Regulation Of Trade - International Business Presentation 2

Front 1

How has the regulation of international trade evolved since the second world war?

Back 1

Regulated since World War II by the GATT (General Agreement on Tariffs and Trade) and since 1995 by the WTO (World Trade Organization)

Front 2

What did GATT do, and how was its remit and scope limited?

Back 2

GATT created to free trade upon the principle of comparative advantage (Ricardo)

1947 to mid-1960s: Concerns trade of manufactures between developed nations.

1965: Adoption of a ‘Generalized system of preferences’: exports of manufactured and semi-manufactured goods from developing countries granted preferential access to developed markets. Some sectors excluded (textiles, clothing)

1986-1993: 8 rounds; Uruguay Round is most wide-ranging

Front 3

What happened during the Uruguay round?

Back 3

Uruguay round covered for the first time:

Free trade agreements for services (GATS - General Agreement on Trade in Services)
-1997: world-wide liberalisation of the telecoms industry followed by financial services

Intellectual property (TRIPS - Agreement on Trade Related Aspects of Intellectual Property Rights)
-Agrees to work to develop common international rules for intellectual property rights

Investment (TRIMS - Trade-related investment measures)

Agriculture, textiles and clothing (until now excluded from GATT)

Uruguay round also secured:
-Large reduction in overall tariff levels – to less than 4% of value
-Substantial reduction or scrapping of tariffs & subsidies

Creation of WTO, which was given enforcement and policing powers of GATT rules - in the area of dispute settlement
-Between 1995 and 2010: 400 trade disputes brought to the WTO, ¾ of which were resolved informally

Front 4

What have been the stumbling blocks between nations when it comes to trade regulation?

Back 4

Agricultural subsidies

Labour and environment standards
-How far to different standards distort the trading system?

Front 5

How is WTO viewed in regards to the interest of developing nations?

Back 5

Critics of the WTO point to the limits for developing/smaller nations to weigh in on the WTO’s decision-making

Some see WTO free trade policies as harmful to developing countries – not leaving them the space to grow their domestic industries before opening their economies

Developed countries position on some items (e.g. agriculture) deprive developing countries from export markets

Front 6

What are RTAs?

Back 6

Regional Trade agreements

Front 7

What does RTAs do?

Back 7

Agreements between countries in a geographic region to provide preferential access to their markets to other specified states – primarily through tariff reductions

RTAs liberalise trade between members and discriminate against third parties

Marked acceleration of RTAs since the early 1990s

Motives:
Defensive
Bandwagon effect
Incentivise countries to reform their economies

Front 8

What are the trade effects of RTA?

Back 8

Trade diversion
-Occurs where trade with a former trading partner (now outside the bloc) is replaced by trade with a partner inside the bloc => no benefits to world trade

Trade creation
-Occurs where trade replaces home production (e.g. low cost producers within the free trade area replace high cost domestic producers) or there is increased trade associated with economic growth in the bloc => net benefit to world trade

WTO rules stipulate that members of an RTA should not set tariffs (tax on trade) to partners outside the bloc higher than the ones previously in effect, seeking to prevent trade diversion. But, WTO does not cover non-tariff barriers.

Effect of RTAs on FDI
-MNCs may reorganise their operations on a regional rather than national basis, with the effect of ‘diverting’ investment from some location to others

Front 9

What is the difference between a Free trade area, Customs union, Common market and Economic union according to Dicken (2011)

Back 9

Free trade area:
Removal of trade between member states

Customs union:
Free trade area + Common external trade policy towards non-members

Common market:
Customs union + Free movement of factors of production between member states

Economic union:
Common market + Harmonization of economic policies under supra-international control

Front 10

How does RTAs affect regional trade, according to Dicken 2011?

Back 10

Because of RTAs Global activity is concentrated in mega-regions: North America, Europe and East Asia
-Large share of production, trade and FDI is regional

Front 11

What are Tariffs?

Back 11

Taxes levied on imports that effectively raise the cost of imported products to the consumer and make imported goods less competitive.

Purpose: protect domestic industries from competition - e.g. infant or voulnerable industries

Front 12

Name some non-tariff barriers and what they do

Back 12

Import quotas:
Restriction on the quantity of some good that may be imported into a country

Subsidies to domestic producers of import-competin goods: Government payment to a domestic producer.

Local content requirements:
Requirement that some specific fraction of a good be produced domestically.

Anti-dumping policies/counterveiling duties:
Dumping: selling goods in a foreign market at below their costs of production or fair market value.
Purpose: punish foreign firms involved in dumping

Front 13

What are nation-state's policies towards exports, according to Dicken (2011)?

Back 13

Financial and fiscal incentives for exporters

Exports credits and guarantees

Setting of export targets

Overseas export promotion agencies

Establishment of export processing zones or free trade zones

Voluntary export constraint

Front 14

What are the motives for governments involvment in trade governance?

Back 14

Protecting jobs and industries

National security

Retaliation

Protecting consumers

Furthering foreign policy objectives

Protecting human rights

Protecting the environment

Front 15

What does Ghemawat (2001) say about Government involvment in industries?

Back 15

He says that government involvement is high in industries that are:

Producers of staple goods (electricity)

Producers of other "entitlements" (drugs)

Large employers (farming)

Large suppliers to government (mass
transportation)

National champions (aerospace)

Vital to national security (telecommunications)

Exploiters of natural resources (oil, mining)

Subject to high sunk costs (infrastructure)

Front 16

What does the "Strategic trade policy" say?

Back 16

Government can support the development of a domestic industry to help it achieve first-mover-advantage and support domestic industries to overcome first-mover-advantages gained by foreign firms

Front 17

What does Krugman's "New trade theory" say?

Back 17

With trade, firms are able to increase the size of their markets to achieve economies of scale => the search for economies of scale as a key factor motivating firms to produce goods for their domestic and international markets.

To minimise the threat to their own business, firms will specialise in a product range which will result in an increase in the variety of similar but differentiated products offered, together with a decrease in costs.

In some industries, the global market may be the only able to support a small number of companies.
-E.g. Boeing and Airbus

First mover advantages - the economic and strategic advantages that accrue to early entrants into an industry

Front 18

What does Ghemawat & Altman's (2012) study of how national policies can boost connectedness say?

Back 18

It reveals substantial gains for countries which are globally connected

To secure those gains, countries should:

Use policy instruments that regulate trade and foreign investment, combined with domestic policies (e.g. infrastructure, regulatory quality)

Take into account their unique historical and structural circumstances in devising their policies

Focus on the value of trade not just volume; develop imports not just exports; expand connections with a range of countries; think through long-term shifts in demand

Front 19

What are the conclusions of this slide?

Back 19

Global, regional and national political and economic institutions play a fundamental role in the process of globalisation
-Free trade does not equate to a level playing field for all countries, nor does it mean that there is no political interference

Global connectedness can bring countries benefits but how to take advantage of this needs to be carefully considered