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and to implement a well-defined process for settling trade disputes that might arise among countries.
As of 2009, 153 countries were members of the WTO “trade liberalization club,” and many more countries were still negotiating entry. As the club grows to include more members—and if the latest round of trade liberalization talks, called the Doha Round, concludes with an agreement—world markets will become increasingly open to trade and investment.[1]
Another international push for trade liberalization has come in the form of regional free trade agreements. Over two hundred regional trade agreements around the world have been notified, or announced, to the WTO. Many countries have negotiated these agreements with neighboring countries or major trading partners to promote even faster trade liberalization. In part, these have arisen because of the slow, plodding pace of liberalization under the GATT/WTO. In part, the regional trade agreements have occurred because countries have wished to promote interdependence and connectedness with important economic or strategic trade partners. In any case, the phenomenon serves to open international markets even further than achieved in the WTO.
These changes in economic patterns and the trend toward ever-increasing openness are an important aspect of the more exhaustive phenomenon known as globalization. Globalization more formally refers to the economic, social, cultural, or environmental changes that tend to interconnect peoples around the world. Since the economic aspects of globalization are certainly the most pervasive of these changes, it is increasingly important to understand the implications of a global marketplace on consumers, businesses, and governments. That is where the study of international economics begins.
International economics is a field of study that assesses the implications of international trade, international investment, and international borrowing and lending. There are two broad subfields within the discipline: international trade and international finance.
International trade is a field in economics that applies microeconomic models to help understand the international economy. Its content includes basic supply-and-demand analysis of international markets; firm and consumer behavior; perfectly competitive, oligopolistic, and monopolistic market structures; and the effects of market distortions. The typical course describes economic relationships among consumers, firms, factory owners, and the government.
The objective of an international trade course is to understand the effects of international trade on individuals and businesses and the effects of changes in trade policies and other economic conditions. The course develops arguments that support a free trade policy as well as arguments that support various types of protectionist policies. By the end of the course, students should better understand the centuries-old controversy between free trade and protectionism.
International finance applies macroeconomic models to help understand the international economy. Its focus is on the interrelationships among aggregate economic variables such as GDP, unemployment rates, inflation rates, trade balances, exchange rates, interest rates, and so on. This field expands basic macroeconomics to include international exchanges. Its focus is on the significance of trade imbalances, the determinants of exchange rates, and the aggregate effects of government monetary and fiscal policies. The pros and cons of fixed versus floating exchange rate systems are among the important issues addressed.
This international trade textbook begins in this chapter by discussing current and past issues and controversies relating to microeconomic trends and policies. We will highlight past trends both in implementing policies that restrict trade and in forging agreements to reduce trade barriers.


Liberalization

In general, liberalization (or liberalisation) refers to a relaxation of previous government restrictions, usually in areas of social or economic policy. In some contexts this process or concept is often, but not always, referred to as deregulation.Liberalization of autocratic regimes may precede democratization (or not, as in the case of the Prague Spring).
Most often, the term is used to refer to economic liberalization, especially trade liberalization or capital market liberalization.
Although economic liberalization is often associated with privatization, the two can be quite separate processes. For example, the European Union has liberalized gas and electricity markets, instituting a system of competition; but some of the leading European energy companies (such as EDF andVattenfall) remain partially or completely in government ownership.
Liberalized and privatized public services may be dominated by just a few big companies particularly in sectors with high capital costs, or high such as water, gas and electricity. In some cases they may remain legal monopoly at least for some part of the market (e.g. small consumers).
Liberalization is one of three focal points (the others being privatization and stabilization) of theWashington Consensus's trinity strategy for economies in transition. An example of Liberalization is the "Washington Consensus" which was a set of policies created and used by Argentina
There is also a concept of hybrid liberalisation as, for instance, in Ghana where cocoa crop can be sold to a variety of competing private companies, but there is a minimum price for which it can be sold and all exports are controlled by the state

Liberalization vs Democratization
There is a distinct difference between liberalization and democratization, which are often thought to be the same concept. Liberalization can take place without democratization, and deals with a combination of policy and social change specialized to a certain issue such as the liberalization of government-held property for private purchase, whereas democratization is more politically specialized that can arise from a liberalization, but works in a broader level of government.

