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An Analysis of Instruments of Trade Policy,
Trade Disputes, and GovernmentIntervention
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What is Free Trade?What is Free Trade?
When there are no artificial barriersno artificial barriers put in pl ace by governments to
restrict the flow of goods and restrict the flow of goods and
servicesservices between trading nations.
When there are no artificial barriersno artificial barriers put in pl ace by governments to
restrict the flow of goods and restrict the flow of goods and
servicesservices between trading nations.
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Benefits of Free TradeBenefits of Free Trade
I ncreased
specializationand production
Production
efficiencies
I ncreased
consumer sovereignty
Foreign exchangegains
Employment generation
Economic growth
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Case: How Free Trade HasCase: How Free Trade Has
Benefitted AustraliaBenefitted Australia Over 2000s, Australia's ratios of exports andimports to GDP have each risen every year and size of
its import and export sectors are greater thangreater than
20% of its GDP.20% of its GDP.
Demand by China for Australian raw materials such
as coal and iron ore increased rapidly; expansionexpansionin the minerals sector.in the minerals sector.
In the past decade, manufacturing output has
actually increased by 40%increased by 40% and exports haveexports haverisen by 400%risen by 400%
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Case: How Free Trade HasCase: How Free Trade Has
Benefitted AustraliaBenefitted Australia
Export-oriented businesses in Australia, on average, paypaymore to workersmore to workers and sell more per worker than non-
exporters.
Export growth has lead to economicgrowth and jobeconomicgrowth and jobcreation.creation.
By 2010, one in four jobsone in four jobs in Australia were related to
exportsexports.
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Disadvantages of Free TradeDisadvantages of Free Trade
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Trade BlocsTrade Blocs
Agreements made between states,
regions, or countries, to reducereducebarriers to tradebarriers to trade between
partici pating regions.
There are 66 ty pes of trade bl ocs,se parated in stages of regional
integration.
Agreements made between states,
regions, or countries, to reducereducebarriers to tradebarriers to trade between
partici pating regions.
There are 66 ty pes of trade bl ocs,se parated in stages of regional
integration.
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Stages of Regional IntegrationStages of Regional IntegrationStage 6
Stage 5
Stage 4
Stage 3
Stage 2
Stage 1
Economic and
Monetary Union
Economic Union
Common Market
Customs Union
Free Trade Area
Preferential Trade
Area
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Stage 1:Stage 1:
PREFERENTIAL TRADE AREAPREFERENTIAL TRADE AREA
Where member countries agree to lower,lower,but NOT eliminatebut NOT eliminate, trade barriers withinthe group to levels below those put upagainst outside economies.
Can be bilateralbilateral or multilateralmultilateral
Examples: SAPTA, ASEAN-China, India-Nepal
PREFERENTIAL
TRADE AREA
FREE TRADE
AREA
CUSTOMS
UNION
COMMON
MARKET
ECONOMIC
UNION
ECONOMIC
MONETARY
UNION
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Stage 2:Stage 2:
FREE TRADE AREAFREE TRADE AREA
Where members eliminate alleliminate alltrade restrictions amongsttrade restrictions amongst
one anotherone another
Each member maintains itsmaintains itsown restrictionsown restrictions on trade with
countries outside of the bloc.
Examples: NAFTA, SAFTA,AFTA
PREFERENTIAL
TRADE AREA
FREE TRADE
AREA
CUSTOMS
UNION
COMMON
MARKET
ECONOMIC
UNION
ECONOMIC
MONETARY
UNION
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January 6, 2004- The Agreement on SAFTA signed by leaders
of South Asia at the 12th SAARC Summit in Islamabad.
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Stage 3:Stage 3:
CUSTOMS UNIONCUSTOMS UNION
A free trade area whose members agreeon common external tariffscommon external tariffs againstnonmember countries.
PREFERENTIAL
TRADE AREA
FREE TRADE
AREA
CUSTOMS
UNION
COMMON
MARKET
ECONOMIC
UNION
ECONOMIC
MONETARY
UNION EAST AFRICAN COMMUNITY
RUSSIA-BELARUS-
KAZAKHSTAN
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Stage 4:Stage 4:
COMMON MARKETCOMMON MARKET
A customs union which permits the freefreemovement of factors of productionmovement of factors of productionamong members.
