International trade policy

Question 1

Why governments intervene?

Answer 1

1. Economic reasons - protecting the interests of certain groups.
2. Infant industry argument - industry is still young and growing. Need to give time to that industry to mature so protect from foreign competition.
3. Strategic trade policy - governement intervention to promote competitiveness in certain strategic industries.

Question 2

other reasons for trade intervention

Answer 2

1. protect the environement - quality of land
2. health and safety reasons
3. protect jobs in a declining industry
4. support foreign policy
   5 national defence? security reasons
5. culture and religion
6. reduce a dependence on other countries

Question 3

How governments intervene - policy instruments

Answer 3

bans, tarrifs, quotas, anti-dumping policies, subsidies, administrative policies.

Question 4

Tarrifs on exports

Answer 4

imposed on exports to raise revenues, indirect subsidy to local producers.

high supply and lower prices

promotion of domestic value-adding industries.

Question 5

Which countries would want to impose tarrifs on exports?

Answer 5

Raise revenues, provide indirect subsidy to local producers.

example of shea in ghana - export limit in place as big demand for it externally as a attractive market and so limited share for domestic indurstries. domestic industry struggles as can’t compete with foreign buyers.

Question 6

Subsidies

Answer 6

direct grants, low-interest loans

can be used in strategic trade policy to help domestic industries

protect domestic producers and help them export

can harm consumers - subsidiaries often funded through taxes.

Question 7

Quotas and VERs

Answer 7

• Quotas & Voluntary Export Restraints do not directly interfere with prices, but quantity.
• They limit the quantity of a good imported into a country.
• They penalize for exporting or importing above quota - higher tariffs applied to imports above quota
• VERs are imposed by the exporting country to avoid political friction - limit volume exported to other countries usually through quotas.
• Quotas work on numbers, tariffs work on prices.

Question 8

Local content requirements

Answer 8

• Requirement to source components and inputs locally. Produce or assemble of a good locally.
• Common in developing countries, but also in some developed countries to create or keep jobs, enhance local industry and facilitate knowledge transfer.

Question 9

Antidumping policies

Answer 9

duping mean selling goods below cost or fair price. they revolve around punitive tarrifs or countervailling duties.

punitive tarrif raise the price of the imported goods in the importing country

dumping - foreign product sold in a diff country for a price lower than the cost of producing or price that is lower than similar products in that country.

Question 10

Effects of trade restrictions on imports

Answer 10

Effects of trade restrictions can be assessed from four perspectives:

domestic competitors - benefit from protection against foreign competitors

domestic firms that use imported goods - they lose through high prices and or limited suppliers

domestic consumers - they lose from higher prices and limited choice.

implementing governments - benefit from revenues and or domestic industry protection - economic growth

Question 11

Effects of export restrictions in the implementing country

Answer 11

domestic produces lose due to reduced market for their products and also from lower prices.

domestic firms that use exported goods they benefit from lower prices and or increased suppliers - more competitive.

domestic consumers - benefit from lower prices and or increased suppliers.

• Implementing governments - they benefit from revenues and or domestic industry growth.

Question 12

Strategic implication of trade restrictions

Answer 12

limits dispersion of productive activities - higher production costs and competitive disadvantage

limits the use of a low-cost strategy

Question 13

Policy implications

Answer 13

damaging because of retaliatory threats. trade intervention prone to capture by special interest groups - lobbying.

Question 14

Global trade management

Answer 14

General agreement on tariffs and trade was formed in 1948 after WW2

GATT evolved into WTO in 1995

extends activities to goods and services and IP

Question 15

WTO problems

Answer 15

contentious - WTO is dominated by advanced industrial nations and their MNE players.

move towards bilateral and regional level trade agreements - more favourable to some developing countries.

Question 16

The desire for bigger agreements

Answer 16

growing appetite for megaregional agreements

African continental free trade area - 55 countries

EU Mercosur trade agreement - 32 agreements

Question 17

in summary:

Answer 17

governments intervene in trade for various reaosns - trade theory not isolated from political and policy influences

interventions have implications for business - competitiveness, profitability and survival

multinationals have an inventive to lobby governments for free trade

local firms have an incentive to lobby for protection