environment of the international manager(unctad), the united nations' development programme...
TRANSCRIPT
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INTERNATIONAL BUSINESS
ENVIRONMENT
SESSION 4
Regulating International Exchange (1):
key intergovernmental organisations
CAUTION!
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SLIDES ARE NOT ENOUGH TO FULLY GRASP THE
CLASS CONTENTS
YOU ARE ADVISED TO:
Take notes and participate during the class
Read reference textbooks and other materials as
recommended
Thoroughly prepare the assignments
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The environment of international business (reminder)
INTERNATIONAL ENVIRONMENT
National trade
policies
Global economic regulation
Intl. monetary
system
Regional agreements
DOMESTIC / FOREIGN ENVIRONMENT
Culture
Political/legal systems
Economic system
Economic policies
FIRM
Structure Strategy Operations
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PROTECTIONISM HAZARDS AND THE NEED TO
REGULATE INTERNATIONAL EXCHANGE
Section 1
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Protectionism hazards (Paul Krugman)
Negative impact on domestic economy
Rent-seeking behaviour leading to higher prices for consumers, less incentive to quality and innovation
Public choice
Strategic trade policies are likely to be captured by private interest groups who will distort it to their own ends
Non-cooperative behaviour
Strategic trade policies aimed at establishing domestic firms in a dominant position in a global industry are beggar-thy-neighbour
policies that boost national income at the expense of other countries
Retaliation and trade wars
Countries that enforce protectionist measures will probably provoke retaliation
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Lessons from the Great Depression
Average tariffs on imports
World trade and production
http://www.voxeu.org/index.php?q=node/3280
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Lessons from the Great Depression
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A sharp contraction of world trade
Lessons from the Great Depression
Until the Great Depression of the 1930s, most countries had some
degree of protectionism, that deepened the effects of economic
crisis.
After the 2nd World War, developed countries recognised
The value of free trade
The need to regulate international economic relations among
nations in order to avoid trade wars
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Regulating international exchange
International monetarysystem
Foreign direct investmentInternational trade
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Various regulation institutions
The General Agreement on Tariffs and Trade (GATT), later World
Trade Organization (WTO)
The United Nations (UN), including the International Labour Office
(ILO), the United nations Council for Trade and Development
(UNCTAD), the United Nations' Development Programme (UNDP)
The International Monetary Fund (IMF)
The International Bank for Reconstruction and Development (World
Bank)
The Organisation for Economic Cooperation and Development
(OECD)
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THE WORLD TRADE ORGANISATION
Section 2
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The EU-US steel dispute: questions
1. What is the case for removing tariffs on international trade in steel (please explain)?
2. What were the official and actual reasons why the US nonetheless imposed tariffs on imported steel?
3. Why were the tariffs criticized both inside and outside the US? Why was Europe specifically concerned?
4. What were WTO's conclusions about the tariffs? Why did the US government eventually lift them?
5. The EU eventually avoided retaliating both before and after WTO's conclusions were issued. Why?
6. Which international trade theory(ies) would best apply to this case?
7. In which sense is this case illustrating the ambiguous position of the US with regards to free trade?
8. Can the WTO's decision be considered as an attempt against US sovereignty?
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The steel dispute: debriefing [1]
Case for trade liberalisation
Specialisation / economies of scale and competitive pressure, leading to lower prices
Beneficiaries: US competitive mini-mills, European, Russian and Brazilian steel producers, steel consuming industries, end consumers
Losers: non-competitive integrated US producers
Justification of tariffs
Official: massive surge in US imports jeopardizing domestic producers
Actual: protecting non-competitive US producers in order to gain votes ("public choice" issue)
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The steel dispute: debriefing [2]
Effect on the EU:
Loss of US markets
Trade diversion from other steel producing countries, leading to increasing competitive pressure on EU markets
WTO actions, conclusions and decision
Panel is appointed to deal with dispute
Conclusions: no massive surge in imports
EU is allowed to impose retaliation tariffs. Basis for further negotiation. Reasons for not retaliating: fear of trade war
US participation in WTO has always been ambiguous
The US was a founder member of the GATT
US is generally free-trade supporter, but often blamed for impeding trade when domestic interests are at stake
WTO decisions are based on diplomacy and free will: no attempt against US sovereignty