PREFERENTIAL
TRADE AREA
FREE TRADE
AREA
CUSTOMS
UNION
COMMON
MARKET
ECONOMIC
UNION
ECONOMIC
MONETARY
UNION
EUROPEAN FREE
TRADE AREA
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Stage 5:Stage 5:
ECONOMIC UNIONECONOMIC UNION
Has all the characteristics of a commonmarket plus members agree to a uniformuniformset of microset of micro-- and macroeconomicand macroeconomicpolicies.policies.
PREFERENTIAL
TRADE AREA
FREE TRADE
AREA
CUSTOMS
UNION
COMMON
MARKET
ECONOMIC
UNION
ECONOMIC
MONETARY
UNION
EUROPEAN UNION
SINGLE MARKET
CARICOM
SINGLE MARKET
RUSSIA &
BELARUS
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Stage 6:Stage 6:
ECONOMIC AND MONETARY UNIONECONOMIC AND MONETARY UNION
An economic union (commonmarket and customs union) witha single currencysingle currency.
PREFERENTIAL
TRADE AREA
FREE TRADE
AREA
CUSTOMS
UNION
COMMON
MARKET
ECONOMIC
UNION
ECONOMIC
MONETARY
UNION EUROZONE
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Case: The
Case: The EurozoneEurozone
17 EU member states that have
adopted the Euro () as their common common
currencycurrency
Euro is also used in countries outsideoutside
the EU in Monaco, San Marino, and Monaco, San Marino, and
Vatican CityVatican City; not considered part of the
eurozone
Monetary policy of eurozone countries
is managed by the European Central
Bank (ECB) and the Eurosystem which
comprises the central banks of the EU
states who have joined the euro zone.
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Trade AgreementsTrade Agreements Association of South East Asian Nations
(ASEAN)
Agreement on South Asia Free Trade Area(SAFTA)
Asia-Pacific Trade Agreement (APTA)
BIMSTEC (Bay of Bengal Initiative for Multi-SectoralTechnical and EconomicCooperation)
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Case:
SAFTA
Case:
SAFTA
One of the leastleast integratedintegrated regional trade blocs
Low cooperation and tradeLow cooperation and trade
Ineffective and slow tariff reductionslow tariff reduction
Long lists of exported items out of the negativethe negative
listlist
Regional politicsRegional politics affect the agreements
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Benefits of Regional IntegrationBenefits of Regional Integration
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Instruments of Trade PolicyInstruments of Trade Policy
TariffsTariffsNonNon--tariff tariff
BarriersBarriers
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Instruments of Trade PolicyInstruments of Trade Policy
Tariff
A tax tax which add to the cost of a
im ported good
A tax tax which add to the cost of a
im ported good
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Types of TariffTypes of Tariff
A f ixed tariff f ixed tariff levied
on one unit of an
imported good
A f ixed tariff f ixed tariff levied
on one unit of an
imported good
A tariff placed as a
percentage of thepercentage of the
valuevalue of the good
A tariff placed as a
percentage of thepercentage of the
valuevalue of the good
SpecificSpecific AdAdValoremValorem
* Bangladesh imposes a 300% ad valorem tax
on the import of automobiles
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NonNon-- Tariff BarriersTariff Barriers
Import Q uotas
A restriction pl aced on the physical physical
amount amount of a particul ar good that
can be im ported.
A restriction pl aced on the physical physical
amount amount of a particul ar good that
can be im ported.
* In 2011, Indian government increased duty-free import
quota f or garments from Bangladesh by two million
pieces to 10 million.
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NonNon-- Tariff BarriersTariff Barriers
Subsidies
Government payments to domestic Government payments to domestic
producers producers to red uce costs of
prod uction
Government payments to domestic Government payments to domestic
producers producers to red uce costs of
prod uction
* Between 2004-06, the Bangladeshi government
provided more than BDT 500BDT 500 crorescrores of subsidies f or
fertilizers
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NonNon-- Tariff BarriersTariff Barriers
LicensesLicenses
Granted to a business by the
government which all ows the
business to im port a certain type of certain type of
good good into the country.
