ECONOMIC AND FINANCIAL
Preston Fore
YMCA 2018 Southeastern High School Model United Nations YMCA Southeastern High School Model UN
Dear Delegates,
This year’s Staff would like to welcome you to SHSMUN 2018! With the belief in mind that MUN is FUN, we hope that you are as excited as we are for November 17-19. Our primary goal is to ensure that this Conference is the best one yet while maintaining the most authentic experience for you, our esteemed delegates. To accomplish our goal, we are constantly striving to evolve and improve in all the ways we can think of. For you, this means that General Committee procedure will run more smoothly, note passing will be easier, and committee sessions will be as amazing as they have always been, if you put the work in.
Hard work is a tradition at SHSMUN, so we hope to inspire you through these topic guides to be as prepared as possible to debate and collaborate on your topics. Most of the research and work of a Model UN delegate should come before the Conference in order to give your skill a chance to shine through in committee. We encourage you to really delve into your topics and country’s positions early on so that your Conference experience can be as fruitful as possible!
Whether this is your first year at SHSMUN or your fourth, no matter the committee you decide to participate in, you have the unique opportunity to learn about, understand, and advocate for another country’s position, one that you might not agree with. To be able to do this and do it well is a vital skill for the increasingly interconnected world we live in today, and what better place to practice it than right here at SHSMUN 2018!
With all of this in mind, please do not hesitate to contact your chair or any other Conference Staff members with your questions relating to topics, committee, or the Conference in general. We wish you the best of luck in your work, and we cannot wait to see all of your efforts pay off at the Conference come November!
Best of luck,
Lauren Tolbert Carter Smith Secretary-General Director-General [email protected] [email protected]
Emily Perez Karlyn Simcox Under-Secretary-General General Committee President [email protected] [email protected]
P.S. Make sure to keep up with the latest SHSMUN news and updates by following our social media accounts!
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Table of Contents
Parliamentary Procedure Cheat Sheets 3 Sheet 1: Overview of Common Points and Motions 3 Sheet 2: The Parliamentary Procedure Basics 4
Letter from the Chair 5
Committee History 6
Topic A: Addressing the Role of Inflation in Economic Crises 7 Introduction 7 Background 8 Current Situation 9 Committee Directive and Jurisdiction 12 Questions to Consider 13 Suggested Sources 13
Topic B: Income Distribution in Developing Economies 14 Introduction 14 Background 14 Current Situation 16 Committee Directive and Jurisdiction 18 Questions to Consider 18 Suggested Sources 19
Topic C: The Impact of Protectionist Policy on International Trade 20 Introduction 20 Background 20 Current Situation 23 Committee Directive and Jurisdiction 24 Questions to Consider 25 Suggested Sources 25
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Parliamentary Procedure Cheat Sheets
Sheet 1: Overview of Common Points and Motions
May Requires Pro-Con May Be Vote Motion or Point Interrupt Second? Debate Amended? Required Speaker?
Chair’s Point of Order Y N N/A N Discretion
Chair’s Right of Reply Y N N/A N Discretion
Suspend the Simple N Y N/A Y Meeting Majority
Limit/Extend Simple N Y 1/1 Y Debate Majority
Limit Speaker’s Simple N Y 1/1 Y Time Majority
Introduce Simple N Y 1/1 N Amendment Majority
Introduce Simple N Y 2/2 N Resolution Majority
Enter Voting 2/3rds N Y 2/2 N Procedures Majority
Divide the Simple N Y 1/1 N Question Majority
2/3rds Table N Y 2/2 N Majority
Take from the Simple N Y 1/1 N Table Majority
Simple Caucus (ALL) N Y 1/1 Y Majority
Simple Roll Call Vote N Y 1/1 N Majority
Suspend the 2/3rds N Y 2/2 Y Rules Majority
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Sheet 2: The Parliamentary Procedure Basics
Remember! 1. Any time you speak, you must begin by saying your name and country. 2. Before you ask questions to a delegate, you must say, “Does the delegate yield to a possible series of questions?” and if they yield, you may then ask up to three questions.
Speakers’ List: add yourself if you wish to speak on the topic. If you are on the docket, you are automatically added. When on the Speakers’ List, you may yield your time one of three ways: • To the chair: Chair absorbs the rest of your time. • To questions: Other delegates may ask you up to three questions. • To another delegate: Another delegate may speak for the rest of your time.
Caucuses: • Moderated caucus: a way to hear from multiple delegates for short periods of time; set a total speakers time, an individual delegate speaking time, and a topic • Roll Call Caucus: The Co-Chair will take roll, and every delegate will be given thirty seconds to speak on their position. • Unmoderated caucus: unregulated time to work on super-resolutions; stay on task.
Points: • Point of Order*: Used if a delegate incorrectly uses parliamentary procedure. • Point of Inquiry: Used to ask questions about parliamentary procedure or clarify what is going on; also used to ask for other delegates to speak louder, for boys to ask to remove their coats, to ask to change temperature of the room. • Right of Reply*: If another delegate directly slanders your country, you can use this to refute their claims and defend your nation.
*You may interrupt the speaker for these points
Introductions: • Amendments: In order to change or add anything to a resolution already introduced, you must send it to the dais and then move to introduce it. o Friendly amendments: The author(s) of the resolution(s) favor it and it is immediately added to the resolution. o Unfriendly amendments: The author(s) of the resolution(s) do not favor it, and it is put to a vote in committee. • Resolutions: 25% of the committee must be signatories, then send it to the dais and move to introduce it.
Ways to Vote (Resolutions and Amendments) • Simple Placard Vote: Delegates raise their placard to cast their vote (default). • Roll Call Vote: The Co-Chair will take roll and each country will say their response. • Vote By Unanimous Consent: If the entire committee is in favor of a resolution or amendment, you may suspend the rules and vote by affirmation.
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Letter from the Chair
Dear delegates,
My name is Preston Fore, and I have the distinct and privileged honor to serve as your Economic and Financial Committee chair for SHSMUN 2018. Being born and raised here in Chattanooga, I could not be more excited and prouder of my city for continuing to host such an amazing event. During my freetime, you may catch me reading, watching CNN, or volunteering at the Tennessee Aquarium; in terms of Netflix, the Office still reigns supreme. While this will be only my second year at SHSMUN, I am beyond elated for the upcoming conference.
My goal for ECOFIN is to create an engaging environment where each individual delegate has the opportunity to succeed within each topic. In doing so, my basis for choosing topics focused on the inclusion of many nations abroad with the potential for lively debate. Inflation, income distribution, and protectionism all display diverse and intense argumentative sides, and as a result, committee debate will be intuitive and unique. However, most importantly, this is YOUR committee, so make it last; I merely am the facilitator. I want ECOFIN to be fun but still respectable and commendable to add to the unforgettable conference.
SHSMUN may only be three days long, but it will create a lifetime of memories if you so choose. My best advice to delegates, old and new, is to pay attention in committee. The start of committee, especially, sets the precedent for the remaining sessions. Be prepared to learn from your peers and change perspectives as needed. When I first step foot into committee, I was honestly terrified as I had no idea what to expect. You will quickly learn how to be an outstanding delegate, but make sure to take note of parliamentary procedure and use the mock debate to your advantage. Furthermore, like many will tell you, do not be afraid to speak up! It will make your experience a lot more fun. Finally, enjoy the conference while it lasts; it will be over before you can even fathom what just happened. Please reach out to me, via email or text, of any questions whatsoever that you have. Together, we will make SHSMUN 2018 the time of our life. See you in November!
