Review of International Relations

1. International Relations
RECAP

2. Lecture
No. 1

3. DEFINITION OF WORLD WAR
“International war is a substantial
arms conflict between the
organized military forces of
independent political units” ( Levy)

4. THE GREAT WAR
F I R S T W O R L D WA R
“ T H E WA R TO E N D A L L WA R S ” W O O D R O W W I L S O N

5. A L L I E D P O W E R S
Central Powers
 Germany
 Austria-Hungary
 Turkey
 Bulgaria
 Russia
 France
 Britain
 Italy
 Rumania
 USA

6. FA M I LY O F
H A B S B U R G
I N T R O D U C T I O N
W O R L D WA R -

7. CO N D I T I O N S :
U LT I M AT U M
•Serbia will eliminate
terrorist
organizations/Secrete
Societies
•Serbia would accept
inquiry given by
Austria Hungary
• Serbia refused two
Ultimatums:
 Black Hand
dismissed
 Austria-Hungary
official will take
parts in
proceedings
against Black
Hand

8. G E R M A N : U LT I M AT U M
•24 hour ultimatum:
required Russia to halt
mobilization.
•12 hour ultimatum:
Required France to
promise neutrality in the
event btw Russia and
Germany.
• To support
Austria Hungary
Germany also
issued two
ultimatums.

9. T R I P L E E N T E N T E
Triple Alliance
 Germany
 Austria-Hungary
 Italy
 Russia
 France
 Britain


11. CAUSES OF THE GREAT WAR
WORLD WAR I
Global Level of Analysis
Structuralism
a. Anarchical Global System
b. Britain Dominance
c. Germany at struggle for Position and Status
d. Miscalculation
e. Alliances: Triple Alliance, Triple Entente
State Level of Analysis
Nationalism
a. Growth of Nationalism
b. Ethic Prejudice
c. Domestic Unrest
Individual Level of Analysis
 Intentional Choice
a. Rational Choice Theory
b. Prospect Theory
Others:
Militarism, Imperialism, Diplomatic Errors and
Propaganda, The Balkan Crisis, Miscalculation

12. SCHLIEFFEN PLAN-1914
• It divided army into three
sections/Groups: A, B, & C
• Small time for Belgium to conquer
• Trains to attack Belgium
• German calculation: Russia would
take time to respond.

13. CONSEQUENCES OF THE WAR
 It changed the face of Europe
 Armistice signed Nov 11, 1918
 Three Empires Collapsed
 Independent States Emerged ( Poland, Czechoslovakia, Yugoslavia,
Finland, Estonia, Latvia, and Lithuania)
 Independence of Ireland from Britain 1920
 Over throw of Czar of Russia by the Bolsheviks.
 The war set up the stage for a determined effort to build a new
global system that could prevent another war.

14. CONSEQUENCES OF THE WAR
 Theories of realism that justified great power
competition, armaments, secret alliances, and balance of
power politics were discouraged. Liberals
 Treaty of Versailles signed in 1919 for peace
 Treaty of Serves signed on August 10, 1920
 Treaty of Lausanne signed on July 24, 1923
 Many turned to liberalism for guidance on how to
manage the global future.
 League of Nations set up in 1920

15. TREATY OF VERSAILLES SIGNED IN
1919 FOR PEACE
• SignedinthecityofFrance
• WarGuiltClause231
• 132$bnreparation
• AlsaceLorre'sgiventoFrancebyGermany
• Germanywasdemilitarized
• LloydGeorge:rebuildingGermany

16. TREATY OF SERVES SIGNED ON
AUGUST 10, 1920
• Allies will control financial administration of
Turkey
•Arab Asia and North Africa separated from
Turkey
•Armenia declared independence
• Greece will control Anatolia, & west Aegean
Islands

17. TREATY OF LAUSANNE SIGNED ON JULY 24, 1923
REPLACE TREATY OF SEVRES
• Written in French Language
• Azan and Bruka ban
• Turkey Declared secular state
• Assets confiscated
• Turkey can’t unearth resources
• Turkey will not collect tax from any ship @Bosporus
• This treaty will end in 2023

18. CAUSES OF CENTRAL POWER DEFEAT
 Schlieffen Plan, failed
 The sea power of Central Power was not as strong as
that of Allied Power
 The entry of US was main factor which contributed to the
Allies of Germany proved burden for it
 The German troops were young and inexperienced

19. Lecture
No. 2

20. World War II
1939 – 1945

21. Allied
UK
USA
France
Poland
Russia after 1941
Axis
Germany
Italy
Japan
Russia

22.  On Oct 17, 1918 Hungary declared
independence
 Czechoslovakia for on 28 Oct,
 Serbia separated
 Poland reestablished
 Franz Josef had died by 1916
 Replaced with Charles I
 Charles exiled to different
locations, finally to Madeira
Austria-Hungary
Dissolution

