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Chapter 12

Rules for Sharing the World’s Wealth

· A Brief History of Economic Relations 356

· Governance from the North 359

· Standardizing the Global Economy 363

· Intellectual Property Rights 364

· Commercial Arbitration 366

· Globalism versus Regionalism 368

· Governance of the South 370

· Four Economic Flows in the North–South Relationship 374

· Counter-productive Issues for the Global Economy:

· Organized Crime, Corruption, and the Pursuit of Non-economic Goals 380

Economic life is a fundamental dimension of humankind. Humans have always had to meet their needs of clothing, shelter, and food in some manner, whether with their own hands or through bartering and trading with others. At the first opportunity, people have also pursued wants such as silk, gold jewelry, and spices for their food. Across history, this pursuit of needs and wants first created a local, then national, and finally a global economic system of producing, distributing, and using wealth. Governance of global economic interchange emerged slowly, but then accelerated after the Second World War with a “thick” set of rules and IGOs. Differing views on organizing and managing the economic system have been contentious at times with the free market economists opposing Marxist views of the communist states as well as the socialist outlook of the Third World. The free market model, backed by the hegemony of the United States, has mostly prevailed. International law has played a key role in securing an economic world order based on free market principles. International law’s contribution is borne out by the large number of agreements regulating bilateral and multilateral trade, the treaties creating regional and global IGOs for economic governance, and even the soft law involving codes of conduct for guiding the behavior of MNCs. This chapter begins with a brief history of contesting economic philosophies and the free trade model’s strong ascent in the face of its challenges. Governance under free trade rules, the preferred rules of the richer, more developed states, is covered in the next section. Sections on standardization, intellectual property rights, and arbitration follow as specialized aspects of global governance. A section then appears on the issue of whether a global or regional approach to governance is more effective. The subsequent section concerns the effort to rewrite the rules of the prevailing economic order on the part of the poorer developing states. After this, a section on four economic flows trade, aid, investment, and loans–elaborates the relationship between the rich and the poor states. The last section deals with the economically counter- productive issues of crime, corruption, and the pursuit of non-economic goals.

A Brief History of Economic Relations

Trade undoubtedly predates the historical record since goods that are needed and wanted have always been geographically distributed in a haphazard manner. Known history is replete with trade patterns. Roman roads were not only for the movement of soldiers and tax collectors but for trade as well. The famous Silk Road stretching from northern China across Eurasia, the Vikings’ trade across Europe as well as their conquests, and the movement of spices and perfumes from the Middle East to northern Europe are other examples. Early trade was governed mostly by the simple rule, caveat emptor, or let the buyer beware to avoid being cheated. Some of the earliest governmental rules were the Roman jusgentium, which covered trade with peoples on the periphery of the Roman Empire along with other kinds of interactions. The Romans also recognized lexmaritima begun by the Greeks to govern trade on the Mediterranean Sea. These trade rules were used by Europeans well into medieval times. In the medieval period, private trade rules, known as the lexmercatoria or merchant law, evolved in Europe and gradually took on a public character as kings and courts applied merchant law. As the kingdoms of Europe crystallized into territorial states, monarchs began to practice an economic philosophy known as mercantilism, or economic national- ism, which held sway from the sixteenth through the eighteenth centuries. The focus of these monarchs was on maximizing exports and minimizing imports so as to turn a national profit. The acquired wealth could then be used to enhance a country’s military strength and security. European kings were practicing a strong form of protectionism, discouraging the purchase of foreign goods and encouraging the rise of domestic industries. Mercantilism, with its protectionist character, faced a major challenge when the advocacy of a new order based on international free trade appeared in the eighteenth century. This order calls for the removal of border restrictions on trade. The major advocate for competitive free trade to benefit all states and their peoples was Adam Smith (1723–1790). He argued in his 1776 Wealth of Nations that if each country would sell what it makes best and cheapest, everyone across Europe would enjoy greater prosperity. David Ricardo (1772–1823) refined Adam Smith’s thinking by adding the notion of “comparative advantage.” Ricardo realized several countries could produce wool or wine, among other products, but the country able to provide a product with the most efficiency should be the one to sell it internationally. International free trade seemed like the logical next step to the domestic practice of capitalism. This economic approach is based on private ownership of property and calls for commerce to be regulated by market forces of supply and demand, not government regulation. The role of government is only to provide a law and order environment and to protect property. This hands-off role by government is often referred to as laissez-faire; roughly translated as, “let it operate freely.” Capitalism grew in importance during Europe’s nineteenth-century industrial expansion. Capitalist rules, with its global extension as a free market order, would mostly prevail, but it would confront the challenge of communism for a time. European communism claimed to have its roots in Marxism. Karl Marx (1818–1883) believed capitalism exploited workers for the benefit of rich factory owners. Relief for workers would happen only when revolution destroyed the capitalist class and the government apparatus that protected it, according to Marx. The revolution never came about, a failure that a disciple of Marx by the name of Vladimir Lenin (1870–1924) attempted to explain in his 1918 work, Imperialism. Lenin argued the workers’ revolution was delayed because European capitalists shifted the exploitation of their workers to the oppressed peoples of European colonies spread across several continents (Gilpin 1987: ch. 2). Lenin would finally force revolution on Czarist Russia in 1917, leading to the creation of the communist Soviet Union. This revolution did not ignite spontaneously in other European states as Marx once predicted and as Lenin had hoped. Communism would reach other European states only through occupation by Soviet armed forces at the end of the Second World War. European communism was never very successful economically, and this fact contributed heavily to the downfall of communism in 1989–91. With the communist yoke lifted, ex- communist states scurried to embrace capitalism and free trade as the appropriate path for improving the material well-being of their citizens. By the nineteenth century, a flourishing trade was taking place among European states, but not as a pure form of free trade. A generous use of protectionism, involving tariffs (fees on imports) and quotas (limits on the number of imports), was still in place. During the first half of the twentieth century, international trade received a series of hammer blows, namely the First World War (1914–18), fought among the major trade states of Europe, the Great Depression of the 1930s, with its short- sighted protectionism that worsened the economic downturn, and the wreck and ruin of the Second World War (1939–45). Only after this largest war in history did the free trade agenda have a realistic chance to be put into operation. The United States emerged from the war as a military and economic hegemon determined to rectify decades of mistakes by leading the world toward the free trade model.

US economic leadership actually started before the end of the war. In 1944, at Bretton Woods in New Hampshire, led by the United States, 44 states gathered for the UN Monetary and Financial Conference. The product of the conference would become known as the Bretton Woods system, featuring the institutions of the World Bank and the International Monetary Fund (IMF). The World Bank would make loans to war-torn European countries to rebuild infrastructures of roads, bridges, ports, and the like, and would later make loans to new countries freed from colonial empires. The IMF had the function of loaning money to shore up national currencies. The Bretton Woods banking system has its headquarters in Washington, DC. In 1947, the United States wanted to strengthen economic governance further with the International Trade Organization. Its function would be to oversee an Adam Smith-like free trade system without tariffs or quotas. When the US Congress would not approve the International Trade Organization, the US executive branch retained the General Agreement on Tariffs and Trade (GATT) and helped keep it operating for five decades. The GATT was to be temporary but instead served effec- tively as a series of negotiating rounds to reduce tariffs and move free trade princi- ples into more and more sectors of goods and services. In 1995, the creation of the World Trade Organization, with its enforceable trade dispute mechanism, would replace the GATT process and join the UN system as an independent agency. Also in 1947, the United States, in an act generally regarded as enlightened, offered the Marshall Plan to Europe. This was a major package of loans and aid to rebuild Europe following the unparalleled destruction of the Second World War. Democratic Western Europe gladly accepted nearly $14 billion from the United States and put it to good use. In contrast, Eastern Europe and the Soviet Union, held in the grip of Joseph Stalin and communism, chose not to take US money. This separation into two economic and political camps, known as the East–West division, became bed- rock to the Cold War. If the Cold War division between the East and West has subsided with the collapse of European communist governments, the wide divide between the well-off states and the poorer states of the Third World has proven obdurate. This divide is fre- quently depicted as the world’s North–South division, with the developed states generally north of the equator and the developing Third World states of Africa, Asia, and Latin America mostly south of the equator. As these states left colonialism in the decades between the 1940s and the 1980s, their numbers grew, as did their sense of identity as a special group of states. Starting with their 1955 conference in Bandung, Indonesia, and continuing with meetings held at the UN, these states have joined together to bargain economically with the developed countries of the North. In the 1970s, their approach finally coalesced into a challenge to the free market world economy controlled by the North. Essentially, the South wanted a redistribution of existing wealth to enable them to develop their countries. The capitalist West saw this goal on the part of the South as global socialism. Meeting the resistance of the North, the South accused the richer states of practicing neocolonialism, a continuation of economic exploitation of ex-colonies through unfair trade practices. In its strongest form, this accusation is known as the dependency theory. Its origin is usually attributed to Argentine economist Raul