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A few questions …
1. What is the WTO?
2. What the difference between the WTO and its predecessor, the GATT?
3. What does the WTO do? How does it do it?
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A negotiating forumThe WTO is a place where member governments go, to try to sort out
the trade problems they face with each other
The WTO was born out of negotiations, and everything the WTO does is the result of negotiations
A set of rulesWTO agreements, negotiated and signed by the bulk of the world's
trading nations provide the legal ground-rules for international commerce
They are essentially contracts, binding governments to keep their trade policies within agreed limits
A place to settle disputesThe dispute settlement process written into the WTO agreements aims
to settle differences through some neutral procedure based on an agreed legal foundation
The WTO in brief (http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm)
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Before the WTO: the GATT
General Agreement on Tariffs and Trade (GATT) was created by
Geneva agreement (October 1947), parallel to International Trade
Organisation negotiations
Signed by 23 nations
Aims: promote free trade, regulate international trade, settle trade
disputes
Principles and clauses
Reciprocity
Non-discrimination
Transparency
No quotas + Reduction of tariff barriers
Most favoured nation
Several "negotiation rounds" held between 1947 and 1995
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GATT rounds
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The WTO was born from the GATT in 1995 (Marrakesh Agreement)
Current director-general: Pascal Lamy (French, former EU
Commissioner for Trade)
153 Member States in 2009 (incl. China)
Enlarged negotiations (Singapore issues)
Agriculture
Services
Foreign investment
Public procurement
Negotiation rounds:
Millenium Round aborted in 1999
Doha Round launched in November 2001
Includes a Dispute Settlement Body
From GATT to WTO
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The WTO's governance
The Ministerial Conference is the top decision-making body, that can take decisions on all matters under any of the multilateral trade agreements
Day-to-day work is handled by the General Council, that also meets, under different rules, as the Dispute Settlement Body and as the Trade Policy Review Body
Six committees report to the General Council
Three more councils report to the General Council:
The Council for Trade in Goods (Goods Council)
The Council for Trade in Services (Services Council)
The Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS Council)
Each council has several subsidiary bodies
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http://www.wto.org/english/thewto_e/whatis_e/tif_e/organigram_landscape_e.pdf
The WTO's governance
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Decision-making at the WTO
Decisions are normally taken by consensus
Major decisions are made by the membership as a whole, through various councils and committees. Power is not delegated to a board of directors or the organization's head
Rules are enforced by the members themselvesunder agreed procedures that they negotiated, including the possibility of trade sanctions. Those sanctions are imposed by member countries, and authorized by the membership as a whole
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The WTO and trade liberalisation: Doha (development Round)
Aims
► Opening of agricultural and manufacturing markets
► Extension to trade-in-services (GATS) and intellectual property regulation (TRIPS)
► Fairer trade rules for developing countries
Issues
► Cutting tariffs on industrial goods and services
► Phasing out subsidies to agricultural producers
► Reducing barriers to cross-border investment
► Limiting the use of anti-dumping laws
Several meetings
► Intergovernmental meetings: Cancún (2003), Hong Kong (2005)
► Negotiation meetings: Geneva (2004, 2006, 2008), Paris (2005), Potsdam (2007).
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The failure of the Doha Round
The Doha trade round has collapsed in a welter of acrimony with much finger-pointing between the world's two richest trading blocs, the US and the EU.
The stumbling block was farm subsidies, with the Europeans and the Americans accusing each other of not going far enough in cutting back support for their
respective farmer communities. So western farmers will be one group that will be pleased that Doha has gone off the rails. […] Agriculture's share of global GDP has fallen from one-tenth in the 1960s to about 1/30th today. In the developed world, the sector accounts for only 1.8% of GDP and only a little more as a percentage of
the labour force.
