Instructor Manual
Chapter 9: Global Integration and Multilateral Organizations
(Prepared by Klaus E. Meyer, March 2019)
Introduction to the Topic
Learning Objectives
1. Explain the multilateral institutions of the global trade system, and their current challenges
2. Explain the multilateral institutions of the global monetary system, and their current challenges
3. Explain the advantages and disadvantages of regional and bilateral economic integration
4. Participate in policy debates on the institutional framework for global economic integration
5. Draw implications for action
General Teaching Suggestions
This chapter explores the institutional changes at multilateral level that have been a driving
force between global economic integration over the past half century. The main multilateral
organizations discussed are the WTO facilitating international trade and the IMF helping to
overcome financial imbalances. In addition, we discuss regional and bilateral collaborations,
and the debates and extension section introduces the World Bank the Kyoto Agreement and
the Basle Committee. To motivate a general discussion, you, as instructor, may ask “is
globalization unavoidable?”, or “Is globalization a consequence of technological change, or is
it pushed along by political actions by governments?”
Opening Case Discussion Guide
The opening case explores one of the longest running trade disputes that the WTO repeatedly
had to deal with, the subsidies (or other support) provided by respectively the EU and the
USA to Airbus and Boeing. I suggest to introduce this case by presenting Table 9.1 and
(rather than discussing the merits of individual points) simply ask “obviously these are
complex arguments – who should decide what is right and wrong in such complicated trade
matters?”
Chapter Outline, Section by Section
Section 1: The Multilateral Trade System
Key Ideas
Domestic economic activity depends on institutions created by relevant societies, parliaments
and governments (Chapter 2 and 3). Equally, international trade depends on rules. Countries
have been collaborating in the GATT and the WTO to establish such rules. Of particular
importance to understanding the WTO is the working of the dispute settlement mechanism (p.
253-254) which instructors may contrast with ISDS tribunals (In Focus 9.4).
The position of Russia in the WTO (In Focus 9.1) facilitates a discussion how this works in
practice. Note the decline in trade with Russia after WTO entry (Figure 9.2) because other
conflicts have arisen that the WTO could not resolve.
Key Concepts
multilateral organizations
Organizations set up by several collaborating countries
World Trade Organization (WTO)
The organization underpinning the multilateral trading system since 2005.
most-favoured nation principle
A principle that a country cannot discriminate among its trading partners (a concession given to one
country needs to be made available to all other GATT/WTO members).
General Agreement on Tariffs and Trade (GATT)
A multilateral agreement governing the international trade of goods (merchandise).
General Agreement on Trade in Services (GATS)
A WTO agreement governing the international trade of services.
Trade-Related Aspects of Intellectual Property Rights (TRIPS)
A WTO agreement governing intellectual property rights.
dispute settlement mechanism
A procedure of the WTO to resolve conflicts between governments over trade-related matters.
Doha Development Agenda
A round of WTO negotiations started in Doha, Qatar, in 2001—officially known as the “Doha
Development Agenda.”
Section 2: The Multilateral Monetary System
Key Ideas
International currency and financial markets need rules too. What happens if a country gets
into financial difficulties? Bankruptcy like for companies is not normally an option. Here, the
IMF plays a critical role to (try to) stabilize the global economy. The text uses bail-outs in
Europe as focal examples (especially Table 9.3).
Key Concepts
International Monetary Fund (IMF)
A multilateral organization promoting international monetary cooperation and providing temporary
financial assistance to countries with balance of payments problems.
IMF conditionality
Conditions that the IMF attaches to loans to bail out countries in financial distress.
Section 3: Regional and Bilateral Economic Integration
Key Ideas
The section on regional and bilateral integration has been substantially revised since the first
edition. We now briefly introduce key regional arrangements, and then the conceptual issues
related to their creation and operation, as well as the theoretically and empirically important
issue of trade diversion (see also Fig 9.5 from a study of scholars in Munich).