23. Mustafa Kemal, determined to break
with the Islamic past, first proclaimed
the Turkish Republic (October 29,
1923), and on March 3, 1924, the
Grand National Assembly abolished
the caliphate. The next day
Abdülmecid was exiled.
Ottoman Empire
Dissolution

24. • WilhelmIIwasforcedtoabdicateand
theWeimarRepublicwasdeclared.
• ReparationburdenonGermans.
• WeimarRepublicfailedandNaziParty,
broughttheAdolfHitler
• Austria-HungarydividedintoAustria
andHungary
• TurkeywasdistributedbetweenFrance
andBritain
• Sykes–PicotAgreement1916.
Condition of
Central Powers,
after
WW-One

25. Treaty of Versailles
Failure of League of Nation
Failure of Collective Security
Rise of Dictators in Europe
World Economic Crisis
Policy of Appeasement
Miscalculations
Causes of
Second World
War

26. Treaty of Versailles
SignedinthecityofFrance
WarGuiltClause231
132$bnreparation
AlsaceLorre'sgiventoFranceby
Germany
Germanywasdemilitarized
LloydGeorge:rebuildingGermany
Causes of
Second World
War

27. Failure of League of Nation
• Itwasnotgivendueimportance
• Statesusedotherchannelto
resolvedisputes
• LeagueofNationcouldn’t
influenceInternationalPolitics
• WorldDisarmament
Conferencefailed
Causes of
Second World
War

28. Failure of Collective Security
• IdeaofCSfailedtomaintain
InternationalPeace
• Statesdidn’tsupporteconomic
&militarysanctions
Causes of
Second World
War

29.  Others Are.
Rise of Dictators in Europe
World Economic Crisis
Policy of Appeasement
Miscalculations
Causes of
Second World
War

30.  Russian attack on Poland 1921
 Slovakia Agreement 1935
 Rise of Militarism in Japan
Irrational Boundaries Drawn after WWI
Anti Semitic ( Anti Jews)
2nd Sino-Japan War
Civil War in China
Germany Japan Pact
Rome Berlin Axis Treaty
 Molotov Ribbentrop Pact
Causes of
Second
World War

31. Invasions of Axis Powers:
 ON 1st September Germany attacked on Poland.
 France and England Declared War on Germany
 After Poland Germany attacked on Denmark and Norway
 Belgium and Netherland fall to Germany
 USSR occupied Baltic States and Finland
 Italy joins in hand with Germany and attacks on France in June 1939…
 Germany attacks on France in June 1940 and on 14 June German took control of Paris
 London was attacked directly
 in 1940 Tripartite Pact signed between Italy, Japan and Germany
 Romania joined the tripartite pact
 Germany attacked on Yugoslavia and Greece
 Germany attacked on Russia in June 1941 for Lebensraum…
 Germany occupied the Czechoslovakia in March 19
 on 7 December 1940, Japan attacks on Pearl Harbor
 Japan attacks on Indo-China ( Laos, Cambodia and Vietnam)
 Japan invaded Manchuria in 1939
 Japan invaded China in 1937 and conquered Burma
 Italy absorbed Albania in 1939

32. 32

33. 33

34. Invasions of Allied Powers:
British attacked from its colony of Egypt on it’s Colony on Libya
Allied pushed back Germany and Italy
USA attacked on Morocco
Britain attacked on Sicily and Italy
 Benito Mussolini was forced to quit
 Soviet occupied most of the Europe from Germany
 In 1944 France liberated from Germany
 On April 29, 1945 Germany surrendered
 On April 30, 1945 Hitler suicides
 Britain Liberated Burma, Indonesia, and Philippines from Japan
 August 6, 1945 bombed on Hiroshima- Little Boy
 August 9, 1945 Nagasaki – Fat Man

35. 35

36. Consequences:
 Yalta Conference Feb 1945
 Cold War (1947-1999)
 Rise of Superpowers
 Bipolar System
 WARSA Pact
 NATO
 Berlin was divided into two parts: Berlin Wall
 Decolonization
 UN Set up: October 24, 1945
 Britain and France lost as superpowers
 USA occupied Japan and Liberated it in 1952
 Korea was divided into two parts North( Russia) South(America)
 Civil War in China restarted
 Israel set up
 Holocaust, the Final Solution
 USSR captured 600,000 sq. km from Baltic States
 Poland was compensated with land occupied form Germany
 Euro-Centric System came to an end
 Tunisia liberated in 1943 y7kj

