International trade policy and preferential trading

Question 1

International Institutions in the Field of Trade

Answer 1

-General Agreement on Tariffs and Trade (GATT)
-World Trade Organization (WTO)

Question 2

historical development of attitudes towards trade

Answer 2

-In the 1930s, there was a huge escalation in retaliatory tariff protection involving many countries
-Post-1945 era of international trade agreements
-1947: General Agreement on Tariffs and Trade (GATT)
-1995: World Trade Organization (WTO)
-Since 2005: Crisis of the WTO and of the multilateral approach

Question 3

GATT (date)

Answer 3

as begun in 1947 with 23
nations as a provisional international agreement.

Question 4

Goal GATT

Answer 4

to avoid a repeat of the collapse of trade in the 1930s that worsened the Great Depression, fostered political mistrust and a more general breakdown of international cooperation.

Question 5

Principles GATT

Answer 5

-National treatment (Imports must be given similar treatment on the domestic
market as domestically produced goods)

-Non-discrimination (Enshrined in the concept of most-favored-nation (MFN); every GATT member must treat every other member as it treats its most favored trading partner)

–> Some exceptions from these rules (like free trade agreements, or special treatment of developing countries) were allowed.

Question 6

how GATT functioned

Answer 6

through trade rounds: Times when countries periodically negotiate

Question 7

what happen in the 1950’s?

Answer 7

trade negotiations referred mainly to import tariff reductions.

Question 8

what happens in middle 1960’s?

Answer 8

other issues referring to the non-tariff-based protectionism were included: dumping; subsidies, product standards, preferential state procurement, discriminatory administrative action, quotas on import

Question 9

what happens in 1995?

Answer 9

The Uruguay Round established the World Trade Organization (WTO)

Question 10

WTO

Answer 10

-Gatt
-Gats (General Agreement on Trade in Services)
-Trips (Trade-Related Aspects of Dispute Settlement Intellectual Property Rights)
-Dispute Settlement

Question 11

WTO members

Answer 11

-164, accounting for about 98% of world trade
-meet every two years during ministerial conferences to set WTO policy objectives

Question 12

goal WTO

Answer 12

provides a forum for countries to set mutually accepted, global rules of trade and allows for monitoring trade and national trade policies

Question 13

5 WTO rules

Answer 13

1. Reducing tariff rates through multilateral negotiations
   -National treatment
   -Non-discrimination
   -Reciprocity (Any nations benefiting from a tariff reduction made by another country must reciprocate by making similar tariff reductions itself)
2. Binding tariff rates (A tariff is “bound” by having the imposing country agree not to raise it in the future)
3. Eliminating non-tariff barriers:
   -The general prohibition of quotas
   -Existing quotas and export subsidies must be changed to tariffs
4. Disputes between member countries over bilateral trade issues should be settled through consultation with each other

5.Sanctions in case of unfair competition

Question 14

The Benefits of a Rules-based International Trading System

Answer 14

-the same rules apply to all independently of the political and economic power of a national government

-It creates mechanisms for implementation and surveillance that foster predictability and reduces uncertainty for the private sector and governments

-It discourages unfair practices such as export subsidies and dumping products at below costs to gain market shares

-It creates a central forum for the negotiation of trade policy, which results in higher transparency and in lowering of trade costs

-Through the dispute settlement function, such a system further reduces trade policy uncertainty which should also stimulate trade flows.

Question 15

WTO crisis

Answer 15

-Doha Development Round launched in 2001 is still uncompleted. Slow progress, quite difficult to form consensus (One member=one vote).

-deals still encompass a lot of protectionism in areas like agriculture.
-advanced economies critize the ability of WTO members to self-identify as “developing” countries in order to receive special treatment

-Non-trade issues (like data protection, environmental and labor standards) in trade deals are controversial

-The Trump administration (2016-2020) preferred bilateral approach to multilateralism: threats to withdraw the U.S, confrontation with China

Question 16

Preferential trading agreements

Answer 16

make international exchange between the member states freer than trade with the rest of the world.

Question 17

results WTO crisis

Answer 17

in countries seeking alternatives such as regional trade agreements or local bilateral deals which, in principle at least, violate the core tenet of the multilateral order: non-discrimination

Question 18

2 major types of preferential trading:

Answer 18

-Reciprocal (regional) trade agreements (RTAs) between two or more partners.

-Unilateral trade preferences. Example: developed countries might grant preferential tariffs to imports from developing countries.

