International Trade - Theory and Policy, 2010a

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As a result of Uruguay Round negotiations, GATT member countries introduced the General Agreement on Trade in Services, or GATS. The GATS includes a set of specific commitments countries have made to each other with respect to market access, market access limitations, and exceptions to national treatment in specified services. For example, a country may commit to allowing foreign insurance companies to operate without restrictions. Alternatively, a country may specify limitations perhaps restricting foreign insurance company licenses to a fixed number. A country can also specify a national treatment exception if, say, domestic banks are to be granted certain privileges that foreign banks are not allowed. Most importantly, if exceptions have not been specified, countries have agreed to maintain most-favored nation (MFN) and national treatment with respect to services provision. This is an important step in the direction of trade liberalization largely because a previously uncovered area of trade that is rapidly growing is now a part of the trade liberalization effort. The Agreement on Textiles and Clothing (ATC) During the 1950s, 1960s, and 1970s, as tariffs were being negotiated downward, another type of trade restriction was being used in the textile and apparel industry: voluntary export restraints. A voluntary export restraint (VER) is a restriction set by a government on the quantity of goods that can be exported out of a country during a specified period of time. Often the word “voluntary” is placed in quotes because these restraints were often implemented upon the insistence of the importing nations. For example, in the mid 1950s, U.S. cotton textile producers faced increases in Japanese exports of cotton textiles that negatively affected their profitability. The U.S. government subsequently negotiated a VER on cotton textiles with Japan. Afterward, textiles began to flood the U.S. market from other sources like Taiwan and South Korea. A similar wave of imports affected the nations in Europe. The United States and Europe responded by negotiating VERs on cotton textiles with those countries. By the early 1960s, other textile producers, who were producing clothing using the new synthetic fibers like polyester, began to experience the same problem with Japanese exports that cotton producers faced a few Saylor URL: http://www.saylor.org/books Saylor.org 43
years earlier. So VERs were negotiated on exports of synthetic fibers, first from Japan and eventually from many other Southeast Asian nations. These bilateral VERs continued until eventually exporters and importers of textile products around the world held a multilateral negotiation resulting in the Multi-Fiber Agreement (MFA) in 1974. The MFA specified quotas on exports from all major exporting countries to all major importing countries. Essentially, it represented a complex arrangement of multilateral VERs. The MFA was renewed periodically throughout the 1970s, 1980s, and 1990s, and it represented a significant setback in the pursuit of trade liberalization. Thus, as a part of the Uruguay Round discussions, countries agreed to a significant overhaul of the MFA. First, the agreement was brought under the control of the WTO and renamed the Agreement on Textiles and Clothing (ATC). Second, countries decided to phase out the quotas completely over a ten-year transition period ending on January 1, 2005. That transition to a quota-less industry did occur as scheduled; however, it is worth noting that many countries continue to maintain higher-than-average tariffs on textile and apparel products. Therefore, one still cannot say that free trade has been achieved. Trade-Related Aspects of Intellectual Property Rights (TRIPS) One major expansion of coverage of a trade liberalization agreement was the inclusion of intellectual property rights (IPR) into the discussion during the Uruguay Round. IPR covers the protections of written materials (copyrights), inventions (patents), and brand names and logos (trademarks). Most countries have established monopoly provisions for these types of creations in order to spur the creation of new writing and inventions and to protect the investments made in the establishment of trademarks. However, many of these protections have been unequally enforced around the world, resulting in a substantial amount of counterfeiting and pirating. The world is abound in fake CDs and DVDs, Gucci and Coach purses, and of course the international favorite, Rolex watches. To harmonize the IPR protections around the world and to encourage enforcement of these provisions, countries created an IPR agreement called the Trade-Related Aspects of Intellectual Property Rights Saylor URL: http://www.saylor.org/books Saylor.org 44
Page 2 and 3: This text was adapted by The Saylor
Page 4 and 5: Chapter 1 Introductory Trade Issues
Page 6 and 7: However, rapid growth in the value
Page 8 and 9: As of 2009, 153 countries were memb
Page 10 and 11: International trade is a field in e
Page 12 and 13: imported, the U.S. government colle
Page 14 and 15: Kenya 12.7 Ghana 13.1 Generally spe
Page 16 and 17: Average tariffs can be measured as
Page 18 and 19: When the bubble bursts, the demand
Page 20 and 21: missed deadlines are commonplace in
Page 22 and 23: a well-known “bicycle theory” a
Page 24 and 25: But at the same time that many deve
Page 26 and 27: Recent opposition to trade liberali
Page 28 and 29: ought back to the United States and
Page 30 and 31: conference attended by the main all
Page 32 and 33: One of the key principles of the GA
Page 34 and 35: arriers. [1] The trade remedy laws
Page 36 and 37: ound tariff rate the country reache
Page 38 and 39: instead, they are put into place ov
Page 40 and 41: 5. The WTO principle to treat an im
Page 42 and 43: subsidies. Recall that export subsi
Page 46 and 47: Agreement, or TRIPS. The TRIPS inte
Page 48 and 49: 1.7 The World Trade Organization LE
Page 50 and 51: 1. Consultations. The DSB first dem
Page 52 and 53: countries from choosing more destru
Page 54 and 55: P, P+ CAFTA-DR FTA PE MA OM R SG U.
