International Business Chapter 7. Government policy and international trade

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How many instruments trade policy?

7: tariffs, subsidies, import quotas, voluntary expoprt restraints, local content requirements, administrative policies & antidumping duties

What instrument is the oldest and simplest?

tariffs

What is a tariff and how many categories it have?

Is a tax levied on imports or exports. two categories: specific and ad valorem

For what is the specific tariff?

Fixed charge for eah unit of goos imported

And what is an ad valorem tariff?

Levied as a proportion of value of the imported good

Why are the tariffs placed on imports? It produces revenue for whom?

To protect domestic producers from foreign competition by rising the price in imported goods. For the government

Does the consumer gains o loses with the tariffs?

Loses because ther must pay more for certain imports

On what factors depend the loss to consumers?

The amount of tariff, the importance of the imported good to domestic consumers, the number of jobs saved in the protected industry, etc

What are the 2 conclusions derived from the economic analysis of the effect of import tariffs?

They are generally pro-producer and anti-consumer and they reduce the overall efficiency of the world economy

What are th e main objectives of export tariffs?

Raise revenue for the government and to reduce exports from a sector

What's a subsidy?

a government payment to a domestic producer

How can subsidies help domestic producers?

competing against foreign imports and gaining export markets

how are government subsidies paid?

Typically by taxing individuals and corporations

What subsidies tend to? (bad)

tend to protect the inefficient and promote excess production

What's a import quota?

Is a direct restriction on the quantity of some good that may be imported into a country

How is a import quota usually enforced by?

Issuing import licenses to a group of individuals or firms

What is formed from a quota and a tariff? Where are they common in?

A tariff rate quota and they are common in agriculture where the goal is to limit imports over quota

What's the VER?

Voluntary export restraint, is a quota on trade imposed by the exporting country, typically at the request of the importing country's gov

What is the name for the extra profit that producers make when supply is artificially limimted by an import quota?

Quota rate

What is the name for a requirement that some specific fraction of a good be produced dommestically?

Local content requirements

What is the name for bureaucratic rules designed to make it difficult for imports to enter acountry?

Administrative policies

Things designed to punish foreign firms that sell goods in a foreign market at below their"fair" market value

Antidumping policies

What country is considered the master in administrative policies?

Japan

Why federal express didn't succeed in Japan?

Because Japanese customs inspectors insist on opening a large proportion os packages to check, and it delayed the process

A domestic producer believes that a foreign firm is dumping production in yh U.S market, With what government agencies they file a petition?

the Commerce Department and the ITC: International Trade Comission

What happens if the complaint for dumping production has merit?

The commerce department may impose a dumping duty = countervailling duty wich represents a special tariff and stay in place for up to 5 yrs

What are the political reasons for intervention?

Protecting jobs and industries, national security, retaliation, protecting consumers, HumR, enviroment,furthering foreign policy objectives,

What is retaliation?

The threat to intervene in trade policy as a bargaining tool to help open goreign market and force them to "play by the rules of the game"

What it means "Furthering foreign policy objectives"?

Is a political reason for intervention where, for ex, a government may grant preferentialtrade terms if wants to build strong relations

What ar the economic arguments for intervention?

The infant industry argument and the strategic trade policy

Whats the infant industy argument?

Governments should temporarily support new industries until they have grown enough to meet international competition

With what theory is related the strategic trade policy?

With the new trade theory: economies of scale, few players, first mover

Who proposed the infant industry argument and when?

Alexander Hamilton in 1792

One of the main problems of the world trading system

Lack of trust

When was the The General Agreement on Tariffs and Trade signed and what was its goal?

The GATT was signed in 1947 with a goal of liberaliz trade by eliminating tariffs, subsidies, import quotas, etc

What happened between 1820 and 1930?

Theoretical work of Smith and Ricardo, Corn Laws in Great Britain, GB as one of the world's dominant trade powers, the Great Depression

What happened between 1947 & 1979?

U.S emerged dominant after WWII, the GATT was signed & economic growth

What happened between 1980 & 1993?

The GATT increased the protectionism around the world, eco success in Japan,trade deficit inthe US, countries found ways to get around GATT

1993-2014

8th round of negotiation of the GATT against protectionism generated the Uruguay round. WTO was created

What is GAPS? And what is TRIPS?

WTO's General Agreement on Trade Services & WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights

For what has WTO taken responsability?

For arbitrating trade disputes and monitoring the trade policies of member countries.

How many members does the WTO has?

164, including China and Russia

What are the challenges for the WTO?

Prolifrtion of antidumping actions, protectionism in agriculture, proteting intellectual property and high tariffs in some nonagricultural

What are the Doha rounds?

Talks aimed at further liberalizing the global trade and investment framework