Sincerely,
Preston Fore 2018 Economic and Financial Chair [email protected] (423) 805-0628
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Committee History
The Economic and Financial Committee (ECOFIN) is the Second Committee of the United Nations General Assembly, and was established in 1945, concerning itself with the economic issues of the global community, including, but not limited to, debt sustainability and international financial problems. Its solutions involve the propagation of international growth and continuing to regulate and expand the reaches of international trade and commerce. The Economic and Financial Affairs Committee also works in tandem with the Economic and Social Council of the United Nations (ECOSOC) to help finance the development of nations and their infrastructures, as well as coexisting with the International Monetary Fund and World Bank to aid certain member states.
Progressing through its seventy-second session, the Second Committee continues to prioritize economic growth and development worldwide, including addressing questions of macroeconomics, interdependence, and global partnerships. Furthermore, the Economic and Financial Committee has tasked itself with the newly designed Sustainable Development Goals, which include the end of poverty, promotion of economic growth, and ensuring sustainable production. The committee has also taken a priority in the economic sovereignty of member states, ensuring the freedom of trade and means of production within and among member states. With this, the Second Committee has strived to hear a variety of voices on economic issues, by introducing economic experts and world leaders for their perspectives. In doing this, the Second Committee aims to resolve the economic issues of the global economy by employing its power as a force of the United Nations and the impact of member states coming together.
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Topic A: Addressing the Role of Inflation in Economic Crises
“Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hitman.” - Former President Ronald Reagan
Introduction
The United Nations defines inflation as “the annual increase of the cost of living as measured by the consumer price index.”1 Most economists agree that rising inflation is a sign of positive economic growth. In fact, most developed bank systems, such as the United States Federal Reserve and the United Kingdom Bank of England, have a 2% annual target inflation rate.2 For developed economies, the gradual rise of inflation is beneficial since rising prices promotes additional spending as the expectation of continued price increases encourages them to buy sooner. The prices of products such as food, water, and transportation are all dependent on the current inflation level, demonstrating the importance of inflation to all consumers. Furthermore, inflation encourages businesses to gradually increase wages, whereas without it, wages would be cut.3
However, without proper oversight and regulation, inflation can quickly spiral out of control and cause widespread poverty due to drastic currency depreciation. Unstable inflation can often be the root cause in creating and/or worsening economic crises. Rapid inflation, known as hyperinflation, significantly undermines the purchasing power of individuals, leading to severe currency depreciation. On the other hand, when an economy is experiencing inflation below the target rate, a central bank may decrease interest rates in an effort to increase spending. As a result of lower interest rates, banks will charge less to borrow money, which leads to increased spending and a rise in inflation.4 Known as inflation targeting, most banking reserves manipulate interest with the goal of achieving an annual two-percent inflation increase.5 Inflation, as a core concept of economics, must be addressed by ECOFIN to ensure the stability of the global financial market.
1 "INFLATION RATE Economic Development Macroeconomic performance." United Nations Sustainable Development Methodology. June 15, 2007. Accessed February 8, 2018. http://www.un.org/esa/sustdev/natlinfo/indicators/methodology_sheets/econ_development/inflation_rate.pdf. 2 Irwin, Neil. "Of Kiwis and Currencies: How a 2% Inflation Target Became Global Economic Gospel." The New York Times. December 19, 2014. Accessed February 09, 2018. https://www.nytimes.com/2014/12/21/upshot/of-kiwis-and-currencies-how-a-2-inflation-target-became-global- economic-gospel.html. 3 Ibid. 4 Folger, Jean. "What is the relationship between inflation and interest rates?" Investopedia. January 03, 2018. Accessed February 09, 2018. https://www.investopedia.com/ask/answers/12/inflation-interest-rate- relationship.asp. 5 Jahan, Sarwat. "Inflation Targeting: Holding the Line." IMF: Finance & Development. July 29, 2017. Accessed February 12, 2018. http://www.imf.org/external/pubs/ft/fandd/basics/target.htm.
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Background
Economists generally agree that inflation falls into three main categories: demand-pull, cost-push, and monetary inflation.6 Demand-pull inflation occurs when there is a substantial increase in the consumption of a good causing the supply to drop but the demand to rise. This form of inflation can indicate a strong economy in moderation because it occurs when there is an increase in demand for goods or services. Often this happens following expansionary policies, such as when a government raises spending or a central bank lowers interest rates.7 Inflationary pressure then occurs as a result of firms raising prices as they compete for increasingly scarce factors of production.
Cost-push inflation occurs when businesses’ expenses rise, resulting in higher prices for consumers to compensate from the increasing costs of production.8 Again, this type of inflation is not necessarily harmful; the cost of raw materials, such as oil and lumber, could be increasing as a result of global economic growth. Furthermore, companies could be forced to increase wages due to governmental policy, workers’ demands, or a lack of educated hirees. Thus, businesses are forced to push their additionally expenses onto the consumer, leading to price increases, at the risk of the company.
Arguably, the most dangerous form of inflation is monetary inflation. Governments can print more currency at their discretion, often justified as a way to stimulate more jobs.9 However, increasing the amount of money in circulation decreases the purchasing power of each bill, causing prices to rise.10 Governments have to be extremely careful when controlling circulating currency; the lack of oversight can put the integrity of the economy at risk. The act of printing more money in an economic crisis can contribute to hyperinflation, when prices rise out of control and currency loses most of its value. As prices begin to increase, citizens rush to get rid of currency in their possession since its value could decrease drastically within days. Governments then begin printing more money, and basic goods, such as food, water and fuel, become scarce. Economists believe that hyperinflation occurs when inflation rates exceed 50% for a given month.11 However, there are countless examples of monthly inflation in the million- percent range throughout the 20th century, with several following the outcome of the Great Depression and World War II. One of the most severe examples is Hungary in 1946, when the country faced a monthly inflation rate of 13,600,000,000,000,000%.12 The dire situation prompted the Hungarian government to focus on encouraging new production and building new
6 Hayes, Admin. "Inflation: What Is Inflation?" Investopedia. May 26, 2017. Accessed February 08, 2018. https://www.investopedia.com/university/inflation/inflation1.asp. 7 Öner, Ceyda. "Inflation: Prices on the Rise." IMF: Finance & Development. Accessed February 10, 2018. http://www.imf.org/external/pubs/ft/fandd/basics/inflat.htm. 8Batten, Dallas S. "Inflation: The Cost-Push Myth." FEDERAL RESERVE BANK OF ST. LOUIS. June 1981. Accessed February 27, 2018. https://files.stlouisfed.org/files/htdocs/publications/review/81/06/Inflation_Jun_Jul1981.pdf. 9 Ibid. 10 Ibid. 11Staff, Investopedia. "Hyperinflation." Investopedia. June 19, 2015. Accessed February 11, 2018. https://www.investopedia.com/terms/h/hyperinflation.asp. 12 Toscano, Paul. "The Worst Hyperinflation Situations of All Time." CNBC. January 29, 2014. Accessed February 11, 2018. https://www.cnbc.com/2011/02/14/The-Worst-Hyperinflation-Situations-of-All-Time.html.
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infrastructure. Furthermore, the government adopted a special currency for tax and postal payment purposed, and it was adjusted daily via radio. It was estimated that all of Hungarian banknotes in circulation equaled the value of one one-thousandth of a U.S. dollar.13 Yet, the ultimate solution came with the nation replacing its currency, the pengo, with the Hungarian forint, which is still used today.
