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International Trade
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What is international trade?
imports, exports
foreign investment
WTO, NAFTA, EU and, potentially, everything else
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Opposing Forces
National and local governmentswant to protect small /medium
enterprises
Build trade barriers
Reduction of trade barriers
Multinational firms and governmentsof the multinational firms
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Tools of Government Protectionism
Tariffs: any type of tax imposed onimported goods Discourage imports of particular goods
Protect local industry
Penalize countries that are not politicallyaligned with the importing country.
Generate revenues
US tariffs are generally less than 15%.
Other countries impose tariffs greaterthan 100% for protected products.
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Tools of Government
Protectionism (contd.) Non-Tariff Barriers:Measures, other
than traditional tariffs, that are used todistort international trade flows
Raise prices of both imports and import-competing goods.
Favor domestic over foreign supply sources
by causing importers to charge higherprices and to restrict import volumes.
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Tools of Government
Protectionism (contd.)Non-Tariff Barriers (contd.):
Quotas:
Specify maximum quantity (unit limit) orvalue of a product that may be importedduring a specified period.
Orderly market arrangements
Complicated approach to establishing what,in essence, is a quota. (Textile and apparelindustries)
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Non-Tariff Barriers (contd.):
Licenses
Non-Automatic Import Licenses:
Issued on a discretionary basis to restrictimports of a given product or from a certain
country
Examples:
Military equipment and other armamentfrom any country
Birds
Restrict volume and/or quantity of imports
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Non-Tariff Barriers (contd.):
Licenses (contd.)
Automatic Import Licenses:
Granted freely to importing companies
Facilitate import surveillance Discourage import surges
Place administrative and financialburdens on importer
May raise costs by delaying shipments
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Non-Tariff Barriers (contd.):
Voluntary Expansion/Restraints Voluntary Import Expansion:
Governments agree to allow imports froma particular country as a result of
pressure from another country. Increases foreign access to a domestic
market.
Increases competition and reduces local
prices. Voluntary Export Restraints:
Self-imposed export quotasimposed toavoid a greater penalty.
Used by the importing country to protect localindustries.
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Non-Tariff Barriers (contd.):
Price Controls
Increasing the Price of Imports to matchminimum domestic prices
Antidumping and Countervailing DutyActions:
investigations to determine
if products were sold below fair value to get rid
of excess inventory (dumping) or as a result of foreign subsidies.
Such measures can intimidate importers.
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Non-Tariff Barriers (contd.):
Price Controls (contd.)
Paratariff Measures:
Additional charges that increase thecost of imports
Examples:
Advance import deposits
Import charges Seasonal tariffs
Customs charges
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Non-Tariff Barriers (contd.):
Standards
Environmental, performance,manufacturing and other standards usedas barriers to imports.
Primarily imposed by highly industrializedcountries
E.g. EU against hormone fed US beef,bioengineered corn and soybeans
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Non-Tariff Barriers (contd.):
Percentage Requirements
Requirement that a percentage of theproducts imported be locally produced
Local content requirement: Often met by manipulating and/or
assembling the product on the territory ofthe importing country, usually in a foreign
trade zone. Favoring local contribution and labor
Limiting foreign ownership to a certainpercentage.
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Non-Tariff Barriers (contd.):
Boycotts
Boycotts
Action group calling for a ban on all
goods associated with a particularcompany and/or country.
Target company is representative
of its country of origin.
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Non-Tariff Barriers (contd.):
Embargos and Sanctions
Embargos
Prohibiting all business deals with the target
country; affects third parties. E.g. US Cuba
Sanctions
Punitive trade restrictions applied by acountry or group against another country fornoncompliance.
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Non-Tariff Barriers (contd.):
Currency Controls
Blocked Currency
Does not allow importers to exchange oflocal currency for currency a seller is
willing to accept as payment. Differential Exchange Rates
Favorable and less favorable exchangerates imposed on imports, based on the
extent to which the goods are necessaryand desirable.
Foreign Exchange Permits
Give priority to imports in the nationalinterest.
