ECODEV
TRADE POLICY DEVELOPMENTS
International Trade
International Trade
 The branch of economics concerned with the
exchange of goods and services with foreign
countries
 Purchase, sale, or exchange of goods and
services across national borders
 Almost every kind of product can be found
on the international market such as:
o Food
o Clothes
o Spare Parts
o Oil
o Jewelry
o Wine
o Stock
o Currencies
The Growth in World Trade
 about 15 percent of the world's output is
traded in international markets in a typical
year.
 while the importance of the international
sector varies enormously from country to
country, the volume of international trade
has increased substantially.
 Year 1947: saw the creation of the GATT
(General Agreement on Tariffs and
Trade) as an attempt to reduce such barriers
to trade as quotas, subsidies, tariffs and
taxes.
 In 1997 GATT was replaced by the WTO
(World Trade Organization), its mandate
expanded to include intellectual property
rights and foreign investment.
World Trade Organizations
 Only global international organization
dealing with the rules of trade between
nations.
Main Goal:
 To help producers of goods and services,
exporters, and importers conduct their
business.
What They do:
 Implementation and monitoring trade
 Dispute settlement
 Building trade capacity
 Investment and Trade
 Trade Policy Reviews
Philippines:
 continues to hold with importance its
membership in the WTO and recognizes the
value of the WTO's achievements in
fostering a competitive environment.
 with its membership in 1995, the Philippines
made substantial commitments on market
access and plans to seek technical assistance
programs from its donor agencies and
bilateral partners to assist in the compliance
of Trade Facilitation commitments
Did you know that? It was last Nov. 10, 2012 when
Management Board of the Advisory Center on
WTO Law (ACWL) under Pres. Aquino appointed
Ambassador Esteban B. Conejos Jr. as Philippine
permanent representative to the World Trade
Organization (WTO)
Absolute Advantage and Comparative
Advantage
Why Specialize?
 Because of specialization, both nations can
be better off, even if one nation has an
absolute advantage in both goods over the
other
Why Trade?
Reasons countries benefit from foreign trade:
 They can import resources they lack at
home.
 They can import goods for which they are a
relatively inefficient producer.
 Specialization sometimes permits economies
of large-scale production.
Trade Barriers (Tariff, Quotas, Subsidies)
 Tariff
 Non-Tariff
Tariff Trade barriers
 A tax on goods shipped internationally
 A price-based barrier
 Varies on price to each countries
“Economies of Scale”
 Larger number of output in a smaller cost.
(Spread to a larger number of unit)
 200 pesos / pair – 200 pairs = (divide) = 1
 200 pesos / pair – 400 pairs = (divide) = 0.5
 Diseconomies of scale – opposite
  Excess of what a consumer is willing to pay
to what he actually has to pay.
How a Tariff Works
Producer Surplus
 Excess of what a supplier is willing to
receive at a minimum amount and what he
actually receives.

Demand Curve
 Represents a collection of maximum prices a
consumer is willing and able to pay for
different quantities of commodities.

Tariffs: Types of tariffs
 Import and export tariffs: a tax levied on
imports or exports of a country.
 Transit tariff: a tax levied on goods passing
through the country.
 Specific duty: a tariff based on the number
of items being imported.
 Ad valorem duty: a tariff based on a
percentage of the value of imported goods.
 Compound duty: a tariff consisting of both
a specific and ad valorem duty.
Non- Tariff Trade Barrier
 Quota
 Subsidies
Supply Curve
 Represents a collection of maximum prices
that suppliers require to be willing to supply
different quantities of commodities
Consumer & Producer Surplus
Maximized
 Once the equilibrium output is reached at the
equilibrium price, all of the mutually
beneficial opportunities from trade between
suppliers and demanders will have taken
place.
 Total gains to the economy from trade is the
sum of consumer and producer surplus

Import Quotas
 A legal limit on the imported quantity of a
good that is produced abroad and can be
sold in domestic markets

Export Subsidies
 Government payments made to domestic
firms to encourage exports.
 Closely related to subsidies is dumping.
o A firm or industry sells product on
Free trade and exports:
the world market at prices below the
cost of production.  Domestic producers gain more than
domestic consumers lose.
Reasons for Trade Barriers
 Domestic Employment
 Low foreign wages
 Infant Industry
 Unfair Trade
 National Security

Demand and Supply in International

Trade
Consumer Surplus
Free Trade and Imports
 Domestic consumers gain more than Disadvantages of International Trade
domestic producers lose
 One may need to wait for long term gains
 Hiring professional staffs to launch
international trade is timely and costly to do
 Modifying product or packaging
 Develop new promotional material
 Incur added administrative costs
 Dealing with special licenses and regulations
 Apply for additional financing

Law of Supply and Demand

International trade version
 If the price of a good or service of Country
X increases, the quantity of goods or
services offered by suppliers, foreign and
domestic, increases and vice versa.
 If the prices of the goods of Country X
increases, the demand for those goods will
decrease and the demand of the goods of
Country Y which costs less will increase.

Different Advantages and Disadvantages

of Trade
Advantages of International Trade
 Leads to more efficient resource allocation
and lower cost per unit of output as the
market becomes bigger and broader to
exercise economies of scale, etc.
 Non-economic advantages like political,
social and cultural advantages to be gained
by fostering trade in international
organizations like WTO, etc.
 It helps to widen the range of choice of
goods or products
 It allows the transfer of knowledge,
technologies and information between
trading partners
 It enables the countries to specialization
which increases the world output and
standard of living
 It increases the need to become efficient and
effective in the production process because
of competition
 It stimulates research and development
policies and more rapid adoption of new
technology to reduce cost of production