Gary Clyde Hufbauer

Price divergence is readily apparent to anyone who shops. Travelers from Manchester to London, or from Chicago to Paris, are hit by sticker shock. Products ranging from London Fog raincoats to Viagra are available over the Internet at half their retail store prices. Common experience tells us that prices for identical products differ between countries, between cities, even between neighboring shops. On the other hand, common experience also tells us that open markets and greater competition will force a degree of price convergence, if not identical prices. This monograph presents speculative calculations that illustrate potential benefits from price convergence between countries. The authors take a fresh look at global economic integration by examining existing price divergence, and possible price convergence, across a range of consumer goods and then calculate the potential benefits of price convergence on a country-by-country basis and for the world as a whole. This study examines the potential benefits from price convergence resulting from more competition and market integration, not perfect competition and market integration. The authors calculate these benefits assuming that the world economy can attain the same degree of competition and market integration-and hence price convergence-as exists within the United States.

It is often pointed out that "for every bad borrower, and for every failed project, there is also a culpable lender or investor." This observation is particularly apt for the debate now raging in the capital markets: should private bankers and investment managers bear a greater share of the costs when financial crises erupt in emerging economies? Critics who have analyzed the "plumbing" of the world's financial architecture have thus far devoted enormous attention to the demand side-structural weaknesses in emerging markets. They have excoriated the IMF for ineptitude and policy mistakes. But the authors of this study argue that financial leaders of the G-10 nations (industrial nations that were hardly affected by the crises of 1997-98) owe a responsibility-both to their own citizens and the emerging markets-to take a far more vigilant stance. Dobson and Hufbauer criticize the supply side of world capital markets and ask how G-10 capital suppliers can reform their own financial systems to make the world safe for large-scale international capital flows. They draw a comprehensive picture of international finance through an extensive review of capital flows, the major financial players behind these flows, and the balance between costs and benefits of international capital movements. The authors analyze the implications of changing the rules of the game and recommend specific policy measures.

President Franklin Roosevelt created the Export-Import Bank of the United States (Ex-Im Bank) in 1934 to promote US trade in the midst of the Great Depression. At the outset, the Ex-Im Bank was instructed to supplement, not compete with, private sources of export finance. Historically, the Ex-Im Bank filled gaps when the private sector was reluctant to finance exports to politically uncertain areas-such as Latin America in the 1940s, Europe in the 1950s, and emerging markets more recently. Critics now ask whether-in the current era of vast private capital markets-significant financing gaps still exist that require government action. Put bluntly, should the Ex-Im Bank still be playing a role in financing US exports to emerging markets? Since the 1970s, the Ex-Im Bank has faced a new challenge: helping US exporters meet the financial competition from foreign export credit agencies (ECAs)-such as COFACE in France and the Export-Import Bank of Japan. The Ex-Im Bank has tried to cope with foreign ECAs in two different ways. One way is to negotiate common rules for export financing, under OECD auspices. The other is to match credit terms offered by foreign ECAs. A central question for the Ex-Im Bank in the 21st century is whether this dual strategy still provides a viable answer to an array of new forms of competition spawned by foreign ECAs. The Institute for International Economics sponsored a conference in May 2000, both to honor the Bank's 65th anniversary and to look ahead at challenges facing the Ex-Im Bank. This volume-edited by former director of the Bank, Rita Rodriguez, and Institute Senior Fellow Gary Clyde Hufbauer-presents the papers from the conference. The papers both describe the Bank's current environment and identify new problems and opportunities in a global economy characterized by highly sophisticated private finance and intense competition for export markets. This volume provides an analytical basis for evaluating the Ex-Im Bank's future and suggests options that should be considered by President George W. Bush and Congress. Contributors: Robert Rubin * James Harmon * Lorenz Schomerus * J. David Richardson * Renato Sucupira * Mauricio Moreira * William Cline * Peter Evans * Kenneth Oye * Allan Mendelowitz * William Niskanen * Robert Nardelli * John Lipsky * Daniel Zelikow *Robert Hormats * Hans Reich * A. Ian Gillespie * Fumio Hoshi * William Daley * James Leach * Lawrence Summers