Prebisch. This theory was widely accepted in the 1970s as an explanation for the enormous gap in wealth between North and South. According to the theory, as in colonial times, the North draws on cheap raw materials and labor but sells expensive finished products back to the South. The South receives a meager share of the profits and cannot break the pattern of exploitation but has to participate in this unfair arrangement in order to subsist (Walters & Blake 1992: 45–55). It is safe to say the free market approach of the richer states has persevered so far as global economic rules are concerned. Any historical account of the world economy would be incomplete without recognizing the current era of globalization, the sensitive interconnectedness of the world. An effect in one place can have major impact on the other side of the world. Although some scholars point to earlier epochs of globalization, the present era is unrivaled in the speed and sensitive interrelationships of the various elements of the global economy (Ohmae 1999; see also Moore 2003). The click of a computer mouse can relocate a fortune in investment monies from one national market to another. The currency default of a medium-sized country can send economic shock waves through the world’s financial houses, including the Bretton Woods IGOs.1 Many scholars, NGOs, and certainly anti-globalization protestors have raised strong objec- tions to the globalization process because of its impact politically, socially, culturally, and certainly economically, but globalization is unlikely to go into reverse barring a major depression equal to that of the 1930s.2 The role of international law has been and will be critical in the governance of a complex world economy as states, IGOs, NGOs, and MNCs contest over the many rules and regulations needed for the mammoth global economy to function. If the elusive but desired consensus ever does materialize over the management of the world’s wealth, it will be built on the framework of international law.3

Governance from the North

Global governance of the international economy is based on the rules and norms generated by states, IGOs, and NGOs, and especially the well-developed states of the North. The claim by some scholars that the world has become “borderless” and that the state has shrunk in importance, giving ground to the MNC, is probably misconstrued.4 Only in some Third World states is government weak, and there it is due to internal causes (Rapley 2006: 95–103). It is true that influence has become more dispersed among the states of the North. The United States has experienced a relative decline since it was the economic hegemon that led in the development of the Bretton Woods system and the GATT process. Today, the United States is at best a primus inter pares, or first among equals. Still in possession of the world’s largest gross domestic product (GDP), the United States increasingly has found it necessary to consult and bargain over rules with other significant economic powers. The GDP is a macro-measure at the national level based on the total worth of goods and services for one year. In early 2009, the United States had a GDP of $11.75 trillion, but it had a national debt of $10.8 trillion and was running huge annual budget deficits.

This country is paying for the long-running wars in Afghanistan and Iraq and pro- viding over $1.5 trillion in bailouts for troubled banks and infrastructure funds to energize an economy in deep recession. Consulting bodies among the major economic powers often infuse IGOs with policy ideas that the latter later apply as rules and norms in economic relations. Policy ideas often started with the meetings of the Group of Eight (G-8). This con- sulting body started in 1975 as the G-7, and included Canada, France, Germany, Great Britain, Italy, Japan, and the United States. With the Cold War’s end, Russia was brought on board, as much for an opportunity to socialize this ex-communist state in the ways of Western democratic-capitalism as for this country’s economic potential. Other national economies are larger and more robust than Russia’s, and these countries can assert a claim that their representatives be included. Certainly Brazil, China, India, Mexico, and South Korea have worthwhile claims. Recognizing the oddity over their absence in 2005, Britain’s Prime Minister, Tony Blair, invited additional states with economic prowess to join in talks when he hosted the G-8 summit. Gradually summit meetings began to be called G-20 conferences as more countries joined in to help find ways to jump-start the sagging world economy in 2008–9. These industrialized states want to lift their economies and have to be concerned with the developing countries of the Third World pulling them down further. The economies of these poorer states were worsening as international banks and investors cut credit lines to stanch their financial hemorrhaging. In April 2009, British Prime Minister Gordon Brown hosted another G-20 meeting of the top economic states, aimed at solving the finance problems of the sagging world economy and avoiding the pitfall of turning back to protectionism. An interesting opportunity for consulting and suggesting management ideas for the world economy is the World Economic Forum (WEF) since it brings a variety of actors to one place and has done so annually since 1971. The WEF is a non-profit NGO registered with the Swiss government and has observer status at the UN Economic and Social Council. The WEF draws as many as 40 top heads of state, over 1,000 MNC executives, several hundred NGO representatives, journalists, and professors of business law for a total of 2,500 persons to the Davos resort near Geneva, Switzerland. The WEF’s best known publication is its annual Global Competitiveness Report, which ranks countries according to how well they embrace free trade policies and operate their corporations efficiently. The United States has often been number one in this report and was again in 2008–9. The rest of the top ten in the same year are from Western Europe except for Japan and Singapore. The WEF is corporation- oriented in the sense that business profits are sought, but it also pays attention to uplifting socioeconomic conditions for society in general. It places this policy under the rubric of Corporate Global Citizenship.5 Some of the most important IGOs applying rules and norms are the World Bank, International Monetary Fund, Organization for Economic Cooperation and Development, and the World Trade Organization. Created with the 1944 Articles of Agreement at Bretton Woods, the World Bank is actually a group of banks.6 there is the International Bank for Reconstruction and Development (IBRD), with 185 state members, that focuses on helping middle-income and credit-worthy countries. This affiliate of the World Bank had cumulated loans of $446 billion in 2008. The International Development Association (IDA), with 168 members, serves the poor- est states by providing long-term, low-interest loans. Its commitments were at the $193 billion mark in 2008. The World Bank group also contains the International Finance Corporation (IFC) for private sector loans, the Multilateral Investment Guarantee Agency (MIGA) for insuring large foreign investments, and the International Center for Settlement of Investment Disputes (ICSID) to assist with arbitration procedures. The member-states provide the loan monies and have com- mensurate voting power with what they invest. The World Bank has 10,000 employ- ees working in 100 countries. It shifted focus from war-torn Europe to infrastructure projects in the Third World such as highways, airports, and hydroelectric plants, and finally sought to achieve socioeconomic progress for the general populations of the less developed states. Under fire from critics, the World Bank has tried make gender equality and environmental issues priorities while advancing economic growth.7 The International Monetary Fund (IMF) was created in the same Articles of Agreement as the World Bank. If the World Bank is the first pillar of the Bretton Woods system, the IMF is the second. The membership of the IMF is the same 185 states that support the World Bank. Coordination between the two takes place through the World Bank/IMF Development Committee. The IMF is served by 2,500 personnel and had lendable assets of $250 billion in 2009. A recent investment by Japan of an additional $100 billion bodes well for reaching this goal of $500 billion in lendable assets. The purpose of the IMF is to stabilize the international monetary and financial systems for the greater good of encouraging international trade. Without confidence in currencies and national banking systems, economic exchanges would be quickly reduced to bartering for goods.8 The task of the IMF was simple enough as long as the various national currencies could be pegged against the gold- based American dollar, but in 1971, President Richard Nixon took the United States off the gold standard, requiring the IMF to use a “float system” based on an average of several major currencies. The IMF has become the “lender-of-last-resort” to help the poorest developing countries when these cannot secure loans elsewhere. Countries able to establish good credit with the IMF and the World Bank are said to have “seals-of-approval” that enable them to borrow from regional development banks and private banks. Both the World Bank and the IMF have been criticized as vehicles of Western capi- talism that allow the rich states to impose control over the poor. Critics have called the IMF the “debt police” because it requires client countries to reform their econo- mies by lowering the value of their currencies, reducing the national debt, or making loans harder to acquire. These belt-tightening measures might suit a capitalist banker but are very unpopular in poorer countries when, as a result of these measures, the standard of living drops even lower. The loss of food subsidies is especially dire and causes so-called “IMF riots.” The Organization for Economic Cooperation and Development (OECD) began in 1947 but reorganized under the 1960 Convention on the Organization for Economic Cooperation and Development.9 Headquartered in Paris, France, the OECD is made up of 30 industrialized democracies committed to free trade as a way of boosting world economic growth. Besides South Korea and the United States, the OECD is made up of European states. In 2007, Russia was invited to consider joining, and Brazil, China, and India may soon be asked as well. This IGO has decades of experience and research accumulated in areas such as trade, agriculture, technology, and taxation. The meet- ings of the OECD allow governments to compare policy experiences and pursue answers to common problems. This organization shares its expertise with 70 other non-member countries, and its extensive publications in economics and public policy are useful tools for disseminating its philosophy and knowledge.10 the premier IGO for liberalizing and managing international trade is unquestionably the World Trade Organization (WTO), which succeed the GATT process in 1995. In addition to encouraging the removal of trade barriers, the WTO has a Dispute Settlement Body (DSB) that can allow an aggrieved state to level punitive tariffs against another state for violating fair trade practices. An appeal by either or both parties is possible. As of early 2009, the WTO has helped settle over one-third of more than 300 disputes, with others settled outside of WTO procedures or still in process. Not surprisingly, the United States, as the largest trade state, has led all others in the number of disputes. The United States has been involved in 92 cases as the complainant and 105 cases as the respondent. The EU, as a single trade entity made up of 27 states, has also taken part in many disputes. Despite its rapid growth into a major trading power, China has had only a few cases before the DSB.11 The WTO has 153 members, including China, which joined in 2001, and 30 observer states with Russia in this group. This body is headquartered in Geneva, Switzerland and has a staff of 625 persons and a budget of $163 million. The WTO monitors compliance with a daunting list of 60 agreements, annexes, decisions, and understandings inherited from the Uruguay Round that cover tariffs, services, inven- tions, technical standards, safety, and much else.12 The Uruguay Round was a lengthy trade negotiation and the last such round of the GATT process.

Box 12.1 The Banana Wars A dispute over trade in bananas developed between the United States and the EU during the 1990s before the WTO took over from the GATT process in 1995. Ironically, neither party grew bananas, but the United States had compa- nies, such as Chiquita Brands, raising bananas in Central and South America. These American companies were accustomed to shipping their fruit to Europe. Although the American brand was cheaper than bananas imported from ex- colonies in Africa, the EU still decided to give preferential treatment to the ex-colonies’ bananas as a way of boosting African economies. The United States began charging EU countries punitive damages under its own laws. After this case went before the WTO Dispute Settlement Body, the United States won an award in tariff sanctions of nearly $200 million. The United States had asked for a $500 million settlement. What became known as the “banana wars” involved a puny amount compared to most trade sec- tors, but the danger is great that the situation could escalate into a full-blown trade war if these issues were not put to rest? In 2001, the

United States and the EU, negotiating outside the WTO framework, agreed the United States would drop the sanctions if the EU would be more generous in licensing imports of Chiquita bananas. Sources: From http://www.wto.int/ > Trade Topics > Dispute Settlement > By Subject > Bananas; http://www.asil.org/ > Publications > insights > ASIL Insights > Insights Archive 2001 > US-EU Agreement to Resolve the Banana Dispute.