37. Yalta Conference Feb 1945
 Stalin agreed to enter the fight
against the Empire of Japan
 After the war, Germany and
Berlin would be split into four
occupied zones.
37
 German reparations were
partly to be in the form of
forced labour.
 Creation of a reparation
council which would be
located in the Soviet Union.
 Communist Govt installed in
Poland by Russia

38. Impacts of World War II on World Affairs:
 Euro-Centric System came to an end
 US replaced Britain
 US first invented and dropped Atomic Bomb
 Atomic bomb changed the nature of national power
 USSR wanted to expand Communism through revolution
 World divided into bipolar system
 Bipolar system dominated by capitalist and communist blocs.
 The creation of newly independent states of Asia, Africa and
South America

39. Lecture
No. 3

40. Cold War
Part NO.1
1947 TO 1999

41. According to Oxford Advance
Dictionary
Cold war is hostility between nations
involving to use propaganda, threat
economic pressure, but no actual
fighting.
The Dictionary of World Politics
cold war is state of tension
between countries in which
each side adopt policies
designed to strengthen itself
and weaken the other side, line
falling short of actual hot war

42. Bolshevik Revolutions
Fascism and Nazism
Origin of Cold War

43.  Realism
 Ideological Conflict
 Suspicion
 sphere of Influence
Factors behind Cold War

44. Case
Study
No. 2
The
Cuban
Missile
Crisis

45. Political War
Space
War
Military
War
Cold War revolves
around Three Core
Areas;

46.  Yalta Conference Feb 1945
 Potsdam Conference July 1945
 Churchill Iron Curtain Speech March 1946
 Russian East European Policy
 Truman Doctrine
 Marshal Plan
 Formation of COMINFORM- COMECON
 Czechoslovakia under Communist
May 1948
Important Events of
Cold War

47.  Berlin Blockade
 Formation of NATO
 Russian Development Atomic Bomb
 Korean War
 Thaw
 WARSA PACT
 U2 incident
 Cuban Missile Crisis
 Easing of Tension- NTBT, NPT
 Détente
Important Events of
Cold War

48.  Disintegration of USSR
 Replacement of Bipolar System/ Unipolar
 Rise of Democratic-Capitalist Ideology
 Dominance of Western Culture
 Rise of NGOs
 Decrease in Importance of Third World
 Structural Imperialism
 Selective Role of UN Security Council
 Unilateralism
 Imperial Overstretch
 Terrorism
Post
Cold War

49. Lecture
No. 5

50. INTERNATIONAL
TRADE

51. DEFINITIONTO INTERNALTRADE
Internal trade my be defined as the exchange of
goods and services among the residents of the
same country

52. DEFINITIONTO INTERNATIONAL
TRADE
International trade is the exchange of goods
and services between countries. This type of
trade gives rise to a world economy, in which
prices, or supply and demand, affect are
affected by global events.

53. CAUSES OF INTERNATIONALTRADE
 Natural Resources
 Climate /Terrain
 Labour Force
 Specialization

54. ADVANTAGES OF INTERNATIONAL
TRADE
 In reaping the benefits of specialization
 Standard of living generally improves
 Benefits of large scale production
 Expansion of Markets
 benefits of decreasing cost of production
 increase competition
 promote beneficial political links with ECO,
SAARC,
 regional and worldwide integration

55. Expansion inTrade AfterWorld
War-II
■ Productive technology
■ Demand of new Resources
■ Materialism
■ Advancement inTransportation
■ FreeTrade Philosophy: David Ricado
■ Pattern of InternationalTrade N-N (66%), N-S (30), S-S (5.1%)

56. D
i
s
c
u
s
s
i
Trade is not only an
economic issue but a highly
political one. IPE:
International Political
Economy

57. Approaches within IPE
THEORIES OF INTERNATIONALTRADE
 Mercantilism
 Liberalism
 Marxism
 Comparative advantage

58. MERCANTILISM
An economic theory and a political ideology
opposed to free trade, it shares with realism the
belief that each state must protect its own
interests without seeking mutual gains though
international organization (Joshua.p.272)

59. Important Points: Mercantilism
■ Realist approach
■ Dominance Core Principle
■ Anti-Marxist approach
■ Trade in bullion only (EIC, 1500-18)
■ Zero Sum Game
■ Economy for military strength
■ To translate wealth into military power
■ Self reliance
■ Non reliance on INOs, Govt full control
over trade
■ Protect interests at expenses of others
■ rejects the framework of mutual gain
Note: Mercantilist believe that the outcome
of economic negotiations matters for
military power.

60. MERCANTILISM
 Wealth translated into military power
 Restrictions on imports
 Government investment in research and development to
maximize efficiency and capacity of the domestic industry.
 Allowing copyright/intellectual theft from foreign companies.
 Limiting wages and consumption of the working classes to
enable greater profits to stay with the merchant class.

