The politics of international economic relations 7th ed

✵ The Politics of International Economic Relations This page intentionally left blank ✵ The Politics of International Economic Relations SEVENTH EDITION JOAN EDELMAN SPERO The Doris Duke Charitable Foundation JEFFREY A HART Indiana University Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States The Politics of International Economic Relations, Seventh Edition Joan Edelman Spero, Jeffrey A Hart Senior Publisher: Suzanne Jeans Executive Editor: Carolyn Merrill Development Editor: David Estrin Assistant Editor: Katherine Hayes Editorial Assistant: Nathan Gamache Associate Development Project Manager: Caitlin Holroyd Senior Marketing Manager: Amy Whitaker Marketing Communications Manager: Heather Baxley Associate Content Project Manager: Sara Abbott Art Director: Linda Helcher Production Technology Analyst: Jamison MacLachlan Senior Print Buyer: Karen Hunt Senior Rights Acquisition Account Manager, Text: Margaret Chamberlain-Gaston Text Researcher: Karyn Morrison Production Service/Compositor: Integra Rights Acquisition Account Manager, Image: Mandy Groszko Cover Designer: Mike Stratton Cover Images: Alex Slobodkin, William Stall, Radu Razvan, and Adam Korzekwa Printed in Canada 13 12 11 10 09 ª 2010, 2003 Wadsworth, Cengage Learning ALL RIGHTS RESERVED No part of this work covered by the copyright herein may be reproduced, transmitted, stored, or used in any form or by any means graphic, electronic, or mechanical, including but not limited to photocopying, recording, scanning, digitizing, taping, Web distribution, information networks, or information storage and retrieval systems, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the publisher For product information and technology assistance, contact us at Cengage Learning Academic Resource Center, 1-800-423-0563 For permission to use material from this text or product, submit all requests online at www.cengage.com/permissions Further permissions questions can be e-mailed to permissionrequest@cengage.com Library of Congress Control Number: 2008942810 ISBN-13: 978-0-534-60274-1 ISBN-10: 0-534-60274-6 Wadsworth 20 Channel Center Street Boston, MA 02210 USA Cengage Learning products are represented in Canada by Nelson Education, Ltd For your course and learning solutions, visit www.cengage.com Purchase any of our products at your local college store or at our preferred online store www.ichapters.com ✵ To Alexis, Eva, and Isabella Spero This page intentionally left blank ✵ Contents PREFACE xv ABOU T T H E AU THORS PART I x vi i An Overview From Management to Governance in International Economic Relations Bretton Woods Interdependence Globalization Conclusion PART II 10 The Western System Governing the International Monetary System The Bretton Woods System 12 14 The Original Bretton Woods System U.S Leadership 16 14 Multilateral Management Under U.S Leadership From Bretton Woods to Interdependence 20 Financial Interdependence and Pluralism 17 20 The Nixon Shock and the Emergence of Floating Exchange Rates 24 Petrodollar Recycling vii 25 viii CONTENTS Interdependence 28 Growing Financial Interdependence 28 Liquidity: The Problem of the Dollar 29 Adjustment Under Floating Exchange Rates 30 Stability and Crisis Management 35 Europe’s Efforts to Build a Regional Monetary System Globalization 42 Globalization of Financial Markets Economic and Monetary Union Adjustment 48 Crisis Management 40 42 46 53 Regional or Country-Based Crises 54 Crises Involving Banks and Other Financial Institutions The Subprime Mortgage Crisis Preventing Future Crises 61 58 59 Global Monetary Governance in the Twenty-First Century International Trade and Domestic Politics 72 The Bretton Woods System 73 The Havana Charter 73 The General Agreement on Tariffs and Trade U.S Leadership 76 Interdependence 79 Structural Change and Protectionism An Old Issue: Agriculture 92 The New Protectionism 93 The Tokyo Round 96 Globalization 98 New Forms of Trade 98 The New Regionalism 100 The Uruguay Round 102 The Marrakesh Agreement 105 New Trade Challenges 107 Shifting Power Relationships 110 The Doha Round Conclusions 115 113 79 74 62 CONTENTS ix The Multinational Corporation and Global Governance 128 Common Characteristics of MNCs 130 Trends in FDI and Other MNC Activities 135 Explaining the Growth in MNC Activity 141 Horizontal and Vertical FDI and the KK Model 141 Internalization Theory 142 The OLI Model 143 Product Cycle Theory 143 Obsolescing Bargain Theory 143 Oligopoly Theory 144 The Tariff-Jumping Hypothesis 145 The Importance of the Home Country 145 The Consequences of MNC Activity 146 Possible Negative Effects of MNCs 148 National Economic Control 150 Interference by Home Governments of Multinationals 153 Multinationals and the National Political Process 155 International Regimes for Foreign Direct Investment National Governance 158 157 Regional Governance 166 International Governance 169 Governance in the OECD 170 Governance in the United Nations 172 Bilateral and Minilateral Governance 173 International Investment Agreements 173 The Multilateral