used for Foreign Aid • Assessment of International Financial Institutions was wanted for the financing of future Foreign Aid Programs S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

14. Reasons for Establishment (cont.) • Oversee roles of seven international financial institutions • IMF • World Bank • Inter-American Dev. Bank • Asian Dev. Bank • African Dev. Bank • WTO • Bank for International Settlements S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

15. Votes of the Commission • Write-off all claims against HIPCS(heavily indebted poor countries) • End practice of extending long-term loans for poverty reduction S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

16. Exchange Types • Bretton Woods (Fixed on the Dollar) • Establishes the IMF and World Bank to help in the redevelopment of torn countries from WWII • Aid was based on a fixed rate system • “Dirty Float” (No more fixed rates) • Causes problems with initial plans of IMF and World Bank- they were established to work with a fixed exchange rate • GATT established in 1948 to reduce tariff barriers. • WTO replaces GATT in 1995 S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

17. Problems of Institutions • High Cost with Low Effectiveness S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

18. REFORM OF IMF, WORLD BANK • MELTZER REPORT • POLITICS S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

19. REFORM OF IMF, WORLD BANK • MELTZER REPORT • ISSUES S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

20. Major Proposals of the Bank for International Settlements Proposals for Change and Growth S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

21. Three Categories of the BIS’s Tasks • International Monetary and Financial Cooperation • Agent and Trustee activities • Financial Assistance to Central Banks S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

22. Role of the BIS • Acts as secretariat for several committees who propose international standards and offer guidance on so called “best practices”. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

23. BIS Proposals • The Capital Accord, set minimum capital standards for international banks. • It called for linking capital requirements to a crude measure of the banks’ risk by assigning different risk weights for different categories of bank assets or commitments. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

24. Capital Adequacy Framework • Expected to give banks more choice in assessing credit risk by allowing them to adopt an internal rating system. • This is used to set capital requirements and by linking required capital, where possible, to credit-rating agencies’ ratings of bank borrowers. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

25. Conditions for Supervision Licensing Structure of the Banking System Prudential Regulation Methods of ongoing supervision Information gathering and use Powers of Supervisors Cross-border Banking Basal Committee on Banking Supervisions’ 25 Core Principles for Effective Banking Supervision (Principles Covered) S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

26. Other Proposals of the BIS • The Commission recommends that the BIS remain a financial standard setter. • Implementation of standards, and decisions to adopt them should be left to domestic regulators or legislatures. • The Basel Committee on Bank Supervision should align its risk measures more closely with credit and market risk. Current practice encourages misallocation of lending. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

27. Continuation of BIS Proposals • Some streamlining of the BIS organizational structure would be desirable • The Commission recommends that any expansion of membership in the BIS or its committees or groups be undertaken gradually and deliberately to avoid disruption of the information exchange that central bakers find valuable. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

28. Created from the Bretton Woods system, the World Bank is an institution where rich industrialized nations gather money in markets to distribute funds as loans to emerging members. The eventual goal: the Alleviation of Poverty Worldwide The Development Banks S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

29. Multilateral Banks • World Bank Group, Asian Development Bank, Inter-American Development Bank, and African Development Bank • World Bank thought that three banks could serve their constituencies better than a distant institution dominated by industrial countries. • Served as a dominant source of international resources to emerging economies up until the 1980’s. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

30. Problems with Development Banks • Cold War ended, strategic gesture became outmoded • New generation of public and private leadership arose in developing nations. • Dev. Banks differ in financial size; Africa is the smallest with 5-10% of the total amount. • Relative importance of banks has been declining. • In past 7 years, WB has lent $18 billion to LDC’s, as compared to the private sectors $1,450 billion. • WB must accept fact that they are no longer a significant source of funds to emerging economies. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

31. Problems continued… • Developing banks claim they lend to countries with denied access to market financing and private investors…but, all of the banks lend mainly to most credit-worthy countries; basically those that have private investors there already. • International Bank for Reconstruction and Development (IBRD) lending to LDC’s has fallen from 40% to 1% in six years. • 70% of the WB money is loaned out to a dozen economies, while the remaining 30% is divided up by 145 developing countries. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

32. Problems continued… • Crisis lending is IMF responsibility, not the WB’s. • Regional banks repeat the WB organizational structure. Recently, WB expanded its offices in some of the Regional bank areas only creating conflict, competition, and confusion. • Their patterns of lending in past 3 years are very similar: to the same countries and for the same purposes. • WB doesn’t need to pump in more money, the local banks and private investors can recover by themselves. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