Govt role in development and transition

Transition and the Changing Role of Government
Vito Tanzi
Over the past decade, many centrally planned economies have set out to transform themselves into market economies. To be successful, they need to develop the necessary institutions and ensure a proper role for government.
________________________________________
While much has been written about the economic changes that must take place for centrally planned countries to become market economies, less has been written about how the economic role of the state must change. In "shock therapy," advocated by some economists at the start of the transition, the main ingredients for success were assumed to be price liberalization, macroeconomic stabilization, and privatization. Little was said about the role of the government in the new environment. A complete transformation of the economy, the institutions, and economic processes requires, in addition, that
• profitability be the guiding criterion for most investment decisions;
• activities deemed socially desirable be financed by the government; and
• the government effectively perform its core functions in the economy while withdrawing from, or drastically reducing its role in, many secondary activities.
Elements of a market economy
To function well, market economies need governments that can establish and enforce the "rules of the game," promote widely shared social objectives, raise revenues to finance public sector activities, spend the revenues productively, enforce contracts and protect property, and produce public goods. They also need a pared-down set of regulations that are clear and leave little margin for interpretation or discretion. While the guiding principle under central planning was that nothing was permitted unless explicitly authorized, the guiding principle in a market economy should be that everything is permitted unless expressly forbidden.
The transformation to a market economy is not complete until functioning fiscal institutions and reasonable and affordable expenditure programs, including basic social safety nets for the unemployed, the sick, and the elderly, are in place. Spending programs must be financed from public revenues generated—through taxation—without imposing excessive burdens on the private sector. Because the level of taxation of a country depends on, among other criteria, the extent of its economic development and the sophistication of its tax systems and administration, these constraints must be considered in discussions of public spending.
Finally, because the optimal role for government derives not just from economic considerations but also from the interplay of political and economic forces, the views of the executive branch of government should broadly match those of the legislative branch. If the two sides are miles apart on what the government should do, as they have been in Russia and some other countries, neither an optimal government role nor rational policies are likely to emerge.
Institutions in a market economy
To perform their tasks, governments in market economies need some well-developed institutions run by competent individuals and guided by appropriate incentives. The objectives of the managers must not diverge from those of the institutions, which must in turn be consistent with the public interest. Such institutions do not materialize magically. They need to be created and continually reformed. In industrial countries, it took centuries for these institutions to evolve.
When the necessary public institutions do not exist or, if they do exist, when the incentives for their managers are perverse, the government can easily become an impediment to economic activity because it ends up being used by individuals for their own ends. This is what normally happens in a corrupt system, where parts of the government apparatus are privatized for the gains of individuals or special interest groups. In such a system, the achievement of social objectives is difficult and some of the government's actions may appear predatory, such as when state employees extract bribes from citizens who need permits or authorizations.
Pre-transition environment
At the beginning of the transition, the share of GDP derived from private sector activities was small in all transition countries. It ranged from less than 1 percent in the former Czechoslovakia and Russia to almost 20 percent in Poland, compared with about 80 percent in the United States. Economic production occurred overwhelmingly in the public sector because few productive assets could be privately owned and few private activities were allowed. Prices and genuine economic profits did not play much of a role in resource allocation because the use of resources was determined by political decisions made within the planning office.
The transition countries did not need market-type tax systems to raise public revenues because the government decided how to use total output and could simply appropriate production for its own needs. Taxes were mostly transfers from some activities to others. The primary function of tax administrators was to ensure that funds were transferred to the government books and accounted for. There was no budget office, no budget law, and no treasury.
Tax revenues were obtained from three major sources—turnover taxes, taxes on enterprises, and payroll taxes—which generated large revenues (at times up to 50 percent of GDP). Under this system, most taxes were hidden, so that individuals were largely unaware that, indirectly, they were paying high taxes. Taxes were collected on the basis of negotiations with government officials. The government was free to change the rates and changed them often; when it needed extra revenue, it negotiated to raise more taxes. An enterprise in difficulty might negotiate to lower its taxes.
Particular characteristics of central planning made tax collection relatively simple: (1) the authorities' knowledge—available from the plan—of quantities of goods produced and of the prices at which they would be sold; (2) the role of the central bank in processing payments and imposing restrictions on how payments were to be settled; and (3) the concentration of economic activities in a few large enterprises. Well-defined or fixed rules of law that individuals or enterprises could appeal to when they disagreed with the actions of the government did not exist.
Progress in general reforms
How much progress have the former socialist countries made in transforming their economies? Evaluating them on the basis of the shock-therapy approach gives the impression that progress has been considerable. In general, the Eastern European and Baltic countries have progressed rapidly, while the other countries have been less successful in establishing fiscal institutions, controlling fiscal imbalances, and redefining the role of the state. But even within these groups, the differences are significant (see table). In some countries, one senses that the old system is largely gone but that nothing has taken its place, leaving an institutional vacuum.
Progress in transition, 1998
Private
sector
share of GDP Enterprises2 Markets
and trade2 Financial
institutions2
Banking reform
(percent,
mid-1998)1 Large-scale
privatization Small-scale
privatization Price
liberalization and interest rate
liberalization
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Albania
Armenia
Azerbaijan
Belarus
Bulgaria 75
60
45
20
50 2
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