Standardizing the Global Economy

Trade agreements frequently have been fairly detailed, specifying exactly the goods covered and the quotas on how many can be imported. Setting technical standards for trade is even more detailed but is very important. For trade to go forward smoothly and with mutual confidence between suppliers and users, transparency regarding amounts, quality, and safety of goods must be present. Standardization refers to conforming to the same technical criteria as a common denominator. Failing that, reliable conversion tables should be available to interpret from one type of measure to another. After decades of effort, standardization is far from complete in world commerce. Several types of electrical plugs, both 110 and 220 voltages, and direct as well as alternating currency flows are in use in various places around the world. There are both Fahrenheit and Celsius thermometers. Multiple ways of measuring shoe sizes still exist, and shoes are one of the most common export-import items in world trade. Mechanics have to keep both metric and American/English tool sets to work on cars, at least in the United States. There are still about 20 countries where cars require the steering wheel on the right side in contrast with most of the world placing steering wheels on the left side. Yet standardization has occurred in many areas and doubtlessly will continue to advance in more trade sectors as the world further integrates economically. Credit cards are the same size all over the world and usually work flaw- lessly through the fiber optic lines tying the world’s telephone systems together. Picture symbols on the instrument panels of cars are alike, thus, minimizing the problem caused by drivers using different languages. Signage in airports, hotels, and on restroom (water closet) doors is often in the same easily understood picture symbols. Energy use is frequently calculated in British thermal units (BTUs). Pressing for greater harmonization among products is the International Organization for Standardization, usually written as the International Standardization Organization (ISO).13 this organization adds dozens of new standards each year to the 20,000 already in existence, which cover everything from quality control of underwater oil pipelines to the sweat resistance of a shirt. The ISO began its operations in 1947 and is headquartered in Paris, France. The ISO is an NGO, but it occupies a special position as a bridge between public and private sectors. It began with the support of 25 countries, and today over 150 countries’ national standards institutes attend ISO meetings and contribute ideas, along with business and industrial organizations, IGOs, and consumer groups. Through its “World Standards Day,” celebrated every October 14, the ISO tries to raise public awareness about the importance of common standards. The staff of the ISO contributes to global management of the world economy by helping monitor the application of WTO treaties. Probably most important to the ISO are the Agreement on Technical Barriers to Trade (TBT) and the General Agreement on Trade in Services (GATS), the latter dealing with standards in banking, telecommunications, and insurance, among other services. For the more advanced national economies, serv- ices are a growing sector of foreign income relative to trade in goods.14 Most trade partners welcome some sort of standardization or at least conversion tables to facilitate commercial interchange. An area particularly controversial, how- ever, is the Internet and who controls it. The Internet has exploded into an unfore- seen size and importance since its beginning as a communications network among elements of the US military. Private emails, access to massive data sets by banks, linkage among octopus-like MNCs operating in multiple countries, research of every imaginable subject, and the buying and selling of everything from automo- biles to clothes can take place because of the Internet. It is an indispensable tool of modern international business. The Internet, not unlike roadmaps, has to indicate routes and destinations to per- mit travel, in this case the travel of electronic communications. Some sort of man- agement must exist over the choice of domain names, Internet protocol numbers, who possesses the powerful computers used for root servers, and standards that allow computers to interface. For about thirty years a California professor managed this complexity but, in 1998, the United States encouraged a non-profit private organization to take over. As a result, the Internet Corporation for Assigned Names and Numbers (ICANN) was established and registered in California.15 Many other countries view this move with suspicion and want an international organization like the ITU to take over Internet responsibilities. Critics argue that the United States could, in an act of retaliation or war, remove a country’s initials, for example “.ir” for Iran, from its domain name and shut down its Internet service. In the years 2003–5, the United States did contemplate allowing an IGO to take over in 2006, but backed away from this decision.16 Essentially, the United States trusted ICANN operating from its soil more than an IGO where various political perspectives could lead to unwanted mischief.

Intellectual Property Rights

As national economies modernize, the wealth of a country depends more and more on intellectual property as opposed to manufactured goods or commodities that many countries have to sell. Intellectual property refers to creations of the mind such as artistic works, computer software, or inventions.17 The creation might be essentially a mental construct, as with a pharmaceutical formula, or a hybrid development based on a researcher’s ideas plus the extraction of a tropical plant. Intellectual property is a broad term covering patents for inventions, trademarks such as logos, copyrights on books, movies, and music, and trade secrets concerned with the preparation of food or beverages. The protection of intellectual property dates back in English history to the 1623 Statute of Monopolies on patents and the 1710 Statute of Anne on copyrights.18 Until recent times, the protection of intellectual property was a mishmash of national laws plus some bilateral and regional treaties. Margaret Mitchell and her husband spent much of their time and energy trying to sue over illegal translations and publications of her famous 1936 novel, Gone with the Wind. They had to secure legal aid in each country and go through that country’s national courts. Protection at the international level received a major boost with the World Intellectual Property Organization (WIPO) established by the 1967 WIPO Convention, which entered into force in 1970.19 The WIPO is headquartered in Geneva, Switzerland, and administers 24 Intellectual Property Rights (IPR) related treaties, including the well-known 1886 Berne Convention for the Protection of Literary and Artistic Works and the 1883 Paris Convention for the Protection of Industrial Property. Since 1995, the WIPO has reinforced the WTO’s Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS).20 Intellectual property amounts to a significant portion of many states’ wealth, with struggles taking place over some protecting this property and others trying to take it away. Improper use of another’s ideas can involve counterfeiting of a drug, theft of an engineering design, or arguments over whether an idea is appreciably different or merely a copy of another’s creation. Struggles over intellectual property are only partly contained by the WIPO and the two dozen treaties housed by this UN agency. The industrial democracies of the OECD are most likely to respect the IPRs of others because each wants its own respected (Marlin-Bennett 2004: 47). Much of the intellectual piracy seems to occur when a state is undergoing development as one of the newly industrializing countries (NICs) since these states are especially ambitious for further economic expansion. In the nineteenth century, the United States, a NIC in this era, not only printed copies of Charles Dickens’ novels at will but copied English textile machinery whenever possible. Today’s NICs, including Brazil, China, and Mexico, have industries that are following a similar pattern of using the ideas and creations patented or copyrighted in other countries without paying licensing fees for their use.21 However, today’s NICs also have MNCs with research and development facilities and original creations of their own, and the more they develop in this direction, the more these countries are likely to respect the IPRs of others. International law on intellectual property is designed to protect owners’ rights and indirectly encourage international business exchanges, but the temptation for an easy profit wins out in many instances. Through reverse-engineering, everything from bulldozers to air conditioning test gauges can be reproduced in nearly identical versions. Gucci purses, Rolex watches, movie and music CDs, the Harry Potter books, ex-President Bill Clinton’s autobiography, My Life, and hundreds of other merchandise have illicit copies on the international market amounting to billions of dollars in wrongful trade. The profits of this illegal enterprise also attract organized crime and terrorists seeking funding for their operations (Naím 2005). Contention often arises as the governments of states strive to protect individual and company intellectual property and, in turn, enhance national wealth. The sharpest conflict has been over medicines and their high costs. With killer diseases like cholera, tuberculosis, malaria, and especially the HIV/AIDS virus raging through many African countries, as well as other places, hundreds of thousands of lives are at stake. Medications from the developed countries are so costly that most sick people in the Third World may as well entertain the desire to buy a luxury automobile. A market demand for cheap, generic versions of necessary drugs, such as the anti-viral cocktail of medicines to treat AIDS, has sprung up in many countries but, unfortunately, their manufacture commonly violates the patent laws of the rich, industrialized states. Brazil, India, and Thailand have thriving illicit national and international businesses in the generic manufacture of medicines. An AIDS generic imported from Thailand can be a small fraction of the cost of the original medicine in the United States or Europe. Third World countries implored the WTO to change the rules over copying medicines in generic form to save untold numbers of AIDS victims, but these states were turned down until 2003 when the WTO finally relented for humanitarian rea- sons and gave permission for the importation of life-saving generic drugs at substantially lowered costs.

Box 12.2 Microsoft v. Commission of the European Union In addition to protecting intellectual property rights, there are questions of unfair practices of excluding a competitor’s creations, cases known as anti- trust activities or monopolization. Bill Gates’ company, Microsoft, has strug- gled with the EU since at least 1993 when complaints began to surface about monopolization over Windows Media Player. Bundled with Windows, Media Player made it difficult for competitors to use their media players with the Windows framework. The EU Commission ordered Microsoft in 2004 to sell a Windows version without Media Player and to pay nearly $800 million in fines. This case was before the Court of First Instance from 2004–7, but Microsoft lost and abandoned the issue. When the EU Commission fined Microsoft $1.44 billion for failure to adequately comply with the earlier 2004 decision, Microsoft appealed the astronomical fine in 2008 with the Court of First Instance. In the latest development, a Norwegian company, with a web browser called “Opera,” filed another anti-trust action claiming Microsoft’s use of Internet Explorer with Windows makes it difficult for other web browsers to work with Windows. Source: The case filed with the EU’s Court of First Instance in 2004 can be read at http://eur-lex.europa.eu > Access to European Union Law > Simple Search > European Court Reports > Enter “2004” and scroll down to the Microsoft case.