Question 19

5 major types of RTA

Answer 19

-Partial trade : Free trade in the outputs of one or a few industries
-Free-trade area: Free trade in outputs (goods and services)
-Customs union: Free-trade area plus a common external tariff for nonmembers
-Common Market: Customs union plus free movement of inputs (capital and labor)
-Economic union (common market plus substantial harmonization of economics policies, including possibility a common currency)

Question 20

Prominent regional trade agreements

Answer 20

-EMU
-GCC
-TTP
-ASEAN
(slide 158)

Question 21

WTO allows for RTA (2 reasons)

Answer 21

-Members should eliminate (substantially) all internal barriers to trade
-External trade barriers should not be increased on average

Question 22

trade diversion (due to RTA): short-run effects

Answer 22

The removal of trade barriers within the RTA enables a higher-cost producer from the member country to increase its exports by crowding out a lower-cost producer from outside the RTA. Welfare losses due to trade diversion are less likely when a) there is relatively small cost difference between goods produced within and outside the union or b) when the abolition of the tariff leads to a large reduction in the price of goods imported from other members of the RTA.

Question 23

trade creation (RTA): short-run effects

Answer 23

The removal of trade barriers allows greater specialization according to comparative advantage. Imported goods are cheaper than domestically produced. In return, the country can export goods in which it has a comparative advantage.
Trade based on economies of scale increases

Question 24

medium to long-run (dynamic) effects of the RTAs
Positive

Answer 24

-Internal economies of scale may occur
− External economies of scale may occur due to improvements in the infrastructure within the RTA (better roads, railways, financial services, etc.)
− Regional clusters of growth are facilitated
− Increased competition may stimulate efficiency and innovation, as well as lead to a more rapid spread of technology
− Increased bargaining power with rest of world can improve terms of trade

Question 25

medium to long-run (dynamic) effects of the RTAs
Negative

Answer 25

-Integration may encourage greater oligopolistic collusion, thus keeping prices high.
− It may encourage market concentration through mergers and takeovers and increase monopoly power.
− Large companies may become bureaucratic and inefficient (diseconomies of scale), but powerful enough to get governmental subsidies
− Regional unemployment might increase leading to a high income gap
− Costs of administering the union may be high
− Increasingly, RTAs include liberalization of services as well as commitments in services
rules, investment, competition, intellectual property rights, electronic commerce, environment and labor. This could give rise to regulatory confusion and implementation problems as traders struggle to meet multiple sets of trade rules.

Question 26

Trade policy

Answer 26

common external tariffs, a network of bilateral trade agreements with individual countries and regions across the world (e.g. Mediterranean basin, USA, Canada)

Question 27

Common Agricultural Policy (CAP)

Answer 27

common high prices, interventions or buy up of surpluses, direct income support

Question 28

Competition policy

Answer 28

common rules and regulations applying to companies operating in more than one member state

Question 29

Regional policy

Answer 29

grants to firms and local authorities in relatively deprived regions of the Union

Question 30

EU policies

Answer 30

-Trade policy
-Common Agricultural Policy
-Competition policy
-Regional policy
-Harmonisation of taxes
-Social policy
-Environmental policy
-Migration policy
-Monetary and exchange rate policy

Question 31

Harmonisation of taxes

Answer 31

VAT is the standard form of indirect taxation, upper and lower limits on the VAT rates, code of conduct to prevent countries providing tax breaks which unfairly distort investment decisions, common rules on energy taxation

Question 32

Social policy

Answer 32

Common standards for all cover minimum rules on working conditions, collective redundancy, part-time and temporary work, health and safety at work, maternity and parental leave, equal pay for equal work, and protection against sexual harassment.

Question 33

Environmental policy

Answer 33

the carbon dioxine emissions trading system, limits on the amount of carbon dioxide emitted by industries

Question 34

Migration policy

Answer 34

Schengen Area, Common European Asylum System

Question 35

Monetary and exchange rate policy:

Answer 35

19 member states with euro (2022); euro is supposed to be eventually adopted by all members states (except Denmark)

Question 36

Four freedoms

Answer 36

(I) people, (2) goods, (3) services and (4) money can all move around freely

Question 37

EU (single market non complete)

Answer 37

lack of harmonization of national technical standards; discrimination in public purchase of goods (mainly telecommunication, pharmaceutics, railway equipment, cars etc.), professional or academic degrees awarded by one member state are not recognized by certain other member states
–> gaps in particularly in services

Question 38

Brexit