61. EXAMPLES OF MERCANTILISM
 Under the British Empire, India was restricted in buying from
domestic industries and were forced to import salt from the UK.
Protests against this salt tax led to the ‘Salt tax revolt’ led by
Gandhi.
 Some have accused China of mercantilism due to industrial
policies which have led to an oversupply of industrial production
– combined with a policy of undervaluing the currency.

62. LIBERALISM
In the context of international political economy
(IPE) an approach that generally shares the
assumption of anarchy but doesn’t see this
condition as precluding extensive it emphasis
absolute over relative gains and in practice, a
commitment to free trade, free capital flows, and an
open world economy. (Joshua.p.272)

63. Important Points: Liberalism
■ Liberal approach
■ Reciprocity Core Principle
■ Anti-Marxist approach
■ Economy for exchange
■ To translate wealth into gain or loss; gain for one, loss for another
■ Self reliance
■ Non reliance on INOs
■ Protect interests at expenses of others
■ rejects the framework of mutual gain
Note: Mercantilist believe that the outcome of economic negotiations matters for
military power.

64. LIBERALISM
 Removing Barriers to International Investing
 Unrestricted Flow of Capital
 Political Risks Reduced
 By building organization and institutions states can mutually
benefit from economic exchange
 Shared interest in economic exchange

65. Liberalism Mercantilism
Economic Relations Harmonious Conflictual
Major Actors Households, Firms , states’ role
mini
States, it’s role max
Goal of Economic Activity Maximize global welfare, efficiency Serves the national interest,
distribution
Trade Trade is always beneficial, increase
in product quality
FreeTrade
Resources and benefits of trade
goes to state
Protectionism
Raw Material raw material processed by other
states
Raw material gathered and
process
Difference between Mercantilism and Liberalism

66. DEFINITIONTO ABSOLUTE ADVANTAGE
In economics, the principle of absolute
advantage refers to the ability of a party to
produce a good or service more efficiently
than its competitors.

67. Absolute Advantage
If Pakistan can produce
machinery twice as cheaply as
Britain but cotton three times as
cheaply.

68. DEFINITIONTO COMPARATIVE
ADVANTAGE
The Principle that says states should specialize
in trading goods that they produce with the
greatest relative efficiency and at the lowest
relative cost. (Joshua.p.277)

69. EXAMPLES OF COMPARATIVE
ADVANTAGE
 Japan and Saudi Arabia
 Transaction Cost:Transportation,
information processing
 Example of US manufacturing company
 Comparative advantageVs absolute
advantage, next slide

71. FREETRADE
Prof. Lipsey
A world of Free Trade would be one with no tariffs
and no restrictions of any kind on importing or
exporting. In such a world, a country would import
all those commodities that is could buy from aboard
at a delivered price lower that the cost of producing
them at home.

72. IMPORTANCE OF FREETRADE
 The exponent of free trade argue that no any good is imported
unless its net price to buyers is below then domestic one.
 Free of Captive Market
 Promotes world cooperation
 Improve organization and methods of production
 Competitive Markets
 Prevent Monopolies
 it brings, technology, foreign capital, ideas, skills to developing
countries

73. PROTECTIONISM
In international trade the term protectionism refers
to a policy whereby domestic industries are
protected from foreign completion through the
imposition of tariffs and non tariff barriers, the aim
is to impose restrictions on the imports of low price
products in order to encourage domestic industries
producing high priced products.

74. IMPORTANCE OF PROTECTIONISM
 Protectionism saves jobs/ employment/ end unemployment
 Control unfair trade practices- dumping, subsidies
 reduce dependency
 Free trade increase sanctions-Protectionism is solution
 Protectionism save infant industries
 reduce quality of goods
 increase sellers

75. Lecture
No. 6

76. POLITICAL
INTERFERENCE IN
MARKETS

77. POLITICAL INTERFERENCE IN MARKETS
A free and efficient market requires many buyers and
sellers with fairly complete information about the market.
Also, the willingness of participants to deal with each other
should not be distorted by political preferences but should
be governed only by price and quality considerations.
Deviations from these conditions called market
imperfections, reduce efficiency.

78. WHY POLITICAL INTERFERENCE IN MARKETS?
 Tariffs raise the price of imported goods
 Governments also intervene in trade policy for
economic reasons
 To protect jobs and overall industries from
international business
 For the protection of national security.
 Political retaliation as part of a foreign policy
 The protection of producers and consumers is
the key reason for government intervention.
 Governments also use trade policies to improve
human rights with other countries.

79. Methods of Government
Interventions
■ Monopoly
■ Oligopoly
■ Corruption
■ Taxation
■ sanctions
■ Autarky/Autarchy

80. MONOPOLY:
Monopoly is just one supplier of an item, and
can set price quite high. For example De Beers
produces over one third of the world supply
and controls two third of the world markets
for uncut diamonds.