In the 1990’s, Yugoslavia faced a similar economic crisis involving unmanageable inflation rates. The European nation hit a monthly inflation rate of 313,000,000% with prices doubling every 1.4 days.14 The country faced a deep recession, and after taking an IMF loan, thousands of firms went bankrupt and over 600,000 workers were laid off.15 Government mismanagement also exacerbated the situation with the uncontrolled printing of currency, generation of large deficits, and price setting. Crippled by a United Nations embargo, the nation was forced to revalue its currency, the dinar, at a rate of 1:1 to Germany’s currency, the deutsche mark. Under new leadership, Yugoslavia faced temporary economic relief with miniscule amounts of inflation.16
Current Situation
Case 1 - Venezuela
With an estimated 300.9 million barrels of crude oil reserves, Venezuela has the largest amount of petroleum of any country in the world.17 Oil consists of 95% of the country’s total exports, meaning the recent dramatic drop in oil prices by nearly half has crippled the once dominant Latin American economy.18 The country has faced several drastic governmental changes over the last few decades, filled with coups, riots, and constitutional rewrites. The late President Hugo Chávez brought short-lived socialist prosperity with promises to redistribute land and wealth, in addition to fighting corruption.19 Chavez established many social welfare programs to raise spirits and approval ratings but failed to follow a balanced budget; deficits under his administration rose by several billion dollars.20 Following Chavez’s death in 2013, Nicolás Maduro was hand-picked to become the next leader of the Bolivarian Republic of Venezuela. When the price of oil fell from over $100/barrel to less than $50/barrel in a span of a few months in 2014, the Venezuelan economy began to collapse. Furthermore, the oil industry
13 Ibid. 14 Ibid. 15 Ibid. 16 Cohen, Roger. "Embargo Leaves Serbia Thriving." The New York Times. May 29, 1994. Accessed February 28, 2018. http://www.nytimes.com/1994/05/30/world/embargo-leaves-serbia-thriving.html?pagewanted=all. 17“COUNTRY COMPARISON :: CRUDE OIL - PROVED RESERVES." Central Intelligence Agency. Accessed January 14, 2018. https://www.cia.gov/library/publications/the-world- factbook/rankorder/2244rank.html. 18 “Venezuela facts and figures." OPEC : Venezuela. 2017. Accessed January 14, 2018. http://www.opec.org/opec_web/en/about_us/171.htm. 19 Bulmer-Thomas, Victor. "Analysis: How Hugo Chavez changed Venezuela." BBC News. March 06, 2013. Accessed February 12, 2018. http://www.bbc.com/news/world-latin-america-15240081. 20 Roth, Charles. "Venezuela's Economy Under Chavez, by the Numbers." The Wall Street Journal. March 06, 2013. Accessed February 27, 2018. https://blogs.wsj.com/economics/2013/03/06/venezuelas-economy-under- chavez-by-the-numbers/.
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makes up 25% of the nation’s gross domestic product.21 Therefore, when the biggest economic sector lost value, Venezuelan currency lost its value and has yet to recover. Inflation in 2017 topped 2,600%, leaving millions without basic resources.22 In fact, the IMF expects the inflation rate in 2018 to top 13,000% as a result of immense budgetary deficits and economic uncertainty.23 Venezuela’s economic situation has primarily been stimulated by governmental policies. Maduro continued to introduce new notes into circulation, with new denominations from 500 to 100,000 just in the past two years.24
As a result of the struggling economy, the official governmental exchange rate from Venezuela bolivars to the U.S. Dollar is not respected by the Venezuelan government. The over 30 million Venezuelan citizens are forced to use the black market exchange rate, which, as of mid 2018, stands at a rate of over 745,000 bolivars for $1 USD.25 As a result, civilians are suffering; on average, 75% of the population has lost an average of 19 pounds of body weight between 2015 and 2016 due to food shortages.26 The Maduro administration has attempted to counter rising inflation by increasing the minimum wage by 40% and implementing an oil- backed cryptocurrency.27 In an attempt to offset the worsening financial crisis, the government will use 5.3 billion barrels of oil to back the release of the new ‘petro’.28 With little evidence to back it up, Venezuela officials have claimed the cryptocurrency has already had early sales of over $3.3 billion and $1 billion has been pledged to Venezuela’s central bank.29 The lack of transparency and oversight with the launch of the petro has led to much skepticism, including how to actually invest in the cryptocurrency. Furthermore, the United States has blocked its citizens from purchasing petro.30
21 "Venezuela." OPEC : Venezuela. Accessed February 27, 2018. http://www.opec.org/opec_web/en/about_us/171.htm. 22 Gupta, Girish. "Venezuela 2017 annual inflation at 2,616 percent: opposition lawmakers." Reuters. January 09, 2018. Accessed February 11, 2018. https://www.reuters.com/article/us-venezuela-economy- inflation/venezuela-2017-annual-inflation-at-2616-percent-opposition-lawmakers-idUSKBN1EX23B. 23 Werner, Alejandro. "Latin America and the Caribbean in 2018: An Economic Recovery in the Making." IMF Blog. January 25, 2018. Accessed February 11, 2018. https://blogs.imf.org/2018/01/25/latin-america-and- the-caribbean-in-2018-an-economic-recovery-in-the-making/. 24 Perper, Rosie. "Venezuela's New 100,000-bolivar Note Is worth Less than $2.50 in US Dollars." Business Insider. November 06, 2017. Accessed May 20, 2018. http://www.businessinsider.com/venezuelas-new-note- is-worth-just-250-2017-11. 25"Noticias de Venezuela y Dolar paralelo." DolarToday. Accessed January 14, 2018. https://dolartoday.com/. 26Aleem, Zeeshan. "How Venezuela went from a rich democracy to a dictatorship on the brink of collapse." Vox. September 19, 2017. Accessed February 27, 2018. https://www.vox.com/world/2017/9/19/16189742/venezuela-maduro-dictator-chavez-collapse. 27 Baynes, Chris. "Venezuela raises minimum wage by 40% as economic crisis deepens." The Independent. January 01, 2018. Accessed January 14, 2018. http://www.independent.co.uk/news/world/americas/venezuela- inflation-minimum-wage-increase-president-nicolas-maduro-economic-crisis-a8137056.html. 28"Venezuela oil-backed cryptocurrency to launch in days, government says." CNBC. December 29, 2017. Accessed January 14, 2018. https://www.cnbc.com/2017/12/29/venezuela-oil-backed-cryptocurrency-to- launch-in-days.html. 29 "Venezuela's Central Bank to Receive $1 Bln From..." Reuters. April 26, 2018. Accessed May 20, 2018. https://www.reuters.com/article/crypto-currency-venezuela/update-1-venezuelas-central-bank-to-receive-1- bln-from-cryptocurrency-sales-maduro-idUSL1N1S32S1?rpc=401&. 30 Ibid.
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Most other Latin American nations are in agreement that intervention is needed; a coalition of 12 American nations, consisting of Argentina, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Honduras, México, Panamá, Paraguay, and Peru, met in August of 2017 to condemn the failures of Venezuela and commit to bring diplomatic change.31 Furthermore one of the largest South American trade blocs, Mercosur, officially suspended Venezuela from its organization.32 Despite international condemnation, there has been little substantive discussion on possible solutions to the ongoing Venezuelan economic crisis, save from the Colombian government. They have called for a financial rescue plan worth up to $60 billion USD in the event the Maduro regime fails.33 Colombia has voiced support for international discussion of the Venezuelan situation, wishing to take a direct role in rebuilding Venezuela’s economy and to be at the forefront of international lending.