Page 56 and 57: 0806.10.20 $1.13/m 3 (Feb. 15-Mar.
Page 58 and 59: Tariffs vary according to time of e
Page 60 and 61: 1.9 Appendix B: Bound versus Applie
Page 62 and 63: EXERCISE 1. Jeopardy Questions. As
Page 64 and 65: 2.1 The Reasons for Trade LEARNING
Page 66 and 67: For example, the Ricardian model of
Page 68 and 69: 2. Learn the major historical figur
Page 70 and 71: could end up with more of both good
Page 72 and 73: The primary issue in the analysis o
Page 74 and 75: Real wages (and incomes) of individ
Page 76 and 77: he begins planting seeds in the sec
Page 78 and 79: In this way, we might raise the wel
Page 80 and 81: 2.3 Ricardian Model Assumptions LEA
Page 82 and 83: Utility Maximization and Demand In
Page 84 and 85: United States L C + L W = L France
Page 86 and 87: 2. Suppose that the unit labor requ
Page 88 and 89: KEY TAKEAWAYS The equation aLC QC
Page 90 and 91: comparative advantage in newspaper
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KEY TAKEAWAYS Labor productivity i
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2.6 A Ricardian Numerical Example L
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With full employment of labor, prod
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At this point, we can already see a
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The answer to some of these questio
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wC=PCaLC. If production occurs in t
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Thus a good way to think about how
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Similarly, by rearranging the above
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production. But where will they fin
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The focus on real wages allows us t
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Real Wages in Autarky To calculate
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exchange. Thus the real wage of che
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2.11 The Welfare Effects of Free Tr
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Free trade will raise aggregate wel
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Chapter 3 The Pure Exchange Model o
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A Simple Example of Trade Suppose t
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3.2 Determinants of the Terms of Tr
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Persuasion The art of persuasion ca
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KEY TAKEAWAY The terms of trade is
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two individuals make a voluntary ex
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3.4 Three Traders and Redistributio
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is not motivated by profit but inst
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The changes described above assume
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3.6 The Nondiscrimination Argument
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clothing worker. The same applies i
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the page, scroll down to the “Bou
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4.1 Factor Mobility Overview LEARNI
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argument that free trade can only b
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them, but only if the prices are ve
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4.3 Time and Factor Mobility LEARNI
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EXERCISE 1. Jeopardy Questions. As
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factor to be moved and become produ
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KEY TAKEAWAY The immobile factor m
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wine workers and cheese workers. Th
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In autarky, the quantity demanded o
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4.7 Depicting a Free Trade Equilibr
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0 the variable does not change A th
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Thus cheese workers are most likely
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Real Wage of Wheat Workers in Terms
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wages. However, these extra profits
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French production and consumption i
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5.1 Chapter Overview LEARNING OBJEC
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less-developed countries have much
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would rise, while the wage rate wou
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Ricardian model, then factor prices
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4. This is by which industries diff
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where KC and KS are the quantities
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Let aLC[labor−hrsrack] represent
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The capital-labor ratio in an indus
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that would employ all the capital i
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The Relationship between Endowments
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Suppose the exogenous variables of
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Adding these two equations vertical
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3. Write the magnification effect f
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tariffs or other government regulat
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If the price of clothing had risen,
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Table 5.6 Numerical Values for Exog
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w∧>PC∧>PS∧>r∧. The effect i
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2. Suppose the price of cheese fall
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this requires a fair amount of adva
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workers per unit of capital in the
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of quantities CS″/CC″. Since CS
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In Figure 5.8 "Free Trade Equilibri
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5.11 National Welfare Effects of Fr
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calculating changes in real income
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who has deposits in a pension plan
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export industry in order to benefit
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Income is redistributed among indiv
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Thus it is always possible to find
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affects the capital-labor ratios in
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1. Describe the pattern of factor f
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assumed to be freely and costlessly
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expansion of output in the export s
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[1] See R. W. Jones, “A Three-Fac
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product line for a representative t
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The total amount of revenue earned
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The horizontal length of Figure 5.1
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Our prime concern, however, is the
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An alternative version of the magni
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8. The magnification effect for pri
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can be used to transport tomatoes o
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esponds to the excess supply of wor
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The effect on workers is, in genera
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Factor Rewards over Time Now let’
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Figure 5.20 Dynamic Import-Capital
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In summary, the models suggest that
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[1] See J. P. Neary, “Short-Run C
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6.2 Economies of Scale and Returns
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produced and if the costs of this e
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6.3 Gains from Trade with Economies
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United States aLC = 1 L = 100 Franc
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thirty racks of clothing, then each
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model best describes markets in whi
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2. Each firm produces a product tha
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2. The demand assumption in which e
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Keep in mind that this is the equil
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KEY TAKEAWAYS A market equilibrium
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1. If the product is such that an i
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varieties may increase aggregate we
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7.1 Basic Assumptions of the Partia
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2. The term used to describe a coun
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where XSUS(.) is the export supply
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This implies also that world supply
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1. The price that equalizes one cou
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The price that ultimately prevails
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Surplus", some firm would be willin
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Changes in Producer Surplus Suppose
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2. The term used to describe a meas
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the same price for their product re
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to purchase the Mexican wheat at $1
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The effect on the foreign price is
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The quantity of imports and exports
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the sum of the gains exceeds the su
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indicate the effect of each policy
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7.6 The Optimal Tariff LEARNING OBJ
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zero. Somewhere between a zero tari
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3. The tariff rate that corresponds
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KEY TAKEAWAYS An import tariff wil
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7.8 Import Tariffs: Small Country W
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3. The tariff causes a redistributi
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1. Where on the graph is the level
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We examine the effects of optimal t
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3. Given player one’s optimal pol
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The goal of a cooperative equilibri
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1. Use the information provided in
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7.10 Import Quotas: Large Country P
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An import quota will reduce the qua
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KEY TAKEAWAYS To administer a quot
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demand is equal to the quota level.