81. OLIGOPOLY:
A monopoly shared by just a few large sellers-
often allowing for tacit or explicit coordination to
force the product up. For example, members of
the OPEC agree to limit oil production to keep
prices up. To the extent that companies band
together along national lines.

82. CORRUPTION:
Another common market imperfection in trade is
corruption; individual receive payoffs to trade at
nonmarket prices, as a result government and
company loss of the benefits, while individual or
official gains increased benefits.

83. TAXATION:
Is another political influence on markets? Taxes are
used both to generate revenue for the
government and to regulate economic activity by
incentives. Government reduce taxes to attract
investors, increases taxes to practice
mercantilism, security reasons and so on.

84. SANCTIONS:
Political interference in free markets is most explicit when government
apply sanctions against economic interactions of certain kinds or
between certain actors. Political power then prohibits an economic
exchange that would otherwise have been mutually beneficial. In 2015,
the United States had trade restrictions on 11 states in response to those
states’ political actions, such as human rights violations. Enforcing
sanctions is always a difficult task because participants have a financial
incentive to break the sanctions through black markets or other means.

85. AUTARKY/AUTARCHY
Definition: A Policy of self-reliance, avoiding or minimizing trade
and trying to produce everything one needs (or the more vital
things) by oneself. Autarky means economic independence as a
national policy, it way to avoid dependency on other states,
especially for a weak state whose trading partner would tend to be
more powerful. Is to avoid trading and instead to try to produce
everything that state needs by itself. Such a strategy is called self-
reliance or autarky. An autarky state’s production cost is very high
and doesn’t have comparative advantage.

86. TRADE
BARRIERS/PROTECTIONIS
M

87. TRADE BARRIERS/PROTECTIONISM
Protection of domestic industries from
international competition, is called Protectionism,
it is contrary to economic liberalism, because
protectionist try to distort free markets to gain an
advantage for the state, generally by discouraging
imports of competing goods or services.

88. Protection: Infant Industry
For instance, when South Korea first
developed an automobile industry, Govt
gave consumers incentives to buy car, later
on industry developed and competed other
companies

89. TARIFFS:
Definition: A duty or tax levied on certain
types of imports (usually as a percentage of
their value) as they enter a country.
(Joshua.p.262)

90. EFFECTS OFTARIFFSARE MENTIONED BELOW.
 Make imported goods more expensive
 Discourage domestic consumers from
consuming foreign goods
 Encourage consumption and production of
domestically produced
 Save infancy period of infant industries
 Tariffs impose to curb dumping
 To correct a temporary balance of payments
disequilibrium

91. NON-TARIFFS:
Definition: Forms of restricting imports other
than tariffs, such quotas (ceilings on how
many goods of a certain kind can be imported)
(Joshua.p.262)

92. NON-TARIFFTRADE BARRIERS ARE
 Subsidies
 Quotas
 dumping
 administrative and technical restrictions. These
are discussed in detail as under.

93. SUBSIDIES
The subsidies means government’s payment made to
domestic firms to encourage export. It can also act as
barrier to trade. Subsidization allows a domestic producer
to under set foreign competition at home. One reason that
agriculture is one of the least competitive of all trade
sectors is that many governments heavily subsidize their
agriculture industry. It keep domestic prices high

94. DUMPING:
Definition: the sale of products in foreign
markets at price below the minimum level
necessary to make a profit. (Joshua.p.261)

95. QUOTA:
A quota is also non-tariff barriers. It is the limits on
the quantity of import. Quota may be mandatory
or voluntary, i.e. some of these are imposed by
importing countries by many other are voluntary
agreed to by exporting countries rather than face
formal restrictions.

96. QUOTA
METHODS
 mandatory
 voluntary

97. ADMINISTRATIV
E AND
TECHNICAL
RESTRICTIONS
Imports are restricted on the grounds that
 they constitute a health hazard
 they do not meet safety and health
regulations in the country.
Administrative restrictions include
 Labelling
 Packaging
 custom policies.
All of them constitute hidden barriers to
free movement of goods and services
between the countries. Their effects are the
same as that of tariffs or any other
instrument of trade restrictions.