Case 2 - Iceland
During the global financial crisis of 2008, Iceland was hit especially hard. After Iceland’s currency, the krona, plummeted in value, Iceland’s entire financial system followed suit due to significant flaws in the Icelandic banking system. The three largest banks had assets worth ten times the GDP of Iceland and twenty times the state budget from investments in foreign entities, such as foreign companies, real estate, and sports teams.34 The banks offered overseas individuals higher interests rates than in their home country.35 Once the financial crisis hit, 80% of Iceland’s stock market was wiped out, and 97% of the banking sector collapsed.36 Therefore, after the currency crash, eighty-five percent of the financial system collapsed with it.37 The government was forced to take control of the country’s largest banks while letting others fail since a cash bailout was not viable.38 In the course of just under two weeks, Iceland’s central bank cut interest rates by 3.5% from 15.5%, then raised them again to 18% in attempt to counter fluctuating inflation.39 However, it was estimated the annual inflation rate hit a record 17.1%.40
31"Declaración de Lima." Ministerio de Relaciones Exteriores - Perú. August 8, 2017. Accessed January 14, 2018. http://www.rree.gob.pe/SitePages/declaracion_conjunta.aspx?id=DC-007-17. 32 Paraguassú, Lisandra. "Mercosur trade bloc to evict Venezuela: source." Reuters. August 03, 2017. Accessed January 14, 2018. https://www.reuters.com/article/us-venezuela-mercosur/mercosur-trade-bloc-to- evict-venezuela-source-idUSKBN1AJ2RI. 33Bases, Daniel. "Colombia wants to build Venezuela financial rescue plan." Reuters. February 09, 2018. Accessed February 12, 2018. https://www.reuters.com/article/us-colombia-venezuela-aid/colombia-wants-to- build-venezuela-financial-rescue-plan-idUSKBN1FU00L. 34Anderson, Jenny. "How Iceland Emerged From Its Deep Freeze." The New York Times. July 03, 2015. Accessed February 11, 2018. https://www.nytimes.com/2015/07/05/business/international/how-iceland- emerged-from-its-deep-freeze.html. 35 O’Brien, Matt. "The miraculous story of Iceland." The Washington Post. June 17, 2015. Accessed February 11, 2018. https://www.washingtonpost.com/news/wonk/wp/2015/06/17/the-miraculous-story-of-iceland/. 36 "How Did Iceland Clean up Its Banks?" BBC News. February 10, 2016. Accessed May 20, 2018. http://www.bbc.com/news/business-35485876. 37 Ibid. 38 "Timeline: Iceland economic crisis." BBC News. February 02, 2009. Accessed February 11, 2018. http://news.bbc.co.uk/2/hi/europe/7851853.stm. 39 Ibid. 40 Ibid.
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Although mainland Europe experienced some financial difficulties connected to the financial situation in Iceland, Icelandic citizens were most impacted by the collapse of the banking system. It was estimated that 50,000 of Iceland’s 300,000 citizens lost their entire life's savings and 25% of homeowners went into mortgage default.41 Within months, the recovery efforts began; the IMF approved a $2.1 billion USD loan for Iceland, and Scandinavian neighbors procured another $2.5 billion USD.42 These loans were used to prevent further currency devaluation as well as protect domestic deposits.43 New policy was implemented that prohibited purchase of foreign currency and stock, and barred capital from leaving the country; the banking systems were revamped, with dozens of bankers jailed as a result. Iceland’s capital controls were successful, and the restrictions were lifted in 2017.44 Since 2008, Iceland’s economy has been growing at remarkable levels, with tourism and housing on dramatic rises. In fact, IMF loans were repaid on remarkable levels and ahead of schedule, with a majority of loans being repaid by the end of 2015, not even ten years after Iceland’s economic crisis.45
Committee Directive and Jurisdiction
The Economic and Financial Committee will convene to discuss possible solutions to current and future economic crises as a result of inflation. Delegates should analyze and consider all of the contributing factors to a twenty-first century economy; seeking the guidance of current and former policy will be crucial in creating comprehensive solutions. Inflation’s role in the economy should be addressed in ways to assist the international community in growing financially. Delegates should focus on intuitive policy changes that can be implemented universally to not only stabilize the global economy in terms of inflation but prevent subsequent problems that would otherwise arise. The lack of unilateral guidelines and recommendations for the global economy’s inflation rates is something the Economic and Financial committee will address. Additionally, delegates must understand their boundaries as ECOFIN members. States’ decisions on economic policy must be respected and cannot be expected to change with ease. As a part of the United Nations, the committee does not have the power to force any state to follow any economic or trade plan. With that in mind, frameworks for formatting inflation policy on a global scale must be considered. After discussing the described economic situations, the Second Committee of the General Assembly will continue to build on the worldwide effort to hinder implications of rising inflation and overall create a positive outlook for the global economy.
41Boyes, Roger. Meltdown Iceland: Lessons on the World Financial Crisis from a Small Bankrupt Island. London: Bloomsbury Publishing, 2009. Accessed May 20, 2018. https://www.economist.com/media/pdf/meltdown-iceland-boyes-e.pdf. 42 Ibid. 43 Matsangou, Elizabeth. "Failing banks, winning economy: the truth about Iceland's recovery." World Finance. September 15, 2015. Accessed March 09, 2018. https://www.worldfinance.com/infrastructure- investment/government-policy/failing-banks-winning-economy-the-truth-about-icelands-recovery. 44 Alderman, Liz. "Iceland, Symbol of Financial Crisis, Finally Lifts Capital Controls." The New York Times. March 14, 2017. Accessed February 11, 2018. 45 Ibid.
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Questions to Consider
1. How has inflation played a role in your nation’s economic history? a. What procedures were successful in responding to the inflation? 2. Does your government’s central bank have an annual targeted inflation rate? If so, is it successful in meeting the goal? What are the challenges in accomplishing it? 3. Has your nation assisted neighbors or global partners in the past following economic crises? a. If so, what methods were implemented or planned? 4. Did inflation increase in your nation following the 2008 global economic crisis? How has it recovered?
Suggested Sources
1. Inflation Rate, Average Consumer Prices | IMF DataMapper http://www.imf.org/external/datamapper/PCPIPCH@WEO/OEMDC/ADVEC/WEOWO RLD 2. The Framework for Monetary Policy | Brookings Institution https://www.brookings.edu/blog/up-front/2018/01/04/the-hutchins-center-explains-the- framework-for-monetary-policy/ 3. Global Economic Prospects | The World Bank http://www.worldbank.org/en/publication/global-economic-prospects 4. Finance & Development, Back to Basics | IMF http://www.imf.org/external/pubs/ft/fandd/basics/index.htm
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Topic B: Income Distribution in Developing Economies
“Working for a just distribution of the fruits of the earth and human labor is not mere philanthropy. It is a moral obligation.” - Pope Francis
Introduction
In 2017, 82% of growth in global wealth went to the top 1% of wealthiest individuals, enough to end extreme poverty seven times over.46 Over the last several decades, income distribution across the globe has become increasingly unequal in both developed and developing countries. In fact, during a study of 130 nations, 65 of them were found to have an increase of economic inequality in terms of disposable income between 1990 and 2012.47 Within the last decade, billionaire wealth has grown 13% a year, while the income of ordinary workers has just increased 2% per year.48 Furthermore, 2017 saw the biggest increase of billionaires in history, with a new one every two days.
Income disparities refers to the uneven distribution of income among a population, including, but not limited to, revenues from wages, salaries, interests, dividends, rents, and profits.49 Guided by Sustainable Development Goal 10 of the United Nations Development Programme (UNDP), the United Nations has begun work to reduce economic inequality within and among countries to promote sustainable income growth of the bottom 40% individuals at a higher rate than the national average. Since the goal’s adoption, gains have been significant; between 2011 and 2015, incomes of the bottom 40% grew faster than the national average in 49 of the 83 countries with data, which accounts for three quarters of the world’s population.50 Furthermore, in areas with per capita income and consumption growth, low-income populations experienced faster income growth, whereas in countries with a decline in per capita income, the bottom 40% fared worse than the overall population. While these findings have been a step in the right direction for the world, they still suggest that the bottom 40% are increasingly susceptible to economic changes and that economic growth is a key factor in promoting proper income distribution.
