Topic 5: Openness to Trade Flashcards
What is the empirical evidence for openness to trade?
- More openness to trade is associated with higher growth rates.
- But some disagree, saying it is hard to seperate cause and correlation.
What is the Doha Development Round, and what was the result?
A series of trade negociations in 2001 overseen by the WTO, to lower trade barriers.
It collapsed in 2003 due to a isagreement between developed and developing countries.
What is the current trend of trade agreements?
Towards Regional Trade Agreements (RTA’s).
What are the issues with regional trade agreements?
- For three countries, A, B and C, where C is a low cost producer of good X, when they all have equal tariffs, C will be the exporter of X. But if A and B enter a RTA, then C may no longer be the net exporter of X, because it was left out - despite it having the lowest true cost of production.
- It tends to exclude smaller nations - why would the US negociate a trade agreement with Bhutan, or Australia?
What is an ad valorem tax?
A tax that is proportional to the value of the good.
i.e. a 5% tax.
‘Good’ for goods that change price over time.
What is a spcific tax?
A fixed charge per unit of a good.
So the size of the tarrif depends on the quantity imported.
Useful when that good is homogenous.
Why do country of origin restrictions exist for free trade agreements?
Because if A & B have an RTA, and B & C have an RTA, then a smart trader could produce in A, export to B, then export to C - effectively bypasing tarrifs between A and C.
Many free trade agreements require that the goods must be produced entirely or to some minimum extent in the country of question.
What is the WTO’s rule for discrimination?
That no member can discriminate between like products from different trading partners, except for environmental purposes. The implementation of such policies may not be discriminatory between countries. Countries do not need to seek permission to run these policies.