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market decreases producer surplus i
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Foreign National Welfare 2. Suppose
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This implies that, in the case of a
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Quota Rents National Welfare + C
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Import Quota (Administered by Givin
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to as tariffication. In this way, f
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Next, consider the effects in this
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In situations where market changes
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where S is the specific export subs
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7.17 Export Subsidies: Large Countr
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the subsidy payments are made, then
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An export subsidy of any size will
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2. Identify the effects of a counte
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Table 7.12 "Welfare Effects of the
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Consumer Surplus − (G + H + I + J
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KEY TAKEAWAYS An antisubsidy law,
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9. What is the change in government
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Notice that a unique set of prices
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in the import country and in the ca
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Figure 7.36 Welfare Effects of a VE
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the quota rents will benefit, but p
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A the variable change is ambiguous
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Mexico, and all wheat sold in Mexic
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7.23 Export Taxes: Large Country We
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Because there are both positive and
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− the variable decreases 0 the va
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If a domestic consumption tax is im
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Equivalency between Domestic and Tr
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An import tariff applied on an impo
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KEY TAKEAWAYS Domestic production
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a Domestic Production Subsidy", whi
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Domestic policies can affect trade
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+ the variable increases − the va
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Domestic consumption taxes are ofte
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Figure 8.3 Inducing Exports with a
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8.7 Consumption Tax Effects in a Sm
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Since the cost to consumers exceeds
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When a specific consumption tax “
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time of the founding of the nation,
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Chapter 9 Trade Policies with Marke
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Market imperfections or market dist
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firm’s welfare) by restricting su
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are neatly kept and homes are well
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Policy-Imposed Distortions Another
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In this section, we will provide an
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Welfare-Improving Policies in a Sec
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Summary of the Theory of the Second
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9.4 Unemployment and Trade Policy L
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Suppose that international market c
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9.2 "Welfare Effects of an Import T
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Begin with the same surge of import
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eliminate the same unemployment imp
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A the variable change is ambiguous
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their own production efficiency imp
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Suppose that the infant industry ar
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This means that in the second perio
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The Economic Argument against Infan
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world efficiency standards, protect
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9.6 The Case of a Foreign Monopoly
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Assuming the monopolist maximizes p
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Import tariff effects on the import
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This shows that although a tariff c
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2. Recognize that a trade policy ca
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consider a large importing country
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the subsidy is set too high, the lo
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9.8 Public Goods and National Secur
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nonexcludable because once it is th
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efficiency loss. Nevertheless, the
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5. The term describing a ìgoodî l
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the environment. On the other hand,
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Pollution Effect National Welfare
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Govt. Revenue Pollution Effect + e
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A Source of Controversy For many en
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This statement points out that many
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noneconomists, providing permits th
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[4] World Trade Organization, “Tr
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product categories. This type of tr
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The key question of interest concer
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Figure 9.10 "Harmful Trade Diversio
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Free trade area effects on Country
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We assume that A has a specific tar
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The simple way to do that is to ima
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Chapter 10 Political Economy and In
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do indeed seek to maximize national
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a representative democracy, governm
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3. This type of lobbying does not i
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much larger than the number of firm
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We can now ask whether a household
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Large groups are much less effectiv
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Because the per-producer benefit of
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clearly he or she would vote for th
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10.7 The Lobbying Problem in a Demo
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Chapter 11 Evaluating the Controver
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the results from any one model. Ins
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increase in national welfare. This
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4. The enhancement of this is what
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of the real world. The real world c
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Another way to deflect the concern
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For example, an optimal tariff or o
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Stuart Mill in hisPrinciples of Pol
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11.5 The Economic Case against Sele
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to eliminate some of the inefficien
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effects, it would then need to meas
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to avoid the use of any such policy
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Selected protection requires detail
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11.6 Free Trade as the “Pragmatic
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