Theory of Absolute Advantage
Developed by Adam Smith, it states that a country should produce and export goods it can make more efficiently (using fewer resources) than other countries, and import goods that other countries produce more efficiently
Theory of Comparative Advantage
Introduced by David Ricardo (and later refined by John Stuart Mill), it suggests that a country should specialize in producing and exporting goods in which it has the lowest opportunity cost, even if it does not have an absolute advantage in producing them
But Ricardo’s theory shows why specialization makes sense even if a country is not the cheapest overall — as long as it is relatively cheaper.
Three phases of globalization
Industrialization / British Age: ~1870 to 1913 (From the Industrial Revolution to the outbreak of World War I)
Cold War Era: ~1945 to 1991 (From the end of World War II to the fall of the Soviet Union)
Post-Cold War Euphoria: ~1992 to 2008 (From the collapse of the USSR to the global financial crisis)
De-Globalization -> Financial Crisis fourth phase: 2008
Trade Wars, Covid19, Russia-Ukraine War
First phase of Globalization
Early inter-state law and Conference System
Industrial Revolution + British trade dominance
1860 Cobden-Chevalier Treaty: tariff cuts, MFN model
1873 recession (silver crash) → trade liberalization slowdown
19th Century and the Global South
Latin American independence (1808–1826) ended colonial rule but led to new economic dependencies.
Opium Wars with China resulted in unequal treaties favoring Western powers.
The "Scramble for Africa" (from 1880s) intensified European colonization.
Gunboat diplomacy / big stick diplomacy: use of military force to secure economic/political interests.
Unequal treaties imposed special rights for foreigners (e.g. trade, legal immunity).
Calvo Doctrine: rejected foreign intervention and demanded equal legal treatment.
Opium war
(1839–1842, 1856–1860):
Fought between China and Britain (and later other Western countries).
Britain sold opium to China, and China wanted to stop it.
Britain used its military power to keep trading.
China lost and had to sign unfair treaties:
Gave land like Hong Kong to Britain.
Opened ports for trade.
Gave foreigners special rights.
Scramble of Africa
(1880s–early 1900s):
European countries rushed to take control of land in Africa.
They wanted resources, power, and markets.
At the Berlin Conference (1884–85), they agreed how to divide Africa.
African people were not asked.
This caused many problems later:
Borders cut through tribes.
African economies were used for European benefit.
People lost freedom and land.
Post WW2
Bretton Woods Conference 1944 (International Monetary Fund and World Bank)
GATT 1947
Tariff concessions
preliminary application (“grandfather clause” for Part II, i.e. substantive provisions of code of conduct)
23 members (“rich countries club”
Havana Conference
Havan Conference
Havana Conference 1947, Havana Charter 1948
plans to establish an International Trade Organization (ITO)
not only for trade but also rules on employment, commodity agreements, restrictive business practices, international investment, and services
not established due to US abstention
US Congress disagreement
too protectionist
SOME SAID
too liberal
GATT evolved into a de facto-International (Trade) Organization
Major Principles: GATT 1947
Universal most favoured nation principle
National Treatment
No increased Trade Barriers
Tariffs Only
Regular Negotiations
Grandfather clause
The “Grandfather Clause” in the context of the GATT 1947 (General Agreement on Tariffs and Trade) refers to an exception rule.
The Grandfather Clause allowed member countries to keep existing national laws or measures, even if they conflicted with the new GATT rules — as long as those measures were already in place before the agreement came into effect.
Largest trade negotiation
Uruguay Round (1986-94)
Background: Deteriorating trade policy environment during 1980s, loopholes in agriculture, rise of trade in services
Largest trade negotiation ever (123 participating countries in the end)
Biggest reform of world trading system since GATT 1947 • Covered almost all trade aspects
1993: Maastricht Treaty -> Establishment of EU Pillar System, Maastricht criteria
1994 Marrakesh Agreement: WTO (replacing GATT as IO)
Millennium Development Goals
-> UN Millennium Campaign (2000)
Eradication of extreme poverty and hunger
Universal primary education
Promotion of gender equality and empower women
Reduction of child mortality
Improving maternal health
Combatting HIV/AIDS, malaria, and other diseases o Ensuring environmental sustainability
Developing a global partnership for development
Millennium Development Goals report (2015) “Despite many successes, the poorest and most vulnerable people are being left behind”
Gender inequality persists
Big gaps exist between the poorest and richest households, and between rural and urban areas
Climate change and environmental degradation undermine progress achieved, and poor people suffer the most
Conflicts remain the biggest threat to human development
Millions of poor people still live in poverty and hunger, without access to basic services
Doha Round (started 2001)
2030 Agenda for Sustainable Development
17 Sustainable Development Goals and 169 targets
5Ps:
People
Planet
Prosperity
Peace
Partnership
—> ▪ Trade facilitation (custom procedures,…) ▪ Rules on anti-Dumping, subsidies (fisheries), regional trade agreements ▪ The environment ▪ The WTO dispute settlement mechanism ▪ Improve market access for
Trade agreements today
Bilateral trade agreements
e.g. Agreement on Trade in Wine between EU and Australia, Trade Agreement between US and Israel
Regional Free Trade Agreements, e.g.
NAFTA (was there from 1994 till 2020 between Mexiko, Kanada and the US)
MERCOSUR
EU
Multilateral Trade Agreements
WTO Agreement & its annexes
Principle of WTO law
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