Granted to a business by the
government which all ows the
business to im port a certain type of certain type of
good good into the country.
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NonNon-- Tariff BarriersTariff Barriers
Voluntary Export RestrictionsVoluntary Export Restrictions
A voluntary trade barrier created by
an exporting country to restrict the
amount of goods being ex ported.
A voluntary trade barrier created by
an exporting country to restrict the
amount of goods being ex ported.
* In 1971, the US negotiated voluntary export
restraints on wool and human-made f ibers with
Asian suppliers.
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NonNon-- Tariff BarriersTariff Barriers
Local Content RequirementsLocal Content Requirements
A government requirement that a
certain percentage of a good certain percentage of a good be
prod uced domesticall y.
A government requirement that a
certain percentage of a good certain percentage of a good be
prod uced domesticall y.
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NonNon-- Tariff BarriersTariff Barriers
Administrative PoliciesAdministrative Policies
Formal, bureaucratic rulesFormal, bureaucratic rules designed
to make it difficul t for im ports to
enter a country.
Formal, bureaucratic rulesFormal, bureaucratic rules designed
to make it difficul t for im ports to
enter a country.
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NonNon-- Tariff BarriersTariff Barriers
AntiAnti--Dumping PoliciesDumping Policies
Dum ping is sell ing good in a foreign market below their fair market valuebelow their fair market value , or bel ow their
costs of prod uction.
Antid um ping pol icies of a country are designed to punish foreign firms punish foreign firms that engage in
d um ping.
Dum ping is sell ing good in a foreign market below their fair market valuebelow their fair market value , or bel ow their
costs of prod uction.
Antid um ping pol icies of a country are designed to punish foreign firms punish foreign firms that engage in
d um ping.
* In Bangladesh, the volume of dumped imports is
regarded as negligible if it is less than 3% of imports.
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Political ArgumentsPolitical Arguments In 2002, steel imports in the USProtecting Domestic
Employment and
Industries
In 1986, the US federal governmentprotected domestic semiconductor
companies
Supporting National
Security
US threatened to impose 100% tariff oncertain Chinese products because of lenient implementation of intellectualproperty regulations
Retaliation
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Political ArgumentsPolitical Arguments Several countries in 2003 (including Japan
and South Korea) banned imports of American beef after a single case of mad
cow disease in Washington State
Protecting
Consumers
The US has maintained trade
sanctions against CubaFurthering Foreign
Policy Objectives
US did not grant the status of most
favored nation (MFN) to China becauseof Chinas disregard for human rightsand its poor record
Protecting Human
Rights
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Economic ArgumentsEconomic Arguments
Several Taiwanese and South Korean firms
have levied tariffs in industries likesemiconductors, textiles, and shipping
Protecting
InfantIndustries
The Japanese government provided
subsidies and research support for theliquid crystal display (LCD) screens industry
Strategic Trade Policy
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What is a Trade Dispute?What is a Trade Dispute?
Any disagreement between nationsdisagreement between nations
involving their international trade ortrade policies is known as a trade
dispute.
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Case: BangladeshCase: Bangladesh--IndiaIndia
Bangladesh's export to India hasincreased six times in the lastfew years.
The Indo-Bangladesh bilateralrelations suffered a lot in thepast, due to mistrust and lack of political will.
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Case: BangladeshCase: Bangladesh--IndiaIndia Non-tariff barriersNon-tariff barriers are emerging as major
concerns for Bangladesh in terms of realizingexport potentials in the Indian market.
India's import market now exceeds $300 billion
and is being accessed by China, Vietnam,
Thailand and Indonesia withoutwithout the benefit of
any tariff concessions.
The size of India's negative or sensitive listdeniesdenies tariff concessions for a variety of goods
of export interest to Bangladesh.
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Case: BangladeshCase: Bangladesh--ChinaChina Indian exports to Bangladesh
have registered a continuouscontinuous
decline.decline.
Given the similarity in the
export baskets of China andIndia to Bangladesh, ChineseChinese
exports are seen to beexports are seen to bereplacing Indian exports.replacing Indian exports.
