INTERNATIONAL TRADE AND ORGANIZATIONS LESSON VI Ingrid Majerova World Economy EVS/XXX Outline of the lecture • 1.Trade Policy 2. 2.Tools of Trade Policy 3. 3.Trade Organizations 4. 4.Intellectual property rights 5. 5. 5. 5. 1. 1. 1. TRADE POLICY •Trade policy refers to the regulations and agreements that control imports and exports to foreign countries. •Trade policies come in many varieties. Generally they consist of either taxes or subsidies, quantitative restrictions or encouragements, on either imported or exported goods, services and assets. TOOLS OF TRADE POLICY •Tariff •A tax (duty) levied on a product when it crosses national boundaries •Import tariff •Tax levied on an imported product •Export tariff •Tax imposed on an exported product •Often used by developing nations •Raise revenue, increase the world price TOOLS OF TRADE POLICY •Protective tariff •To reduce the amount of imports entering a country •Insulating import-competing producers from foreign competition •Allows an increase in the output of import-competing producers •Revenue tariff •To generate tax revenues •Placed on either exports or imports TOOLS OF TRADE POLICY •Tariff revenues as a percentage of government revenues TOOLS OF TRADE POLICY •Examples of tariffs in selected countries (%) TOOLS OF TRADE POLICY •Tariff - imposes costs to domestic economy •Buyers will pay more for their protected U.S.-made goods than they would have for the imported goods under free trade •Jobs will be lost at retail and shipping companies that import foreign-made goods •Jobs will be lost in any domestic industries that suffer from retaliatory tariffs •The extra cost of the goods gets passed on to whatever products and services that use these goods in the production process TOOLS OF TRADE POLICY •Tariff effects •Higher price of imports •Lower demand for imports •Domestic suppliers expand output •Benefits •Domestic producers • •Tariffs are inequitable •Impose the most severe costs on low-income families •Higher tariffs on cheap goods than luxuries •Affect different countries in different ways •Burdens countries that specialize in the cheapest goods •Very poor countries in Asia and the Middle East • TOOLS OF TRADE POLICY •US tariff history – average tariff rates TOOLS OF TRADE POLICY •Import quota •Physical restriction on the quantity of goods that can be imported during a specific time period •Require an import license •Specifies the total volume of imports allowed •On manufactured goods •Outlawed by the World Trade Organization • •Global (for goods) x selective quota (allocated to specific countries) • TOOLS OF TRADE POLICY •Examples of US import quotas TOOLS OF TRADE POLICY •Effects of import quota on economy’s welfare •Price increase •Decrease in consumer surplus •Redistributive effect •Deadweight loss •Protective effect •Consumption effect •Revenue effect •Windfall profit •Quota rent •An import quota restricts the volume of imports •Quota •More restrictive than a tariff •Suppresses competition • • TOOLS OF TRADE POLICY •Export quotas •Market sharing pact, voluntary export restraint agreement •To moderate the intensity of international competition •Tend to be more costly than tariffs • •Study: three major U.S. voluntary export restraint agreements of the 1980s •Automobiles, steel, and textiles and apparel •67% of the costs to American consumers - captured by foreign exporters as profit • • TOOLS OF TRADE POLICY •Trade protectionism intensifies as global economy falls into recession • •Global economic downturns - catalyst for trade protectionism; 2007–2009 •Decrease in the demand for goods and services •Decline in international trade •Shortfall of some $100 billion in trade finance – 90% of world trade •Indiscriminate decrease in trade •Exports declined by 30 % •China - targeted by the most governments for protectionist measures •Russia •Increased tariffs on imported automobiles •India •Raised tariffs on steel imports •Argentina •New obstacles to imported auto parts and shoes • TOOLS OF TRADE POLICY •Creeping protectionism during recession 2007-2009 TOOLS OF TRADE POLICY •Subsidies •Outright cash disbursements, tax concessions, insurance arrangements, and loans at below-market interest rates •From the government for producers •To help improve their market position •Provide domestic firms a cost advantage •Market products at prices lower than warranted by their actual cost or profit considerations •Net price received by the producer = price paid by the purchaser + subsidy •Domestic production subsidy •Granted to producers of import-competing goods •Export subsidy •Granted to producers of goods that are to be sold overseas • • TOOLS OF TRADE POLICY •Domestic content requirements •Higher input prices •Higher product prices •Loss of competitiveness •Subsidizing by domestic consumers of the domestic