But if agriculture matters less and less for the rich countries it matters a great deal for the poor countries […]. So the promise of Doha, called the development round,
has gone unfulfilled and Africa stands to lose the most. The danger for African countries, as NGOs see it, is that the EU will drive hard bargains in regional trade
agreements - the so-called economic partnership agreements (EPAs), the EU wants to sign with African, Caribbean and Pacific countries to replace previous trade
arrangements.
Mark TRAN in The Guardian, 24 July 2006http://www.guardian.co.uk/news/blog/2006/jul/24/dohadeadasdo
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The failure of the Doha Round
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Kevin Kallaugher, The Economist
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Is trade compatible with development?
"Calling for trade liberalisation is putting the cart before the horse: when poor countries have stronger economies they will
be in a better position to trade.
The history of industrial capitalism since the mid-18th century has shown that there has not been a single country - not Britain,
not the US, not Germany, Japan or China - that has developed without protecting its infant industries.
Growth, in other words, leads to trade and not vice versa".
Larry ELLIOT in The Guardian, 27 January 2009
http://www.guardian.co.uk/news/blog/2006/jan/27/post64
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A growing number of "regional" agreements [1]
Since the creation of the GATT and its successor the WTO, 362 regional trade agreements have been notified to the WTO, of which 211 are
currently in force. But if we take into account agreements that are in force but have not been notified, those signed but not yet in force, those
currently being negotiated, and those in the proposal stage, we arrive at a figure of close to 400 agreements that could be implemented by 2010. […]
[R]egional trade agreements have inherent limitations. […] The GATT and now the WTO recognize the conditional right of Members to form regional
trade agreements and to the extent necessary, to set aside some WTO obligations. The WTO also recognizes that regional trade agreements are exceptions to the multilateral principle of the WTO and therefore, when challenged, it is for the regional trade agreement Member to justify its
WTO compatibility.
Pascal LAMY / http://www.wto.org/english/news_e/sppl_e/sppl46_e.htm
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A growing number of regional agreements [2]
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The Economist
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The WTO and trade dispute settlement
http://www.wto.org/english/res_e/webcas_e/webcas_e.htm#intro
Environmental standards for gasoline (Venezuela and Brazil vs. US)
Sound recordings (US and EC vs. Japan)
What are these cases about? What are the principles referred to? What were the steps taken to address the issues?
Why is the first case specifically interesting? What is missing in this movie?
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The dispute settlement body
A dispute arises when a member government believes another member government is violating an agreement or a commitment that it has made in the WTO.
Settling disputes is the responsibility of the Dispute Settlement Body (the General Council in another guise), which consists of all WTO members.
The DSB has the sole authority to establish "panels" of experts to consider the case, and to accept or reject the panels’ findings or the results of an appeal.
The DSB monitors the implementation of the rulings and recommendations, and has the power to authorize retaliation when a country does not comply with a ruling.
http://www.wto.org/english/thewto_e/whatis_e/tif_e/disp1_e.htm
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The
dis
pute
set
tlem
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roce
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The dispute settlement procedure (simplified)
http://www.wto.org/english/thewto_e/whatis_e/tif_e/disp2_e.htm
Complaint is launched
DSB "Good Faith Consultations"
(90 days)
CASE SETTLED
Expert panel appointed
Expert panel conclusion
DSB decision
Appellate Body review
No agreementNo agreement
Plaintiff retaliation
Implementation
Arbitration
No agreement
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Assessing action of the WTO
A major economic cooperation forum
A legitimate international trade regulator
Limited progress with regards to actual trade liberalisation
A focus on trade, leaving capital and labour movement aside
A bias towards liberalisation and deregulation
Unbalanced agreements, favouring developed countries
Primacy of trade issues over social or environmental ones?
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OTHER INSTITUTIONS
Section 4
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The United Nations (UN)
The United Nations is an international organization founded in 1945 after the Second World War by 51 countries committed to maintaining international peace and security, developing friendly relations among nations and promoting social progress, better living standards and human rights.
