IB in a "WTO" world Flashcards
Why do countries trade?
Countries trade because they are different
Different technologies / amount of capital / labor - trade generate gains due to specialisation (more efficient production, more intensive use of the relevant factors they are endowed with)
Different variety of the same good - trade generates gains because consumers like variety. Increasing the variety of the products consumers have at their disposal, they are better off.
Why does trade lead to gains?
Better utilization of resources, by enabling specialization and the exploitation of economies of scale due to a larger market.
increased competition, by enabling foreign competitors that put more pressure on producers and reduce mark-ups.
a broader variety of goods and services
Innovation and technology transfer, because firms are pressured to invest in R&D
Why are trade agreements needed?
Those signing the contract (=signatories) agree on reducing trade barriers. Reduce the possibility for countries to manipulate the terms of trade (TOT). Help reducing international sources of inefficiency
two arguments: commitmnet argument and term of trade argument.
What is the core principles of WTO agreements?
the trading system should be..
- without discrimination
- freer (progressive liberalization of tariffs and non-tariff measures
- predicatble - improving stability and transparency.
- more competitive - also fair competition
- more beneficial for less developed countries - ensure flexibility, time to adjust and special privileges for developing countries.
What are the effects of WTO on firms?
There are both direct and indirect effects:
Direct effects:
- improved knowledge of regulatory barriers to internationalization (WTO offers training to firms)
- Reduction of trade barrierss
- Insuring intellectual property rights (IPRs)
Indirect effects:
- reduces trade policy uncertainty - due to binding commitments and non-discrimination.
- reduces information asymmetry - requirement of transparency about trade policies and firms in other countries may anticipate changes in trade policy.
- improves quality of domestic trade-related policy - assistance from WTO to develop skills of trade officers, and compliance with international standards.
What are the effects of WTO on firms according to Nuruzzamen?
No evidence of an increase in trade following WTO accession, however, evidence that export intensity increase after WTO accession in case of positive perception.
Managerial perceptions of domestic institutions influence firms’ reactions to institutional changes.
- Firms perceiving domestic institutions as obstacles tend to pursue threat avoidance strategies and are less responsive to WTO accession.
- Conversely, firms perceiving domestic institutions positively seize international expansion opportunities after WTO accession, and exhibit higher export intensity in WTO member countries.
Why is flexibility needed?
Flexibility in WTO is equal to contingency measures
- allowance of unilateral behavior (protection) in the multilateral system
- specific conditions under which governemnts can adopt protectionist behavior.
flexible trade agreements, thus facilitate deeper commitment, ensures stability of the systen, helps reduce domestic opposition, and rule of law
Extra: the main potential costs of introducing flexibility into the multilateral trading system.
First, since a trade agreement allows signatories to cooperate with each other through low trade barriers, flexibilities may undermine what the agreement achieves.
- The use of ´contingency measures is costly as it may reduce international trade flows and diminish the efficiency gains from more open trade.
Second, as rigid government commitments increase the credibility of trade policy and reduce the likelihood of inefficient policies, relaxing such rigid commitments may harm governments’ credibility and reduce national and global welfare.
What is dumping?
price discrimination between home and export markets.
Dumping refers to a situation where a company exports its products to another country at prices that are significantly lower than the prices charged in its domestic market or below the cost of production. In other words, it involves selling goods in a foreign market at an unfairly low price, often with the intention of driving out competition or gaining a larger market share.
What is predatory dumping?
selling at prices sufficiently low to force competitors out of market - getting rid of competitors.
What is the effect of anti-dumping measures?
same as the effect of imposing a tariff on imports
price increase which is bad for consumers, but good for producers, also, the government gain more revenues. However, anti-dumping are not applied to all countries, only to dumping countries. hence, firms from dumping countries risk losing their competitive advantage. Trade diversion result in domestic consumers turning toward other foreign producers.
What is the aim of WTO
to promote free and fair trade among its members by enforcing trade rules, providing a forum for trade negotiations, and offering technical assistance and training to help members implement WTO agreements.
What does non-discrimination mean?
The WTO operates on the principle of non-discrimination, meaning that its members must treat each other’s goods and services equally and cannot discriminate against foreign products.
What are the two main components of the principle of non-discrimination?
the most-favored-nation (MFN) principle and the national treatment principle.
The MFN principle requires that a WTO member must treat all other WTO members equally in its trade policies, and cannot discriminate between them by granting preferential treatment to one member over another.
The national treatment principle requires that a WTO member must treat foreign products and services no less favorably than it treats its own domestic products and services.
Why liberalization?
belief that greater trade liberalization can bring economic benefits to countries by promoting competition, innovation, and efficiency, and by providing consumers with a wider range of goods and services at lower prices.
Does developing countries get special treatment by WTO?
Yes. The WTO’s approach to trade liberalization recognizes that the process is often complex and may require time for adjustment, particularly for developing countries.
For this reason, the WTO allows members to phase in their trade liberalization commitments over a period of time, and provides for special and differential treatment for developing countries.