Agreement on Investment 174 Conclusions PART III 175 The North–South System The North–South System and the Possibility of Change 188 Liberal Theories of Economic Development 193 Marxist and Neo-Marxist Theories of Development The Structuralists 195 Contrasting Marxist and Structuralist Perspectives Weaknesses of the Three Perspectives 198 194 197 490 INDEX Group of Ten (G-10), 19–20, 24–25, 49, 61, 228 Group of Three (G-3), 49 groups, behavior of, 351–352 growth, economic, 32, 81, 192 Baker Plan and, 229 consequences of, for LDCs, 214 effect of austerity policies, 228 and FDI, 146 and foreign aid, 246 of highly indebted nations, 228 impact of, 192 intensive vs extensive, 385–386 during interdependence period, 28 of LDCs, constraints on, 214 MNCs and, 146 oil and, 340 as public policy goal, 146 rates, of GDP, 189, 229, 236, 237 source of funds for, 213 Grundig AG, 168 GSP See Generalized System of Preferences Guyana, 302 H Habibie, B.J., 237 Haiti, 240, 247 Halifax Economic Summit (1995), 55–56, 61, 235 Havana Charter, 73, 74, 76, 169, 201, 258, 380 HDTV Grand Alliance, 168 health, quality of See living standards in LDCs health standards, 261, 414 Heavily Indebted Poor Countries (HIPC) initiative, 240 Heckscher-Ohlin (H-O) theory of international trade, 200 hedge fund, 58 Hickenlooper amendment, 311–312 home economy, effect of on internationalization, 145 home government, 305 interference in LDCs by, 153–156, 311–312 right of appeal to, 312 Hong Kong, 205, 240, 264, 270–271 as intermediary in trade with People’s Republic of China, 410 MNCs based in, 325 host countries, 129 avoidance of taxes in by MNCs, 308, 309 benefits to of MNCs, 307, 314 host firm, 128 host government, 313–314, 341, 342 Hull, Cordell, 3, 73 Hüls AG, 163 Hungary, 381, 401, 405 hyperinflation, 393, 402–403, 404 I IBM, 168, 320 ICAs See international commodity agreements IEA See International Energy Agency imbalances of payments, 13, 15, 21, 36 See also United States IMF See International Monetary Fund immigration, 165, 207 imperialism, in Marxist theory, 197 import-substituting industrialization (ISI), 196 import substitution, 201, 202, 204, 257–258, 271–272, 280, 307 India, 9, 189, 214, 216, 232, 240, 278 and MNCs, 316, 322, 325 and FDI, 317, 322, 328–329 oil production in, 357 Indonesia, 214, 216, 232, 236–237, 239 Indonesian Bank Restructuring Agency (IBRA), 237 industrialization, 197, 202, 246, 257–258, 261, 270 industrialized countries conscience of, 242 conservative governments in, 221 cooperation between, 435–436 dependence of on Middle Eastern oil, 361 development aid from, 1950–1955, 213 dominance over oil-producing regions, 340–341 effect of Saudi investment in, 346 and energy markets in 1990s, 361 imports of from LDCs in 1986, 278 influence of, 265 intellectual property protection in, 99 and international equity, 436 INDEX policy toward OPEC, 345 share of world trade, 1950–1960, 261 support for Russian reform, 397–398 and UNCTAD, 262 vulnerability of, 266, 343, 351, 353 weakness of vis-à-vis oil producers, 344, 345, 348, 351, 352, 353, 363 industrial policies, 86 inelastic demand, 341 inequality, 11, 189–190, 195, 245, 242, 259 infant industry, 257, 263 inflation control of, 33–34 and debt service, 220 differential, 25, 31 effect of, 31 in Europe, 49 in Germany, 39 and money supply, 392 in 1980s, 81 after oil shock, 26, 82, 31 in Russia in 1990s, 393, 395, 396 in U.S., 22–23, 24, 32, 83 information technologies, innovations in, 5, 7, 8, 9, 28, 45, 99, 110, 142 infrastructure, 193, 219, 321, 384 instability, 13, 14, 430 Integrated Programme for Commodities, 266 integration of production, international, 133 intellectual property, 99, 104, 175 licensing of, 133, 142 and Uruguay Round, 105–106, 279 U.S.-China dispute, 406 Inter-American Development Bank, 215 inter- and intra-industry trade, 201 interdependence financial, 20, 21, 24 Gorbachev on, 388 and U.S., 22–23, 89 interdependence, system of, 4–7, 10, 28–42, 429–430 development funds in, 217 FDI during, 140 MNCs during, 175 protectionism during, 79–92 tension within, 28 491 interest groups, 427–428 See also environmental interests; nongovernmental organizations interest rates, 8, 21–22, 28, 33–34, 36, 50–51, 221, 225 intergovernmental organizations, 110 internalization theory, 142–143 International Bank for Reconstruction and Development (IBRD), 14, 201 International Center for the Settlement of Investment Disputes (ICSID), 173–174 international commodity agreements (ICAs), 267 International Development Association (IDA), 214, 215, 223 international division of labor, 194 international economy, 257, 435–436 dominance of by industrialized countries, 260 former communist countries and, 416, 431, 432 future reform, 438 and LDCs, 201 management of since World War II, 1–11 as political arena, 428 political influence over, 427 International Emergency Economic Powers Act of 1977, 162 International Energy Agency (IEA), 345, 360, 361, 362 International Finance Corporation (IFC), 214–215 International Fund for Agricultural Development (IFAD), 219 International Investment in Trade and Securities Act (IITSA) of 