The Organization can […] provide a forum for its 192 Member States to express their views, through the General Assembly, the Security Council, the Economic and Social Council and other bodies and committees
The relationship between the United Nations and the international business community has grown over the past several years due to a series of partnerships and alliances between the Organization and the private sector.
http://www.un.org/en/aboutun/index.shtml, http://www.un.org/en/business/index.shtml
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http://www.un.org/aboutun/chart_en.pdfhttp://www-personal.umich.edu/~graceyor/un60/unchart.gif
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The UNCTAD
Established in 1964, United Nations Conference for Trade and Development (UNCTAD) promotes the development-friendly integration of developing countries into the world economy.
The organization works to fulfill this mandate by carrying out three key functions:
It functions as a forum for intergovernmental deliberations, supported by discussions with experts and exchanges of experience, aimed at consensus building.
It undertakes research, policy analysis and data collection for the debates of government representatives and experts.
It provides technical assistance tailored to the specific requirements of developing countries, with special attention to the needs of the least developed countries and of economies in transition.
http://www.unctad.org/Templates/Page.asp?intItemID=1530&lang=1
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The UNCTAD and bilateral investment treaties (BITs)
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Bilateral investment treaties (BITs) are agreements between two countries for the reciprocal encouragement, promotion and protection of
investments in each other's territories by companies based in either country.
Treaties typically cover the following areas: scope and definition of investment, admission and establishment, national treatment, most-
favoured-nation treatment, fair and equitable treatment, compensation in the event of expropriation or damage to the investment, guarantees of free
transfers of funds, and dispute settlement mechanisms, both state-state and investor-state.
For the past decade, UNCTAD has been actively monitoring and analysingthe increase in the number of bilateral treaties (BITs) for the promotion and
protection of foreign investments.
http://www.unctadxi.org/templates/Page____1006.aspx
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The International Labour Office (ILO)
The International Labour Office (ILO) was founded in 1919 and became
the first specialized agency of the UN in 1946. It is located in Geneva.
The ILO is a tripartite agency that brings together governments,
employers and workers in common action to promote decent work
throughout the world.
It is the global body responsible for drawing up and overseeing
international labour standards, through the adoption of Conventions and
Recommendations, sometimes referred to as the "International Labour
Code". The adoption of a Convention allows governments to ratify it, and
then make it a treaty in international law.
A wide range of issues: freedom of association to health and safety at
work, working conditions in the maritime sector, night work,
discrimination, child labour and forced labour.
http://www.ilo.org/global/lang--en/index.htm
http://actrav.itcilo.org/actrav-english/telearn/global/ilo/law/lablaw.htm#ILO_Conventions
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The International Monetary Fund (IMF)
UN agency created in July 1944, based in Washington (US)
187 members in 2010 Rationale:
Avoid a repetition of the chaos that occurred between the wars
Assist the reconstruction of the world's international payment system
Stabilize exchange rates
… promote international exchange
Objectives today: foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, reduce poverty
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The IMF and other players
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http://www.treasury.gov.au/documents/677/HTML/docshell.asp?URL=imf_challenger.asp
The World Bank (http://www.worldbank.org)
The World Bank – also called International Bank for Reconstruction and Development (IBRD) – is an international financial institution that provides leveraged loans to poorer countries for capital programs with a goal of reducing poverty.
The World Bank is a UN affiliate
It comprises two institutions:
The International Bank for Reconstruction and Development (IBRD)
The International Development Association (IDA)
Their work is complemented by that of
The International Finance Corporation (IFC)
The Multilateral Investment Guarantee Agency (MIGA)
The International Centre for the Settlement of Investment Disputes(ICSID).
The WB gathers 186 members, its current President is Robert Zoellick(former U.S. Trade Representative)
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World Bank resources and activities
Funding
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in the world's financial markets.