In recent years, these agreements have shifted from eliminating trade barriers to securing
investor protection. Thus, free trade zones are much more ambitious constructs than many
instructor may recall from their own school days; thus updating is required. A particular
controversial topic is the integration of investor state-dispute settlement in regional or
bilateral agreements, which is detailed in In Focus 9.5 (This In Focus has a large number of
sources due to the controversial legal cases being discussed). For further discussion, I
recommend the focused issue of AIB Insights 1/2016. To bring ISDS alive, In Focus 9.5 may
be combined with the Integrative Case on the EU Canada CETA, which includes ISDS
commitments.
Key Concepts
free trade area (FTA)
A group of countries that remove trade barriers among themselves
North American Free Trade Agreement (NAFTA)
A free trade agreement among Canada, Mexico, and the USA.
Association of Southeast Asian Nations (ASEAN)
The organization underpinning regional economic integration in Southeast Asia
South Asia Free Trade Area(SAFTA)
Free trade area covering India, Pakistan, Bangla, Desh, Sri Lanka, The Maldives, Nepal and Bhutan.
Gulf Cooperation Council (GCC)
Political and Economic integration involving Saudi, Arabia, Kuwait, Bahrain, Oman, Qatar and the
United Arab Emirates.
Shanghai Cooperation Organization
Organization facilitating military and economic cooperation among China, Russia and four of the
Central Asian nations.
Andean Community
A customs union in South America that was launched in 1969.
Mercosur
A customs union in South America that was launched in 1991.
ECOWAS
Economic integration in West Africa
CFA franc
Common currency of French-speaking countries in West Africa.
Generalised System of Preferences (GSP)
A system of tariff reductions facilitating less and least develop country’s access to EU markets.
Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA)
A bilateral trade agreement between Australia and New Zealand
EU Canada Comprehensive Economic and Trade Agreement (CETA)
An economic integration agreement between the EU and Canada
Transatlantic Trade and Investment Partnership (TTIP)
An economic integration agreement in negotiation between the EU and USA
international investment agreements (IIAS)
Agreements between states to protect foreign direct investment between countries
investor-state dispute settlement (ISDS)
Legal processes using tribunals that are outside the national and supranational court systems.
trade diversion
A change in trade pattern away from comparative advantages due to trade barriers
Section 4: Debates and Extensions
Key Ideas
The first debate concerns the role of the World Bank in promoting economic development in
the least developed countries.
The second debate concerns the role of the Kyoto and Paris Agreement as multilateral
initiatives aimed to constrain climate change.
The third debate concerns the role of Basle Committee is supporting the stability in the global
banking system.
Key Concepts
World Bank
A multilateral bank designed to help developing countries, especially with project finance
development aid
A gift from generous donors wishing to help developing countries
European Bank for Reconstruction and Development (EBRD)
A multilateral bank designed to help transition economies
Asia Infrastructure Investment Bank (AIIB)
A development bank based in Beijing
Kyoto Agreement
An agreement committing developed countries to limit their greenhouse gas emissions
Paris Agreement
An agreement in which countries make major commitments towards climate change goals.
Basel Committee
A group of central bankers establishing standards for banking supervision
Basel II/Basel III
The name of a set of rules for banking regulation
risk-rating agencies
Agencies that assign ratings to assets such as bond that indicate the level of riskiness of the asset
black swan events
Rare events that occur only once in a generation
Section 5: Implications for Practice
Key Ideas
This final section stresses the link between multinational organizations and the strategies and
practices of individual firms, specifically the need for international managers to be aware of
changes in the institutions discussed in this Chapter.
Key Concepts
No new concepts in this section
Review Questions
Review questions are provided to students on the website accompanying the book. They
directly ask to summarize the material provided in the text. Instructors may also use the
questions to structure their lectures or review sessions.
Review Questions
(as provided to students on the website)
Material in the Book
1. What are the key arguments in the EU and the USA
in the Boring-Airbus conflict? What is the role of
the WTO in resolving this conflict?
