International Trade

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International Trade

World Trade Organization (WTO): was established January 1, 1995 to provide the legal, institutional framework for the multilateral trading system.  If a nation implements some trade policy that another nation feels violates some bilateral or multilateral agreement, one of their options is to take their case to the World Trade Organization who will make a ruling.

International trade is generallly perceived to be beneficial in that it,

  1. Increases the number of goods that domestic consumers can choose from,

  2. Decreases the cost of those goods through increased competition
  3. Allows domestic industries to ship their products abroad.

Free trade is a system of trade policy that allows traders to trade across national boundaries without interference from the respective governments.

Free trade implies the following feature

Free trade is one of the most debated topics in economics. Arguments over free trade can be divided into economic, moral, and socio-political arguments. The academic debate among economists is currently settled in favor of free trade, with a consensus having existed since at least the 1960s, based on the theory of comparitive advantage.

Benefits of Free Trade.

  1. According to the law of comparative advantage the policy permits trading partners mutual gains from trade of goods and services even where one country has an absolute benefit in the production of several goods and services. By specialising in goods where countries have a lower opportunity cost, there can be an increase in economic welfare for all countries.
  2. Trade increases occurs when consumption switches from high cost producers to low cost producers
  3. Economies of Scale: If countries can specialise in certain goods they can benefit from economies of scale and lower average costs for everyone. This is especially true in industries with high fixed costs or that require high levels of investment. The benefits of economies of scale will ultimately lead to lower prices for consumers.
  4. Increased Competition. With more trade local firms will face more competition from abroad therefore there will be more incentives to cut costs and increase efficiency. It may prevent domestic monopolies from charging too high prices.
  5. Use of surplus raw materials from some couhtries .
  6. Increasing commerce makes war less likely as a function of economic interdependence,
  7. Free trade reduces poverty by providing work for lowewr paid labour
  8. Free trade enriches cultures

Arguement Against Free Trade

  1. Sheltering young industries may pay off later
  2. International trade requires more resources to be distributed with environmental impact because it requires the use of fosil feul in delivery from overseas, as compared to local delivery
  3. Free trade favors developed nations in certain areas by providing intellectual property rights to the disadvantage of the poor who are deprived of life savings drugs etc.
  4. Free trade increases offshoring and outsourcing the production of goods where domestic regulations protecting workers are circumvented
  5. Some feel free trade will tend to create economies too dependent on narrow specialties.When demand for those narrow specialties drops, the adjustment will be much more difficult than if existing diversification was already in place. It is usually much easier to grow an existing specialty than to start one from scratch when changes require it.
  6. Free trade undermines cultural diversity
  7. Free trade causes excess dislocation and pain
  8. Free trade undermines national security - food, water other valuable resources could be controlled in the short term

Protectionism

Protectionism is the term used to describe efforts by nations to promote the interests of domestic producers by restricting importers.and is frowned upon, primarily by nations which want to be able to export goods for trade in other countries. Organizations such as the World Trade Organization have promoted the lifting of tariff barriers to reduce the burden on importers. Non-tariff barriers such as import quotas are also targeted for elimination by organizations which promote free trade.

Trade barriers is a general term that describes any government policy or regulation that restricts international trade. The barriers can take many forms, including the following terms that include many restrictions in international trade within multiple countries that import and export any items of trade:

Tariffs Barriers

A tariff is a tax on foreign goods upon importation. When a foreign good arrives in a port or at the Border of the importing country, a customs officer inspects the contents and charges a tax (callede import duties) according to the tariff formula. Since the goods cannot be landed until the tax is paid it is the easiest tax to collect, and the cost of collection is small.