IBRD earns a small margin on lending, but the greater proportion of its income comes from lending out its own capital. This capital consists of reserves built up over the years and money paid in from the Bank's 185 member country shareholders.
Loans
Two basic types of loans and credits: investment operations and development policy operations.
Analytic and Advisory Services
Economic research and data collection on broad issues such as the environment, poverty, trade and globalization
Country-specific, non-lending activities: evaluation of a country's economic prospects by examining its banking systems and financial markets, as well as trade, infrastructure, poverty and social safety net issues, for example
Capacity Building
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The ICISD
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ICSID is an autonomous international institution established under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States with
over one hundred and forty member States.
ICSID does not conciliate or arbitrate disputes; it provides the institutional and procedural framework for independent conciliation commissions and arbitral tribunals constituted in each case to resolve the dispute. ICSID has two sets of procedural rules
that may govern the initiation and conduct of proceedings under its auspices. These are: (i) the ICSID Convention, Regulations and Rules; and (ii) the ICSID Additional Facility
Rules.
The ICSID Convention provides the basic procedural framework for conciliation and arbitration of investment disputes arising between member countries and investors that
qualify as nationals of other member countries. This framework is supplemented by detailed Regulations and Rules adopted by the ICSID Administrative Council pursuant to
the Convention. The Additional Facility Rules authorize the ICSID Secretariat to administer certain types of proceedings between States and foreign nationals which fall
outside the scope of the Convention.
http://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=RightFrame&FromPage=Dispute Settlement Facilities&pageName=Disp_settl_facilities
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The OECD (http://www.oecd.org/pages/0,3417,en_36734052_36734103_1_1_1_1_1,00.html)
History
The Organisation for European Economic Co-operation (OEEC) was created in 1948 to help administer the Marshall Plan for the reconstruction of Europe after World War II.
It became the OECD in 1961
Nature
International organisation of 34 countries that accept the principles of representative democracy and free-market economy.
Located at the "Château de la Muette" (Paris).
Purpose
Forum where peer pressure can act as a powerful incentive to improve policy and implement "soft law"
Compare policy experiences, seek answers to common problems, identify good practices, and co-ordinate domestic and international policies.
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OECD's organisation
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http://www.oecd.org/pages/0,3417,en_36734052_36761791_1_1_1_1_1,00.html
CouncilOversight and strategic
decisions
Member countries and European Commission
Consensual decision-making
SecretariatAnalysis and proposals
Secretary-General, Deputy Secretary-
Generals, Directorates
CommitteesDiscussion and
implementation
Member countries + Observers + possibly
Secretariat
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The OECD and international trade
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It is well established that by liberalising trade and capitalising on areas of comparative advantage, countries can benefit economically. Use of resources - land, labour,
physical and human capital - should focus on what countries do best.
Consumers ultimately benefit because liberalised trade can help to lower prices and broaden the range of quality goods and services available. Companies can benefit
because liberalised trade diversifies risks and channels resources to where returns are highest. When accompanied by appropriate domestic policies, trade openness also
facilitates competition, investment and increases in productivity.
Trade reforms, even if beneficial for a country overall, may negatively affect some industries or some jobs and many commentators worry about negative effects on the environment. The solution to these problems is not to restrict trade. They should be
tackled directly at source through labour, education and environmental policies.
The OECD aims to create better understanding of how trade openness can best influence economies in member countries as well as in the major emerging and non-
member economies.
http://www.oecd.org/document/2/0,3343,en_2649_37431_41049090_1_1_1_1,00.html
The OECD and international investment
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The Code of Liberalisation of Capital Movements and the Code of Liberalisation of Current Invisible Operations constitute legally binding
rules, stipulating progressive, non-discriminatory liberalisation of capital movements, the right of establishment and current invisible transactions
(mostly services).