producer • • TOOLS OF TRADE POLICY •Dumping •International price discrimination •Foreign producers charge lower prices than domestic producers for an identical product •After allowing for transportation costs and tariff duties •Selling in foreign markets at a price below the cost of production •Types: •Sporadic dumping - result of misfortune or poor planning •Persistent dumping - a producer may consistently sell abroad at lower prices than at home •International price discrimination – different demand elasticity • • • TOOLS OF TRADE POLICY •Dumping - example • • • TOOLS OF TRADE POLICY •Government Procurement Policies •requires that a specified percentage of purchases by the federal or state governments be made from domestic firms rather than foreign firms • •Health and Safety Standards •Other countries governing the use of some goods, such as pharmaceuticals •these regulations can have an effect upon trade patterns even though the policies are not designed based on their effects on trade • •Red-Tape Barriers •refers to costly administrative procedures required for the importation of foreign goods • many forms: France once required that videocassete recorders enter the country through one small port facility in the south of France; because the port capacity was limited, it effectively restricted the number of VCRs that could enter the country •may arise if multiple licences must be obtained from a variety of government sources before importation of a product is allowed. . TOOLS OF TRADE POLICY •Export promotion •Marketing information and technical assistance •Trade missions •Sponsoring exhibits of goods at international trade fairs •Establish overseas trade centers •Export trade associations •Export trading companies •Export subsidies: low-cost credit •Economic sanctions •Government-mandated limitations placed on customary trade or financial relations among nations •Protect the domestic economy and security •Reduce nuclear proliferation •Set compensation for property expropriated by foreign governments •Combat international terrorism •Protect human rights • TOOLS OF TRADE POLICY •Economic welfare gains from liberalization of import restrains (tariffs, quotas) TOOLS OF TRADE POLICY •Free-trade argument •If each nation produces what it does best and permits trade •In the long term •Lower prices •Higher levels of output, income, and consumption • Little or no positive effect on the level of employment in the long run by protectionism • •Argument for trade restrictions •Trade benefits the domestic economy even if foreign nations impose trade restrictions •Job losses spread across many industries •Trading nations should temporarily shield their newly developing industries from foreign competition (infant industry) •National security argument • • • • • • • TRADE ORGANIZATIONS •General Agreement on Tariffs and Trade •Agreement among the member nations •To decrease trade barriers •To place all nations on an equal footing in trading relations •Never intended to become an organization •1995, GATT - transformed into the World Trade Organization (WTO) •Main provisions of GATT •Include a mechanism intended to improve GATT’s process for resolving trade disputes among member nations • • • • • • TRADE ORGANIZATIONS •Major principles of GATT system •Trade without discrimination •MFN principle (normal trade relations) •National treatment principle •Promoting freer trade •Improved the dispute-resolution process •Use tariffs rather than quotas •Binding and transparency •Multilateral trade negotiations • • • • • • TRADE ORGANIZATIONS •GATT negotiating rounds TRADE ORGANIZATIONS •WTO (World Trade Organization) •153 nations, 97% of world trade •International organization, headquartered in Geneva, Switzerland •Multilateral trading system •Trade in services, intellectual property, and investment •Administers a unified package of agreements to which all members are committed •Oversees •Implementation of the tariff cuts •Reduction of nontariff measures •Watchdog of international trade •Database - trade measures and statistics • • • • • • • INTELLECTUAL PROPERTY RIGHTs •Intellectual property rights (IPRs) violations •Pirates •Counterfeiters •Other infringers •Intellectual property •An invention, idea, product, or process •Registered with the government •Awards the inventor (or author) exclusive rights to use the invention for a given time period •Copyrights •To protect works of original authorship •For the remainder of the author’s life plus 50 years •Trademarks •To manufacturers •Exclusive rights to a distinguishing name or symbol •Patents •Inventor - for a term (15 years or more) - exclusive right to make, use, or sell the invention • • • • • • • INTELLECTUAL PROPERTY RIGHTs •Examples of intellectual property right violations in China WORLD ECONOMY Thank you for your Attention!