Lecture 1

Question 1

Ricardo’s Theory of Comparative Advantage

Answer 1

A company’s ability to produce goods at a lower opportunity cost than that of trade partners

Question 2

What is trade assessed on?

Answer 2

on the basis of the relative efficiency in producing goods

Question 3

Which goods are exported

Answer 3

Goods in which the comparative advantage is greatest, or where comparative disadvantage is smallest

Question 4

Which goods are imported?

Answer 4

goods in which comparative disadvantage is greatest

Question 5

What are the qualifications for free trade?

Answer 5

1. Reciprocity
2. Optimal Tariff
3. Infant Industries
4. Revenue Raising
5. National Security
6. Adjustment Costs
7. Health, Safety and Environmental Concerns

Question 6

What is optimal tariff?

Answer 6

A tariff which forces exporters from other countries to reduce the price of their products and absorb the tariff.

Question 7

What is the rationale behind an optimal tariff?

Answer 7

to enhance national welfare but these policies may reduce global welfare and are also likely to reduce national welfare (if implemented by foreign countries)

Question 8

What are infant industries

Answer 8

In order to preserve national advantage, you need to preserve certain industries from trade. In these industries, the gov decides we need a national producer. They create tariffs so that the industry can develop, and then compete with other industries. At some point the tariffs come off, industries compete, and hopefully prosper.

Question 9

What was Western Alienation built on?

Answer 9

tariffs on farming equipment.

• Massey Ferguson
• Stoked resentment in Western Canada that continues today

Question 10

What is revenue tax raising?

Answer 10

Taxes on income, every purchase. The obstacle between free trade is bc the first order of government is to govern, and it wont risk this on a theory on what may be better for the population

Question 11

What is National Security?

Answer 11

With respect to imports, trade restrictions to protect domestic industries which, even though not internationally competitive, may be required in the event of war or other international disruptions

In terms of exports, national security considerations have sometimes been invoked to restrict exports of strategically sensitive products or military material to ‘unfriendly’ foreign countries revenue.

Question 12

What are adjustment costs?

Answer 12

Firms, workers and communities may face with abrupt forms of trade liberalization which underscores the need for gradual implementation of such policies

Question 13

Health Safety and Environment Concerns

Answer 13

Where imports threaten the health, safety and environmental conditions of citizens in importing countries, trade restrictions may be justified to minimize these risks.

Question 14

What are the objections to free trade?

Answer 14

• trade liberalization exacerbates inequalities of wealth between and within countries and threatens welfare state.
• trumps environmental, health and safety, labour standards, and human rights concerns
• undermines economic self sufficiency in food production, creating dangerous dependencies on foreigners.
• WTO is undemocratic and unaccountable form of global government that improperly constrains domestic political sovereignty and democratic politics.

Question 15

What is the history of the international trade organization (ITO)?

Answer 15

It never existed. After WWII, extensive efforts were made to bring it into being, involving negotiations in Havana (1947-1948).

Question 16

Why was the Havana Charter never ratified?

Answer 16

Because domestic opposition within the US stopped it. Although the attempt to create ITO failed, it was significant for two reasons:

1. Brought the General Agreement on Tariffs and Trade into being (1947)
2. the idea of the ITO is important in staging the post in the shift toward international economic institutions (WTO)

Question 17

What is the governance structure of the WTO?

Answer 17

The Ministerial Conference that meets every two years, a General Council compromised of delegates of all member countries

The Secretariat headed by the Director General (Roberto Azevedo) is appointed by consensus of the member states, and the quasi judicial Dispute Settlement Body (Xavier Carim)

Question 18

Article XXIII

Answer 18

Dispute resolution between member states.

Question 19

What is the appeal process?

Answer 19

Disputes may be appealed on matters of law to a standing Appellate Body of seven members, whose decisions are subject to a negative consensus adoption rule in the WTO Council

Question 20

Article XXVIII bis of the GATT

Answer 20

members commit to entering into periodic negotiations on a reciprocal and advantageous basis, looking to reduce the general level of tariffs. Once tariff concessions are agreed to in a particular set of negotiations, these become ‘tariff bindings’ which are set out in particular members tariff schedules that constitute an Annex to the GATT

Question 21

WTO: Quantitative Limits

Answer 21

Article XI prohibits the use of quotas or import or export restrictions on the importation or exportation of goods into/ out of state,

Question 22

Non-discrimination

Answer 22

• viewed as the cornerstone of GATT

- underlines two key provisions: Article I and Article III.

Question 23

What is Article I?

Answer 23

the most favoured nation principle

Question 24

What is Article III?

Answer 24

the National Treatment Principle

Question 25

What is the mfn principle?

Answer 25

With respect to customs duties or charges of any kind imposed by any country on any other member country , any advantage shall be accorded to like product countries

Question 26

State Trading enterprises

Answer 26

Article XVII GATT, each member undertakes that its state trading enterprises shall act in a non-discriminatory manner and make purchases/sales in accordance with commercial considerations

Question 27

When does XVII not apply?

Answer 27

to imports for immediate or ultimate consumption in government use and not otherwise for resale.

Question 28

What sets out the rules for subsidies?

Answer 28

The Uruguay Round Subsidies and Countervailing Measures Agreement (SCM Agreement)

Question 29

Government Procurement

Answer 29

treatment procurement applies to government procurement practices albeit with many exceptions/qualifications for state owned enterprises, as well as financial thresholds for contracts to which these principles apply.

Question 30

Trade Remedies

Answer 30

Article VI of GATT recognizes the right of members to take action under domestic trade remedy laws where domestic industries are being injured bc of unfair foreign trading practices, specifically subsidizations and dumping

Question 31

LCDs

Answer 31

special and differential status is given to developing countries under GATT/WTO , both with respect to actions which they are permitted to take relating to imports and with respect to actions that developed countries are expected to take towards them with respect to their exports

Question 32

Exceptions to GATT obligations

Answer 32

Article XX provides a number of exceptions

• necessary to protect public morals
• necessary to protect human or animal health or life
• necessary to secure compliance with laws or regulations which are inconsistent with GATT
• imposed for the protection of national treasures
• or relating to the conservation of exhaustible natural resources.

Question 33

More exceptions to GATT

Answer 33

Under article XXI, national security exceptions are provided for that permit which a member to take any action which it considers necessary for the protection of its security interests or which reflects exigencies of war

Question 34

Doha Round

Answer 34

The most recent round of multilateral negotiations (2001).

Question 35

When were negotiations stalled?

Answer 35

Since 2008 over key issues regarding non-agricultural market access, ag trade liberalization, trade in services, rules on anti dumping, subsidies, countervailing duties, regional trade agreements