98. Economic Nationalism
■ Citizens flow the philosophy of economic
nationalism
■ Used to influence international power, for
example. US citizen ignore liberalism and by
American products only.
■ Boycott of British goods by Indian-economic
nationalism

99. Lecture
No. 7

100. Lecture No. 17
World Trade Organization,
Bilateral and Regional Trade
Agreements

101. General Agreement
on Tariffs and Trade
(GATT)

102. GATT
“General Agreement on Tariffs and Trade (GATT) A
World organization established in 1947 to work for
freer trade on a multilateral basis, the GATT was more
of a negotiating framework than an administrative
institution. It became WTO in 1995”. (Joshua.p.264)

103. Aims and Objectives-GATT
 To follow unconditionally most favoured nation (MFN)
principles
 To carry on trade on the principle on non-discrimination,
reciprocity and transparency
 To grant protection to domestic industry through tariffs only.
 To liberalize tariffs and non-tariff measures through
multilateral negotiations

104. Most Favoured Nation
“A Principle by which one state, by granting
another state MFN status, promises to give it
the same treatment given to the first state’s
most-favoured trading partner”. (Joshua.p.264)

105. GATT, MFN
Principle
• Non discrimination
• Concession granted by one member should extend to all members.
• reduction or increase in trade barriers will be for all.
• Trade would have to be based on reciprocity.
• Non tariff barriers (NTBs) such as quantitative restrictions, were to be
prohibited.
• States confine themselves to tariffs operated by price rather than volume.

106. Activities-GATT
There were two activities of
GATT
 Conference Diplomacy
 Dispute settlement

107. Conference
Diplomacy:
Important
Rounds of
GATT
 Kennedy Rounds-1960s
It is called Kennedy Round because started during the President John Kennedy, it
paid special attention to the growing role of European integration, which the
United States found somewhat threatening.
 Tokyo Rounds-1970s
This round adjusted rules of new conditions of world interdependence when, for
instance, OPEC raised oil prices and Japan began to dominate the automobile
export business.
 Uruguay Rounds-1986
The participant said GATT be renamed the “General Agreement to Talk and Talk”,
a successful conclusion to the round would add more than $100 billion to the
world economy annually. During this round they agreed to set up WTO. Besides
US also forced European state to reduce subsidies US somewhat gained its
objective, France won the right to protect its film industry against US films.

108. Important Provisions of the Uruguay
Rounds of Talks
 Rules to protect intellectual poverty rights of entrepreneurs, entertainment,
industries, and software produces
 Lower tariff and non tariff barriers for manufactured products and other
goods
 formation of new competition in agriculture
 full participation by the developing countries in global trading system
 More effective rules on anti-dumping, subsidies, and import safeguards
 a more effective dispute settlement process
 Creation of World Trade Organization to implement this agreement

109. Criticism
on
GATT
 Every developed country followed such agricultural trade policies which were inconsistent with the GATT
rules.
 Developed countries developed new techniques of trade restrictions such as quota, subsidies, voluntary
export restraints.
 Developed countries concluded bilateral, discriminatory and restriction outside of the GATT rules.
 GATT rules on the subsidies were not clear, or were kept deliberately ambiguous.

110. World Trade
Organization

111. WTO
“An organization begun in 1995 that replaced the
GATT and expanded its traditional focus on
manufactured goods. The WTO created monitoring
and enforcement mechanism”. (Joshua.p.283)

112. WTO and
Third
World
Countries
However, the fact is that international free trade doesn’t increase over all world economic growth. Rather, it
increases the economic growth of the developed countries at the cost of Third world countries.
 The third world countries being unable to produce manufactured goods will not be able to compete with
the developed countries which produce finished goods.
 The result of WTO supervision of the agreement of free trade will increase the market, for the developed
countries and in this process the under-developed countries
 And in this process the imported goods from industrial nations thereby destroying domestic manufacturers.
 WTO treaty would add more than 200 billion dollars in the world income, 174 billion dollar out of them
would go the developed countries.

113. Bilateral, Regional
Agreements

114. NAFTA
The United State, Canada, and Mexico singed
the North America Free Trade Agreement
(NAFTA) in 1994, following a US Canadian
(CUFTA-1988) free trade agreement in 1998. In
NAFTA’s first decade. US imports from both
Mexico and Canada more than doubled, then
fell somewhat. (USMCA), HQ: Washington DC
Video: https://www.youtube.com/watch?v=5cwY7fHNnrM

115. NAFTA

116. FTAA
Politicians in North and South America have long
spoken of creating a single free trade area in the
Western Hemisphere, from Alaska to Argentina-the Free
Trade Area of the Americas (FTAA). To empower him to
do so, President Clinton asked congress in 1997 to
reinstate fast-track legislation. But democrats in
Congress defeated the measure, demanding that free
trade agreement include requirements for labour and
environment standards for other countries.

117. South East Asia Map

118. ASEAN-1967
In 2007, the ten Association of South East Asia Nations
countries met with China, Japan, India, Australia, and New
Zealand to begin negotiation an East Asian free trade area.
The group, unlike some other Asia Pacific IGOs, doesn’t
include the United Sates, but it does include half the world’s
population and some of its most dynamic economies. In
2010, a free trade area went into effect among these
countries. The ASEAN-China FTA is the world’s third largest
free trade area, after the EU and NAFTA.

