L11.docx

Chapter 7 Objective 6: how countries protect themselves against unfair practices 1. The process a. When gov feel that domestic exporters have been victims of “unfair treatment” in other countries, the gov may retaliate to protect their domestic firms b. US Mechanism for Retaliation i. Step 1: INVESTIGATION by US International Trade Administration (ITA), a div of US dept of Commerce. Initially investigates complaints from firms affected by alleged unfair trade practices ii. Determine whether an unfair trade practice has occurred, if YES, ITA transfer case to US international Trade Commission (ITC), an indep US gov agency iii. Step 2: DETERMINATION by ITC, whether US producers suffered “material injury”. If YES, ITC will impose duties on offending imports to counteract unfair trade practice iv. CANADA – similar process (Canadian International Trade Tribunal = indep quasi-judicial admin tribunal that reports to Parliament via Minster of Finance), focus on 2 types of unfair trade practices 1. Gov subsidies that distort trade 2. Unfair pricing practices 2. Countervailing duties (CVD): imposed against SUBSIDIES (mostly imports) a. an ad valorem tariff on an imported good that is imposed by importing country to countervail effect of foreign subsidies b. CVD calculated to JUST OFFSET subsidy advantage of foreign firm in exporting country c. Seeks to level the playing field b/w domestic firms not receiving a subsidy & foreign firms that do, often granted to help domestic industry hurt by foreign country subsidizing its firms d. Problem: HOW MUCH? What constitutes a subsidy? 3. Antidumping regulations & DUTIES: imposed against unfair PRICING practices a. Discriminatory or predatory pricing practices of foreign firms such as DUMPING b. Antidumping laws & duties/taxes applied to protect local industries/firms from imported goods that have been “dumped” (i.e. priced BELOW market price/cost price) by foreign producers into local market c. 2 issues: DETERMINE whether dumping has occurred + fair value of anti-dumping duty *DON’T HAVE TO KNOW how to determine whether a good is being dumped] d. DEF: Dumping occurs when 2 requirements are satisfied: i. PRICE-based dumping (i.e. PD)  firm sells good for lower price in foreign mkt than price it charges in its home mkt ii. COST-based dumping (i.e. Predatory Pricing)  firm sells goods below cost in foreign mkt 1. Dangerous as firm lowers prices in host country with goal of driving host country firms out of mkt, once competitors eliminated, raise prices & charge monopoly prices e. EXAMPLE of predatory pricing: Chinese garlic exports into NA forced many NA producers to leave mkts, when price of Chinese garlic soared in 2009, NA biz hard to quickly re-enter due to BTE f. WTO condemns but DOESN’T prohibit g. Anti-dumping law does not allow an international firm to sell its product in an export mkt for less than it is sold in its domestic mkt. h. Antidumping duty = tariff levied on an import that is selling at a price below pdt’s fair value i. Problem: determine fair value is subjective 4. [policy] Should countries enforce their unfair trade practice laws? a. Opposition to enforcement i. In theory: economists agree with objectives of laws ii. In practice: argue that these laws do more harm than good for 2 reasons 1. These are really PROTECTIONIST trade barriers 2. Harm consumers b. Advantages & criticisms of these laws SELF-STUDY 5. Safeguards a. International trade law (GATT & domestic US, Canadian, EU law etc) allows a domestic industry a right to petition for & allows a country’s GOV’s right to impose TEMP protection from sudden surges in imported goods, even if the goods were traded fairly b. Gives domestic industry time to adjust to a changed econ envr & to compete with more intense comp c. Such actions use safeguard or escape clauses d. E.g. Chinese tires. Obama imposed temp tariffs for 3 years on imported tires after ITC ruled that US tire producers were harmed by rapid increases in imports, based on fact that Chinese firms’ mkt share of US tire mkt grown from 5-17%. e. Effect: 4 US tire factories closed, workers sacked. Temp rates: 35%, 30%, 25% f. US steelworkers supported decision, tire resellers lobbied against it Chapter 8: international coop among nations