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Arguments for free trade
increases competition (lower prices for localconsumers)
Multinationals encourage efficiency in localmanufacturing and services.
Local firms no longer have to limitthemselves to the local, national market.
Increase production, achieve economies ofscale, and offer lower prices to world
markets.
Avoidance of protectionism of othergovernments
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Arguments for free trade
International trade ImperativeDavid Ricardos Theory
Countries benefit from specialization inan industry in which they havecomparative advantage and fromtrading with one another.
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Facilitators of International Trade
International Trade and EconomicDevelopment Organizations
Government Organizations Other Institutions and Procedures
Facilitating International Trade
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World Trade Organization Largest and most influential international
trade organization (153 members on23 July 2008 from 197 countriesworldwide)
Ensures free flow of trade
Functions:
Provides assistance to developing and transitioneconomies
Offers help for export promotion. Promotesregional trade agreements and economiccooperation.
Reviews members trade policies and engages
in routine notification of new trade measures.
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World Trade Organization (contd.)
WTO agreements represent trade rulesand regulations and act as contractsguaranteeing countries trade rights and
binding governments to free tradepolicies.
Agreements:
General Agreement on Tariffs and Trade (GATT) General Agreement on Trade in Services (GATS)
Trade-Related Aspects of Intellectual PropertyRights (TRIPS)
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Legal framework
most countries members of WTO
many countries also have bilateral
or regional trade agreements trade agreements generally have
dispute resolution mechanisms
trade obligations mayaffect/supplant national law
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WTO history
Began in 1995, built on GATT
GATT began in 1947.
GATT intended as tariff-cuttingagreement.
Rounds are series of negotiationsintended to cut tariffs.
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3 main principles of GATT/WTO
convert all trade barriers to tariffs
transparent
easier to administer
most-favored-nation (MFN)
any favorable trade treatment must begiven to all members
national treatment imports treated equally with domestic
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WTO: 6 components
trade in goods 1994 GATTagreement all bound
product standards all bound
GATS trade in servicesnot allbound
TRIPs all bound
plurilateral agreements (e.g., govtprocurement) some bound
dispute resolution all bound
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WTO structure
Ministerial Body (meets every 2years; e.g., Seattle)
General Council main governingbody
Secretariat permanent professionalstaff
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WTO dispute resolution process
request for consultations =complaint
panel appellate body (appeals routine)
loser must bring itself intocompliance
if not, winner can retaliate
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Regional Trade Agreements (RTAs);
Free Trade Agreements (FTAs)
permitted by WTO
multilateral or bilateral
important because of stalledprogress on Doha round
US aggressively pursuing
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NAFTA
earlier CFTA (US-Canada)
decreases, then removes tariffs
Anti-dumping, countervailing dutydisputes (Chapter 19) arbitrationbefore bi-national panels
investment disputes (Chapter 11)ICSID arbitration (International Centre forSettlement of Investment Disputes), UNCITRAL(United Nations Commission on International Trade Law)
http://icsid.worldbank.org/http://icsid.worldbank.org/http://www.uncitral.org/uncitral/en/index.htmlhttp://www.uncitral.org/uncitral/en/index.htmlhttp://icsid.worldbank.org/http://icsid.worldbank.org/7/28/2019 6. WTO Frame Work and International Marketing
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WTO Analytical Index
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Group of Eight - G8
Members from the most industrializedcountries: Canada, France, Germany,Italy, Japan, United Kingdom, United
States and Russia Yearly meetings involve heads of state,
government ministers, directors of centralbanks
Addresses: biotechnology, food safety,economic development, disarmament, armscontrol, organized crime, drug trafficking,terrorism, environmental issues and trade
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Trade terms
Dumping -- selling imports into a domestic marketat a price lower than the cost of production in thecountry of originless than fair value (LTFV)
Tariff--A fee (or duty) levied upon goods
transported from one customs area to another Trade subsidies -- government payments or other
benefits to producers that make their pricesunfairly low
Countervailing duties extra fee levied by
importing country to counter unfair subsidy