Canada buys TVs and DVRs from Korea, machinery from Europe, and fashion goods from Hong Kong in exchange for machinery, grain, lumber, airplanes, and financial services.All countries gain from this trade. The combination of diverse preferences and economies of scale create comparative advantages that generate a large volume of international trade in similar but differentiated products.
Forces of international demand and supply determine the terms of trade and the volume of trade.The quantity of “x” that one country must pay another country in exchange for “y” is called the terms of trade.
tariffs may be levied on goods entering (import tariff), leaving (export tariff) , or passing through a country (transit tariff)for protection or revenueon a per unit or a value basisimport tariff most commonraise price of imported goods by placing a tax that is not placed on domestic goods (domestic gets a relative price advantage)Tariffs raise prices and limit trade.
subsidyEU claims Boeing is subsidized by the US gov’t through R&D contracts for military aircraft that have commercial applications.USA claims EU is subsidizing Airbus Industrie through low-interest gov’t loansagricultural subsidyeveryone agrees that these exist in developed countriesofficial reason: food supplies important – subsidies preferable to food shortagesunofficial reason: rural areas have a disproportionately high representation in gov’t decision makingVermont has 1 senator per 300,000 people (63% rural) while California has 1 senator per 18 million people (93% urban)internal politics prevents dismantling of these subsidies
quotaimport quota raises prices by: limiting supply and providing little incentive to use price competition to increase salestariffs generate revenue for governments..quotas generate revenues only for those companies that are able to obtain a portion of the intentionally limited supply of a product that they can then sell to local customerssometimes gov’t allocate quotas based on political or market conditions to get around a quota, some companies convert the product into one for which there is no quotai.e. Sugar prices in the USA are about double the world market price – candy producers have moved plants to Mexico where sugar is cheaper and they ship candy duty-free to the USquotas not necessarily to protect domestic producers – Japan has maintained quotas on many agricultural products that are not produced in Japan. VER -not technically voluntary because usually a country volunteers to reduce its exports or the other country may impose tougher trade regulationsVER is easier to switch on/off than an import quota
The quota limits the quantity that may be importedAt the quota quantity, buyers are willing to pay more than the price that sellers are willing to accept.Importers profit by buying at a lower price than the price at which they sell.A quota can generate the same price, quantity, and inefficiency as a tariff but with a quota, the importer makes an economic profit equal to what the government receives as tariff revenue with a tariff.
It is costly for governments to collect taxes on income and domestic sales. It is cheaper for governments to collect taxes on international transactions because international trade is carefully monitored.This source of revenue is especially attractive to governments in developing nations.transit tariffs were a major source of revenue for countries but gov’t treaties have nearly abolished them
Rent seeking is lobbying and other political activities that seek to capture the gains from trade at the expense of taxpayers, other groups or consumersDespite the fact that protection is inefficient, governments respond to the demands of those who gain from protection and ignore the demands of those who gain from free trade becauseprotection brings concentrated gains and diffused losses
unemploymentno other group has the time and incentive to protest publicly, contact the gov’t representatives and confront organizations; displaced workers are often the ones who are least able to find alternative workone problem is other countries might retaliate with their own restrictions (i.e. USA protected steel and EU, Brazil and Japan threatened to restrict US products like oranges – US rescinded!small trading countries are less important in the retaliation processprotecting infant industriesassumes that initial output costs for a small-scale industry in a given country may be so high as to make its output noncompetitive in world marketsprotection required until companies gain economies of scale and higher productivity through experienceover time, gov’t gets higher domestic employment, lower social costs and higher tax revenuesBUT risk that costs never fall enough to be competitive – gov’t needs to identify industries with high probability of success; also, taxpayer $ could be spent elsewhere like education and infrastructurepromoting industrializationbrings faster growth than agriculture; brings in investment funds; diversifies the economy; brings more income than primary products do; reduces imports and promotes exports; helps the nation-building process