1976, 162, 171 International Monetary Fund (IMF), 2, 10, 14, 15, 18, 26 China and, 411 and commercial banks, 226–227 compensatory financing facilities, 267–268 in crises of 1990s, 55, 233 in crisis management, 228–229 crisis response of, 61 criticism of, 57, 233, 298 Czechoslovakia and Poland and, 380 492 INDEX International Monetary Fund (IMF) (continued) and disclosure of financial information, 61, 62 and Eastern Europe, 404 Emergency Financing Mechanism, 55 emergency lending facility in, 235 and heavily indebted poor countries, 240 and LDCs, 218–219, 278, 437 lending by to LDCs, 1987–2000, 229 in Mexican debt crisis, 226–227 and national policies, 235 new role of in 1980s, 36 power of, 15, 62 reform of, 437 Russia and, 396–397 Second Amendment to Articles of Agreement, 26–27 and Soviet Union, 380, 381 surveillance by, 55 temporary mechanisms of, 219 use of resources of, 231 international monetary system, 12, 247 domestic vs international considerations, 13 suggestions for improvement of, 63, 64 threatened, 227, 234 international mutual funds, 212 International Petroleum Corporation, 315 International Telephone & Telegraph Company, 312, 313 International Trade Commission, 91 International Trade Organization, 73 interventionism, 201 intra-industry trade, 201 investment, in the East, 388 evolution of, 133 flows, See capital flows; foreign direct investment funds, in Russia, 394 policies, 99, 103–104 rates, 90 and Uruguay Round, 105–106, 279 Investment Canada Act of 1984, 161 invisibles See services Iran, 341, 339 auctioning of oil by, 345 and OPEC, 342, 346, 347, 358–359 relationship with U.S., 350 revolution in, 349 and war with Iraq, 350, 360 Iran-Iraq war, 350, 360 Iran-Libya Sanctions Act (ILSA), 475 Iraq, 339 and Kuwait, 361–362 oil reserves of, 346 oil-production capacity of, 362, 364, 367 and OPEC, 342, 346 and Saudi Arabia, 367 U.N and, 362, 363, 365 and war with Iran, 350, 361 Ireland, 41, 145 isolationism, 4, 433 Israel, 92, 216, 224, 344, 345 Italy, 15, 16, 41 Ivory Coast, 225 J Jamaica, 202, 225, 312, 353 Japan, 17, 23, 435 and ASEAN, 287 and Brady initiative, 231 in Bretton Woods era, 2, and China, 408, 410 Cold War trade policy of, 382 deregulation in, 28, 29, 30, 42 dominance of, 166 economy of in 1990s, 50–51, 110–111 entry into world management system, 38 financial institutions of, 139 foreign aid from, 214, 216, 224 foreign investment by and in, 135, 137, 139–140, 145, 160 GDP in 1990s, 111 in globalization era, 9, 10 globalization in, 42, 45 growth of, 1950–1985, 86–87 importance of foreign oil for, 341 imports of manufactured products, 271 industrial policy, 150, 201 investment rate in, 90 and LDCs, 229 Louvre agreement and, 40 MNCs in, 157, 164–165 nontariff barriers imposed by, 1981–1986, 276 INDEX and OPEC, 345 recession in, 42–43 recovery of, 17, 24, 77 savings rate in, 87 and Soviet Union, 356 trade surplus of, 37, 87–88, 223 Japan Development Bank, 160 Japan External Trade Organization ( JETRO), 160 J-curve effect, 88 Jiang Zemin, 413 Johnson, Lyndon ( Johnson administration), 24, 95, 383 Joint Declaration of the Developing Countries (1963), 262 joint-stock companies, Soviet, 381, 406 joint ventures, 132–133, 128, 167, 313, 316 in China, 411–412 by oil companies, 340 with Soviet Union, 389, 390 Jordan, 382 K Kazakhstan, 339 keiretsu, 88, 145, 159 Kennedy Round, 78, 82, 263 Keynesianism, 458 Khrushchev, Nikita, 214, 406 Kim Dae Jung, 238 Koppers, 152 Korean War, 16–17, 382 Kuwait, 342, 345, 360, 361–362 Kyoto Protocol, 373 L labeling requirements, 261 labor costs, 80, 270, 414 issues, 8, 9, 110, 164, 299, 414 quality of in LDCs, 307 relations, and MNCs, 152, 164, 165, 166 rights, 104, 167, 171, 391, 396, 414; See also employee participation unions, See organized labor labor and environmental standards, 113, 174 land use rights, 409 493 Latin America, 9, 101, 140, 141, 169, 227 and Bretton Woods, 201 Calvo doctrine in, 312 foreign investment in, 299, 320, 327–328 Latvia, 404, 405 LDCs See less-developed countries learning curve, 313 least-developed countries See Fourth World less-developed countries, 96 aid for from Soviet Union, 214 and antiglobalization forces, 175 areas of competitiveness of, 81 balance-of-payments problems, 353 bargaining position of, 303–304, 313–314, 432 borrowing by, 220 in Bretton Woods system, 2, 201–204 capital, need for, 212 cartels of, 267, 350–355 change, demands and plans for, 200, 202–203, 216–217, 219–220, 262, 263, 265 isolationism of, 432 cooperation between, 218 in debt crisis, 25, 36–37 debt strategy for, 231 development strategy of, 319 disparities between, 287–288; See also Fourth World diversity of, 277 divisions among, 203, 204, 217, 262, 263, 266 domestic politics, 193 dual economy of, 195 economic development in, 193 economic importance of, 198 and equity and redistribution, 437 in era of globalization, 7, 8, 204–205 exclusion from international economic governance, 192 expansionary economic policies of, 222 exploitation of, 194–201 export-oriented, 264 exports of, 261, 263–264, 269, 274 FDI in, 137–138, 140, 193–194, 318 financial crisis of early 1980s, 222, 