A "revenue tariff" is a set of rates designed primarily to raise money for the government. A tariff on coffee imports, for example (imposed by countries which do not grow coffee) raises a steady flow of revenue. A "protective tariff" is intended to artificially inflate prices of imports and "protect" domestic industries from foreign competition. For example, a 50% tax on an imported machine that raises the price from $100 to $150. Without a tariff the local manufacturers could only charge $100 for the same machine; now they can charge $149 and make the sale. The distinction between protective and revenue tariffs is subtle: protective tariffs in addition to protecting local producers also raise revenue; revenue tariffs produce revenue but they also offer some protection to local producers. Tax, tariff and trade rules in modern times are usually set together because of their common impact on industrial policy, investment policy, and agricultural policy.


Top reasons tariffs are used:

  1. Protecting Domestic Employment - The levying of tariffs is often highly politicized. The possibility of increased competition from imported goods can threaten domestic industries. The unemployment argument often shifts to domestic industries complaining about cheap foreign labor, and how poor working conditions and lack of regulation allow foreign companies to produce goods more cheaply.
  2. Retaliation - Countries may also set tariffs as a retaliation technique if they think that a trading partner has not played by the rules.

Non-Tarrif Barriers

Such barriers may relate to standards (e.g. in order to be imported goods must meet certain locally approved standards (e.g. CSA, Canadian Safety Association), rules of origin (Canadian Cattle denied entry during recent Mad Cow disease scare), Culture Protection (Canadian Content rules in Radio and TV) Government Procurement Rules (e.g Canada demand many good purchased for Government agencies be produced in Canada), Patent and Intellectual Property laws, Labour Standard Legislation

  1. Protecting Consumers - A government may levy a tariff on products that it feels could endanger its population. E.g Mad Cow Disease
  2. National Security - employed by developed countries to protect certain industries that are deemed strategically important, such as those supporting national security.
  3. Protecting culture or government services e.g. medicare social services

The Doha Development Round of World Trade Organization negotiations aims to lower trade barriers around the world, permitting free trade between countries of varying prosperity. As of 2006, talks have stalled over a divide between the developed nations led by the European Union, the United States and Japan and the major developing countries (represented by the G20 developing nations), led and represented mainly by India, Brazil, China and South Africa.

This round was to have begun at the WTO Ministerial Conference of 1999 in Seattle, and was to have been called "The Seattle Round" but severe demonstrations caused the round's beginning to be put off until November 2001 in Doha, Qatar. The purpose was to agree on the Doha Development Agenda, and from there negotiate opening agricultural and manufacturing markets. The intent of the round, according to its proponents, was to make trade rules fairer for developing countries. 2003 Cancún talks — intended to forge concrete agreement on the Doha round objectives — collapsed after four days during which the members could not agree on farm subsidies and access to markets. Negotiations focused upon four key areas: agriculture, industrial goods, trade in services, and updated customs codes. The North-South divide was most prominent on issues of agriculture. Rich countries’ farm subsidies (both the EU’s Common Agricultural Policy and the U.S. government agro-subsidies) became a major sticking point. The developing countries were seen as finally having the confidence to reject a deal that they viewed as unfavorable. This is reflected by the new trade bloc of developing and industrialized nations: the G20. Since its creation, the G20 has had fluctuating membership, but is spearheaded by the G4 (People's Republic of China, India, Brazil & South Africa), and overall accounts for approximately 65% of the world population, 72% of its farmers and a large share of the world's agricultural output.

The August 2004 Geneva talks achieved a framework agreement on opening global trade. The U.S., EU, Japan and Brazil agreed to end export subsidies, reduce agricultural subsidies and lower tariff barriers. Developing nations agreed to reduce tariffs on manufactured goods, but gain the right to specially protect key industries. The agreement also provides for simplified customs, and stricter rules for rural development aid.