Background
One common way to quickly analyze income distribution is by comparing income of the top decile individuals to the national median income. Alternatively, it can be presented as a
46 "Reward Work, Not Wealth." Oxfam. January 2018. Accessed March 16, 2018. https://d1tn3vj7xz9fdh.cloudfront.net/s3fs-public/file_attachments/bp-reward-work-not-wealth-220118-en.pdf. 47 "Inequality Matters." United Nations Department of Economic and Social Affairs. 2013. Accessed March 18, 2018. http://www.un.org/esa/socdev/documents/reports/InequalityMatters.pdf. 48 "5 Shocking Facts about Extreme Global Inequality and How to Even It up." Oxfam. 2017. Accessed March 30, 2018. https://www.oxfam.org/en/even-it/5-shocking-facts-about-extreme-global-inequality-and-how-even- it-davos. 49 "Income Inequality." Inequality.org. Accessed March 18, 2018. https://inequality.org/facts/income- inequality/. 50 "The Sustainable Development Goals Report 2017." United Nations. 2017. Accessed March 28, 2018. http://sdgactioncampaign.org/wp-content/uploads/2017/07/TheSustainableDevelopmentGoalsReport2017.pdf.
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percent of income going to a number of people.51 Globally, the top percentile has a share between 17.3% and 20.7% of global income, with the top decile having between 58.5% and 62.0%. To put that into context, members of the richest percentile had mean incomes almost 21 times larger than the world mean income, in 2005.52
Furthermore, economists often use the Gini coefficient, a statistical measure of distribution, to measure economic inequality and to compare regions and societies with their distribution of income. The scale is measured between zero and one, with zero representing widespread equality and one representing an individual earning an entire country’s income.53 The Organization for Economic Co-operation and Development (OECD) uses the Gini coefficient as one of its key indicators in its mission to stimulate world economic progress and trade. With 35 developed and developing nations as members, the organization works to analyze inequality trends by assessing the effectiveness and efficiency of policies. OECD has calculated that average disposable household income reached a factor of 0.318 in 2014, which is the highest value on record since in the mid-1980s.54
Starting at the beginning of the 20th century, economic income inequality began to decrease, with most global distribution reaching historic lows in the 1970s. In the following years, as economic growth slowed worldwide, the gap grew wider; wages for the highest earners grew faster than the wages for the lower class.55 In the United States and other Western nations especially, the income distribution has worsened significantly, namely because the incomes of the wealthy continue to increase, while the low and middle class have not seen similar trends, specifically in wage increase.56 After decreasing throughout the 1960s and 1970s, the economic income inequality has returned to pre-world-wars levels.57 However, the distribution in many European nations, along with Japan, has continued to decrease since the early 1900s. Thus, the global market and technological gain are not the direct cause of uneven income distribution. Rather, policy at the national level continues to play a role in shaping inequality of incomes; factors such as minimum wage, progressive tax codes, and macroeconomic distribution efforts must be balanced.
51 DeSilver, Drew. "The many ways to measure economic inequality." Pew Research Center. September 22, 2015. Accessed March 18, 2018. http://www.pewresearch.org/fact-tank/2015/09/22/the-many-ways-to- measure-economic-inequality/. 52 Anand, Sudhir, and Paul Segal. "Handbook of Income Distribution: The Global Distribution of Income." Department of Economics, University of Oxford. 2015. Accessed March 27, 2018. https://www.economics.ox.ac.uk/materials/papers/13376/anand-segal-handbook-pdf-mar15.pdf. 53 Monitor, Magazine. "Who, What, Why: What is the Gini coefficient?" BBC News. March 12, 2015. Accessed March 18, 2018. http://www.bbc.com/news/blogs-magazine-monitor-31847943. 54 " INEQUALITY AND INCOME." Inequality - OECD. 2015. Accessed March 18, 2018. http://www.oecd.org/social/inequality.htm#income. 55 "How Has Income Inequality Changed over the Years?" Federal Reserve Bank of St. Louis. June 30, 2016. Accessed March 20, 2018. https://www.stlouisfed.org/on-the-economy/2016/june/how-has-income-inequality- changed-years. 56Long, Heather. "U.S. Inequality Keeps Getting Uglier." CNNMoney. December 22, 2016. Accessed March 30, 2018. http://money.cnn.com/2016/12/22/news/economy/us-inequality-worse/index.html. 57Ibid.
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Opponents argue that income inequality is inherent within a capitalist society, serving as a motivating factor for innovation and entrepreneurial spirit.58 Furthermore, factors of wealth distribution are often out of the control of governments, such as demographics, regional disparities, and technological advances. Structural forces transform society, changing the nature of work; for example, new technology allows for more efficient manufacturing, thereby reducing the reliance on workers for labor.59 Overall, the gap creates incentive, driving people to improve their own situation through various means, including education, which in turn provide a better paying job and increased income.60 The existence of an income disparity may result in further economic growth as individuals invest in businesses.61
Income disparity between countries has also been on the rise. Today, the United States, as the largest economy, is about 25 times richer than the average developing country.62 One factor is continued globalization. While in theory it allows international cooperation and more freedom to steer domestic policy, nations failed to steer policy by narrowing differences between the rich and poor. Between country inequality is not as widespread, but the internal uneven income distribution gap has risen significantly.
Current Situation
Uneven income inequality continues to worsen every day, especially in developing economies. In fact, during a United Nations Development Programme (UNDP) sample of 116 countries, household economic income inequality increased by 11% in developing countries between 1990 and 2010.63 Moreover, more than 75% of the population is living in households where the income distribution has worsened since the 1990s.64 While the causes behind the rising trend has not been uniform across regions, driving forces include both exogenous and endogenous factors, signaling both globalization dynamics and national policy at fault.65
58 Borders, Max. "#1 -- Income Inequality Arises From Market Forces and Requires Government Intervention | Max Borders." FEE. April 15, 2014. Accessed April 02, 2018. https://fee.org/articles/1-income-inequality- arises-from-market-forces-and-requires-government-intervention/. 59 Glassman, Jim. "3 Factors Driving Income Inequality." JPMorgan Chase. September 27, 2017. Accessed March 30, 2018. https://commercial.jpmorganchase.com/pages/commercial-banking/executive- connect/factors-driving-inequality. 60 Ellyatt, Holly. "Is Income Inequality as American as Apple Pie?" CNBC. January 08, 2013. Accessed March 20, 2018. https://www.cnbc.com/id/100361302. 61 Larino, Jennifer. "Is income inequality a good thing? Author argues benefits of disparity at Isidore Newman talk." NOLA.com. April 21, 2015. Accessed March 20, 2018. http://www.nola.com/business/index.ssf/2015/04/tamny_income_inequality_good.html. 62 "Breaking the camel’s back." The Economist. October 4, 2014. Accessed March 22, 2018. https://www.economist.com/news/finance-and-economics/21621908-what-impressive-work-economic-history- tells-you-about-inequality-breaking. 63 "Goal 10 targets." UNDP. Accessed March 22, 2018. http://www.undp.org/content/undp/en/home/sustainable-development-goals/goal-10-reduced- inequalities/targets/. 64 Ibid. 65 "Humanity Divided: Confronting Inequality in Developing Countries." United Nations Development Programme. November 2013. Accessed April 1, 2018. http://www.undp.org/content/dam/undp/library/PovertyReduction/Inclusive development/Humanity Divided/HumanityDivided_Full-Report.pdf.
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While income distribution has worsened in recent history, there are a few exceptions, most notably in the Latin American and Caribbean region; according to the World Bank, more people were a part of the middle class in Latin American than those living in poverty.66 As a result, the region’s previous high levels of income inequality have gradually decreased over the past few years. On average, the Gini coefficient has decreased from its peak of 0.58 in 1996 to the lowest ever recorded level in the region of 0.52 in 2011.67 These declines have been attributed to increased labor earnings by both men and women and income from public and private transfers, each factor contributing to 34% of the decline in income inequality.68 However, Latin American and Caribbean nations, especially in Brazil and Mexico, still face extreme poverty, with many individuals at risk of easily falling back into poverty. While new economic growth is helping to reduce the income distribution gap, inequality levels in Latin America are still far higher than other nations, generally ranking as the most unequal. At the current growth levels, the region would need over 40 years to catch up to global levels of income inequality.