119. T-TIP
EU and US officials are currently
negotiating the Transatlantic Trade and
Investment (T-TIP), which would lower
tariffs and lower barriers to investment
between the US and the EU.

121. CIS
Commonwealth of Independence States (CIS)
formed by 12 former Soviet republic, remains
economically integrated, although Georgia quit
after its 2008 war with Russia. It was previously a
free trade zone by virtue of being part of single
state with integrated transportation,
communication, and other infrastructure links.

123. MERRCOSUR
The South Cone Common Market (MERRCOSUR),
begun in the early 1990s with Brazil, Argentina,
Uruguay, and Paraguay, which opposed letting
Venezuela in. after Paraguay’s president was hastily
impeached in 2012, Brazil engineered Paraguay’s
suspension from MERCOSUR for ten months, during
which Venezuela was admitted. Chile, Bolivia,
Colombia, Ecuador, and Peru have joined as associate
members.

125. CARICOM
A Caribbean Common Market (CARICOM) was
created in 1973, but the area is neither larger nor rich
enough to make regional free trade a very important
accelerator of economic growth, in 1969, Colombia,
Ecuador, Peru, Bolivia created a group non known as
the Andean Community of Nations, which had
modest success and counts the MERCOSUR
members as associate members.

126. Lecture
No. 8

127. Good Morning

128. Chapter:
Global Finance and
Business

129. Currency System
Gold Currency
Monetary Currency
Convertible Currency
Unconvertible Currency
Hard Currency
International Currency Exchange Rate
Gold Standard System.
Bretton Wood System/Fixed Exchanged Rate
Free Floating System
Managed Floating System
Hyperinflation

130. Currency System
Nearly every state prints its own money. The
ability to print one’s own currency is one of the
hallmarks of state sovereignty. Yet, it is a
globalized system of trade and finance, business
and individuals often need other states’
currencies to do business.

132. Gold Currency
 No world currency
 Sovereign states
 Europe
 World Currency
 Political Instability-Future Value

134. Bretton Woods Agreement-1944
• New Global Monetary System Set up
• Replaced Gold with Dollar
• It Set up IMF and World Bank to Monitor New System
• States had to maintain fix exchange rate
• The system collapsed after 30 years b/c Dollar not = currencies, Dollar = Gold

135. Monetary Currency
 Gold Standard System Vs International Monetary System
 Irrespective of gold and silver
 Makes international economies more efficient
 Today’s Currency System
This Currency is of two types, summed up in
the next slide

136. Hard Currency
“In contrast with nonconvertible currency, hard currency is money that
can be readily converted to leading world currencies” (Joshua.p.312)
 Examples of China and Two Version of Currency in Cuba
 States maintain reserves of hard currency
 These reserves are the equivalent of the stockpiles of gold in
centuries past.
 National currencies are now backed by hard currencies reserves, not
gold.

137. Soft Currency
Soft currencies are usually from countries that
are not too stable (politically and economically) nor
come in the category of "superpowers".
Investments and trade in such currencies is a high
risk. But investors willing to earn more over short-
term can definitely go for such currencies, at their
own risk.

138. Two Types of Hard and
Soft Currencies
Lets-Visit Next Slide

139. Convertible Currency
“The guarantee that the holder of
a particular currency can
exchange it for another currency”.
(Joshua.p.311)

140. Non-Convertible Currency
The holder of such money has no guarantee of being able to trade it
for another currency. Such states cut off from the world capitalist
economy.
 This can be sold, in black markets
 Or dealing with governments issuing currency, but the price will be
low
 Holding of unconvertible currency means loss of money

141. International Currency Exchange
Today, national currencies are valued
against each other, not against gold
or silver. Each state for a different
state’s currency according to
exchange rate.

142. Exchange Rate
“The rate at which one state’s currency
can be exchange for the currency of
another state, since 1973, the international
monetary system has depended mainly on
floating rather than fixed exchange rates”.
(Joshua.p.310)

143. Exchange Rate
There area four exchange methods of exchange rate have been
used to conduct international trade.
 Gold Standard System.
 Bretton Wood System
 Free Floating System
 Managed Floating System

144. Hyperinflation
“An extremely rapid, uncontrolled rise in
prices, such as occurred in Germany in the
1920s and some third world countries
more recently”. (Joshua.p.311)-50%-13000

145. Lecture
No. 8

147. Supply
Demand
Currency Stability
Low Value
Overvalued
Devaluation
Theory of Collective Goods
a) Hegemony (dominance principle)
b) Small Group (Reciprocity Principle)

148. Supply is determined by the amount of money a
government prints, printing money is a quick way
to generate revenue for the government, but more
money that is printed, the lower its price.
Domestically, printing too much money creates
inflation because of the number of goods in the
economy unchanged, but more money is
circulating to buy them with.