2. What are the objectives of the WTO?
3. What are the areas of activity of the WTO?
4. How does the WTO dispute settlement mechanism
5. What are the implications of Russia’s membership
in the WTO for countries of the EU?
6. Why is the WTO dispute settlement mechanisms
controversial among some NGOs focused on
environmental and health standard issues?
7. Why did recent rounds of negotiations in the WTO
fail to advance trade liberalization?
8. What are the objectives of the IMF?
9. How does the IMF intervene when countries face a
currency crisis, and why is this practice
controversial?
10. Name some important regional trade arrangements
around the world!
11. What are the advantages and disadvantages of
regional integration
12. What are the key arguments for and against the
incorporation of ‘investor-state dispute settlement’
Pages 242-244
Page 245-246
Page 247
Page 249-251
In Focus 9.1
In Focus 9.2
Page 251-252
Page 252
Page 252-254
Page 255-257
Page 257-258
In Focus 9.4
tribunals in international trade and investment
agreements?
13. How do regional trade agreements cause a
potentially damaging side-effect called trade
diversion?
14. What is the role of the World Bank in promoting
economic development?
15. What is the role of the Kyoto Protocol and the Paris
Agreement promoting climate change related
policies?
16. What is the role of the Basel Committee in
promoting stability of the global financial system?
Page 250-261
Page 262-263
Page 264-265
Page 266-267
Critical Discussion Questions
At the end the chapter, we provide discussion questions that aim to stimulate students
thinking beyond memorizing the material learned in the chapter. They are designed to be
used at a basis for in-class discussions, group work, or individual assignments. Below, we
provide some indicative answers of issues that may be raised in response to these questions.
Discussion Questions
(as provided in the book)
Indicative Responses
1. The WTO negotiations collapsed because many
countries believed that no deal was better than a bad
deal. Do you agree or disagree with this approach?
Why?
2. Critics argue that the WTO promotes trade at the
expense of the environment (see In Focus 9.2).
principles should guide such regulation?
4. You are an IMF official going to a country whose
export earnings are not able to pay for imports. The
government has requested a loan from the IMF.
food subsidies, and/or (4) tax rebates for exporters?
All these questions are
about developing a
coherent, rigorous argument
using concepts and
institution-names correctly.
They do not per se have
‘right or wrong’ answers.
addressing exports or
imports should be
prioritized.
Ad 5) one important aspect
UK and EU are not allowed
5. As the UK was negotiating its ‘Brexit’ from the EU,
a default option considered was to leave not only the
common market but also the free trade area and thus
by default rely on WTO rules for international trade.
What would be the implications of WTO rules for
UK trade with (1) the UK and (2) Commonwealth
countries like Australia?
to charge each other lower
tariffs than they charge
other WTO members,
unless they have a free trade
agreement registered with
the WTO.
Closing Case
The closing case provides further opportunities to apply ideas and concepts learned in this
chapter in a real world setting. The Closing Case for this Chapter is “The Future of
Globalization: Wärtsilä scenarios” and focuses on the use of scenario planning by one of the
world’s largest engine manufacturers to predict how the future world of energy will look like.
Below are some indicative responses to the case discussion questions.
Case Discussion Questions
(as provided in the book)
Indicative Responses
1. From a resource-based perspective, how is
technological change likely to influence
future paths of globalization?
2. From an institution-based perspective, how
are national and international politics
likely to influence future paths of
globalization?
3. If you were an executive in the energy
sector, how would you prepare your
business for the future?
All these questions are about
developing a coherent, rigorous
argument using concepts and
institutions-names correctly. They do
not per se have ‘right or wrong’
answers.
Students may draw on chapter 1 in
combination with chapter 9.