Implementation of the Codes, in particular by removal of restrictions on cross-border capital flows and trade in services and the concomitant lifting
of country reservations against the Codes, involves "peer pressure" exercised through policy reviews and country examinations to encourage
unilateral rather than negotiated liberalisation.
http://www.oecd.org/document/63/0,3746,en_2649_34887_1826559_1_1_1_1,00.html
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The OECD and international investment: the MAI
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Under the terms of reference that governments set themselves, the Multilateral Agreement on Investment (MAI) was to be a "free standing
international treaty, open to all OECD Members and the European Communities, and to accession by non-OECD Member Countries".
Its proposed objective was to "provide a broad multilateral framework to for international investment with high standards for the liberalisation of
investment regimes and investment protection and with effective dispute settlement procedures". Many key documents were made available during the negotiating period, including successive drafts of the full MAI text and
commentaries.
After intense negotiations during a three-year period until May 1998, and a six-month pause during which no official meetings of negotiators took place,
negotiations ceased in December 1998.
http://www.oecd.org/daf/mai/intro.htm
Other players: international forums
The Group of Eight (G-8, formerly G-6) was a forum for governments of eight nations of the northern hemisphere (in addition, the European Union is represented, but cannot host or chair)
G-8 heads of government hold an annual meeting. G-8 ministers also meet throughout the year, such as the G-7/8 finance ministers (who meet four times a year), G-8 foreign ministers, or G-8 environment ministers.
Brazil, China, India, Mexico, and South Africa have participated as guests in previous meetings, which are sometimes called G-8+5
The G-8 was replaced in 2009 by the G-20, a forum for cooperation and consultation on matters pertaining to the international financial system
The G-20 developing nations (also G-21, G-22 and G-20+): it is a bloc of developing nations established on 20 August 2003 to defend their interest with regards to the US and the EU
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Other players: the growing role of NGOs
Non-governmental organizations (NGOs) are legally constituted, non-governmental organisations created by natural or legal persons with no participation or representation of any government.
The number of internationally operating NGOs is estimated around 40,000.
NGOs operate in various fields such as education, environment, consumer rights, market advocacy, …
Globalisation gave rise to the importance of NGOs, as many problems could not be solved within a nation, while international treaties and international organizations such as the World Trade Organization were perceived as being too centered on the interests of capitalist enterprises.
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The example of the TABD
The TransAtlantic Business Dialogue (TABD) was conceived to promote closer commercial ties between the U.S. and European Union. The TABD's goal is to
help establish a Barrier-Free Transatlantic Market which will serve as a catalyst for global trade liberalisation and prosperity. Unified markets are
needed to create a business environment which will stimulate innovation and economic growth, increase investment and create new jobs.
The TABD is Co-chaired by a US and European CEO and/or chairman for a period of two years. The Co-chairmen lead an Executive Board of another 29
CEOs and/or chairmen representing major American and European companies with strong transatlantic credentials, who together make up the membership of the TABD. The TABD is funded exclusively by the companies
that participate in the process.
Among other accomplishments: through the efforts of TABD and others, the US and EU agreed in 2006 a EU- US Action Strategy for the Enforcement of Intellectual Property Rights, naming the TABD as a key interlocutor for both
strategy development and execution.
http://www.tabd.com/index.php?option=com_frontpage&Itemid=71
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The example of the WSF
The World Social Forum (WSF) developed as a response of the growing international movement to neo-liberal globalisation and the effects of neo-liberal economic
policies being pursued in most countries.
While international financial and trade institutions like the World Bank, the International Monetary Fund and the World Trade Organisation make prescriptions to be followed by countries across the globe that affect the lives of people all over
the world, the effects of such decisions are poorly understood in many cases. People in developing countries, as well as the poor and excluded sectors of developed
countries continue to grapple with new situations that are being thrown as a result of the thrust towards globalization.
The World Social Forum was conceived as an open meeting space for deepening the reflection, the democratic discussion of ideas, the formulation of proposals, the free
exchange of experiences and the articulation of civil society organizations and movements that are opposed to neoliberal globalisation and the domination of the
world by capital and by any other form of imperialism.
http://www.wsfindia.org/?q=node/2
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