The sub-Saharan African region experienced an overall decrease in income inequality between 1991 and 2011 with a fall from 0.47 on the Gini coefficient scale to 0.43.69 Although the region has seen an average decrease in income inequality, trends widely differ between countries. For example, Ghana has faced rising inequality, Burkina Faso has faced falling inequality, and the United Republic of Tanzania has only recently faced decreasing inequality.70 Burkina Faso has seen significant gains in growth and poverty reduction, leading to more favorable income distribution. However, the nation has promoted growth based on low job- creating capacity, low pre-worker productivity in the primary sector, and population increases, explaining the low poverty-reducing power of the significant growth. Alternatively, Ghana has faced rapid economic growth, at even a higher rate than the sub-Saharan African average. Plus, the nation saw poverty decreased 57.2% between 1991 and 2012.71 However, the economic income inequality rate has continued to rise, indicating others factors at hand. Ghana was among the highest rates of wage compressions, which is the ratio of the highest wages to the lowest wages. This indicated a widening gap between income groups within the nation, contributing to uneven income distribution. Finally, Tanzania has experienced both an increase and decrease of economic inequality, with income inequality rising up until 2007, when it started to decline.72
66 "Inequality in Latin America Falls, but Challenges to Achieve Shared Prosperity Remain." World Bank. June 14, 2013. Accessed March 22, 2018. http://www.worldbank.org/en/news/feature/2013/06/14/latin- america-inequality-shared-prosperity. 67 Shifting Gears to Accelerate Shared Prosperity in Latin American and the Caribbean." World Bank. June 2013. Accessed March 22, 2018. http://www.worldbank.org/content/dam/Worldbank/document/LAC/PLB%20Shared%20Prosperity%20FINA L.pdf. 68 Ibid. 69 "UNDP Launches Study on Income Inequality in Sub-Saharan Africa." UNDP. September 21, 2017. Accessed March 22, 2018. http://www.undp.org/content/undp/en/home/news-centre/news/2017/09/21/undp- launches-study-on-income-inequality-in-sub-saharan-africa.html. 70 "Income Inequality Trends in Sub-Saharan Africa: Divergence, Determinants and Consequences." UNDP in Africa. September 21, 2017. Accessed March 22, 2018. http://www.africa.undp.org/content/rba/en/home/library/reports/income-inequality-trends-in-sub-saharan- africa--divergence--dete.html. 71 Ibid. 72 Ibid.
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Notably, the poverty-reducing power of growth has been most significant since then, becoming more inclusive. Similarly to Burkina Faso, the growth elasticity of poverty - the percentage reduction in poverty compared to change in income - is positive, contributing to the decline in income inequality. Most importantly with Tanzania and other sub-Saharan African nations, findings suggest that targeted government expenditures and taxes must work to reduce poverty and inequality simultaneously. Investing in education and agriculture sectors at lower levels assist the progressive development of economies. However, the poverty-stricken region still remains extremely unequal, with ten of its own countries listed among the 19 most unequal in the world.73
Committee Directive and Jurisdiction
Delegates of the Second Committee will meet to address the growing income gap between wealthy and impoverished individuals. Delegates will be challenged to properly address the causes of growing inequalities and guide policy approaches to create real change. Resolutions should take in account the nature of various economic situations across many regions and create global frameworks to guide emerging markets in their development while assisting developed economies in potential policy change. Delegates should also consider the heterogeneous dynamics of economic income inequality and consider several factors including trade, fiscal policy, and wages. However, aspects in regard to gender disparities, education, and healthcare should be avoided. As the Economic and Financial Committee, it is imperative that delegates focus primarily on the economic aspect of income inequality. The Second Committee does not have the jurisdiction to focus on any implications as a result of uneven income or anything outside the realm of the financial sector. Furthermore, delegates should not expect for resolutions to immediately trigger policy changes. While the United Nation’s power as an international organization stands affirm, nations are not legally bound to any resolutions.
Questions to Consider
1. How has the income distribution of your nation changed over the last few decades? Is the gap getting smaller or larger? 2. Has your nation recently addressed income inequality? If so, to what extent does policy go in creating change? a. What macroeconomic factors been at the forefront of financial modifications (i.e. wage growth, tax code, and monetary distribution) and which transformations have created the most comprehensive change? 3. What role has your nation played in working to achieve Goal 10 of the 2030 UNDP Sustainable Development Goals? a. Will the economic goals be met by your country? What steps still need to be addressed?
73 Ibid.
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Suggested Sources
1. World Wealth and Income Database http://wid.world/ 2. Reducing Inequality Within and Among Countries | United Nations Development Programme http://www.undp.org/content/undp/en/home/sustainable-development-goals/goal-10- reduced-inequalities.html 3. Inequality Matters | United Nations Department of Economic and Social Affairs http://www.un.org/esa/socdev/documents/reports/InequalityMatters.pdf 4. Development Policies and Income Inequality in Selected Developing Regions | UNCTAD http://unctad.org/en/PublicationsLibrary/osgdp20124_en.pdf 5. Humanity Divided: Confronting Inequality in Developing Countries | United Nations Development Programme http://www.undp.org/content/dam/undp/library/Poverty%20Reduction/Inclusive%20deve lopment/Humanity%20Divided/HumanityDivided_Full-Report.pdf
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Topic C: The Impact of Protectionist Policy on International Trade
“When goods do not cross borders, soldiers will.” - Frederic Bastiat, French Economist
Introduction
Protectionism revolves around the notion of policy implementation with the intention of protecting domestic industry from foreign competition by means of trade intervention in the form of restrictions via tariffs, import quotas, embargoes, subsidies, or other trade barriers.74The World Economic Forum has named protectionism as one of its top new and emerging challenges as a part of the 2018 Global Risks Report.75 In fact, according to Global Trade Alert, a leading organization in tracking trade policy, of 1,858 trade inventions tracked in 2013, 1,407 were considered discriminatory, or protectionist, the highest number on record since tracking began after the 2008 financial crisis.76
The World Trade Organization (WTO) with its 164 members worldwide is crucial in the promotional principles of trade liberalization and the permitted exceptions within trade agreements.77 Rules are negotiated and enforced by member nations and are strictly provisional for countries’ policy. One of the biggest issues facing the organization, especially at their biennial ministerial conference, is multilateral trade. The latest round of trade negotiations, known as the Doha Round, or Doha Development Agenda (DDA), has addressed imbalances within global trade that have hindered countries, especially developing ones.78 However, nations often fail to follow practices recommended by the WTO. As a principal, the use of protectionism is rejected; however, the issue is not as clear cut among members; trade-restrictive measures are continued to be initiated globally.79 ECOFIN will work towards unifying DDA discussions to create international frameworks to promote trade facilitation.
Background
Aspects of protectionist policy aim to shield the domestic economy of a state from foreign competition in an attempt to protect jobs and businesses. The growth of local industry will in turn create higher wages, spreading benefits among individuals of all incomes. Tariffs, the most common form of protectionism, are customs duties, usually in the form of a tax, on
74 "Protectionism." NASDAQ. Accessed April 20, 2018. https://www.nasdaq.com/investing/glossary/p/protectionism. 75 "The Global Risks Report 2018: Economic Storm Clouds." World Economic Forum. 2018. Accessed April 20, 2018. http://reports.weforum.org/global-risks-2018/economic-storm-clouds/#view/fn-28. 76 "Global Dynamics." Global Trade Alert. Accessed April 20, 2018. https://www.globaltradealert.org/global_dynamics. 77 "What Is the WTO? - What We Do." World Trade Organization. Accessed April 22, 2018. https://www.wto.org/english/thewto_e/whatis_e/what_we_do_e.htm. 78 "The Doha Round." World Trade Organization. Accessed April 22, 2018. https://www.wto.org/english/tratop_e/dda_e/dda_e.htm. 79 "Report Urges WTO Members to Resist Protectionism and "get Trade Moving Again"." World Trade Organization. July 25, 2016. Accessed April 22, 2018. https://www.wto.org/english/news_e/news16_e/trdev_22jul16_e.htm.
