Lecture 1 Flashcards
Ricardo’s Theory of Comparative Advantage
A company’s ability to produce goods at a lower opportunity cost than that of trade partners
What is trade assessed on?
on the basis of the relative efficiency in producing goods
Which goods are exported
Goods in which the comparative advantage is greatest, or where comparative disadvantage is smallest
Which goods are imported?
goods in which comparative disadvantage is greatest
What are the qualifications for free trade?
- Reciprocity
- Optimal Tariff
- Infant Industries
- Revenue Raising
- National Security
- Adjustment Costs
- Health, Safety and Environmental Concerns
What is optimal tariff?
A tariff which forces exporters from other countries to reduce the price of their products and absorb the tariff.
What is the rationale behind an optimal tariff?
to enhance national welfare but these policies may reduce global welfare and are also likely to reduce national welfare (if implemented by foreign countries)
What are infant industries
In order to preserve national advantage, you need to preserve certain industries from trade. In these industries, the gov decides we need a national producer. They create tariffs so that the industry can develop, and then compete with other industries. At some point the tariffs come off, industries compete, and hopefully prosper.
What was Western Alienation built on?
tariffs on farming equipment.
- Massey Ferguson
- Stoked resentment in Western Canada that continues today
What is revenue tax raising?
Taxes on income, every purchase. The obstacle between free trade is bc the first order of government is to govern, and it wont risk this on a theory on what may be better for the population
What is National Security?
With respect to imports, trade restrictions to protect domestic industries which, even though not internationally competitive, may be required in the event of war or other international disruptions
In terms of exports, national security considerations have sometimes been invoked to restrict exports of strategically sensitive products or military material to ‘unfriendly’ foreign countries revenue.
What are adjustment costs?
Firms, workers and communities may face with abrupt forms of trade liberalization which underscores the need for gradual implementation of such policies
Health Safety and Environment Concerns
Where imports threaten the health, safety and environmental conditions of citizens in importing countries, trade restrictions may be justified to minimize these risks.
What are the objections to free trade?
- trade liberalization exacerbates inequalities of wealth between and within countries and threatens welfare state.
- trumps environmental, health and safety, labour standards, and human rights concerns
- undermines economic self sufficiency in food production, creating dangerous dependencies on foreigners.
- WTO is undemocratic and unaccountable form of global government that improperly constrains domestic political sovereignty and democratic politics.
What is the history of the international trade organization (ITO)?
It never existed. After WWII, extensive efforts were made to bring it into being, involving negotiations in Havana (1947-1948).
Why was the Havana Charter never ratified?
Because domestic opposition within the US stopped it. Although the attempt to create ITO failed, it was significant for two reasons:
- Brought the General Agreement on Tariffs and Trade into being (1947)
- the idea of the ITO is important in staging the post in the shift toward international economic institutions (WTO)
What is the governance structure of the WTO?
The Ministerial Conference that meets every two years, a General Council compromised of delegates of all member countries
The Secretariat headed by the Director General (Roberto Azevedo) is appointed by consensus of the member states, and the quasi judicial Dispute Settlement Body (Xavier Carim)
Article XXIII
Dispute resolution between member states.
What is the appeal process?
Disputes may be appealed on matters of law to a standing Appellate Body of seven members, whose decisions are subject to a negative consensus adoption rule in the WTO Council
Article XXVIII bis of the GATT
members commit to entering into periodic negotiations on a reciprocal and advantageous basis, looking to reduce the general level of tariffs. Once tariff concessions are agreed to in a particular set of negotiations, these become ‘tariff bindings’ which are set out in particular members tariff schedules that constitute an Annex to the GATT
WTO: Quantitative Limits
Article XI prohibits the use of quotas or import or export restrictions on the importation or exportation of goods into/ out of state,
Non-discrimination
- viewed as the cornerstone of GATT
- underlines two key provisions: Article I and Article III.
What is Article I?
the most favoured nation principle
What is Article III?
the National Treatment Principle