In Paris, 2005, Trade negotiators wanted to make tangible progress before the December 2005 WTO meeting in Hong Kong, and hoped to agree to the deal before 2007 when U.S. fast-track legislation expires. Without fast-track, it will be much harder to get a ratification from the U.S. Senate. Paris talks were hanging over a few issues: France protested moves to cut subsidies to farmers, while the U.S., Australia, the EU, Brazil and India failed to agree on issues relating to chicken, beef and rice. Most of the sticking points were small technical issues, making trade negotiators fear that agreement on large politically risky issues will be substantially harder. The Sixth WTO Ministerial Conference took place in Hong Kong, December 13 to 18, 2005. Trade ministers representing most of the world's governments reached a deal that sets a deadline for eliminating subsidies of agricultural exports by 2013. The final declaration from the talks, which resolved several issues that have stood in the way of a global trade agreement, also requires industrialized countries to open their markets to goods from the world's poorest nations, a goal of the United Nations for many years. The declaration gives fresh impetus for negotiators to try to finish a comprehensive set of global free trade rules by the end of 2006. Pascal Lamy, Director General of the WTO, said, "I now believe it is possible, which I did not a month ago." As many as 2000 protestors demonstrated outside the Hong Kong Convention and Exhibition Centre, the location of the talks. Clashes with the police left at least 116 people injured, including 56 officers, although there were no critical injuries according to the authorities. [edit] Geneva, 2006 The July 2006 talks in Geneva failed to reach an agreement about reducing farming subsidies and lowering import taxes, and continuation of the negotiations will take months to resume. A successful outcome of the Doha round has become increasingly unlikely, because the broad trade authority granted under the Trade Act of 2002 to U.S. president George W. Bush expires in 2007.[4] Any trade pact will then have to be approved by the U.S. Congress with the possibility of amendments, which creates an additional burden on the U.S. negotiators and decreases the willingness of other countries to participate. Hong Kong offered to mediate the collapsed trade liberalisation talks. Director-General of Trade and Industry, Raymond Young, says the territory, which hosted the last round of Doha negotiations, has a "moral high-ground" on free trade that allows it to play the role of "honest broker".

International Monetary Fund (IMF)

a cooperative institution that 182 countries have voluntarily joined because they see the advantage of consulting with one another in this forum to maintain a stable system of buying and selling their currencies so that payments in foreign money can take place between countries smoothly and without delay."  Note that the IMF also has a charter of rights and obligations by its members.  Should a nation be having trouble making good on its financial commitments to other IMF countries, the IMF will provide assistance, although it may ask that country to implement some economic reforms to prevent the incident from happening again.

National Bureau of Economic Research - Digest OnLine- Excellent source of articles on a number of related topics

Organization for Economic Cooperation and Development (OECD): An organization with 29 member countries which meet to "provide governments a setting in which to discuss, develop and perfect economic and social policy. They compare experiences, seek answers to common problems and work to co-ordinate domestic and international policies that increasingly in today's globalised world must form a web of even practice across nations. Their exchanges may lead to agreements to act in a formal way - for example, by establishing legally-binding codes for free flow of capital and services, agreements to crack down on bribery or to end subsidies for shipbuilding."

World Bank Group: Over 180 nations participate in this Group because of a dream to free the world from poverty by providing resources, sharing knowledge,building capacity, and forging partnerships in the public and private sectors.

The World Bank is actually comprised of a few key institutions that help it accomplish its objectives.

International Bank for Reconstruction and Development

The International Bank for Reconstruction and Development (IBRD) aims to reduce poverty in middle-income and creditworthy poorer countries by promoting sustainable development through loans, guarantees, risk management products, and analytical and advisory services. Established in 1944 as the original institution of the World Bank Group, IBRD is structured like a cooperative that is owned and operated for the benefit of its member countries.

IBRD raises most of its funds on the world's financial markets and has become one of the most established borrowers since issuing its first bond in 1947. The income that IBRD has generated over the years has allowed it to fund development activities and to ensure its financial strength, which enables it to borrow at low cost and offer clients good borrowing terms.

International Development Association

International Finance Committee

Multilateral Guarantee Agency

The North-South Institute, contains a number og excellent articles including criticism of the World Bank, International Monetary Fund, HIPC Initiative and others on the issue of International Trade and Deby Relief