149. Demand for a currency depends on the
state’s economic health and political
stability. People don’t want to own the
currency of an unstable country because
political instability leads to the breakdown
of economic efficiency and of trust in the
currency. Conversely, political instability
boosts a currency’s value.

150. Currency Stability is hard to achieve.
Between 2010 and 2015, the US dollar
dropped from over 90 Japanese yen to
under 80, then rose to 120. This kind of
instability in exchange rate disrupts
business in trade-oriented sectors because
companies face sudden unpredictable
changes in their plans for income and
expenses.

151. States often prefer a low value for
their own currency relative to
others because a low value
promotes export and help turn a
trade deficit into surpluses-as
mercantilist especially favor.

152. An overvalued currency, whose exchange
rate is too high, creates a chronic trade
deficit. The deficit can be covered by
printing more money, which waters down
the currency’s value and brings down the
exchange rate.

153. A unilateral move to reduce the value of a currency
by changing a fixed or official exchange rate is
called a devaluation. It causes losses to foreigners
who hold one’s currency (which suddenly losses
value) such losses reduce the trust people place in
the currency. Investors become wary of future
devaluations, and indeed such devaluations often
follow one after another in unstable economies

154. Hegemony (dominance principle)
To maintain hegemony, the world currency is backed
for stability by using influence over the other great
power states, or some other states.
Small Group (Reciprocity Principle)
Under an arrangement among a small group of key
states international exchange rate stability can be
achieved. When states reduce trade barriers on other
states.

156. A company based in one state with affiliated
branches or subsidiaries operating in other
states (Johsua.p.329) MNCs operates on a
worldwide basis in many countries
simultaneously, with fixed facilities and
employees in each. These are in the tens of
thousands worldwide.

157. Industrial Corporation make goods in
factories in various countries and sell
them to businesses and consumers in
various countries, the automobile, oil, and
electronics industries have the largest
MNCs. Almost all of the largest MNCs are
based in G8 states.

158. Financial Corporations also operate
multinational-although oftern with more
restrictions than industrial MNCs. Among the
largest commercial banks worldwide, the
United States doesn’t hold a leading position. It
reflects the US antitrust policy that limits
banks’ geographic expansion.

159. Services (MNCs)
Some MNCs sell services. The McDonald’s
fast food chain and American Telephone and
Telegraph are good examples.

161. “The acquisition by residents of one
country of control over a new or existing
business in another country”
(Joshua.p.331)

162. Foreign direct investments can be made in a variety of ways,
including
The opening of a subsidiary or associate company in a foreign
country
Acquiring a controlling interest in an existing foreign company
By means of a merger or joint venture with a foreign company

163.  Horizontal
 Vertical
 Conglomerate

164. A horizontal direct investment refers to the
investor establishing the same type of
business operation in a foreign country as it
operates in its home country, for example, a
cell phone provider based in the United States
opening stores in China.

165. A vertical investment is one in which different
(type of business) but related business activities
from the investor's main business are
established or acquired in a foreign country,
such as when a manufacturing company
acquires an interest in a foreign company that
supplies parts or raw materials required for the
manufacturing company to make its products.

166. A conglomerate type of foreign direct
investment is one where a company or
individual makes a foreign investment in a
business that is unrelated to its existing
business in its home country. Since this type of
investment involves entering an industry in
which the investor has no previous experience,
it often takes the form of a joint venture with a
foreign company already operating in the

167. Services (MNCs)
Some MNCs sell services. The McDonald’s
fast food chain and American Telephone and
Telegraph are good examples.

168.  Economic Growth. Countries receiving foreign direct
investment often experience higher economic growth by
opening it up to new markets, as seen in many emerging
economies.
 Job Creation & Employment. Most foreign direct investment
is designed to create new businesses in the host country,
which usually translates to job creation and higher wages.
 Technology Transfer. Foreign direct investment often
introduces world-class technologies and technical expertise
to developing countries.
 Host-Home Govt. FDI plays crucial role in the uplifting the
relations among the host and home governments.

169. Strategic Industries. Many countries protect certain strategic
industries, like defense, from foreign direct investment to maintain
control from foreign entities.
Long-term Capital Movement. Some critics argue that once a foreign
investment becomes profitable, capital really begins to flow out of the
host country and to the investor's country.
Disruption of Local Industry. There is some concern that foreign direct
investment may disrupt local industry and economies by attracting the
best workers and creating income disparity.
Mercantilists tend to view foreign direct investment in their own
country suspiciously.
In developing countries, FDI often evokes concerns about a loss of
sovereignty because governments may be less powerful or less wealthy.

170. The End