Trade Policies and Agreements

Question 1

Define Free Trade

Answer 1

absence of government intervention
allows specialization
encourages efficiency

Question 2

Define Protectionism

Answer 2

departure from free trade designed to give some protection to domestic industries from foreign competition

Question 3

Define and list the types of tariffs

Answer 3

Tariffs - taxes on imports
specific - X $/unit
and valorem - % of product price

Question 4

Why were tariffs imposed?

Answer 4

protection

revenue

Question 5

What are Non Tariff Barriers? (NTB)

Answer 5

quantitative restrictions 
import quotas - revenues to foreign producers/ domestic dealers US domestic government
voluntary export restrictions (VER)
import licenses 
standards and codes 
foreign exchange restrictions

Question 6

What are the arguments for protectionism?

Answer 6

self sufficiency/ strategic industries
Ex. agriculture, energy, military
diversification for stability - may be desirable, but going against CA.
infant industry - temporarily shield new industries from competition in order to establish economies of scale
prevent unfair competition
dumping - selling in a foreign market at below cost
export subsidies
countervailing duties imposed to level playing field
protect domestic jobs - usually just redistribute jobs towards uncompetitive import - competing industries and away from competitive export industries with efficiency loss to society

Question 7

What is the General Agreement on Trades and Tariffs (GATT)?

Answer 7

post WWII
successful at reducing tariffs/ liberalizing trade; not so great with NTBs
last round was Uruguay Round (1990s) - agricultural subsides a major issue
superseded by World Trade Organization (WTO)

Question 8

What is the World Trade Organization (WTO)?

Answer 8

Superseded GATT
Help settle trade agreements between countries
come up with trade policies

Question 9

What is the European Union (EU)

Answer 9

free trade zone within, EU + common policies towards outside countries
harmonization of standards and codes
complete factor mobility - EU citizenship/ passports
Common Currency (Euro) among 17 members - Eurozone
future goals includes harmonization of fiscal policy - European punishment

Question 10

What was the Canada US Free Trade Agreement?

Answer 10

most tariffs phased out over 7 year period

predictions of elimination of Canadian identity proven wrong

Question 11

What is the North American Free Trade Agreement (NAFTA)?

Answer 11

free trade zone between Canada, US and Mexico
Differences between Canada/ US and Mexico caused greater concerns
because of peso crisis in 1990s, Mexican standard of living took long time to improve