Air and water pollution blighted northern Mexican cities long before the North American Free Trade Agreement (NAFTA) was a glimmer on the political horizon. Not surprisingly, when NAFTA became a political reality, environmentalists argued that commercial competition would weaken environmental standards in Canada and the United States and industrial growth in Mexico would further damage its weak environmental infrastructure. NAFTA's huge success in expanding free trade has concentrated population and environmental abuse at the US-Mexico border where it is most visible to Americans. Many environmental groups blame NAFTA and, drawing on its experience, now oppose new trade initiatives. Does the NAFTA record on the environment since 1994 justify its criticism? In this seven-year analysis, the authors review NAFTA's environmental provisions, including a side accord-the North American Agreement on Environmental Cooperation (NAAEC), the situation at the US-Mexican border, and the trends in North American environmental policy. They emphasize that the environmental problems of North America were not the result of NAFTA and the NAAEC was not devised to address all of them. The authors recommend ways to better NAFTA's environmental dimension in all three countries, and improve living conditions where economic growth is greatest-at the US-Mexican border. It makes more sense to tackle the shortcomings than to lament NAFTA and the economic growth it promotes.

In February 1997, 69 countries accounting for 95 percent of world telecommunications traffic agreed to open their basic telecommunications service markets. In April 1997, 28 countries accounting for 80 percent of world trade in information technology (IT) goods agreed to eliminate tariffs on IT goods by January 2000. These two agreements represent significant steps toward global telecommunication liberalization. The agreements also mark the beginning of new battles that will determine the extent of competition and reform in the telecommunications industry in the 21st century. Although implementation of the two pacts will be phased in over several years, some signatory countries are already facing a backlash from local telecommunications companies and equipment suppliers. Hence the issue remains highly contentious around the world. In this volume, leading scholars from different countries offer their assessments of the two new agreements. They also predict the evolution of the telecommunications industry in the years ahead. The volume provides essential background on future developments in this dynamic and crucial sector, and suggests ways in which it can be shaped to provide maximum benefits for the world economy.

This comprehensive study finds that tariffs and quantitative import restrictions in place in 1990 cost American consumers about $70 billion, more than 1 percent of GDP. The net national welfare loss, after deducting tariff revenues and transfers to domestic producers, was $11 billion, of which perhaps 70 percent was captured by foreign producers as quota rents. Nearly half of the consumer costs are accounted for by 21 highly protected sectors, and more than a third, $24 billion, are attributable to textiles and apparel alone. The cost to consumers of "special" protection aside from textiles and apparel dropped sharply in the 1980s, from $15 billion in 1984 to $6 billion in 1990. If it is ratified, the Uruguay Round will result in a further large reduction in these costs, particularly in textiles and apparel. Still, the annual consumer costs per American job "saved" by "special" protection range from $100,000 to over $1 million and average $170,000. Consumers thus pay over six times the average annual compensation of manufacturing workers to preserve each job. In terms of net national welfare, the cost per protected job is about $54,000. This figure far exceeds the cost per worker of the most generous adjustment program entailing income support, retraining, and relocation. This study will be indispensable to public and private sector decision makers and analysts concerned about the very high costs and small benefits of US import barriers. Teachers will find this book an engrossing way to introduce students to the cost of protection calculations that government economists and trade negotiators frequently make.

Negotiations toward a North American Free Trade Area (NAFTA) began in June 1991. This book assesses both the substances and the form of a prospective NAFTA. Part One examines the objectives of the United States, Mexico, and Canada in the NAFTA negotiations; the potential shape and contents of the agreement (including dispute-settlement and institutional issues); its possible extension to third countries; and its implications for multilateral trade negotiations and the GATT. Part Two examines the broad economic implications of a NAFTA for trade, investment, and employment; labor and environmental concerns that arise because of Mexico's lower level of economic development; and the cross-sectional issues of rules of origin and intellectual property. Part Three analyzes how the energy, auto, steel, textile, agricultural, and financial services sectors of the Mexican economy could be affected by a NAFTA, and the implications for U. S. and Canadian industries. Part Four summarizes the major conclusions and policy recommendations.