Commercial Arbitration

The closest of allies and trading partners can have disputes over a trade agreement, but most states and corporations want these settled as quickly and inexpensively as possible so they can move on to future trade opportunities. In preference to the lengthy procedures of foreign ministries and court proceedings, arbitration is often preferred. Arbitration is a binding settlement by impartial arbiters relying on facts and law to determine an outcome. While arbitration historically is ad hoc and can involve a one-time use, arbitration bodies are available upon request. Lists of arbiters are retained and called upon when needed. Decisions by arbiters are regarded as final and compliance by the disputing parties is expected. The Permanent Court of Arbitration, established at the turn into the twentieth century has not had a heavy case load but did show a rise in cases in the 1990s dealing with borders, the environment, and trade. The private organization of the International Chamber of Commerce has offered business interests the International Court of Arbitration since 1923 that has heard thousands of cases. This arbitration panel relies on the 1958 New York Arbitration Convention, with over 130 parties, for enforcement of its decisions. In 2005, the Hague Conference on Private International Law offered the Convention on Choice of Court Agreements. This convention rein- forces the New York convention by governing the choice of forum as well as enforcement of decisions. Also useful to an arbitration forum is the 1985 Model Law on International Commercial Arbitration. Amended in 2006, this model of arbitration was developed by the UN Commission on International Trade Law (UNCITRAL) as a guideline for business arbitration.22 another arbitration option of growing importance is the International Center for the Settlement of Investment Disputes (ICSID). Investment across national boundaries has come to rival trade in importance. The ICSID is provided in a convention sponsored by the World Bank, the 1966 Convention for the Settlement of Investment Disputes with the support of over 140 parties. Hundreds of bilateral investment treaties (BITs) in existence frequently call for using the ICSID. Over sixty cases have come before this forum so far, and these usually involve an MNC from the North as plaintiff and a Third World government as a respondent, or defendant. The investments of MNCs often entail permanent fixtures–such as factories, fleets of trucks, communications systems, and major agribusiness operations–worth mil- lions of dollars. The complaining company naturally objects to any form of expropriation, either in whole or degree, or damage done to its properties during internal strife, experiences that are not uncommon in many Third World countries.23 Finally, arbitration has been used in numerous cases concerning a practice known as “cyber squatting.” Individuals or companies register domain names involving celebrities names hoping to cash in by selling this domain to the celebrity for a tidy sum. While it is easy and inexpensive to register a domain name with ICANN, WIPO has offered arbitration since 1999 to settle disputes over conflicting claims. Parties in dispute often accept a WIPO-appointed arbiter, or panel of arbiters, to save the high costs of a regular court. Many celebrities, including Pierce Brosnan, Richard Crichton, Celine Dion, and Kevin Spacey, have reclaimed their names from cyber squatters with the help of WIPO arbiters. WIPO’s arbitration process allows for an appeal to be filed in a national court system within ten days after an arbitration ruling, if one or both parties are dissatisfied.24 allowing an appeal before a public court provides a generous option because, as a principle of international law, arbitration decisions are normally final.

Globalism versus Regionalism

Is governance of economic interchange better served from the global or the regional level? With the proliferation IGOs since the Second World War, scholars have often engaged in rounds of debate over this theoretical question. Globalism is the belief that resources, markets, and transportation and communication are worldwide and so governance through rules and norms should operate from this level. Regionalism involves the belief that regional management is more efficient because fewer states are at stake, they are in geographical proximity, and they often share a similar culture and problems. In practice, both levels can encourage development and prosperity without significant incompatibility between the two (Lawrence 1995: 411–12; Coleman & Underhill 1998; Cohen 2003). The UN has long been operating on the assumption that economic expansion will depend on both levels of governance. The Bretton Woods institutions of the World Bank and the IMF plus the WTO are global and are independent agencies operating under the auspices of the UN Economic and Social Council. This same council also oversees five UN regional economic commissions for Africa, Asia and the Pacific, Europe, Latin America, and Western Asia.25 The WTO readily accepts the formation of regional trade agreements (RTAs), only it expects to be notified of their formation, and states belonging to RTAs must still meet their WTO obligations.26 The ultimate question is whether regional economic organizations can undermine the global legal regime and its economic promotional role. The answer is that RTAs are very unlikely to do so. Strong forces are at work underpinning the global level. First, the Bretton Woods institutions and the WTO are firmly established, with non- members such as Russia anxious to join. Second, free-trade values were firmly established at the global level when the United States was clearly an economic hegemony pushing free trade ideas. The US effort seemed validated when the communist regimes of Europe collapsed and turned to democracy and capitalism. Despite some backward steps, especially by the Russian government, these values are holding fast. Third, the major trade states are scattered about the world and on different continents, thereby buttressing a global pattern. Fourth, MNCs, the major vehicles of world trade and investment, tend to spread out globally to achieve maximum efficiency and profits. In a final analysis, regional trade arrangements appear to make national economies stronger and better able to compete on a global scale. In fact, members of RTAs usu- ally trade more outside than inside their respective regions. A major exception is the EU, where intra-regional economic activities surpass those that are inter-regional. The regional arrangements are numerous and vary regarding the extent of economic integration, which is the merger of two or more national economies in some degree.27 Most RTAs are free trade arrangements reducing tariffs in agreed-upon sectors of trade. The EU, as a union, is exceptional with substantially more integration. A union can have common tariff policies toward non-members, suspension of customs inspections among members, the free movement of labor and capital on an intra-regional basis, a central banking system, and even a common currency. The institutional basis of RTAs is established in the treaties of their creation, but decisions to go deeper into integration depend largely on the expected economic benefits. Obviously a major global recession such as the one in 2008–9 does not bode well for deeper integration among RTAs; however, this recession could easily prove to be a temporary setback. Several major examples can be offered to show the diversity among regional economic arrangements. The EU has evolved over several decades into a well-integrated union of 27 states. Multiple treaties help account for today’s EU, most importantly the 1986 Single Europe Act and the 1992 Treaty of Maastricht. The first calls for a borderless Europe with goods, persons, capital, and services able to move about without hindrance, and the second provides for a central bank and the opportunity to use a common currency, with 16 EU states so far joining the Euro Group. While Europeans backed away from agreeing to a European Constitution in 2004, the 2007 Treaty of Lisbon, providing for more transparency and democracy on the part of EU institutions, may be ratified in 2009.28 The European Commission, European Parliament, and European Court of Justice possess a measure of supranational authority over the 27 countries to guarantee smooth operations as a single economic entity. Largely because of the EU, Europeans enjoy the highest standard of living in the world. In 2008, the EU states contained 456 million people or consumers and a total GDP of $18 trillion measured in US currency. The North America Free Trade Association (NAFTA) was proposed in 1992 and its treaty of creation, the North American Free Trade Agreement, ratified in 1994. Additional agreements on labor rights and protection of the environment had to be reached before the United States would ratify. This agreement covers trade goods, services such as banking and insurance, and IPRs among Canada, Mexico, and the United States.29 Trade has more than doubled among these countries since the crea- tion of NAFTA, but questions still linger over the matter of MNCs benefitting at the expense of American labor and Mexican farmers. The three NAFTA countries have more than 440 million people living within them and a total GDP of over $16 tril- lion. The United States provides, by far, the largest portion of people and GDP. One outstanding issue is continue refusal by the US government to allow Mexican cargo trucks to travel freely within the United States Mexico retaliated in the spring of 2009 with higher tariffs on American imports. Proposals have been made to extend NAFTA to all of North and South America, per- haps under the name of the Free Trade Association of the Americas. Thus far, this proposal has not been realized, perhaps due to sub-regional groups being unsure just what a hemispheric arrangement would mean for them. Already in place are the Andean Community, Mercorsur, and the more recent 2004 Central American Free Trade Agreement (CAFETA), with the United States and Central American countries as members. Another well-known regional organization is the Association of Southeastern Asian Nations (ASEAN). This organization began as a political consultation group in 1967 and reorganized as a free trade association in 1992, a plan announced in the Singapore Declaration. In 2007, the 10 member-states signed the ASEAN Charter expressing ambition for a more economically integrated economic community by 2015.30 These states have a total of 560 million people and a combined GDP of $1.1 trillion. A much broader arrangement, but encompassing ASEAN, is the Asia Pacific.

Economic Cooperation (APEC) arrangement, which has remained as a loose con- sulting body for 21 states located around the Pacific Rim. The membership includes the powerful trade states of China and the United States APEC has held summit meetings for heads of states annually beginning in 1993. Without much in the way of organizational structure or treaties, the purpose of APEC is to persuade members to reduce tariff barriers in more sectors of goods.31 The large African Union (AU), with 53 members, has not unified Africa as a single economic entity as the EU has done for Europe. The AU has focused on ambitions reorganizing its institutions and adding others. At the 2007 summit meeting in Accra, Ghana, leaders discussed the possibility of a “United States of Africa.” Toying with the superstructure of the AU may seem grandiose in light of the many fundamental problems the African people are experiencing, such as poverty, AIDS, weak educational systems, bloody civil strife in several countries, and corrupt dictators, to name but a few. Economic cooperation on the African continent is divided among eight trade associations with overlapping memberships, for example, the East African Community and the Common Market of Eastern and Southern Africa.32 Little is being done to draw these eight “islands” into a continental economic arrangement. The African states hold 850 million people having to share a total GDP of about $900 billion of which the Republic of South Africa alone accounts for almost one-third.