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imported goods and merchandise.80 This gives advantages to domestic goods over imported goods while also generating government revenue. Import quotas, on the other hand, are non-tariff trade barriers that limit the number of products that can be imported over a certain period of time. The goal is to limit supply of goods, which will raise prices and allow local businesses to capitalize on unmet demand.81 Furthermore, quotas can be used to prevent trade dumping, which is when a company significantly lowers the export cost of a product, usually below what it would sell at home, in efforts to hurt competition.82
Moreover, the policy can be used to encourage economic recovery and growth between trading partners. For example, in the late 1900’s, the European Economic Community (EEC), now known as the European Community (EC), established a trade and aid agreement with the African, Caribbean, and Pacific Group of States (ACP), many of whom were former European territories, under the Lome Convention. Controversy instilled once the European Union (EU) established a union-wide tariff and import quota on bananas based on country of origin.83 Duty- free entry was allowed to ACP bananas, but bananas from other countries were subject to tariffs. The United States and many Latin-American countries, including Colombia, Costa Rica, Guatemala, Nicaragua, and Venezuela, filed various actions with the WTO, including complaints that triggered panel reports, over the following years and initiated economic retaliation; the United States even established a 100% import duty on many European products in response to the tariff on American bananas.84, 85
Eventually, in 2001, the two sides agreed to a reduction in quotas and tariffs, complying with WTO regulations, allowing American banana producers and exporters, such as Chiquita and Dole, greater access to European market share.86 However, the problem continued well into the 21st century, as in 2006 Ecuador and other countries in the Americas once again appealed to the WTO, and the tariffs were deemed illegal.87 In 2009, the “banana war” was considered over as the EU agreed to progressively reduce import tariffs and in return, appeals brought before the WTO against the EU were dropped.88 This was a step forward for the Doha round negotiations but signaled the end for the preferential system for ACP countries. As noted by the European deputy Charles Goerens, rapporteur for the "ACP Bananas" dossier, "this is a struggle between
80 "Tariffs." World Trade Organization. Accessed April 22, 2018. https://www.wto.org/english/tratop_e/tariffs_e/tariffs_e.htm. 81 "Protectionism." Investopedia. March 15, 2018. Accessed April 22, 2018. https://www.investopedia.com/terms/p/protectionism.asp. 82 Amadeo, Kimberly. "Trade Dumping and Its Consequences." The Balance. March 21, 2018. Accessed April 22, 2018. https://www.thebalance.com/what-is-trade-dumping-3305835. 83 Patterson, Eliza. "The US-EU Banana Dispute." American Society of International Law. February 27, 2001. Accessed April 22, 2018. https://www.asil.org/insights/volume/6/issue/4/us-eu-banana-dispute. 84 Ibid. 85 Barkham, Patrick. "The Banana Wars Explained." The Guardian. March 05, 1999. Accessed April 22, 2018. https://www.theguardian.com/world/1999/mar/05/eu.wto3. 86 Depalma, Anthony. "U.S. and Europeans Agree on Deal to End Banana Trade War." The New York Times. April 12, 2001. Accessed April 22, 2018. https://www.nytimes.com/2001/04/12/business/us-and-europeans- agree-on-deal-to-end-banana-trade-war.html. 87 "EU Cuts Import Tariffs in a Bid to End 'banana Wars'." BBC News. December 15, 2009. Accessed April 22, 2018. http://news.bbc.co.uk/2/hi/business/8391752.stm. 88 "ACP Bananas vs. Dollar Bananas." TRADE FOR DEVELOPMENT CENTRE. Accessed April 22, 2018. http://www.befair.be/en/content/acp-bananas-vs-dollar-bananas.
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emerging countries and less developed countries, which thus requires a more cautious approach to commercial preferences."89 The protectionist tariffs and import quotas were, in the end, aimed at protecting the small, village farmers of many ACP countries; 900,000 tons of ACP bananas are now forced to compete with the 4 million tons of South American bananas that benefit from the large scale agricultural processes in other countries.90 In fact, it is judged that ACP nations will lose nearly 15% of their market share; small producers in Jamaica and Suriname are predicted to disappear with Cameroon, Ghana and Côte d’Ivoire also suffering.
On the other hand, prosperity as a result of protectionism is often short-lived and counterproductive in an ever-globalized world.91 Closing trade borders signals a lack of cooperation with other nations, and they may retaliate with their own tariffs. Counter-tariffs and other protectionist measures can allow for the escalation into a trade war which has the potential to harm standard of living and economic growth. Millions of workers owe their jobs to exports, so increased tariffs put employment security in jeopardy. Furthermore, efficiency, innovation, and quality will decrease over time; without competition, companies have little incentive to improve.92 Consumers are left with less choices, higher prices, and inferior products. The lack of free and open trade devastates market confidence and depresses investment.93
The United States’ Smoot-Hawley Tariff Act of 1930 is often cited as the most detrimental use of protectionist policy. Increasing nearly 900 American import duties solidified the world’s plummet into the Great Depression.94 Initially, the act was intended to help American agriculture, but it eventually included tariffs on manufacturing as well. It is estimated that dutiable imports were reduced by 17-20%; however, imports were already on a significant decline.95 Diplomatic relations were also hurt, with 23 trading partners protesting the bill’s enactment. In retaliation to the new tariffs, Canada imposed new duties on American goods while cutting tariffs from the rest of the British Empire.96 In the end, the bill did more than just increase tariffs, and it completely disrupted the operation of the international financial system since free trade and free international capital flows are connected; nations that borrow money abroad must export in order to service their debts.97 The foreign retaliation made exporting extremely difficult, leading to foreign debt default and financial distress. Furthermore, trade wars increased geopolitical tensions worldwide at a time when the global economy could be coming together for common goal: stability.
89 Ibid. 90 Ibid. 91 Amadeo, Kimberly. "Trade Dumping and Its Consequences." The Balance. March 21, 2018. Accessed April 22, 2018. https://www.thebalance.com/what-is-trade-dumping-3305835. 92 Goodman, Paul. "The Pros and Cons of Import Tariffs and Trade Protectionism." Soapboxie. March 13, 2018. Accessed April 22, 2018. https://soapboxie.com/economy/Pros-and-Cons-of-Trade-Protectionism. 93 Eichengreen, Barry. "What's the Problem with Protectionism?" The Guardian. July 15, 2016. Accessed April 22, 2018. https://www.theguardian.com/business/2016/jul/15/whats-the-problem-with-protectionism. 94 "The Battle of Smoot-Hawley." The Economist. December 20, 2008. Accessed April 22, 2018. https://www.economist.com/node/12798595. 95 Ibid. 96 Ibid. 97 Eichengreen, Barry. "What's the Problem with Protectionism?" The Guardian. July 15, 2016. Accessed April 22, 2018. https://www.theguardian.com/business/2016/jul/15/whats-the-problem-with-protectionism.