225 financial flows to, 221, 242 financial services markets of, 277 494 INDEX less-developed countries (continued) food shortages, 237 foreign aid, disillusionment with, 216 foreign investment, attitude toward, 312–313, 328 and formerly communist countries, 328 forms of government, 216–217 and GATT and the Uruguay Round, 103, 104, 108, 112, 276, 277–280 at Havana conference, 74 health of population in, 192, 243–244 importance of to U.S., 215–216 imports by, 36, 276 and industrialized countries, 188–190, 194, 257, 265, 272, 275, 432, 437 integration into global financial markets, 44–45 and intellectual property, 98, 99, 279 during interdependence period, in international relations, 213–215 isolation of in Bretton Woods era, 257 labor practices in, 101 labor, quality of, 307–308 liberalization, movement toward, 432 loans to from World Bank, 215 members of WTO, 105, 275 and MNCs, 172, 175, 298–328 need for internal reform, 437 negotiating ability of, 258, 263, 268, 274, 287 new strategies of, 242–243 and NTB codes, 97 and oil, 203, 266, 340, 355, 366–367 oil-importing, 217–218, 312 poorest, debt of, 240–241 poverty of, 194, 195, 229, 241–242, 245 power of, 265 private borrowing by, 220 raw materials, control of, 432 regionalism among, 196, 201–202, 278–284 role of in global decision making, 192–193 service sector in, 310 technology and, 310, 311, 312 terms of trade for, 201 textile exports, 273 and “trade gap,” 262 trade policy of, 257–288 and U.N., 203, 204, 275; See also Group of 77 unemployment in, 309 and VERs, 274 Levi Strauss, 327 Lewis, W Arthur, 197 liberalism, 2, 164, 166, 193, 194, 200, 201, 204, 259, 311, 313 liberalization of capital markets, 47, 56, 233 continuation of, 115 in Eastern Europe, 45 in Europe, 44, 166 financial, 228, 233 of financial systems in Asia, 56 as goal of Bretton Woods, 443 of investment, 232 in Japan after 1970, 87, 159–160 in LDCs, 44 maintenance of, 94 of markets, 106, 115 promotion of, 432 of trade, 76, 78, 232 of U.S financial system, 44 Liberia, 269 Libya auctioning of oil by, 345 as oil exporter, 342 oil reserves of, 362 as oil-producing region, 341 and OPEC, 342, 358–359 purchase by of downstream operations, 360 licensing, 133, 134, 142, 159, 309, 316 Li Peng, 413 liquidity, 12, 16, 19, 25 lira, 41, 42, 54 Lithuania, 404, 405 living standards in LDCs, 245, 246 locomotive theory, 32 Lomé Convention, 266, 287 London Club, 36, 398 London Economic Summit (1991), 397 Long-term Agreement on International Trade in Cotton Textiles, 95 Long-Term Credit Bank, 160 Long-term Textile Arrangement of 1962, 95 Louvre agreement, 40 INDEX M Maastricht Treaty on European Unity, 43, 54, 86, 168–169 MacEwan, Arthur, 200 macroeconomics, 397 majors See seven sisters Malaysia, 239 managed trade, 96 management systems, access to, 192 Mandela, Nelson, 155 manufactures exports of from Asian tigers, 273 price of, 259 as share of LDCs’ exports, 264, 269, 270 manufacturing industries, 303, 313, 384, 385, 388 See also automobile industry Mao Zedong, 406–407, 408 Market Access Group (MAG), 287 market imperfections, 142, 146, 193 Market Opening Sector Specific (MOSS) talks, 92, 102 Marshall Plan (European Recovery Program), 17, 18, 77, 380, 381, 427 Marxism, 195–198, 199–200, 202–203, 204, 379 Matra, 166 Mauritius, 325 Mazowiecki, Tadeusz, 402 Menem, Carlos, 236 Mercosur, 9, 101, 204, 205, 284, 286, 322, 434 mergers, in Europe, 167 Mexico, 36, 44, 46, 55, 81, 202, 204, 225–227, 229, 233, 240, 242 acquisitions by MNCs in, 308 and Brady initiative, 231 and dolphin-tuna case, 109 financial crisis of 1994–1995, 55, 61, 233, 234–235, 239 growth in, 240 and international management, 435 as oil producer, 345 and OPEC, 365 restriction of foreign investment in, 316 U.S aid to, 246 military assistance and expenditures, 197, 222 See also foreign aid, defenseoriented 495 Ministry of International Trade and Industry (MITI), 160 Mitsubishi, 160 MNCs See multinational corporations Model Tax Convention, 171 Mohammad Reza Pahlavi, 341 monetarism, 33, 34 monopoly, 309 Monsanto, 163 moral hazard, 62 Morocco, 225, 353 most-favored nation (MFN) principle, 75, 410 Mozambique, 321 Multi-Fiber Arrangement (MFA), 95, 106, 274 Multilateral Agreement on Investment (MAI), 174 Multilateral Investment Guarantee Agency (MIGA), 223, 319, 321 multilateralism, 430–433, 437–439 multilateral trade management, 83–92, 173–174 Multilateral Trade Negotiations (MTN), 76, 78 See also Doha Round; Kennedy Round; Tokyo Round; Uruguay Round multinational corporations (MNCs), 80, 128, 129, 130–133, 140–144 acquisition by of nationally owned companies, 316 and antiglobalization forces, 175 in Asian tigers, 273 attitudes and policies toward, 150, 158, 165, 175, 298, 299, 313, 315, 316, 320, 328 bargaining power of, 313–314 capitalist managers of, 199–200 competition between, 314–315 concentration of, 299 control and regulation of, 156, 157–158, 166–169, 299, 310, 314, 316, 317, 318 effects of, 146–157 extractive industries, control of, 304 foreign participation options of, 132–133 GATT and, 169 headquarters of, 135, 137 496 INDEX multinational corporations (MNCs) (continued) and home government foreign policy, 311–312 home state, consequences for, 149–150, 155, 158 host country, consequences for, 148, 155, 304–305, 310–312 industrial policy and, 150 international governance of, 169–175 investment of in 1980s, 317 in Japan, 159, 160–161 and LDCs, 202, 220, 229, 274, 278, 302, 305–306, 307, 311, 314, 315, 317, 318 and legislation by home government, 153–155, 165 manufacturing industries, control of, 302 mobility of, 134 and national autonomy, 150–153 and national governments, 157 OECD guidelines for, 170–171 in oil exploration in Russia, 378 power of, 299, 303–304, 305 profits of, 308 regionally based, 283 role of under globalization, 428 significance of in world trade and investment, 135 and social structure, 156 and South Africa, 154 subsidiaries of, co-or minority ownership of, 316, 345 tax evasion by, 151 and technology, 320 and U.S foreign policy, 152–153, 200, 311–312 U.S vs European, 14–15 under NAFTA, 169 value of sales, 133 multinationality, 128 Myanmar, 216, 240 N NAFTA See North American Free Trade Area national champions, 162, 166, 167 national economic autonomy, 21–22, 24, 26, 31, 150–152, 159, 432, 433, 434 nationalism, 215, 312, 313 See also national economic autonomy; sovereignty nationalization, 169, 247, 299–300, 303, 311–312, 313, 315 conditions for, 321 of oil production, 344, 345, 346, 347 in Eastern Europe, 381 national treatment, 75, 165 Nestlé, 162 Netherlands, 134, 215, 225 New Arrangements to Borrow (NAB), 61 New International Economic Order (NIEO), 6, 211, 217–219, 379 newly industrializing countries (NICs) complaints against, 276 divisions within, 204 export-led growth in, 319 FDI flow toward, 322 labor practices in, 101 manufactured exports of, 272 vis-à-vis other developing countries, 266, 270 shift in manufacturing to, 81 status of, 275–276 success of Asian, 204 New Zealand, 168–169 NGOs See nongovernmental organizations NIEO See New International Economic Order Nigeria, 225, 246, 247, 300, 342, 347, 358 Nike, 327 Nikko Securities, 160 Nissan, 160 Nixon, Richard (Nixon administration), 24, 383 nondiscrimination, 75, 77, 84, 97, 109, 169, 171 nongovernmental organizations (NGOs), 110, 175, 299 nontariff barriers (NTBs), 5, 72, 76, 84, 88, 91, 93–94, 96–97, 106 Noriega, Manuel, 312 North See industrialized countries North American Free Trade Area (NAFTA), 44, 100–101, 169, 434 Canada and, 137, 214 LDCs and, 277, 322 INDEX Mexico and, 233–234 trade unions and, 325 North Atlantic Treaty Organization (NATO), 16–17, 153, 382 North Korea, 321 North Sea, oil from, 347, 356, 366, 369 North–South differences, 112 investment flows, 239 relations, 192, 202, 243, 247 trade, 194, 195, 199, 200, 257, 273 Norway, 41–42, 214, 348, 356 O obsolescing bargain theory, 143–144 Occidental Petroleum, 344 OECD See Organization for Economic Cooperation and Development official development assistance (ODA), 215, 222, 223 oil, 338–343, 361–363 consumption of, 348, 355, 366 crises of 1970s, 6, 25–26, 33, 41, 87, 217, 218, 221, 344, 349–350 demand for, 351, 346–348, 349–350, 351 dependence of industrialized countries on, 198 formerly communist countries and, 339 and Gulf War, 361–363 and industrialized countries’ foreign policy, 361–363 industry, 151, 200, 302, 341–342, 312, 317 new sources of, 346 price of, 25, 26, 41, 203, 217, 221, 224–225, 351, 339–345, 349–350, 359–361, 368 producers, 25, 143, 203, 218, 219, 236, 240, 314, 317, 342–343; See also Organization of Petroleum Exporting Countries production, 339, 342, 346, 348, 356 quotas, 359, 360, 362 supply, 358, 371, 372, 340, 343, 347, 349 oligopolistic structure, 303 oligopoly rents, 148 oligopoly theory, 144 OLI model, 143, 144, 145 497 Omnibus Budget and Reconciliation Act of 1993, 49 OPEC See Organization of Petroleum Exporting Countries open trade, 72, 73, 74–75, 102 Organization for Economic Cooperation and Development (OECD), 45, 82, 99 Codes of, 169, 170 and FDI, 140, 175 on foreign investment, 174 guidelines of for MNCs, 178 liberalization of capital movements by, 170–171 on taxation, 173 Organization for European Economic Cooperation (OEEC), 380 Organization of Arab Petroleum Exporting Countries (OAPEC), 375 Organization of Petroleum Exporting Countries (OPEC), 129, 265, 317, 342–344, 346–347, 349, 350 cheating by members, 351 consumer governments and, 345 control of oil prices by, 345, 349, 359 divisions within, 204, 339, 359–361, 366 foreign aid from, 219, 222 and international cooperation, 436 as model, 353 oil production by, 356 and other LDCs, 203, 266 price band mechanism, 368 reasons for success of, 351 share of world market, 355 trade balances of, 357 organized labor, 91, 112, 165, 403 in Czech Republic, 402 and exodus of low-skill jobs, 325–326 and MNCs, 157, 165 right to unionize, 171 Ostpolitik, 390 Overseas Private Investment Corporation (OPIC), 141, 311 P Pacific Rim, 100 Pakistan, 242, 246, 319, 339, 365 Panama, 247, 312 498 INDEX “paper gold,” 20 Paraguay, 284 parent firms, 128, 129, 147, 153 Paris Club, 36, 228, 240, 241 parity, 15 partnership between government and domestic firms, 158 patents, 90, 107, 