Governance of the South

The states of the South, or Third World, have long expressed grievances. In the sec- ond half of the nineteenth century, the states that evaded colonial bondage, such as China, Persia, and Japan, desired to be treated as sovereign equals to European states. Those states held in colonial empires sought their independence as well as wished to be accorded racial equality and enjoy respect for their cultures. Today, the injustice that remains falls in the economic domain. As the Third World coalition of developing states grew in number with the shrinking of colonial empires, these states waited patiently, but in vain, for their old colonial masters to fulfill their moral obligation of making sure that the new states enjoyed prosperity. Husbanding their wealth and dealing with their own problems, the developed states of the North beckoned to the South, by the 1960s, to join in the free trade system pressed on the world by the United States. Instead, the South insisted on new rules, almost a revolution. The South was emboldened by an unexpected development, the early success of the Organization of Petroleum Exporting Countries (OPEC) as a commodity cartel. In 1973, OPEC sent the industrial states reeling backward for a time as it tightened the taps on the flow of oil and charged high prices. Taking a cue from OPEC for confronting the North, the South used its majority in the UN General Assembly to pass the 1973 Declaration on Permanent Sovereignty over Natural Resources and a 1974 Charter on Economic Rights and Duties of States. Later, these states also came up with the 1986 Declaration on the Right to Development. The centerpiece to the South’s revisionist approach, however, was the 1974 New International Economic Order (NIEO). Basically, this vision of a new order included a free hand to regulate MNCs on their soil, enjoyment of a generous transfer of technology, power to expropriate foreign property on the South’s terms, acceptance by the North of additional commodity cartels similar to OPEC, and preferential tariff treatment for the South.33 The reaction of the North was hardnosed. Rejected was the South’s general appeal for economic justice as a redistribution of wealth. Self-development and finding something to sell to the world under the Bretton Woods model appeared to be the only path left for the Third World. The North’s vast resources of investment capital, foreign aid, technology, desirable exports including arms and luxuries, plus the historical fact that the industrialized states had put the free trade system in place before the large majority of Third World states slipped the hobbles of colonialism, gave the developed states the upper-hand. Failed attempts at rational argument and moral suasion were compounded by the rise of the “Asian Tigers” in the early 1980s. Singapore, South Korea, and Taiwan (Nationalist China), and later the economic dynamo of China demonstrated that impressive economic growth was possible by following a free-market model. In all fairness to the South, this “free market” seemed to be neo-mercantilist, with emphasis on export-driven growth and strong resistance to imports. If the South failed to achieve a redistribution of wealth from the North, these states at least built a solid platform within the UN for further advocacy. Many agencies of the UN contribute to socioeconomic development, but several are primary. The Group of 77 (G-77) formed in 1964 at the UN was based on the number of available developing states at the time. This coalition retains the same name although it now numbers over 140 states. With its large majority, the G-77 can often control the resolutions and declarations of the UN General Assembly and influence UN’s many specialized agencies, such as the Food and Agricultural Organization, that relate to economic development.34 In 1988, the G-77 proposed a trade arrangement among developing states that became the Agreement on the Global System of Trade Preferences among Developing Countries (GSTP), which still has only 43 parties. The aim of the agreement was to promote trade ties across Africa, Asia, and Latin America to raise the prosperity of the South in a self-help manner.35 The relatively small number of ratifying states, out of a potential of at least 140 states, indicates that states of the South are well aware that what they need requires strong, beneficial economic ties with the North. In the same year as the G-77 organized and with its support, the UN Conference on Trade and Development (UNCTAD) formed and became a strong champion of the Third World point of view. UNCTAD was informally known as the “poor man’s lobby.” UNCTAD serves as a forum, research center, and a source of technical assistance to help developing states integrate into the world economy. For instance, it provides technical and administrative assistance for the GSTP.36 The most important body of the UN for assisting Third World states is the UN Development Program (UNDP). Its 2007 budget was $1.2 billion, a phenomenal sum for an IGO. This body coordinates the Millennium Development Goals (MDG), which is a broad partnership of many organizations and countries. The MDG started in 2000 and has the overarching aim of cutting world poverty in half by 2015. There are eight specific goals with a set of special targets associated with each goal.37 ideally; the MDG would be so successful that the yawning gap between North and South would close once and for all. The generosity of the North toward the MDG is undoubtedly weakened by the worsening recession of 2008–9.

Box 12.3 The Human Development Index (Selected countries) High human development (Selected countries) High human development 1 Iceland ………………………………0.968 3 Australia. ……………………………0.962 4 Canada. …………………………….0.961 8 Japan. ………………………………0.953 12 USA. ………………………………0.951 16 UK. ………………………………..0.946 22 Germany. …………………………0.935 25 Singapore. ………………………..0.922 Medium human development 43 Lithuania. ……………………...0.862 48 Costa Rica ………………………0.862 51 Cuba……………………………. 0.838 61 Saudi Arabia …………………...0.812 67 Russia ……………………………0.802 4 Venezuela …………………………0.792 81 China ……………………………..0.777 121 S. Africa …………………………0.674 128 India ……………………………..0.619 Low human development 177 Senegal ………………………0.499 158 Nigeria ……………………….. 0.470 168 DR of Congo …………………..0.411 156 Sierra Leone ……………………0.336 Source: From the Human Development Report 2007/2008 (New York: Oxford University Press, 2007), Table 1, p. 229. The HDI is a composite measure based on (1) Purchasing Power Parity (PPP), which is GDP per capita converted to eliminate differences in spending power of national currencies, (2) longevity of life, and (3) education levels.

Another important role of the UNDP is to provide the annual Human Development Report, which contains the Human Development Index (HDI).38 This index is a salient and meaningful measure of economic development, one that is focused on the welfare of people. Knowing only that the GDP of a country increased might simply reveal that the rich were getting richer. Instead of focusing on the GDP, as a national or macro-measure, the HDI measures how effectively the wealth of a country reaches individual persons. The HDI is a composite measure of income, longevity of life, and education. Countries are ranked according to the score achieved. A human rights view of development requires that improvements occur in the quality of life for the general population. When a country of modest means improves its HDI score, it is an invitation for other countries to study what the improving state is doing right in its policies. Despite the North’s efforts to draw the South into its circle of prosperity by following the free trade model and UN agencies pushing these same states to achieve developmental goals, the huge North–South economic chasm holds on. Barbara Ward’s 1962 The Rich Nations and the Poor Nations called this “tragic division” the most urgent problem of that time, and it still is today.39 At the turn into the twenty-first century, the world economy was enjoying vigorous growth and, as Martin Wolf observed in his Why Globalization Works, the integrating free trade system seemed set to close the North–South divide (Wolf 2004; see also Dollar & Kraay 2002: 120–33). Others have been less sanguine about reducing this inequality. Jeffrey D. Sachs believes the gap is actually widening if only because the North is getting rich faster than the South can improve.40 Even in pros- perous times, the extreme poverty of a “bottom billion” people of the Third World, living on hardly more than a dollar a day, can seem unyielding.41 Can blame be assigned for the North–South gap and the failure to develop the Third World more effectively? The North’s indictment is well-known. The Third World countries need more democracy because of the special synergy between this type of government and economic prosperity. Widespread corruptions by predatory elites who loot their own national treasuries undermine any hope of progress. Civil wars and revolutions have mostly occurred in developing states in recent decades, disrupting economic potential. The weak infrastructure of many underdeveloped areas discourages MNCs from wanting to locate and invest. Third World states are satisfied to depend mainly on a single commodity or industry and seem unable diversify. Social policies are inadequate for redistributing a country’s wealth, polar- izing national societies into the few rich versus the many poor. If one criticism stands out among developmental experts and within agencies of the UN, it is that the traditional role of women must be reformed. Instead of staying home and raising a large family, women should receive equal education as men and enter the work force in an economically productive way. The Report of the South Commission, The Challenge to the South, has stressed that a gender-sensitive approach to development is a basic condition for economic and social progress.42 Spokespersons for the South can level charges as well. The research and development by the North’s MNCs will always keep the North ahead unless the best technology is shared with the South. The debt load placed on the Third World in the 1970s and 1980s drains money from socioeconomic development to service loans. More rescheduling terms, if not complete forgiveness of the debt, is required. The North preaches free trade but indirectly restricts the South’s agricultural products. The North’s farm subsidies keep prices of crops at home so low that imports from the South cannot compete. The North resists the South trying to control its MNCs in effective ways, even when many of these companies already have far more money and personnel than the governments of most Third World states. Finally, the North never delivers all the aid it promises, making it difficult to plan development projects over the long term. Perhaps the best general assessment is that both sides have creditable positions and that there is enough blame to go around. If a consensus did exist over a program for economic development, would there be enough “natural capital” or resources to allow such an expansion in wealth? 43 All the careful planning that can be marshaled cannot make something out of nothing. As the population of the world surpasses nine billion at mid-century, will there be enough wood, oil, natural gas, water, soil for crops, and other necessities to allow everyone on the planet to live as well as, say, a typical European? The world need not plunge into a Malthusian nightmare before realizing that sufficient natural resources may not be available to overhaul the standard of living for billions of people. Overstrained resources to produce a prosperous economy for all could even result in conflict and war, according to Michael T. Klare’s Resource Wars (Klare 2002). Modern global communications makes the world’s poor aware of how their elites at home and the populations of the North live. Increasing numbers of people experiencing “rising expectations” is the understandable result.44 Hope rests on the human population leveling off at 9.5 billion people during the twenty-first century, accord- ing to UN demographers, and on improved technology stretching both old and newly discovered resources to better accommodate developmental demands.