Further Learning Activities
In addition to the cases and discussion questions provided in the book, instructors may want
to use any of the following activities to further engage students with the material.
trade along with the key parameters of different (hypothetical) trade regimes that the UK
might have developed with the EU after Brexit. Analysis of this information challenges
students to integrate what they have learned on international trade (Chapter 4) with the
institutions of the EU (Chapter 8) and the WTO (Chapter 9). The case thus helps
consolidating understanding of both international trade theories and concepts related to
supra-national trade institutions.
2. The Integrative Case “Cars Made in Britain, Post-Brexit” has been designed to help
student understand the consequences of the Brexit process and of different options to
design future international trade regime for companies that have to make major
investment decisions. It thus integrates key theoretical ideas on international trade
(Chapter 5) with institutional knowledge of the EU (Chapter 8) and of multilateral
institutions such as the WTO (Chapter 9). While the preceding case (Negotiating Brexit)
is taking a national policy perspective, this case brings the issues down to the corporate
level.
3. The Integrative Case “Canada and the EU Negotiate CETA” has been designed to
discuss bilateral trade and investment agreements, and their implications for policy and
businesses. It is best introduced after the foundations of international economics (Chapter
5 to 7), the basic structure of the EU (Chapter 8) and the pros and cons of multilateral and
bilateral trade agreements (Chapter 9) have been introduced. Instructors may advise
students to include or exclude in their deliberations the ‘Investor State Dispute
Settlement’ Tribunals (In Focus 9.5). Integrating them in the discussion will make the
analysis more policy relevant (ISDS are the most controversial aspect) but may also make
it hard to keep the discussion focused.
4. Your firm is considering developing business in the Middle East. Many in your company are
aware that there is considerable economic cooperation currently underway in the region.
However, there is very little information in current internal entry evaluation documents
concerning the possible regional trade agreements that may already exist. Identify at least one
regional trade agreement and its member countries in the Middle East.
One resource which can be used is “Cooperation Council for the Arab States of the Gulf
(GCC)”. This website can be found by entering the search term “gulf cooperation” at the
globalEDGE™ Resource Desk search box located at
http://globaledge.msu.edu/resourceDesk/. Once at the GCC website, click on Member States
(located at the top of the screen). GCC member countries include: the United Arab Emirates
(UAE), Bahrain, Saudi Arabia, Oman, Qatar, and Kuwait.
Search Term: “gulf cooperation”
Resource Name: Cooperation Council for the Arab States of the Gulf (GCC)
Website: http://www.gcc-sg.org/eng/index.php
globalEDGE™ Tags: Regional Trade Agreements
Further Readings
At the end the chapter, suggested further readings are provided. The primary aim is to
provide students a starting point for further work, for example when preparing a class
assignment or dissertation. These references also are recommended for instructors not
familiar with the topic and wishing to ‘get ahead of the students’ before lecturing on a topic.
B.M. Hoekman & M.M. Kostecki, 2010, The Political Economy of the World Trading System, 3rd ed.,
Oxford: Oxford University Press – a book explaining how the WTO has evolved and how it works in
practice.
A. Narlikar, M. Daunton, & R. Stern, 2012, Oxford Handbook of the World Trade Organization, Oxford:
Oxford University Press – a collection of analytical papers on various aspects of the WTO.
D. Rodrik, 2011, The Globalization Paradox, Oxford: Oxford University Press – a highly critical assessment
of globalization and the institutions shaping it
J. Stiglitz, 2002, Globalization and its Discontents, New York: Norton – a Nobel prize winning economist
formerly associated with the IMF gives a critical account of the state of globalization with a special focus
on the role of the IMF.
A. Walter & G. Sen, 2009, Analyzing the Global Political Economy, Princeton: Princeton University Press
– explains how the global economy works with focus on political forces and the role of multilateral
institutions.
Additional Reading:
The first issue of AIB Insights in 2016, edited by Klaus Meyer and Daniel Rottig, focuses on international trade
and investment agreement, with a special focus on ISDS. The essays in this issue complement the debates
in this section very well. See: https://aib.msu.edu/publications/insights/