133, 173 pegging, of currencies, 45 perestroika, 6, 385, 388, 389 performance requirements, 161, 165 Persian Gulf War, 51, 361–363 Peru, 225, 246, 315 peseta, 54 peso (Argentine), 238, 239, 240 peso (Mexican), 226, 236 petrodollars, 220 petroleum See oil pharmaceutical products See intellectual property Philippines, 225, 247 pipelines for Caspian oil, 339 for China, 367 See also Soviet pipeline case piracy, 99 See also intellectual property Plaza agreement, 38, 88, 89 pluralism, 77–86, 383 Poland, 372, 380, 394, 402, 403 population control, 196 population increase, 197, 204, 407 portfolio investment, 129, 233, 234 Portugal, 42, 224 posted price, 340, 342, 343–344, 345 pound, 12, 16, 37, 54 Poverty Reduction Strategy Paper (PRSB), 241 Prebisch, Raúl, 197, 203, 259, 260 predatory pricing, 75 preference schemes, 263, 266 principal supplier procedure, 76 privatization, 8, 229, 232, 394 in China, 413–414 in Czech Republic, 403 in East Germany, 403–404 in Hungary, 381 in LDCs in 1980s, 413 under perestroika, 388–389, 390–391 in Poland, 402–403 under Yeltsin, 393–394, 398 privatization vouchers, 394 procurement policies, of governments, 93, 166 producer cartels, 350, 352 product cycle theory, 143, 144 productivity, 146 in China, 406 compared, 74–75 in the East, 384, 386, 387 and FDI, 146 in former communist countries, 379 MNCs and, 135–136 total factor, 90 of U.S., 90 productivity growth, 90 profits, in capitalism, 197 protectionism, 17, 36, 38, 72, 73, 74, 79–83, 221 and agriculture, 92–93 consequences of, 258, 430 in globalization era, 98–100 in industrialized countries, 93–96, 260, 272, 274, 280 against Japan, 88–89 in Japan, 86, 88, 95 in LDCs, 257–258 new protectionism, 93–96 in U.S., 90, 91, 138 Public Citizen, 174 public health, 243 public policy, 146 Putin, Vladimir, 363, 398–400 Q al-Qaddafi, Muammar, 343 Quad, 102 quantitative restrictions, 75, 86 quotas, 72, 75, 219, 229, 258, 261, 267 R race to the bottom, 109 raw materials, 199, 258, 314, 325 access to by Soviet Union, 380 as bargaining chip, 218 demand for, 195, 200, 265, 266, 268 LDCs’ control over, 265 from LDCs, 195, 231 oversupply of, 355 prices for, 194, 195 INDEX productivity in, 258–259 projected depletion of, 266 in Russian economy, 398 as share of LDCs’ exports, 264 Reagan, Ronald, 34, 103, 222, 383, 390, 411 real, 237 recessions 1974–1976, 26, 202 1980–1983, 33, 34, 82, 221, 222 reciprocity, 76, 168, 258, 263, 268 redistribution of income, 198 regional integration, 196, 202 regionalism, 102, 166–169, 283, 415, 433–434 in 1980s and 1990s, 100–102, 283 in LDCs, 197, 201–202, 283–284 regionalization, 130 remittances of earnings, 317 Renault, 160 renminbi, 56, 412 reparations, 381 repatriation of capital, 169, 194, 308, 321 repatriation of profits, 148, 194, 308 research and development (R&D), 90, 128, 161, 165, 307 resources, 193, 243, 304 See also raw materials right of establishment, 172 Ripplewood, 160 Romania, 378, 381 Rowntree, 162 royalties, 308, 309 ruble, 58, 389, 393, 395, 396, 398, 401 rupiah, 236 rural depopulation, 259 Russia, 56 and accession to EU, 404, 405 budget deficit of, 1991–2001, 393, 394, 397 and Caspian area resources, 363 debt of, 398–399, 396, 397, 398 devolution in, 399 and FDI, 298 financial crisis of 1998, 56, 57, 393, 355 growth in, 1981–2001, 385, 386 industrial sector in, 384, 389 inflation in, 391, 392, 393 499 integration of into Western economy, 396 and MNCs, 322 oil production, 339 private banks in, 398 recovery of after 1998, 399 transition to capitalism in, 402 and WTO, 416 S Saddam Hussein, 362 safeguards, 97, 102, 103, 106, 108, 274, 466 Salinas de Gortari, Carlos, 100 Salomon Smith Barney, 160 sanctions, 363, 372, 382, 383, 432 See also boycotts; embargoes Saudi Arabia, 346, 354 financial problems of, 365, 367 and oil prices, 346, 350, 357 and OPEC, 343, 345, 346–348, 349, 351–352, 358, 367 purchase by of downstream operations, 360 relationship with U.S., 350 savings, 87, 258 screwdriver factories, 466 secondary debt markets, 230, 231 securities markets, in globalization era, 214 seller’s market, 352 Sematech, 163, 168 Semi-Gas, 163 Senate Subcommittee on Multinational Corporations, 156, 165 services, 98–100, 104–105 in Doha Round, 283 vs manufacturing, 273 service sector, 308, 320 and Uruguay Round, 113, 279 seven sisters, 340–342, 345 Shanghai Communiqués, 408 shares-for-loans program, 399 Singapore, 112, 204, 240, 271–272, 288 Singer Sewing Machines, 129 Single European Act (SEA), 43, 46, 86, 167 Slovak Republic, 386, 403, 423 Slovenia, 386, 404 Smithsonian agreement, 24–25 500 INDEX Smoot-Hawley Tariff Act of 1930, 72, 467 “snake in the tunnel,” 41 socialist international economic system, 380 socialist states, 261 See also China, People’s Republic of; Eastern Europe; Soviet Union social structure, 156 Solidarity, 382 South See less-developed countries South Africa, 155 South America See Latin America South Korea, 70, 81, 115, 201, 202, 205, 233, 237–238, 239, 271, 273, 293–294, 300 financial crisis of 1997–1998, 228, 236 and international management, 429 order of reforms in, 411 trade balance, 39 South Vietnam, 216 