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Case: BangladeshCase: Bangladesh--ChinaChina China has captured Bangladeshs market
in industries such as textiles, footweartextiles, footwearand head wear, and machineryand head wear, and machinery and
mechanical appliances,mechanical appliances, where India alsoenjoys comparative advantage.
India has negligible investmentnegligible investmentpresencepresence in Bangladesh.
Like India, Chinas investment inBangladesh is also low, but it is givingdevelopment assistance and projectdevelopment assistance and projectloansloans, which fosters goodwill.
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CASE:US
A-C
hina The renminbirenminbi--dollar exchange ratedollar exchange rate is the
largest and most important of theeconomic disputes between the UnitedStates and China.
Disagreements over Chinese tax and tariff discrimination exist against importedsemiconductors, automobile parts, andsemiconductors, automobile parts, andotherother productsproducts
Chinese violation of intellectual propertyviolation of intellectual propertyrightsrights (IPRs); US antidumping duties onbedroom furniture, color television sets,and other products add to the litany of
commercial disputes.
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The WTOThe WTO The only global international
organization dealing with the rulesrules
of tradeof trade between nations
153 153 member countries
Established January 1, 1995
Replaced GATTGATT (1948-1994)
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Functions of the WTOFunctions of the WTO AdministeringWTO tradeAdministeringWTO trade
agreementsagreements
Forum for tradeForum for tradenegotiationsnegotiations
Handling trade disputesHandling trade disputes
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The Role of the WTOThe Role of the WTO Monitoring national trade policiesMonitoring national trade policies
Technical assistance and training for developing Technical assistance and training for developing countriescountries
Cooperation with other international organizationsCooperation with other international organizations
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Dispute ResolutionDispute Resolution Between 1995 and 2007, more than 360 trade disputesmore than 360 trade disputes
between member countries were brought to theWTO.
Of these, threethree--fourthsfourths had been solved through informalinformalconsultationsconsultations between the disputing countries. Remainingresolved through formal procedures
.
The operation of the WTO dispute settlement processWTO dispute settlement processinvolves the DSB panels, the Appellate Body, theWTOSecretariat, arbitrators, independent experts and severalspecialized institutions.
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SectoralSectoral ReformsReformsGlobal TelecommunicationsGlobal Telecommunications
In February 1997, member countries agreed to open this
sector to foreign competitionforeign competition.
Entire industry was revolutionized as all forms of telephone
services such as voice telephony, data and fax transmission,satellite and fax transmission were improved in quality andimproved in quality andlowered in costs.lowered in costs.
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SectoralSectoral ReformsReformsGlobal Financial ServicesGlobal Financial Services
The deal covers more than 95 percent of the worlds financialservices market.
In March 1999, 102 countries pledged to open to varyingdegrees their banking, securities, and insurance sectors to
foreign competition.
Seventy countries agreed to dramatically lower or eradicatebarriers to foreign direct investment in their financial services
sector.
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Doha Round
Doha Round
The current tradecurrent trade--negotiationnegotiationroundround of theWTO; commenced in
November 2001.
Objective:Objective:
to lower trade barriers around the world, which will help facilitate the increase of global trade.
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Doha Round
Doha Round
Currently a divide on major issuesdivide on major issues
agriculture, tariffs and non-tariff barriers, services,and trade remedies.
Most significant differencessignificant differences are between developed
nations (the EU, USA, and Japan) and themajor developing countries (Brazil, China, India, andSouth Africa)
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PostPost-- Doha NegotiationsDoha Negotiations
2001
Doha
2003
Cancún
2004
Geneva
2005
Paris
Hong
Kong
2006
Geneva
2007
Potsdam
2008
Geneva
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Criticisms of the WTOCriticisms of the WTO Rich countries are able to
maintain high importmaintain high import
duties and quotasduties and quotas in certainproducts, blocking importsfrom developing countries(e.g. clothing);
The increase in nonincrease in non--tariff tariff barriersbarriers such as anti-
dumping measures allowedagainst developing countries
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Criticisms of the WTOCriticisms of the WTO The maintenance of highhigh
protection of agricultureprotection of agriculture in
developed countries whiledeveloping ones are pressed toopen their market
Many developing countries dodonot have capacity to follownot have capacity to follownegotiationsnegotiations and participateactively in Doha Round
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