Management and Organizational Studies 2285 Lecture 5: LECTURE 5 mos

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MOS
LECTURE 5
INTERNATIONAL TRADE
Trade policies
- Free trade: no governmental restrictions on what its citizens can buy from or sell to another country. This is an
ideal based on theory and ideology but rarely practiced in reality (despite the WTO)
INSTRUMENTS OF TRADE POLICIES
- Tariffs: tax levied on imports
Fixed charge per unit imported
Ad velorum proportion of imported value
- Subsidies: government payment to domestic producers
Artificially lowers costs of production giving domestic players an unfair cost advantage lower
prices incentive for domestic consumers to choose domestic suppliers
- Import quotas: direct restriction on how much of a certain good can be imported
Protects domestic producers by limiting the amount of potentially lower cost competing goods
- Local content requirements: some specific fraction of a good be made domestically
Limits foreign imports from forcing them to use locally made parts or raw materials
- Administrative trade policies: red tape making it difficult to fulfill requirements and therefore difficult to import
Protects domestic producers
- Antidumping policies: puish foeig fis that sell poduts at pies elo fai aket alues
Protects higher cost domestic producers but could punish more efficient firms
Taxes added to increase the price of imports
Tariffs, duties and protective costs
- Many countries try to protect their citizens from competing foreign firms by applying tariffs on imported goods
making them more expensive than those of domestic goods
Higher price less attractive lowered demand
- Benefits companies in protected industries but is bad for the overall economy because the cheapest possible
goods are not available
- Protectionism, economic nationalism inefficient
International trade
- Good trade agreements provide the foundation for trade liberalization
- Openness, fewer restrictions, level playing field
- Spurs economic competitiveness and benefits consumers
- Strong ties with trading partners (who were normally proximal) were created
GATT: GENERAL AGREEMENT ON TARIFFS AND TRADE
- Drafted in 1947 in Bretton Woods, New Jersey
- Brought many of the bilateral agreements into a common agreement and created a framework for overlaps and
inconsistencies
- Coeed % of the old’s tade
- Over time, many additions to GATT as new industries emerged and new members joined
- Estalished upo the ules that a ajoit of outies oside fai
Labour stands, resources movement, subsidy levels etc
- Ageeet o the alue of fee tade ad its affet o eonomic growth
Inefficient firms should fail
Consumers benefit from lower prices and better choice
WTO: WORLD TRADE ORGANIZATION
- Estalished i  duig the Uugua Roud of GATT ad gie a legal o istitutioal pesoalit
- Officially responsible for administration and enforcement of dozens of international trade agreements
- Forum for future trade negotiations
- Monitors national trade policies
- Assists developing countries in trade policy through technical assistance and training
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- Cooperates with other international organizations (WHO etc.)
- Settles trade disputes
- Run by member governments
- A legally ratified and binding agreement
- Ministerial conferences (ultimate decision-makers) every 2 years
- General Council (reps from member countries) meet several times a year
- Ongoing business done by consensus requiring committees
- Countries with more economic and political clout play a stronger role EU, USA, Japan, Canada (quad)
- Many members lack the resources to make their voice heard
GATT vs. WTO
GATT
WTO
- Never ratified by governments
- Has soud legal ias due to ees’
ratifications
- No provision for the creation of a governing
body
- It implements the contract and does more as
an organization
- Only deals with standards and expectations
- Dealt with trade in goods only, WTO covers
services and intellectual property
- Dispute settlement system is faster, more
automatic than in the old system. There is a
formal procedure for everything so there is
more structure and objectivity
WTO
- Membership (153 as of Jaua ) allos eual aess to othes’ akets
- Getting in is difficult because a country has to demonstrate its willingness to open up for trade
Usually means changing laws to meet global standards
China joined in 2001, Cape Verde most recent (July 23, 2008)
SOURCE OF WTO AUTHORITY
- The WTO rules on many different laws in member countries
- Many rules are beyond the scope of international trade
Cultural, intellectual rights, banking etc
- Possesses powerful coercive weapon trade sanctions
- Sanctions and punishments: previously all sanctions required agreement from all GATT members to be imposed.
“atios a e applied to a aspet of offedig out’s tade
KEY POLICIES
- Most favoured nation
Obligates countries to give equal treatment to all other member nations
- National treatment
Requires members to treat imported goods the same as domestic goods
- TRIPS (trade-related intellectual property rights)
PROBLEMS
- Many claim the WTO serves the interests of the developed world only
- Many developing countries have lost the ability to control their national trade policy
Ca’t faou poduts that ae ade i a oe sustaiale o eioetall fiedl a
(tuna/dolphin, banana cases)
NAFTA
- Purpose to eliminate tariffs between Canada, USA and Mexico
- Aimed to integrate many sectors divided into four areas:
1. Education
2. Democracy/human rights
3. Poverty
4. Economic integration
- Effective Jan. 1, 1994, creating a free trade policy between the three North American nations
- Lowered tariffs have lead to Canada and Mexico becoming major export markets
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KEY AREAS
- The agreement sets out rules for investment, intellectual property, competition policy, and temporary entry for
business people
- All countries have implemented many of the same customs procedures and rules
Pushed for equal regulations for all players in many areas
Weak enforcement has been an issue
BENEFITS
- Canadian producers are better able to compete, stay profitable and provide stale jos …
Operating in a larger, more efficient market
Gaining access to tariff-free, quality raw materials and services from across North America for
production of goods
Trans-pacific partnership (TPP)
- Will work with WTO but replace NAFTA
- Not much ko et othe tha
- 12 countries make up the TPP: Australia,
Brunei, Canada, Chile, Japan, Malaysia,
Mexico, New Zealand, Peru, Singapore, US
and Vietnam
- The TPP membership represents a market of
nearly 800 million people and a combined
GDP of $28.5 trillion
- % of Caada’s total epots alead go to
TPP members
- TPP countries include some of the fastest-
growing economies in the world, and this is
expected to continue to be the case
- Many of the TPP members are wealthy
economies. The average per capita GDP in
TPP countries is nearly $35,000
- The Asia-Pacific region is expected to
epeset to thids of the old’s iddle
class by 2030 and one half of global GDP by
2050
Trade problems
- Environmental protection concerns
More pollution caused by more transportation
Race to the bottom
- Woke’s ights
- Transition (loss of jobs, economic changes)
- Most agreements lack true power (enforcement and punishment)
- Punishments seem to be from developed to developing countries (who needs the help?)
- Secretive, bureaucratic, exclusive
- Sovereignty issues
Economic integration
- Recent trend toward more economic integration
Agreements between countries in a geographic region to reduce tariff and non-tariff barriers to
the free flow of goods, services and factors of production between each other
- Levels of economic integration (least to most):
1. Free trade area
- All barriers to the trade of goods and services among member countries are removed. Members are free to set
their own policies with respect to non-members
- No tariffs, quotas, subsidies or administrative impediments are allowed to distort trade between member
nations
- European Free Trade Association (EFTA), NAFTA
2. Customs union
- Trade barriers are removed between members
- All members adopt a common policy with respect to non-members
- Further along the road to economic and political integration
3. Common market
- No barriers to trade
- Common policy to non-members
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