World Trade Organisation & Restrictions On Trade Flashcards
What is Bilateral trade
Exchange of goods between 2 countries that facilitate trade and investment by reducing or eliminating tariffs and quotas.
Goal of it is to expand access to markets and increase economic growth.
They standardise regulations, labour standards and environmental protections.
Reasons for restrictions on trade?
1) job protection in the domestic industries.
2) response to dumping allegations
3) raise tax revenues.
4) improve balance of payments current account.
5) environmental/ market failure grounds.
What is trade restriction?
The byproduct of protectionism. It’s an artificial restriction on the trade of goods and services.
What is import dumping?
Dumping happens when firms sell products abroad at below the costs of significantly below equilibrium price at home. It implies predatory pricing which is illegal.
Anti dumping duties raise the price to help local producers.
“Dumping margin” is the difference between the import price and normal value in exploiting country.
What are anti-dumping tariffs?
1) ad valorem duty: % of net EU frontier price.
2) specific duty : fixed value for certain goods.
3) variable duty: minimum import price.
4) lesser duty rule: duties can’t exceed level needed to repair the harm done to European industry.
What is protectionism?
The theory of shielding a country’s domestic industries from foreign competition by taxing imports.
5 motivations for protectionism?
1) safeguard domestic employment
2) raise government tax revenue
3) protect key strategic industries
4) prevent export dumping
5) correct balance of payments disequilibrium.
Method one of protectionism- import tariff
It aims to protect domestic industries by increasing the price of imported goods.it generates tax revenue and improves a nations trade balance.
Method two of protectionism - non tariff barriers.
1) intellectual property laws
2) technical barriers to trade
3) domestic subsidies make them more competitive.
4) hidden protectionism (discriminate foreign workers)
5) managed exchange rates
6) financial protectionism
Method three of protectionism - import quota
It’s a trade restriction that sets a physical limit on the quantity of a good that can enter a country.
Method four of protectionism - domestic subsidy
Subsidy is a form of financial help given by the government to domestic producers in order to lower costs and help compete internationally.
Causes an outward shift in supply.
Extent of reduction in cost depends on size of subsidy.
What is the world trade organisation?
International organisation that regulates international trade.
It helps to promote trade.
Required to reduce average import tariff when you join, countries such a China and Russia have recently joined.
Challenges faces by the world trade organisation?
1) Complexity of production
2) shifting global economic power
3) rising unemployment & slow growth in developed world.
4) fragmentation of global trading systems.