Objective 1: discuss definition, history & functions of international institutions in world economy 1. Free trade & global institutions a. Econ theory encouraged movement during past 6 decades b. From PROTECTIONISM (protect with tariffs, quotas etc)  free trade (bilateral, multilaterial, regional agreements)  c. Free trade = i-trade of goods & services among states unimpeded by gov imposed restrictions & prohibitions such as tariffs, duties, quotas, other trade barriers d. Guiding principle: the more specialization + competition & fewer the BTW  more trade  more benefits to consumers & countries’ economies e. 2-step process in move to FREER trade i. INTERNAL (liberalization WITHIN country’s economy)  1949, China established communist gov, agriculture & manufacturing controlled by inefficient state-run industries  1980-1990, liberalize & adopt export-promotion econ devt model  2001, joined WTO, committed to reducing BTE & increasing IP protection  Effects: 2012 GDP = 10 x 1982 GDP, exports = $1.8b ii. EXTERNAL (establishment of bilateral, multilateral & international freer trade agreements & institutions) 2. Taxonomy of international economic institutions a. Development funds & banks i. Inter-american devt bank, Asian devt bank b. International trade agreement involving a few nations (regional, trade blocs) i. NAFTA, EU, APEC c. 3 key Global organizations for trade, devt, & macro stability [FOCUS] i. End of WWII led to integrated international system to encourage trade liberalization & multilateral econ coop ii. Bretton Woods system [not focus]  After WWII 44 countries met to avoid repeating protectionism & econ conflicts of 1930s that helped cause WWII, & to ensure post-war prosperity by creating new international financial & trading systems based on Econ coop  Created IMF, World Bank, WTO iii.IMF, world bank, WTO (only established in 1994) iv. IMF  Began in Dec 1945 with 29 states, intention was to avoid 1920s & 1930 errors when a lack of international coop led to collapse of econ relations  Main function: helps country by acting as lender of last resort in case of debt crisis or forex crisis, BUT imposes VERY demanding conditions (called conditionality) in exchange for loans to help gov cover deficits & debts  E.g. crisis = imports > exports, runs out of forex reserves v. World bank  Initially called International Bank for Reconstruction & Devt (IBRD)  Main purpose: provide loans to reconstruct & redevelop post-WWII war-ravaged European countries  BUT US considered IBRD not fast enough (bureaucracy), so later created the complementary Marshall Plan that provided GRANTS rather than loans  As Europe recovered in 1950s, IBRD refocused on newly-indep developING countries, “World Bank”  Main function: assist with econ devt of developING & LDCs (does NOT lend to developED)  Does this through provision of loans, loan guarantees, technical expertise & advice for projs aimed at poverty reduction, improvement of health & education systems, pvt sector devt, infrastructure upgrades vi. WTO  Objective 2: importance of GATT & WTO 1. General agreement on Tariffs & trade (GATT) a. Origins i. At Bretton Woods Conference, International Trade Org (ITO) proposed but never happened coz disputes respecting extensiveness of its powers & US OPPOSITION (too powerful, threaten US) ii. Would have established & enforced rules relating to world trade, biz practices & international investment iii.1947: ITO idea was developed at Havana (cuba) conference iv. Between 1947 & 1994, ITO’s planned mission taken over by GATT, ITO idea died until 1995 when the idea was reborn in WTO. A mechanism of International Trade Negotiations developed under umbrella of GATT v. 1947/8, started as club of 23 countries, grew to 134 in 1994 vi. 1948, GATT was an agreement/treaty & NOT an org, BUT in 1960 loosely structured de facto org was created with perm secretariat (Bureaucrats) in Geneva vii. GATT is a series of multilateral governmental trade negotiations & resulting treaties to reduce tariffs, quotas & other non-tariff barriers. It binds tariffs & trade policies of countries & limits their ability to arbitrarily change them b. 4 functions i. Process/Framework for gov to continuously negotiate & reduce tariffs & NTBs ii. International AGENCY/instituti