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Current Situation
Protectionism is still on the rise globally; it is estimated that more than 7,000 protectionist trade measures, worth more than $400 billion USD, have been implemented by countries since 2009.98, 99 With economic globalization on the rise, policy restricting trade significantly reduces the importation and exportation of goods. Large economic powers, specifically G20 countries, have been implementing increasingly protectionist policies in recent years. In fact, in 2017, G20 finance ministers failed to renew their long-standing pledge to bolster free trade; the anti-protectionist pledge was dropped, based on recent U.S. dissent on the topic.100 Just this year, a 25% tariff on all steel imports and a 10% tariff on aluminum imports was announced by the U.S. in efforts to increase profits and boost local industry.101 Many U.S. businesses have argued against the protectionist policy as in the long term, prices for consumers will increase, potentially harming job creation and the economy as a whole.102 Additionally, the United States and China have both declared various tariffs in retaliation to one another, sparking concern for a bigger trade war that has left financial markets rattled. While still being considered a heavily protectionist nation due to its proliferating use of barriers and subsidies, China publicly denounces the use of trade restrictions and encourages the use of free trade.103 For instance, their ambitious One Belt One Road initiative is aimed at connecting the eastern hemisphere with trillions of dollars worth of infrastructure investment, including railways, roads, pipelines and utility grids.104 Partnering with over sixty nations, the project’s goal is to promote economic growth across Asia, the Middle East, Europe, and Africa; it has the potential to redefine global trade through its “One Belt,” referring to the Silk Road Economic Belt and its “One Road” referring to the 21st-century maritime Silk Road. Other countries, like Brazil, Saudi Arabia, and Tunisia, have taken different approaches to trade. They are among a small number of countries that have implemented more free trade policies through the reduction of restrictions such as tariffs, quotas, and other trade barriers.105 In fact, Brazil has been using tariffs as a source of income to inch itself out of a recent economic recession; liberalizing policy of removing import quotas has been encouraging trade and
98 Jones, Marc. "World Has Racked up 7,000 Protectionist Measures since Crisis: Study." Reuters. November 15, 2017. Accessed April 24, 2018. https://www.reuters.com/article/us-global-economy-protectionism/world- has-racked-up-7000-protectionist-measures-since-crisis-study-idUSKBN1DF005. 99 Ibid. 100 "G20 Finance Ministers Drop Anti-Protectionist Pledge." BBC News. March 18, 2017. Accessed April 24, 2018. http://www.bbc.com/news/business-39315098. 101 "Trade Wars, Trump Tariffs and Protectionism Explained." BBC News. March 23, 2018. Accessed April 24, 2018. http://www.bbc.com/news/world-43512098. 102 Niquette, Mark. "As CEOs Fight China Tariffs, Trump Hears Pleas to Add More." Bloomberg.com. April 24, 2018. Accessed April 24, 2018. https://www.bloomberg.com/news/articles/2018-04-24/trump-should-add- more-china-tariffs-some-small-companies-say. 103 "China Opposes Trade Protectionism, Supports Free Trade: Vice Premier." Reuters. March 19, 2017. Accessed April 24, 2018. https://www.reuters.com/article/us-china-forum-trade/china-opposes-trade- protectionism-supports-free-trade-vice-premier-idUSKBN16Q023. 104 Huang, Zheping. "Your Guide to OBOR, China's Plan to Build a New Silk Road." Quartz. May 16, 2017. Accessed April 24, 2018. https://qz.com/983460/obor-an-extremely-simple-guide-to-understanding-chinas- one-belt-one-road-forum-for-its-new-silk-road/. 105 "Global Protectionism - Are You Leaving Yourself Open?" Gowling WLG. November 21, 2017. Accessed April 25, 2018. https://gowlingwlg.com/en/news/firm-news/2017/global-protectionism-are-you-leaving- yourself-op.
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stimulating income from tariffs.106 They have also worked to consolidate the South American region under free trade. Mercosur, one of the largest economic and political blocs in the region with a combined GDP of approximately $2.9 trillion USD, consisting of Argentina, Brazil, Paraguay, and Uruguay, allows for free movement of goods and services in the region with the elimination of customs duties.107, 108
Hundreds of other free trade agreements exist globally, allowing for the flow of goods without protectionist intervention. Most recently, 44 African nations joined together to form the African Continental Free Trade Area (AfCFTA) with the intention of boosting intra-African trade. If successful, the agreement could be the largest since the formation of the World Trade Organization.109 Notably, two of the largest economies in Africa, South Africa and Nigeria, refused to join, with the latter citing the undermining of local manufacturers and entrepreneurs, one of the main proponents for use protectionism, as reasoning.
Other large free trade agreements continue to have mixed success such as the North American Free Trade Agreement (NAFTA). Regional trade increased sharply over the treaty’s existence, from under $300 billion in 1993 to more than $1.1 trillion in 2016; cross-border investment has also dramatically increased.110 Nevertheless, the agreement has been linked with low-wage competition, a widening trade deficit, and migration of production to cheaper areas.111 The trade balance between the United States and Mexico has changed dramatically; a once $1.7 billion U.S. surplus in 1993 has swung to a $54 billion deficit in 2014.112 Furthermore, the U.S. automobile industry has lost around one-third of jobs since 1994, whereas Mexico’s industry has seen a spike in employment with the addition of over 400,000 new jobs.113 While NAFTA cannot be blamed unequivocally for these loses, the agreement’s implementation has played a major role.
Committee Directive and Jurisdiction
The Economic and Financial committee will convene to address the growing concern of protectionist measures in the global economy and the effects they have on international trade. Delegates will be faced with the challenge of balancing the aspects of domestic and foreign trading in efforts to stimulate economic growth in all areas. Frameworks to vitalize worldwide growth should be at the forefront of resolutions while at the same time respecting nation’s sovereignty within financial policy. The advantages and disadvantages of free trade compared to
106 Ibid. 107 Felter, Claire, and Danielle Renwick. "Mercosur: South America's Fractious Trade Bloc." Council on Foreign Relations. December 26, 2017. Accessed April 25, 2018. https://www.cfr.org/backgrounder/mercosur- south-americas-fractious-trade-bloc. 108 Ibid. 109 Giles, Chris. "44 African Countries Agree Free Trade Agreement, Nigeria Yet to Sign." CNN. March 23, 2018. Accessed April 25, 2018. https://www.cnn.com/2018/03/22/africa/african-trade-agreement- world/index.html. 110 McBride, James, and Mohammed Aly Sergie. "NAFTA's Economic Impact." Council on Foreign Relations. October 4, 2017. Accessed April 25, 2018. https://www.cfr.org/backgrounder/naftas-economic-impact. 111 Ibid. 112 Ibid. 113 Ibid.
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YMCA Southeastern High School Model UN
protectionism should be debated, including the factors of growth between both domestic and foreign trade partners.
However, in discussing economic integration of international trade, delegates should solely focus on the nondiscriminatory openness of trade and the potential agreements between nations and regions. ECOFIN lacks the jurisdiction to strictly regulate international trade and can merely suggest frameworks for unification. Delegates should rely on the resources of international trade organizations, namely the WTO, to ensure proper global circulation of policy while still aiming to respect national sovereignty whenever possible. With the potential detrimental effects of protectionism on the worldwide economy at stake and the seemingly increase of rhetoric towards the policy, it is essential that delegates work to implement comprehensive guidelines for the global community.
Questions to Consider
1. What role has protectionism played in the policies of your country? 2. Is your nation a member of any free trade agreements? If so, what positive and negative effects have they had on domestic industry? 3. How drastic are the tariffs, import quotas, and other trade restrictions on other countries? a. Who are they specifically targeted at and what role do they play? 4. How involved has your nation been in the Doha Round WTO trade negotiations? If so, what role did they play in the negotiations? a. If your nation is not a member of the WTO, how extensive is international trade regulation in your country?
Suggested Sources
1. Global Trade Alert http://www.globaltradealert.org/ 2. World Trade Report 2014 | World Trade Organization https://www.wto.org/english/res_e/booksp_e/world_trade_report14_e.pdf 3. Global Protectionism | Gowling WLG https://gowlingwlg.com/en/insights-resources/topics/global-protectionism/overview 4. The Global Risks Report 2018 | World Economic Forum http://www3.weforum.org/docs/WEF_GRR18_Report.pdf
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