PART III.

GOVERNMENT POLICY
AND
INTERNATIONAL TRADE
 Instruments of Trade
Policy
TARIFF SUBSIDIE IMPORT
S
Tax S
Governmen QUOTAS
Direct restrictionon
imposed t payment the quantity of some
on import to a goods that may be
or export domestic imported into the
producer country.
 Instruments of Trade
Policy
VOLUNTARY LOCAL CONTENT
EXPORT REQUIREMENTS
RESTRAINTS
Tax imposed on A requirement that
the exportation of some specific fraction
goods of goods be produced
domestically.
 Instruments of Trade
Policy
ADMINISTRATIVE ANTIDUMPING
POLICIES DUTIES
Bureaucratic rules Designed to punish foreign
that are designed to firms that engage in
restrict imports from dumping
entering a country.
 The Case for
Government
1. POLITICAL
Intervention
ARGUMENTS
concerned with protecting the interests of certain
groups within a nation (normally producers), often at the
expense of other groups (normally consumers).
￭ Protecting Jobs and Industries
￭ Protecting National Security
￭ Retaliating
￭ Protecting Consumers
￭ Furthering Foreign Policy Objectives
￭ Protecting Human Rights
 The Case for
Government
2. ECONOMIC
Intervention
ARGUMENTS
Concerned with boosting the overall wealth of a nation
(benefits both producers and consumers)
￭ Infant Industry Argument
￭ Strategic Trade Policy
 Development of the
World Trading System
UNRESTRICTED FREE
TRADE
A trade without restrictions.
• Problem: Lack of trust between two countries.

• Example: Brazil and Argentina

 Development of the
World Trading System
A REFEREE
• Monitor trade between countries

• Impose sanctions on a country if it does cheat in the

trade game.
 From Smith to the Great
Depression
• Free trade as a government policy was
first officially embraced by Great
Britain in 1846, when the British
Parliament repealed the corn law.
 • 1930. The British attempt to stimulate free
trade was buried under the economic rubble of
the Great Depression. -"Smoot-Hawley Act"
• 1947 - the GATT was established

General Agreement on Tariffs and Trade (GATT) - a

multilateral agreement whose objective was to liberalize
trade by eliminating tariffs, subsidies, import quotas,
and the like.
• GATT to World Trade Organization (WTO)

• GATT membership 19-120 nations

• 1980-1990 Pressures for greater protectionism

increased around the world
3 reasons for the rise in such
pressures:
1. The economic success of Japan during that time
strained the world trading system.

2. The world trading system was strained by the

persistent trade deficit in the world's largest
economy, the United States.

3. Many countries found ways to get around GATT

regulations.
 The Uruguay Round and
the
World
URUGUAY Trade Organization
ROUND
(12/15/1993)
•The most ambitious round of negotiations
yet.
• Went into effect July 1, 1995

• Member countries sought to extend GATT

rules to cover trade in services
World Trade Organization
• Acts as an Umbrella organization

• The two new sister bodies of GATT: General

Agreement on Trade in Services (GATS) & Trade-
Related Aspects of Intellectual Property Rights
(TRIPS)
 WTO: Experience to
date
• By 2016, the WTO had 164 members and played a
pivotal role in global trade.
• WTO struggled to make significant progress in
reducing trade barriers and advancing new
agreements, particularly with the slow Doha Round
talks.
• Recent events, including the global financial crisis,
Brexit, and Trump’s presidency, raised doubts about
the WTO’s future effectiveness.
 WTO as Global Police
• In its first 20 years, the WTO effectively handled over
500 trade disputes.
• Most disputes were resolved informally. 3/4 for
informal consultation and 1/4 for formal procedures.
• Formal procedures were largely successful,
demonstrating strong confidence in its dispute
resolution system.
 Expanded Trade
Agreements
• February 1997 - WTO brokered an agreement with the
countries to open telecommunications and financial
services.
• December 1997 - Agreement to liberalize cross-border
trade in financial services.
• March 1999 - 102 countries had agreed to open their
financial sectors to foreign competition and
investment.
 The Future of the WTO:
Unresolved Issues and Doha Round
Trade Agreements
1. ANTIDUMPING ACTIONS
• Allow countries to impose duties on imported goods
sold at a lower price than the exporting country.
• From 1995 to mid-2016, over 5,100 antidumping
actions were reported to the WTO.
• The WTO is concerned that these actions reflect
persistent protectionism driven by domestic
pressures and competition, and is urging stricter
regulations.
 The Future of the WTO:
Unresolved Issues and Doha Round
Trade Agreements
2. PROTECTIONISM IN
AGRICULTURE
• The WTO seeks to address high tariffs and subsidies
in agriculture.
• These barriers distort trade and increase consumer
prices.
• Eliminating them could boost global trade and
economic growth, benefiting developing countries
and increasing global economic welfare.
 The Future of the WTO:
Unresolved Issues and Doha Round
Trade Agreements
3. PROTECTION OF INTELLECTUAL
PROPERTY
• The WTO's TRIPS agreement, established in 1995,
requires member countries to protect intellectual
property.
• Patents must last at least 20 years, and copyrights
must last for 50 years.
• This protection is crucial for encouraging innovation
and economic growth by preventing market
imitations.
 The Future of the WTO:
Unresolved Issues and Doha Round
Trade Agreements
4. MARKET ACCESS FOR NON-AGRICULTURAL
GOODS AND SERVICES
• Despite reductions in average tariffs on
nonagricultural goods, high tariffs on specific imports
persist.
• Countries like Australia and South Korea maintain
high tariffs on items such as transportation
equipment.
• These high tariffs, especially on goods from
developing nations, limit market access and hinder
economic growth.
 A New Round of Talk:
Doha
• The WTO launched a new round of talks to further
liberalize global trade and investment.
• Goal: reduce tariffs on industrial goods, phase out
agricultural subsidies, lower barriers to cross-border
investment, and limit antidumping laws.
• Problem: Getting nations to agree to these goals was
proving exceedingly difficult.
 Multilateral and
Bilateral Trade
Agreements
• Reciprocal trade agreements between two or more
partners.
• Goal: achieve trade benefits that WTO can’t provide.
 The World Trading
System Under Threat
Two Events that challenged the belief that Free Trade
was supported universally:
￭ Brexit - UK decided to leave the European Union.

￭ Victory of Donald Trump in 2016 US presidential

election.
 Trade Barriers and Firm
Strategy
Trade Barriers constrain a firm’s ability to disperse its
productive activities in such a manner:
￭ Raise cost of exporting products
￭ Set up production facilities in other country
￭ Local Content Requirement
￭ Anticipating Future Barriers
 Policy Implications
• Strategic Trade Policy

• Free trade stance is better than the Laissez-faire

stance.
Thank you
very much!