International Trade

Question 1

Trade as a cooperation problem

Answer 1

if two or more actors, acting independently in pursuit of their own self-interest refuse to trade or impose trade sanctions thereby producing an outcome that leaves each of them worse off

Question 2

How does trade make everyone better off?

Answer 2

All voluntary economic exchange increases payoffs, increase economic efficiencies, gains from specialization and comparative advantage

Question 3

What are Gains from Specialization

Answer 3

countries specialize in production of a good, the more they produce that good the less they can produce of another, if countries trade specialized goods, however, they are both better off.

Question 4

What is Comparative Advantage

Answer 4

When a country specializes in a good and can produce it at a lower opportunity cost

Question 5

Cooperation problems due to Trade

Answer 5

1). Specialization leads to vulnerability to market factors
2). Trade is welfare-enhancing, but has domestic winners and losers, importing grain reduces cost at expense of local grain farmers

Question 6

History of GATT/WTO

Answer 6

During explosion of post WWII institution building states create ITO, fails to pass US congress, 1947 multilateral trade rules imbedded into GATT, 1994 GATT becomes WTO

Question 7

Obligations of GATT/WTO Members

Answer 7

1). Must limit tariffs to negotiated bound rates
2). Most-Favoured-Nation status, cant offer special treatment except for regional PTAs eg. USA Canada
3). National Treatment cant advantage domestic firms eg. Indonesia US cigarette dispute

Question 8

WTO Dispute settlements

Answer 8

A member state that has suffered harm from a WTO violation can bring complaint to panel of 3 WTO experts who report recommendations, states can appeal to WTO appellate body, member states vote but can only be rejected unanimously

Question 9

GATT/WTO escape Clauses

Answer 9

allows for states to derogate from its rules in cases of:
1). National security exemptions
2). Domestic industry “safeguards”
3). Health, safety, environmental concerns

Question 10

WTO dispute settlement enforcement and compliance

Answer 10

High level of delegation opens risk of agency slack, enforcement mostly from reciprocity of “harmed” states