Professional Documents
Culture Documents
5-2
Rich nations spend more than $300 billion a year to subsidize their farmers Subsidies create surplus production Surplus production leads to dumping and depressed prices UN estimates producers in developing nations lose $50 billion export revenue because of depressed prices
5-3
Reasons
To keep commodity prices low To favor politically active farmers
Consequences
5-4
Specific Ad valorem
5-5
Cash grants Low-interest loans Tax breaks Government equity participation in the company
Subsidy revenues are generated from taxes Subsidies encourage over-production, inefficiency and reduced trade
5-6
Import quota
Restriction on the quantity of some good imported into a country Quota on trade imposed by exporting country, typically at the request of the importing country
5-7
Japan limited exports to 1.85 mm vehicles/year Cost to consumers - $1B/year between 81 - 85. Money went to Japanese producers in the form of higher prices Encourages strategic action by firms in order to circumvent quota
5-8
Requires some specific fraction of a good to be produced domestically Percent of component parts Percent of the value of the good Initially used by developing countries to help shift from assembly to production of goods. Developed countries (US) beginning to implement. For component parts manufacturer, LC Regulations acts the same as an import quota Benefits producers, not consumers
5-9
Bureaucratic rules designed to make it difficult for imports to enter a country. Japanese masters in imposing rules.
5-10
Defined as
Selling goods in a foreign market below production costs Selling goods in a foreign market below fair market value
Unloading excess production. Predatory behavior
Result of
5-11
National security
Retaliation
Punitive sanctions
5-12
Protecting consumers
MFN
5-13
Infant industry.
Oldest argument - Alexander Hamilton, 1792 Protected under the WTO Only good if it makes the industry efficient.
Today if the industry is a good investment, global capital markets would invest
5-14
Government should use subsidies to protect promising firms in newly emerging industries with substantial scale economies Governments benefit if they support domestic firms to overcome barriers to entry created by existing foreign firms
5-15
Objective is to liberalize trade by eliminating tariffs, subsidies, & import quotas 19 original members grew to 120
5-16
Used Rounds of talks to gradually reduce trade barriers Uruguay Round GATT 1986-93
Mutual tariff reductions negotiated Dispute resolution only if complaints were received
5-17
Increase in the power of Japans economic machine and closed Japanese markets US trade deficit GATT circumvented by many countries
5-18
GATT criticisms
Economic theories dont fit the real world model US global preeminence has declined Shift from cutting tariffs to eliminating nontariff barriers angered countries National Treatment or Most Favored Nation status results in inequalities
5-19
The WTO was created during the Uruguay Round of GATT to police and enforce GATT rules Most comprehensive trade agreement in history Formation of WTO had an impact on Agriculture subsidies (stumbling block: US/EU) Applied GATT rules to services and intellectual property (TRIPS) Strengthened GATT monitoring and enforcement
5-20
The WTO
145 members in 2003 Represents 90% of world trade 9 of 10 disputes satisfactorily settled Tariff reduction from 40% to 5% Trade volume of manufactured goods has increased 20 times
5-21
The WTO
GATT Services Intellectual property Reports adopted unless specifically rejected After appeal, failure to comply can result in compensation to injured country or trade sanctions
5-22
WTO at work
280 disputes brought to WTO between 1995 and 2003 196 handled by GATT during its 50 year history US is biggest WTO user
5-23
Telecommunications (1997)
68 countries (90%) of world telecommunications revenues Pledged to open their market to fair competition 95% of financial services market 102 countries will open, their markets to varying degrees
5-24
WTO in Seattle
Millennium round was aimed at further reduction of trade barriers in agriculture and services WTO meeting disrupted by
5-25
Cutting tariffs on industrial goods and services Phasing out subsidies Reducing antidumping laws WTO regulation on intellectual property should not prevent members from protecting public health
TRIPS agreement
5-26
5-27
Antidumping actions
Four sectors account for 70 percent of all antidumping actions reported to WTO
Metal industries Chemicals Plastics Machinery and electrical equipment Actions often initiated by politicians in the various countries to please strong lobbying groups in exchange for votes
5-28
Protectionism in agriculture
These are 3 to 5 times higher than nonagricultural subsidies Advanced nations are the strongest defenders of this system
Raises price to the consumer Reduces volume of agricultural trade Encourages overproduction of subsidized products
5-29
WTO members allowed to grant and enforce patents and copyrights This encourages innovation Reduces piracy rates in drugs, software music
Expected to boost global economic rates and social and economic welfare around the world
5-30
Managerial implications
Trade barriers act as a constraint on firm strategy May be useful to establish more production activities in the protected country Business gains from governments efforts to open protected markets are more than gains from governments efforts to protect domestic industries/firms