South–South trade and investment, 196 sovereignty, 6, 8, 9, 12, 39, 42, 62, 104, 174, 321, 432 and the IMF, 57 and the MAI, 174 and MNCs, 310 and NIEO, 314 See also national economic autonomy Soviet pipeline case, 153, 364 Soviet Union, 16, 45, 261, 339, 416–417, 427 agriculture in, 384–385 budget deficit, 1985–1991, 395 and China, 406, 408 during Cold War, 378 and Comecon, 387 and creation of Eastern bloc, 382 debt of, 398 Eastern European trade with, 380 foreign aid from, 214 growth in, 385, 387–388 industrial sector in, 384–385, 389 in interdependence period, 416 interwar relations of with West, 379 and LDCs, 214 natural gas pipeline from, 153, 384 as oil producer, 339, 346 public dissatisfaction in, 388 research in, 387 transition to capitalism in, 393, 416 under Gorbachev, 388–390 Spain, 42, 166 special drawing rights (SDRs), 20, 24, 26, 30, 217, 467 special economic zones (SEZs), 412, 467 specialization, 193, 195 speculation, 31, 46, 236 speculative attack, 236 spontaneous privatization, 391, 401 spot market, 349, 350 STABEX, 266 stagflation, 82 Stalin, Josef, 379 state, 432, 433, 434 See also national economic autonomy state-owned enterprise, 317 state trading countries, 76 stock markets, proliferation of under globalization, 46 stockpiles and stockpiling, 351, 352 strategic alliances, 133 structural adjustment lending, 219 Structural Impediments Initiative (SII), 92, 468 structuralism, 193, 195–197, 201, 262 students, 327, 412 subsidiaries, 128, 129 subsidies, 75, 92, 93, 103, 105, 165, 402 Subsidies and Countervailing Measures (SCM) agreement, 106 substitutes and synthetics, 260, 264, 267, 341, 354 Suharto, 237 Summit of the Americas, 285 sunrise industries, 166 Supplementary Finance Facility, 219 Supplementary Reserve Financing Facility, 61 supply, control of, 354 See also oil, supply supply inelasticity, 351 supply-side economics, 34 surpluses in capitalism, 197 of oil exporters, 217 surveillance, 235 Sutherland, Peter, 105 swaps, 24 Sweden, 41–42, 47, 214, 225 Syria, 214 INDEX T Taiwan, 81, 206, 240, 248, 269–270, 283–284, 299 MNCs based in, 326 order of reforms in, 412–413 People’s Republic of China and, 406 surpluses of, 37 in U.N., 408 and U.S., 408, 412 and WTO, 108 tariffication, 106, 279 tariff-jumping hypothesis, 145 tariffs, 66, 77, 103, 193 imposed against LDCs, 259–260 imposed by LDCs, 202 rates in U.S., 79 taxation, evasion of by MNCs, 152 taxes, on oil, 340, 341, 342, 343, 351 tax havens, 172 technical assistance agreements, 316 technological dependence, 148 technology, 268 control of by MNCs, 308 in the East, 384, 387, 389 innovations in, 430; See also information technologies, innovations in LDCs and, 307–308, 320 offshore drilling, 366 trade and transfer of, 283, 307, 307, 410, 411 See also intellectual property technology industries, 150–151, 198, 167–168, 175, 321, 322, 325, 414, 415 Tequila crisis, 469 terms of trade, 194, 195, 196, 201, 210, 211, 221, 259–261, 269 terrorism, 373 tesobonos, 234, 235 Texas Railroad Commission, 341 textiles, 204, 261, 270, 273–274, 321, 410 Thailand, 56, 253 Thatcher, Margaret, 222 Third World See less-developed countries Thomson CSF, 168 Tokyo Economic Summit (1986), 39 Tokyo Round, 96–97, 268 Tokyo Stock Exchange, 159 Toronto Economic Summit (1988), 231 501 total factor productivity, 90 Trade Agreements Extension Act, 382 Trade and Tariff Act of 1984, 319 trade barriers See tariffs; voluntary restraint agreements trade, international deficits, See imbalances of payments inter- and intra-industry, 201 intrafirm, 146, 147 and LDCs, 195, 257–259, 280 in liberal theory, 193 management of, 79, 257 policy, 72, 78 reform of, 265 related to GNP, 79, 90 restrictions on, 90 shares of different groups of countries in, 1950–1960, 261 theory of, 201 volume of, 79–80, 82, 83 within Europe under interdependence, 83 “trade gap,” 262 trademarks, 107, 133 trade-related aspects of intellectual property rights (TRIPs), 107 trade-related investment measures, (TRIMs), 99, 107, 170, 322 trade unions See organized labor Trading with the Enemy Act of 1917, 153 transaction costs, 142 Trans-European Automated Realtime Gross Settlement Express Transfer (TARGET), 43 transfer prices, 151, 152, 310 transition to capitalism, 350–361, 393, 402 transparency, 110, 434 transportation, cost of, 407 trigger price mechanism (TPM), 95 tropical products, 261, 277, 278 Trudeau, Pierre, 157 Truman plan, 16 Turkey, 228 twin deficits, 36, 40 U Uganda, 269 uncertainty, 314 unemployment, 82–83, 194, 197, 222, 259, 309, 403–404, 412 502 INDEX unfair trade practices, 88–89 unitary tax, 151–152, 165 United Arab Emirates, 347, 360 United Kingdom, 9, 16, 41, 42, 46, 105 at Bretton Woods, 14 and capital flow, 171 colonial relationships, 298 and deregulation, 28 and EU, 435 foreign aid from, 214, 215, 216, 224, 230 investment in, 145 in Iran in 1952, 341–342 and MNCs in, 149, 154 in 19th century, 437 oil production of, 348, 355–356 and works councils, 168 United Nations governance of MNCs by, 172 Group of 77 in, 203 investigation of MNCs, 312 and Iraq, 362, 363 LDCs at, 366–367, 274; See also United Nations Conference