Four Economic Flows in the North–South Relationship

The North–South economic relationship revolves around four flows: trade, aid, investment, and loans. Both above and below the equator, the four are regarded as mutually useful, but different perspectives are at work. The North’s approach is of course the free market model with emphasis on trade and investment, and it has never been willing to give much ground on this model’s rules. The South’s approach calls for a partnership with the North to build up the South for the common good (South Commission 1990: 211). If the South cannot force a new economic order into place, some small accommodation over the four flows is at least expected by the South.

The trade flow

In the North–South relationship most income for the South depends on selling commodities such as coffee, bananas, and various metal ores, as well as finished products, especially wearing apparel. The standard complaint is still heard that this trade is neocolonial, with the South selling for what the North will pay, and the North charging the South high prices for technology-based exports such as medical equipment or computers. One exception to this trade pattern has been OPEC, which had a dramatic early success in 1973 but less influence on world markets in recent times. The 40 percent of the petroleum market controlled today by OPEC allows this cartel to put its thumb on the scale but that is about it. Ideally, the South would like to have concessionary trade, meaning low tariffs applied on its products by the North while charging higher tariffs on products imported from the North. The North has traditionally had a firm rule about trade being reciprocal, meaning trade partners grant the same and equal privileges to each other. The North also has long used the most favored nation (MFN) rule, with the trade terms given to a trade partner guaranteed to be as good as the terms allowed any other trading partner. States of the North generally assume trade partners can be on an equal footing, practicing symmetry in the relationship. Without conces- sionary trade terms, however, the developing states fear they cannot make economic progress and certainly cannot catch up with the developed states of the North. The South insists on some asymmetry in trade relations. Noted economist Ethan B. Kapstein believes that free trade will ultimately close the North–South gap but, since the North has tilted the playing field against the South in the first place with “rigged trade regimes,” the North should, for a time, practice “relaxed reciprocity” (2006b). Some concessionary trade has been won from the North. UNCTAD successfully lobbied the GATT process for the 1971 Generalized System of Preferences (GSP), which calls for waivers in symmetrical trade. The GSP, however, is a program and not an obligatory treaty. States of the North are free to handle the GSP as they see fit. Some developed states have reduced their tariffs without expecting the same reduction from an economically weaker state. As the GATT rounds lowered tariffs for all, the privileges of the GSP grew less important. Some states have special programs of the GSP type. One of these is the Caribbean Basin Initiative estab- lished by the United States in 1983, which continues today for 24 Caribbean and Central American countries. The EU used the four Lomé Conventions since 1975, and now the 2000 Cotonou Agreement signed in Cotonou, Benin, to extend lower tariffs to 71 poorer African, Caribbean, and Pacific countries, a privilege that will last until 2020. The major trade issue that currently overshadows all others in the early twenty- first century is the question of agricultural subsidies. For decades, the industrialized democracies of the North have paid out subsidies, or price supports, to guarantee a level of income for their farmers allowing them to keep their farms going. The United States has a large agricultural subsidy program, but subsidies in Europe and Japan sometimes amount to triple those in the United States. Unfortunately, farm subsidies make cotton, peanuts, wheat, corn, and many other commodities so cheap that farmers in Third World countries cannot compete in domestic markets of the industrial democracies or even internationally. Agricultural products, after all, are the sector of trade that gives most states of the South their best chance for an export that will produce a national income. When subsidies create an artificially low inter- national price, it is called dumping, that is, placing a product or commodity on the market at a price below the actual cost of production. Dumping is incompatible with free trade principles, along with tariffs and quotas. The North’s subsidies clearly violate the spirit of the free market model. The use of farm subsidies by states championing free trade is ironic at best. What can explain this contradiction to free market principles? The farmers of the industrialized states make up only a tiny percentage of the overall populations of the EU countries, Japan, and the United States, but these are democracies with farmers spread across most electoral districts. All kinds of farmers – tillers of the soil, herds- men of cattle and sheep, and harvesters of fruit, among others – in a country join hands to form a powerful phalanx calling for protectionist policies for agriculture. In many cases, farmers are really corporations known as agribusinesses and able to lobby effectively for subsidies, or what critics call “corporate welfare.” At the 2001 Doha, Qatar, round of the WTO, the major offenders promised to cut farm subsidies, but at the 2003 summit in Cancún, Mexico, and these same states reneged on their Doha promises. Countries have often preached free trade principles only to pull up short at international conferences to mollify domestic interests. In 2004, Brazil, weary of unfulfilled promises, took the United States before the WTO’s dispute settlement process and won over the issue of US cotton subsidies.

Box 12.4 Brazil versus the United States on Cotton Subsidies The United States has often found its trade practices challenged before the WTO. The United States did win a case against the EU over bananas in 1999, and had a partial success against Canada over the importation of Canadian softwood lumber in 2004. In other cases, however, especially while George W. Bush was president with his protectionist bent of mind, the United States has not fared so well. Brazil complained for years that US cotton subsidies cre- ated an artificially low international price for this commodity, in effect “dumping” American cotton on the world market. Brazil won the original case before the WTO’s Dispute Settlement Body in 2004 and continued to consult with the foot-dragging United States on this issue. Both states appealed the decision in 2008 before the Appellate Body of the WTO, and this appeal confirmed the earlier decision in Brazil’s favor. Brazil, in early 2009, is attempting to be allowed to use WTO countermeasures of a punitive kind against the United States, and Brazil is seeking as much as $4 billion in compensation. If permitted, Brazil may use “cross-retaliation,” meaning it will seek sanctions in the intellectual property rights sector instead of charging extra tariffs on some American imports. Brazil could possibly copy something the United States makes without paying a licensing fee. Sources: http://www.wto.int/ > Dispute Settlement > Disputes by Subject > Cotton; http://www.asil.org/ > Publications > insights > ASIL Insights > Insights Archive 2005 > The WTO Decision on Cotton Subsidies.

The foreign aid flow

Billions of dollars gifted to Third World states over several decades have not made major differences in the living conditions of the peoples in these countries. There are several reasons for this disappointing outcome. Aid money turned over to corrupt dictators has simply vanished. When given as a tool for winning friends during Cold War competition, the aid furnished came with few guidelines for its use and was often squandered. Foreign aid has frequently been spread so thin over too many projects that a positive and telling effect has not been measurable. And finally, the aid promised by the states of the North, since the 1995 UN World Summit for Social Development (better known as the poverty summit) in Copenhagen, Denmark, has never been forthcoming. The rich states rather stingily offered a mere 0.7 percent of their national economy’s worth, but only Denmark, the Netherlands, Norway, and Sweden have met this goal. Except for the pledges to donate aid money at confer- ences, foreign aid has been a matter of political policy by individual state donors and not agreements stemming from global governance. There are some exceptions, as when the EU offers aid as an organization. With the Cold War competition now past and with poor results from previous gifts of foreign aid, the donor states have begun to experience “compassion fatigue.”45 As a policy strategy, private aid through NGOs, targeted at specific problems, may do more good than foreign aid by states. Ex-President Jimmy Carter’s Carter Center and the Bill Gates Foundation have had some success with controlling diseases in Africa. CARE and Oxfam International have for decades taught the poor how to feed themselves and branched out into the empowerment of women and aid during natural disasters and conflicts.46 One of the most interesting private aid projects is by the NGO One Laptop Per Child. Tens of thousands of low-cost, low-powered computers provide self-education opportunities for the children of Third World countries. Far more laptops are needed. It is too early to know how this project will impact on economic development and the quality of life if millions of poor children are connected to the Internet.

The investment flow

Investment has been gaining on trade in recent years as an important economic flow. The major type of investment is foreign direct investment (FDI), involving the movement of a large amount of capital across borders on a long-term basis to develop a profit-making enterprise. FDI is distinguishable from an individual’s stock portfolio in a foreign country. A US car manufacturer building an automobile plant in China, a French telephone company setting up and operating cell towers and line phones in an African country, or a Japanese company making fork-lifts in the United States are examples of FDIs. MNCs are normally involved in FDI and, for efficiency’s sake, have operations in several or many countries. For example, Trelleborg, a Swedish-registered company, is a fairly average-sized company with 24,000 employees at 100 manufacturing sites in 40 countries. This MNC made the fabric for the escape slides of airliners in Spartanburg, SC, within the United States. These emer- gency devices permitted the crew and 150 passengers to escape from a plane forced to land in the Hudson River in New York City on January 15, 2009. This incident has come to be known as the “Miracle on the Hudson.” Many MNCs have not enjoyed a favorable public image within the context of economic development in the South. The view of the North is that MNCs are helping build an economy advantageous to all states and peoples. The other interpretation, one that many academic critics and Third World leaders espouse, is that MNCs are exploiting poorer countries, ignoring human rights, and harming the environment (Schwartz & Gibb 1999). It seems that with every possible advantage MNCs produce, a corresponding disadvantage occurs. There have been some particularly egregious episodes that have stained the reputation of MNCs. In 1973, International Telephone and Telegraph, apparently with the CIA’s help, reputedly helped bring down the democratically elected government of Salvador Allende in Chile and, in 1984, Union Carbide accidentally leaked a poisonous pesticide killing over 3,000 people in Bhopal, India, to name but two. Starting with the WTO conference in Seattle, Washington in 1999, anti-globalization protestors began showing up at economic summits to object to the abuse of the poor and the environment due to inter- national business practices (Broad 2002). Many developmental NGOs and Third World governments would like to see international rules guaranteeing more social responsibility on the part of MNCs. Critics have become concerned that the most powerful MNCs are even beyond the control of the industrialized democracies where most are registered as corporate entities (Hertz 2001). Regulatory international law is not in place, and so codes of conduct are the make-do regulation available. These are moral norms calling for MNCs to do right instead of wrong as they pursue profit. These codes are numerous but only a few will be mentioned. The UN struggled for years for such a code, and finally Secretary-General Kofi Annan presented the 10 principles of a Global Compact. The ILO offered the Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy. The OECD contributed the Guideline for Multinational Enterprises.48 Numerous NGOs monitor MNCs and suggest their own codes, frequently within specific industries. The Clean Clothes Campaign (CCC),

Box 12.5 Good and Bad Effects of MNCs Introduce technology ………………………………………..Offer ill-suited technology Encourage economic growth………………………………..Retard economic growth Encourage interdependency ……………………………….Cause dependency Elites learn to regulate MNCs. ………………………………MNCs bribe elites Promote human rights. ……………………………………..Disrespect human rights Protect the environment…………………………………… Harm the environment Economic actors in essence. ………………………………...Influential political actors Promote a globalized world………………………………… Damage national cultures

With its interest in the notorious working conditions of women and children in the garment industries of the Third World, is one that is well-known.

