Week 8 AE417 IBT
Administrative Trade Policies - Administrative
Free Trade - The absence of barriers to the free flow of
goods and services between countries.
General Agreement on Tariffs and Trade (GATT) - An
international treaty that committed signatories to lower
barriers to the free flow of goods across national borders
and led to the WTO.
INSTRUMENTS OF TRADE POLICY
1. Tariff - A tax levied on imports (or exports)
• Specific Tariff - Tariff levied as a fixed charge for each
unit of goods imported.
• Ad Valorem Tariff - A tariff levied as a proportion of
the value of an imported good.
2. Subsidies - Government financial assistance to a
domestic producer. Subsidies take many forms,
including cash grants, low-interest loans, tax breaks, and
government equity participation in local firms. By
lowering production costs, subsidies help domestic
producers in two ways:
(1) competing against imports and (2) gaining
export markets.
3. Import Quotas and Voluntary Export Restraints
 Import Quota - A direct restriction on the quantity of
a good that can be imported into a country.
 Tariff Rate Quota - Lower tariff rates applied to
imports within the quota than those over the quota.
 Voluntary Export Restraint (VER) - A quota on
trade imposed from the exporting country's side
instead of the importer's, usually taxed at the
request of the importing country's government.
 Quota Rent - Extra profit producers make when an
import quota artificially limits supply.
4. Export Tariffs and Bans
 Export Tariff - A tax placed on the export of a good.
 Export Ban - A policy that partially or entirely
restricts the export of a good.
 Local Content Requirement (LCR) - A requirement
that some specific fraction of a good is produced
domestically.
5. Local Content Requirements - A requirement that
some specific fraction of a good is produced
domestically.
6.
policies, typically adopted by government bureaucracies,
that can be used to restrict imports or boost exports.
7. Antidumping Policies
 Dumping - Selling goods in a foreign market for less than
their cost of production or below their "fair" market value.
 Antidumping Policies - Designed to punish foreign firms
that engage in dumping and thus protect domestic
producers from unfair international competition.
 Countervailing Duties - Antidumping duties.
THE CASE FOR GOVERNMENT INTERVENTION
Political Arguments for Intervention
 Protecting Jobs and Industries
 Protecting National Security
 Retaliating
 Protecting Consumers
 Furthering Foreign Policy Objectives
 Protecting Human Rights
Economic Arguments for Intervention
 Infant Industry Argument - New industries in developing
countries must be temporarily protected from international
competition to help them reach a position where they can
compete in world markets with the firms of developed
nations.
 Strategic Trade Policy - Government policy aimed at
improving the competitive position of the domestic industry
and domestic firm in the world market.
THE REVISED CASE FOR FREE TRADE
1. Retaliation and Trade War
2. Domestic Policies
DEVELOPMENT OF THE WORLD TRADING SYSTEM
1. From Smith to the Great Depression
 Smoot-Hawley Act - Enacted in 1930 by the U.S.
Congress, this act erected a wall of tariff barriers
against imports into the United States
2. 1947–1979: GATT, Trade Liberalization, And Economic
Growth
3. 1980–1993: Protectionist Trends
4. The Uruguay Round and the World Trade Organization
5. WTO: Experience to Date
Expanded Trade Agreements
1. The Future of the WTO: Unresolved Issues and
the DOHA Round
 Antidumping Actions
 Protectionism in Agriculture
 Protection of Intellectual Property
 Market Access for Nonagricultural Goods and Services
 A New Round of Talks: Doha
Multilateral and Bilateral Trade Agreements
- Reciprocal trade agreements between two or more partners.