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The absence of govt barriers to the free flow of goods and services between countries
Free trade
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Trade policy uses seven main instruments
Tariffs, subsidies, import quotas, voluntary export restraints, local content requirements, administratve policies, and anti dumping duties
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------ are the oldest and simplest instrument of trade policy,and also the instrument that GATT and WTO have been most sucessful in limiting
Tariff
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Tax levied on imports
Tariffs
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A tariff levied as a fixed charge for each unit of good imported ($3 per barrel of oil)
Specified tariff
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A tariff levied as a porportion of the value of an imported good
Ad Valorem Tariff
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In most cases ----- are placed on imports to protect domestic producers from foreign competition by raising the price of imported goods, and produce revenue for the govt
Tariffs
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Who gains from a tariff and why?
- Govt, source of rev
- Domestic producers, protection against foreign competitors
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Who loses from tariffs?
Consumers, may have to pay more
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Import tariffs reduce the overall ----- of the world economy, because a protective tariff encourages domestic firms to produce products at home that could be produced in other countries
Efficiency
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Export tarifs are far less common but have two objectives
- - raise rev for govt
- - reduce exports from a sector (often political)
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Govt financial assistance to a domestic producer
Subsidy
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This takes many forms such as cahs grants, low interest loans, tax breaks, etc
Subsidy
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Subsidies help domestic producers in two ways
- - competign against foreign imports
- - gianing exports markets
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---- tends to be one of the largest beneficiaries of subsidies in most countries
Agriculture
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The main gains from subsidiex accrue to -------, whose international competitiveness is increased as a result
Domestic producers
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----- help a firm achieve a first mover advantage In an emerging industry
Subsidies
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Govt subsidies must be paid for, typically by
Taxing individuals and corporations
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A direct restriction on ghe quantity of some good that may be imported into a country
Import quota
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The process of aplying a lower tariff rate to imports within the quota than those over the quota
Tariff rate quota
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A quota on trade imposed by the exporting county, typically at the request of the importing country,s govt
Voluntary export restaint (VER)
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One of the most famous historical examples of voluntary expor restraint was
Auto exports to the US enfored by japanese auto producers
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Foreign producers agree to VERs b.c they fear more damaging punitive ------- or ------- might follow if they do not
Tariffs, import quotas
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Tariffs, subsidied, import quotas and VERs benefit ------ by limiting impor t competition
Domestic producers
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The exta profit producers make when supply is artifically limited by an import quota
Quota rent
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A requirement that some specific fraction of a good be produced domestically
Local content requirement
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Local content requirment can be expressed in what to terms
- Physical (75% of component parts for this product must be produced locally)
- Value terms (75% of the value of this product must be produced locally)
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Bureaucratic rules designed to make it difficult for imports to enter a country
adminstrative trad polices
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Sellin goods in a foreign market at below their costs of production or below their fair market value
Dumping
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Policies designed to punish foreign firms that engage in dumping and thus protect domestic producers from foreign competition
Antidumping policies
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Antidumping duties
Countervailing duties
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Ulaoding excess production into foreign markets resulting in predatory behavior, with producers using substaintial profits fro their home markets to subsidize prices in a foreign market with a view to drive competitors out of the market then they can raise the prices and earn substainstial profits
Dumping
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------ arguments of govt interventionar concerned with protecting the interests of certain groups within a natio, or achieving an objective outside the economic relationship (protectign environment, human rights)
Political govt intervention
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------- intervention are typically concerned with boosting the overall wealth of a nation
Economic govt intervention
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Most common political argument for govt intervention
Protect jobs and industries
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------ was designed to portect jobs of europe politcally powerful farmers by resrptricting imports and guarentteeing prices
CAP, common agricultural policy
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Countries sometimes argue to,protect certain industries b.c they are imporant for
National security
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Govt should use the threat to intervene in trade policy as a bargaining tool to ehlp open foreign markets and force foreign trading partners to play the rule of the game
Retaliation
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Many govt long for regulations to --------- from unsafe products
Protect consumers
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Act passed in 1996 that allowed americans to sue foreign firms that use cuban property confiscated from them after the 1959 revolution
Helms-burton acr
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Act passed in 1996 similar to the helms- burton act aimed at libya and iran
D`amato act
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New industries in developing countires must eb temproarilly protect from international commetion to help them reach a position where they cancompete on world markets with the firms of deveoped nations
Infant industry
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Govt policy aimed at improving the competitive positon of domestic industry or domestic firm in the world market
Strategic trade policy
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Enacred in 1930 by the US congress this tariff erected a wall of barriers against imports into the US
Smoot-hawley act
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------- sometimes use trade policy to support theur foreign policy objectives, grant preferential trade with country which it wants to build strong relations and also trade policy used several times to pressure or punish rouge states to do not abide by imternational laws or norms
Govt
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Protecting and promoting ------ in other countries is an important element of foreign policy for many democracies
Human rights
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An argumnet frequently made by environmental organizations is that there is strong relationship between ---------&--------
Income levels and environmental pollution
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