The loans flow

Loans for development were actually encouraged by the North in the 1950s and 1960s but, in time, loans ballooned in size. A particularly sensitive interdependence arose in North–South relations in the 1980s and continues today. Vast sums of money, known as petro-dollars, flowed to the OPEC states following the oil crisis of 1973 and the sharp rise in oil prices. Awash in unprecedented amounts of cash, Saudi Arabia and other OPEC members placed their money in Western banks. As good bankers, the executives of these banks put the money to work and loaned out huge amounts of monies to any state, including the poor Third World countries. At one point, the total owed across the South was $1.3 trillion in 1980s money, and the interest to service this staggering sum would amount to 30 percent of their total wealth for a year. These states had planned to invest the borrowed money wisely and so be able to service the massive debt. Such an outcome proved to be exceptional. By the early 1980s, the indebtedness of the developing states had come to be known as the “debt bomb” because default by a major borrower might trigger a chain reaction through a pyramid structure of interconnected banks, causing financial collapse on a major scale (Ferraro & Rosser 1994: 321–55; George 1992). When bad planning, corruption, rampant consumerism, and recessionary trends in the 1980s caught up with the large indebted class of Third World states, it became apparent that servicing debts was seriously undermining states’ budgets, meaning that national services in health care, education, and food supplies were strained. Environmental harms increased as states exploited their natural resources to pay off debts (Hertz 2004: 184). A debt strategy based on the North’s rules – loan for profit and somehow exact repayment – obviously was not working. In particular, the World Bank’s early role of focusing on infrastructure projects such as roads, ports, and dams was not doing well. One study reported less than half the developing states borrowing from the World Bank benefitted from its loans, and a goodly number were worse off than before (Moore 2003: 230). A new policy of dealing with Third World debt was needed. The policy would involve rescheduling debt by lowering the interest rate and extending the repayment period, the policy already being followed by regional development banks, such as the Asian Development Bank.50 Other approaches include simply retiring the debt with donations from others or forgiving the debt altogether. For the 40 poorest countries, mostly in sub-Sahara Africa, the IMF, the World Bank, and the Asian Development Fund began retiring debts of the heavily indebted poor countries (HIPC) in 1996, using funds provided by G-8 countries. The Inter-American Development Bank joined in with help in 2007.51 some environmental NGOs are willing to retire small amounts of debt when states agree to preserve some aspect of their environmental base. From the private sector, hundreds of thousands of people have signed petitions calling for debt forgiveness, because payments on loans subtract from what developing states have to provide for human services. Perhaps an odd pairing, but noted development economist Jeffrey D. Sachs and U-2’s lead singer Bono (Paul Hewson) have famously teamed up to be spokespersons for this option (Hertz 2004: 4, 10; see also Sachs 2005b: 355–76). The NGO Jubilee 2000 (now Jubilee Research) has also called for debt cancellation. One of the most useful ways to help people with loans in the Third World is found outside the purview of states and the treaties they can create. This strategy involves micro-loans of $50 to $250 dollars. From these tiny loans, purchases of bamboo to make furniture, cows to provide milk for sale, and yarn for weaving stoles, for example, result in viable business ventures for great numbers of people. Bangladeshi economist Muhammad Yunus began this idea in the 1980s and, for his efforts, was awarded the 2006 Nobel Peace Prize. His loans grew into the Grameen Bank, and this simple concept has been duplicated in other regions outside of Asia.52 An affili- ate is Pro Mujer (“for the woman”) operating in several Latin American countries.53 Most of the recipients of micro-loans are women who have used the money to go into business and better their lives and that of their families (Sen 1999: ch. 8).

Counter-productive Issues for the Global Economy: Organized Crime, Corruption, and the Pursuit of Non-economic Goals.

Organized crime has operated across borders for decades, if not centuries, and draws a significant portion of the world’s wealth into a non-taxable underworld and away from useful investment and development. Close behind crime ventures is the practice of corruption. Crime and corruption are “cancers” on the world economy reducing its health and vitality. The pursuit of non-economic goals by economic means also undermine commerce and development, even though the goals sought may be legitimate.

Crime

Transnational organized crime (TOC) is a growth industry enjoying prodigious profits roughly estimated to be from one-half to $1 trillion a year, generated through the loss and suffering of innocent people. Rampant crime is the dark underbelly of a surging interdependent world economy. TOC has ridden on the back of globalization, taking advantage of rapid travel and communication, including the use of privately owned jet aircraft, the ease of transferring and hiding bank funds, communications by cell phones, and encrypted messaging via the Internet. Illicit goods and trafficked persons can be moved with unprecedented speed and efficiency. Now, as Moisés Naím has said, “All borders leak, all the time.”54 The pernicious effects of TOC involve bribery of officials, the murder of thou- sands of lives, courts tied up with numerous cases, billions of dollars spent on law enforcement and the operation of prisons, and even the spread of diseases such a AIDS as a result of the illegal drug trade and prostitution. Criminally gained wealth may lay dormant as cash in bank lock-boxes or in numbered bank accounts, or spent frivolously on perishable luxuries. Wasted, this money will not build schools or hospitals, buy textbooks or medicines, construct roads or dig wells. Criminal organizations typically start in one country but extend tentacles into others, both to increase profits and to thwart law enforcement by operating in multiple jurisdictions. Well-known criminal organizations are the Sicilian mafia, Russian mobs known as the mafiya, Japanese yakuza, Chinese triads operating from Hong Kong, the cocaine cartels of Colombia, and Mexican drug smugglers operating along the Mexican–US border. These gangs vary in the amount of international activity, but some are ascending above national and regional levels to form global connections. For instance, Colombian cartels have been known to sell heroin for the Sicilian mafia in the Americas if the mafia sells cocaine for them in Europe and Asia. And the yakuza have helped trans-ship Colombian cocaine from Lebanon to Japan. Trans-regional activities in the trafficking of persons, arms, counterfeit merchandise, and everything else sellable also take place. So far the global pattern has been restricted to cases of mutual assistance on a trans-regional basis, but international enforcement will need to gain traction before crime operations become more globally centralized. While some treaties to halt trafficking in persons and drugs date back to the League of Nations era, the UN has energetically pursued crime and corruption as a priority. Today’s most important global crime-fighting regime centers on the UN Office on Drugs and Crime, the widely supported UN Convention against Transnational Organized Crime (CTOC) and its three protocols dealing with trafficking in persons, the smuggling of migrants, and illicit manufacturing and shipment of firearms. The CTOC went into force in 2003 and its protocols shortly afterward. These four together create a strong, comprehensive regulatory framework. Parties to the CTOC are obliged to create national laws against money laundering, joining a crime organization, and obstructing justice. They are also to confiscate illegal gains, use agreed upon sentences, and coordinate with police agencies of other states. The provision on extradition is particularly noteworthy, for it is similar to extradition in the humanitarian and war crimes context. Governments capturing suspects are to try them or send them to a state that will.55 The UN has long helped countries deal with drug abuse and the improper trade in a wide range of drugs. Barely having been created, the UN started the Commission on Narcotic Drugs in 1946 as its central policy-making body on drugs. One of its primary tasks is to monitor three UN treaties, and which are widely supported by states based on the number of ratifications of over 180 for each. The 1961 Single Convention on Narcotic Drugs covers a broad range of drugs and tries to limit their possession and movement to stop trafficking. The 1971 Convention on Psychotropic Substances covers illegal trade in synthetic drugs. And the 1988 Convention against the Illicit Traffic in Narcotic Drugs and Psychotropic Substances focuses on money laundering related to drug profits, the diversion of necessary chemicals in the manufacture of drugs, and extradition of drug traffickers.56 In a 1998 UN General Assembly special session, the year 2008 was set as a target- date for significantly reducing or eliminating the world’s drug demand and illegal trade, but gains have been modest, if any. Drug addiction remains common and trafficking is both cleverly secretive and bloody. Several submarine-type vessels, carrying cocaine or marijuana, have been intercepted recently in the Gulf of Mexico and the Caribbean Sea. Long tunnels are dug under the Mexican–US border and replaced when authorities collapse them. Drugs flow to the United States and arms are smuggled from the United States to Mexico. Several small towns along this border have witnessed turf wars among drug gangs, with murder by decapitation not unknown. As opposed to lighter armed police officers, only the Mexican Army can enter parts of these towns. Shrewd smuggling methods and murderous behavior are replayed all too often in many areas of the world. Besides the usual greedy motive of huge profits, there are also the needs of terrorists and insurgents to acquire funds for their violent strikes and warfare. The Taliban in Afghanistan, for example, now encourage crops of heroin poppies to raise funds but, when in power, this religious group outlawed such crops. Apparently religious zealots can be practical when they need to be. Regional efforts are in place too. The Council of Europe (COE), made up of 47 states, adopted the world’s first Convention on Cybercrime that went into force in 2004. Crimes over the Internet have exploded in number, ranging from robbing bank accounts to exchanging pictures among rings of child pornographers. Europe has created the European Police Office (Europol), proposed in 1992 and operational in 1998. This office can help with intelligence-sharing and the coordination of national police forces during an investigation. The EU implemented the Shengen Agreement in 1995 to maintain strict border controls over non-EU citizens to prevent crime and terrorism. The OAS has useful regional treaties relating to crime but, in 2006, OAS members adopted the Hemispheric Plan of Action against Transnational Organized Crime, calling on OAS members to apply the UN’s CTOC and its three protocols.