33. Recommendations • Development Banks should be renamed as Development Agencies; it would define their role as the alleviators of poverty world wide. • Resource transfers to countries with a per capita income of <$4000 will be eliminated within five years; Starting at $2500, funding will be limited. • Funds expended based on “user fees.” “User fees” consist of working projects such as: vaccinated children, kilowatts of electricity delivered, cubic meters of water treated, passing literacy tests, miles of functioning roads…etc. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

34. Recommendations continued • If the countries show improvement in specific areas, the money will be granted. No results, no funds. • The supplier of the service receives the money, not the government. • An obligation to meet the “user fees” imposes the discipline on the country receiving assistance. This replaces the deferred 20-50 yr payment schedule. • If grants are given instead of loans, receiver countries would not have to pay back the principal and interest. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

35. Recommendations continued • The grants may consume large quantities of money of the Development Agencies and they would have to ask member countries for more money. But this has a positive aspect. It forces the Dev. Agencies to have better performance and credibility to ask for more funding. • Services would be performed by outside private-sector providers (NGO’s and charitable org.) or public-sector entities, and awarded on competitive bid. • Loans would be conditional upon a precise set of reforms, and disbursement would begin after institutional reforms are enacted. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

36. Recommendations continued • Regional programs should be the primary responsibility of their Regional Agencies: Asian, Inter-American, and African Agencies. No overlap from the World Bank and its regional partners. • WB is principal source of aid for ADB until it can manage on its own. WB should be the responsible for the Mid-East and few remaining European countries. • Should concentrate on production of world goods such as: treatment for AIDS, safeguard natural resources, inter-country infrastructure systems…etc. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

37. Recommendations continued • World Development Agency should reduce its role in the private-sector, only giving technical assistance and setting practice standards. Investment, guarantees, and lending to private sector should be eliminated. • Multilateral Investment Guarantee Agency (MIGA) should be eliminated. Many countries already have their own political insurance agencies. • WB and Regional Banks should write-off entirely their claims against all heavily indebted poor countries • The United States should spend more to alleviate poverty. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

38. The Meltzer Commission Chapter 5 The World Trade Organization S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

39. World Trade Organization-GATT • Formerly known as GATT, the General Agreement on Tariff and Trade. • Two principle activities: agreements on nondiscriminatory reductions in tariff duties, quotas and other quantitative restrictions on trade in goods. • Managed dispute settlement procedures arising under the agreements. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

40. WTO • WTO replaced GATT January 1, 1995. • WTO agreement incorporated and extended earlier GATT agreements. • It also made two important additions: S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

41. WTO Commission Recommendations • Two general areas: • General Principles of operation • The role of the WTO in promoting financial stability, safety, and soundness. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

42. General Principles • Two main functions: • administers the process by which trade rules change • the WTO serves as a quasi-judicial body to settle disputes. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

43. Effects of Quasi-judicial • There is some risk that WTO rulings will override national legislation in areas of health, safety, environment, and other regulatory policies. • The commission believes that quasi-judicial decisions of international organizations should not supplement legislative decisions. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

44. More recommendations • Rulings or decisions by the WTO under treaties or international agreements must remain subject to explicit legislative enactment by the US Congress or by the national legislative authority. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

45. This would limit the WTO’s authority to impose sanctions on a country for violation of rules. Benefits: strengthens democratic accountability and precludes delegation and erosion the legislative function. Instead of retaliation, countries guilty of illegal trade practices should pay an annual fine equal to the value of the damages assessed by the panel or provide equivalent trade liberalization. ……… S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

46. Commission recommends rules to enhance financial stability. Such rules can reduce risk, spread best managerial practices, increase competition, and reduce the role of gov’t in the allocation of bank loans. Commission also recommends that explicit min. financial standards be phased in as a condition for assistance from the IMF in a financial crisis. Enforcement of the preconditions should remain the IMF’s responsibility. Rules for financial stability S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

47. In the end... • Proposals and recommendations should be the responsibility of the groups on banking and financial standards. S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

48. The WTO has proved effective in settling disputes about tariffs and trade restrictions. It should not extend its procedures to set domestic policies and regulations, including regulation of banking services, accounting practices, or financial standards. These should remain the responsibility of specialized agencies. Conclusion S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

49. International Monetary Fund By: Dianna Bejarano S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey

50. Beginnings: • Established at the Bretton Woods Conference after WWII to prevent a reoccurrence of monetary & financial instability. • The founders expected the IMF to “make short-term loans to assist countries with payment deficits and to advise countries that failed to remove controls on currents accounts.” S. Hernandez, E. Gonzalez,D. Bejarano, L. Cabanilla,F.Lopez, A. Velez,R.Valencia, R.Ashley, S.Torres,J. Hinojosa, K. Collins, D.Stanko, J. Monterey