on Trade and Development and Libya, 342 support for producer associations, 350 technical assistance programs, 214 United Nations Code on Transnational Corporations, 321 United Nations Commission on Transnational Corporations (UNCTC), 172 United Nations Conference on Trade and Development (UNCTAD), 173, 203, 262, 267–268, 275, 280, 288 United States, 266 access to markets of, 277 antitrust laws of, 154 balance of payments of, 16, 17–18, 19, 22, 23, 35–38, 82, 90, 154 at Bretton Woods, 14, 63 in Bretton Woods system, 2, 3, 4, 10, 63, 73 budget deficit of, 35–36, 49 and Canada, 92 and Caspian oil pipeline, 338 and China, 406, 407, 408, 410 competitiveness of, 90–91 computer industry, 110–111 and debt crisis of 1980s, 36, 227 and debtor countries under Bush administration, 231 and development banks, 215 and EU, 105 exports of, 194, 274–275 FDI by and in, 135–141, 141, 145, 198 foreign aid from, 16, 17, 18, 23, 213, 214, 215, 216, 222–224, 246, 398 foreign investment by, 298, 303, 314 foreign policy, 214, 216, 350, 381–384, 390 and FTAA, 286 GDP in 1990s, 111 globalization and, 433 in globalization era, 9, 10 and Havana Charter, 74, 169 and host countries, 153–155 imports by, 271, 274 in interdependence period, 6–7, 10, 32, 90 as international banker, 16–17 investment rate in, 90 and Israel, 92 and Japan, 30, 42, 77, 80–81, 87–89, 90, 91, 223 and LDCs, 199, 213, 266, 274, 311–312, 342 leadership or dominance of, 3, 4, 6–7, 9, 10, 14, 16–18, 23, 24, 62, 76–79, 83–84, 89–90, 110–113, 112, 156, 166, 167, 298, 427, 433, 436–437 liberalization of financial system of, 44 and Mexican financial crises, 227, 235 military assistance from, 214 military expenditures, 16–17, 18, 23, 24 and multinational expansion, 141–142 new debt strategy, 231 nontariff barriers imposed by, 1981–1986, 276 as oil consumer and producer, 340, 342, 343, 355–356, 366 and oil prices, 342, 355 and OPEC, 345 protection by against Asian tigers, 272 quotas on oil imports, 338, 342, 343 recession in 2001, 432–435 regionalism of, in 1980s, 100 regulation of home country MNCs by, 51–52, 170 INDEX restrictions on foreign investment in, 161–162 sanctions imposed by, 366 tariff rates of, 78 trade policy, 72–73, 74, 76–77, 91–92 unilateralism of, 33–34 in Uruguay Round, 104 United Technologies, 161 upstream, 341 uranium cartel case, 153 Uruguay, 206, 224–225 Uruguay Round, 5, 42, 44–45, 98, 102–105, 274, 277, 436 U.S.-Canada Free Trade Agreement, 92, 161, 174 U.S Display Consortium, 168 U.S Export Control Act of 1949, 381 USSR See Soviet Union V Venezuela, 202, 204, 218, 225, 231, 266, 285 and OPEC, 342, 346–347, 358 balance of payments of, 353 purchase by of downstream operations, 360 vertical integration, 150–151, 340, 353, 390–391 Vietnam, 280, 327, 379, 432 Vietnam War, 22, 23, 216, 383 voluntary export restraint agreements (VERs) See voluntary restraint agreements voluntary restraint agreements (VRAs), 89, 94, 103, 462 Vredeling proposal, 167 W welfare state, 2, 198, 471 Werner Report, 41 Western system, 188 dominance by, in structuralist theory, 197 help from to LDCs, 202 institutionalization of, 192 liberalism in, 193 in Marxist theory, 199 and North–South system, 188 West Germany, 7, 24, 32, 37, 38, 54 503 agreements with Comecon and the East, 380, 387 and debt relief, 228 and deregulation, 34 and inflation, 48 investment rate in, 87 trade surplus of, 37 Westland, 162 won, 238 World Bank, 2, 14, 15, 26 in Bretton Woods era, 213 China and, 411 cofinancing by, 219 criticism of, 233 during debt crisis, 317 and Eastern Europe, 378, 416 economic influence of, 247 expansion of in 1970s, 219 and foreign investment, 318 in globalization era, 248 and heavily indebted poor countries, 240 increase in capital, 223, 229 and LDCs, 214, 276 purpose of, 14, 213 Russia and, 396–397 Soviet Union and, 380, 381 use of resources of, 231 World Intellectual Property Organization (WIPO), 99–100 World Trade Organization (WTO), 10, 105–106, 107–108 accountability of, 110 built-in agenda, 112 China and, 411, 412–413, 411 in dolphin-tuna case, 109 functioning of, 110, 436 and intellectual property, 175 and investment questions, 169 LDCs and, 204, 267 mandates of, 112 meeting in Seattle, 112 Russia and, 396, 397–398, 405 and trade-related investment measures, 431 World War II, effect of, 15 WTO See World Trade Organization X Xerox Corporation, 168 504 INDEX Y Yeltsin, Boris, 363, 392, 393–396, 397 yen, 30, 38, 40, 45, 56, 88, 89 Yugoslavia, 225, 382 Z Zambia, 302, 315 Zhu Rongji, 413 zloty, 402 ... not changed much since the first edition was published This edition of The Politics of International Economic Relations continues the previously established tradition of separating the discussion... discussed in this edition However, many of the complex and interrelated aspects of the upheaval are explained and foreshadowed in The Politics of International Economic Relations For example, this edition... responsibility of the system The oil crisis of the early 1970s led to an effort on the part of these countries to alter the rules of the game and to create what they called a New International Economic