Corruption

Corruption and crime go hand in hand. Bribery induces the police and military to look the other way while criminal gangs ply their unlawful trade. The corruption of officials is the key determinant of whether organized crime thrives or withers (Thachuk 2007: 11). Corruption tends to worsen over time as individuals taking bribes become greedier and their associates decide they want in on the easy money too. The collapse of Chinese dynasties over the centuries was usually preceded by deep patterns of corruption that weakened tax collection. In turn, less tax revenue meant a decline in the ability to pay for a military able to provide centralized con- trol. Eradicating corruption is critical if a country is to attract major investments, increase tax revenue, and deliver human services such as health and education (Mauro 1997: Hodder 2007). Probably no country is entirely free of corruption, but some countries of the South have been hurt by especially strong patterns of this problem. Poor countries usually pay their civil service and police poorly, hence the temptation to take bribes. For those states with large revenues from oil, gold, diamonds, and exotic timber, pernicious corruption can also be the order of the day. Instead of these revenues going to the good f the general population, much of this commodity wealth is siphoned off into officials’ foreign bank accounts and used to pay-off leaders’ patronage groups. Shocking examples of embezzlement are well-known. Suharto of Indonesia took $15 to $35 bil- lion, Mobutu Sese Seko of Zaire (now the Democratic Republic of the Congo stole $5 billion, and Sani Abacha of Nigeria awarded himself $2 to $5 billion.57 In 2007, the World Bank set up a program to help developing countries recover stolen assets. World Bank President Robert B. Zoellick has estimated that $1.0 to $1.6 trillion a year is stolen from the world’s total wealth due to crime, corruption, and tax evasion. The problem is most acute in Africa, where 25 percent of national economies are lost to corruption. The World Bank recovery program operates in conjunction with the UN Office on Drugs and Crime. For the countries ratifying the Convention against Corruption, which went into force in 2005, their governments are obliged to repatriate any stolen funds placed in their banks.58 Regrettably, numerous states have failed so far to ratify, including Switzerland, which helped pioneer the numbered bank account concept absent a person’s name. Switzerland at least signed this convention in December 2003. Corruption is not restricted to states. The UN itself became caught up in a major corruption scandal concerning the $64 billion Iraqi oil-for-food program. Following the defeat of Iraq in 1991 by a UN multinational force, led by the United States, awareness of the deprivation of the Iraqi people in the post-war aftermath led to this humanitarian program. Iraq was allowed to sell oil to raise revenue for food and medicine. Kickbacks quickly followed. Companies wanting to do business with Iraq overpaid for oil creating a pool of money for Saddam Hussein’s lavish spending and to pay off UN officials for ignoring the kickbacks. An investigation panel, headed by former Chair of the US Federal Reserve Paul A.Volcher, found substantial evidence against multiple individuals, including the ex-director of the oil-for-food-program, Benon Savan. Secretary-General Kofi Annan was at least sharply criticized for not monitoring UN personnel more effectively and apparently had a son involved in the corruption. The oil-for-food program lasted from 1996 to 2003; interestingly, the latter year was when the UN Convention against Corruption was proposed. The legal structure aimed at corruption is impressive, but this problem is tough to eradicate. The UN convention has regional reinforcement. One is the 1996 Inter- American Convention against Corruption. In 1997, another was added as the OECD brought about the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. This convention, of which the United States is a party, helped the United States in business competition. When the US Foreign Corrupt Practices Act of 1977 went into effect, MNCs registered in the United States were forbid- den to sweeten business deals with bribes, whereas companies from other industrialized states might not be constrained in this manner. The OECD convention helped level the playing field among the largest industrial and trade states. The COE’s 2003 Criminal Law Convention on Corruption allowed charges to be brought against individuals in their own right and as agents of MNCs. Also in 2003, the AU devised a Convention on Preventing and Combating Corruption. It is the UN Convention against Corruption, however, that has the best chance for effectiveness because it can apply to the entire world, and has the critically important provision for repatriating stolen funds.

National and international law are very important to control corruption, but the roots of this problem drive deep into many national cultures. Sadly, many of the coun- tries most in need of economic development are also those prone to corruption (Lipset & Lenz 2000: 112–24). Transparency at least can help off-set proclivities toward corrupt practices. Transparency is openness and accountability, and usually practiced more thoroughly in mature democracies. Committees of legislatures scrutinize executive conduct, courts apply the rule of law to wayward individuals, attorneys-general investigate judges suspected of taking bribes, and the populace turns out officials suspected of wrong-doing via elections. Democracy is not an absolute guarantee against corruption, however. The Governor of Illinois, Rob Blogojevich, was charged by federal authorities in late 2008 for trying to “sell” President Barack Obama’s US Senate seat, and the Illinois legislature impeached and convicted him in a 59–0 vote for the same offense in early 2009. In the private sector, until arrested in late 2008, financier Bernard Madoff once ran the world’s record Ponzi scheme of $50 billion from New York City. Since crime and corruption have become such transnational phenomena, the role of the International Criminal Police Organization, better known by its old telegraph address of Interpol, has become most important. Interpol, formed in 1923, coordinates investigations and pursuits of fugitives across national boundaries in the areas of organized crime, trafficking persons, drug smuggling, corruption, as well as terrorism and even art theft. Interpol maintains a Command and Coordination Center around the clock for the use of its 187 participating state-members. Interpol is head- quartered in Lyons, France and was recognized by the UN in 1971 as an IGO, after first receiving consultative status as an NGO at the UN in 1949.60 NGOs have proven invaluable for imposing transparency on governments and IGOs. One of the best known in this field is Transparency International (TI), with its annual and carefully watched Corruption Perceptions Index. This NGO ranks countries according to the extent of their corruption. One World Trust works to ensure accountability in global governance, including the role of IGOs. NGOs even scrutinize each other for honesty and effectiveness, a service provided by NGO Watch and Charity Navigator.61

Non-economic goals

The pursuit of non-economic goals often diverts economic energies away from development’s contribution to human prosperity, whether on the part of rich or poor states. Sanctions have often been leveled by well-meaning countries to protect human rights, consumer safety, and the environment. One of the more criticized sanctions policy still in effect, however, is the one leveled against communist Cuba by the United States. The standard of living for Cubans is undoubtedly hurt by US sanctions since Cuba, before its communist era, had traded heavily with the United States. This policy is a remnant of the Cold War but is still useful to American political leaders as a way to attract Cuban–American voters in Florida. The 1992 Cuban Democracy Act forbids trade with Cuba, even by foreign-located subsidiaries of MNCs registered in the United States. The 1996 Helms–Burton Act continues the trade embargo and allows Americans, who lost property due to Cuba’s expropriation of American companies in the 1990s, to sue in US courts. The law suit can be directed at the company of a third country that does business with Cuba when the business arrangement involves seized American property. European trade partners and allies of the United States are especially upset over this sanctions policy. President Barack Obama was moving in early 2009 to keep a campaign promise to allow Cuban– Americans to visit Cuba, but not to end the trade boycott. Multilateral economic sanctions have often been used by IGOs, such as the UN, to either stop or encourage particular behavior by other actors. The League of Nations sought to halt Italy’s invasion of Ethiopia in 1936 with economic sanctions, and the UN wanted to bring down the white-ruled regime of Rhodesia (today’s Zimbabwe) in 1965 with sanctions. Much more is known today about the side-effects of sanctions, as in the case of UN-sponsored sanctions against Iraq in the early 1990s. These were aimed at preventing Saddam Hussein from developing weapons of mass destruction. The side-effects included widespread illness, hunger, and loss of Iraqi lives, especially among children, and certainly raise serious questions about the way sanctions are applied and their general usefulness.62 It can also be argued sanctions against Iraq were not necessary in the 1990s as Iraq was exhausted first by the war of the 1980s with Iran and then by fighting the US-led coalition over Kuwait in 1990–1. Are the socioeconomic problems experienced by general populations from sanctions justified by the goals sought? The history of sanctions shows that they often do not work and may have undesired consequences. A great deal of careful thought has been given to sanctions in recent years resulting in a focus on “smart sanctions.” Such sanctions target elite decision-makers, including freezing their bank accounts in foreign countries or prohibiting their travel by air, thus minimizing negative effects on general populations (Cartwright & Lopez 2002: O’Sullivan 2003). Smart sanctions are not a panacea, but they help protect the welfare of most citizens of a country.

Chapter Summary · Once countries realized they needed or wanted the products of others, trade treaties developed first as bilateral arrangements and finally as regional and global agreements that included IGOs to supervise. · Although different philosophies and policies have always characterized international commerce, a major effort by the United States after the Second World War to lead the world toward a consensus within a free trade system. · A major problem for consensus over world trade is the huge gap between the industrialized states of the North and the poorer countries of the South, with the latter seeking different rules that will allow them to narrow the economic gap. · Corruption, crime, and the use of economic potential for political leverage are “leaks” on the world’s wealth that ultimately harms the well-being of many people.