maintainingessential industriesessential-industry argument: protect essential industries during peacetime so a country is not dependent on foreign sources of supply during warneed to determine which industries are essential; consider costs and alternatives; consider political consequencespreventing shipments to “unfriendly” countriessecurity concerns (national defense arguments) used to prevent exports of strategic goods – enemy hands or short-supply domestically (i.e. encryption technologies rules relaxed to include Eu and other European and Pacific Rim allies)assumes importing country doesn’t retaliate (importing country might find alternative source of supplytrade restrictions on nondefense goods may be used as a weapon of foreign policy to prevent another country from meeting its political objectivessphere of influencegov’t give aid and credits to, and encourage imports from countries that join a political alliance or vote a preferred way with international bodiesVenezuela exporting oil at low cost and providing long-term financing to target Latin American countries to gain influence in the regionChina delayed permission for Allianz (Germany insurance group) to operate in China after Germany gave a reception for the Dalai Lamanational identitycountries limit foreign products and services in certain sectors to sustain a collective identityCanada – limits foreign ownership or control of publishing, cable TV and booksellingJapan/South Korea/China used to ban rice imports
GOAL: increase international trade by promoting lower trade barriers and providing a platform for the negotiation of tradeone country cannot privilege a particular trading partner above others within the system, nor can it discriminate against foreign products and servicesfewer trade barriers (tariffs and non-tariff barriers)be predictable, with foreign companies and governments reassured that trade barriers will not be raised arbitrarily and that markets will remain opentend toward greater competitionbe more accommodating for less developed countries, giving them more time to adjust, greater flexibility, and more privileges
ethnicomm inc. is a provider of a wide array of sales, marketing and web strategy consulting services that enable successful market entry or growth for Canadian, American, European and Asian-based small-medium sized businesses.
International Logistics Trade Agreements And Restrictions
International Logistics<br />Trade Agreements and Restrictions<br />
Learning Objectives<br />discuss the purpose of international trade agreements and international trade restrictions<br />
Gains from Trade<br />Both countries gain by consuming output combinations outside their respective production possibilities frontier.<br />Nations will export the goods & services they can produce efficiently (cheaper than other nations) and import the goods & services that other nations produce more efficiently.<br />
Nontariff Barriers – Direct Price Influences<br />subsidies – direct assistance to companies, making them more competitive. Problem is disagreement on what constitutes a “subsidy” <br />other – consular fees, customs clearance and documentation, customs deposits in advance of shipment and minimum selling price levels after receiving customs clearance<br />
Nontariff Barriers – Quantity Controls<br />Two main types of non-tariff barriers to trade:<br />quota is a quantitative restriction on the import of a particular good, which specifies the maximum amount of the good that may be imported in a given period of time<br />voluntary export restraint (VER) is an agreement between two governments in which the government of the exporting country agrees to restrain the volume of its own exports<br />
How Quotas and Voluntary Export Restraints (VERs) Work<br />$<br />QUOTA<br />Buyers will pay more<br />Seller’s acceptable price<br />quantity<br />VER is similar to a quota except that the exporter captures the economic profit.<br />
Why is Trade Restricted?<br />Tariff Revenue<br />Rent Seeking<br />
Tariffs as a Source of Revenue<br />costly for governments to collect taxes – WHY?<br />international trade is carefully monitored – WHY?<br /> especially attractive to governments in developing nations – WHY?<br />
Discussion - Why have Trade Restrictions or Government Intervention?<br />
Why have Trade Restrictions or Government Intervention?<br />
Why have Trade Restrictions or Government Intervention?<br />
International Trade Agreements<br />North American Free Trade Agreement<br />Sources: iit.adelaide.edu.au; wikipedia.org<br />
World Trade Organization<br />establishes rules for international trade through consensus among its member states<br />resolves disputes between the members, which are all signatories to its set of trade agreements<br />headquarters are located in Geneva, Switzerland<br />153 member states<br />
WTO’s goal<br />increase international trade by promoting lower trade barriers and providing a platform for the negotiation of trade<br />
Establishing “free trade” among WTO members<br />
NAFTA<br />“WTO +++” <br />services<br />investment<br />anti-dumping and countervailing <br />determination review<br />rules of origin<br />energy goods<br />
North American Free Trade Agreement (NAFTA)<br />Source: wikipedia.org<br />
European Union (EU)<br />Source: wikipedia.org<br />
Mercosur or MercosulSpanish: Mercado Común del SurPortuguese: Mercado Comum do SulEnglish: Southern Common Market<br />5 Members: Brazil, Argentina, Uruguay, Paraguay, Venezuela<br />5 Associate Members:Bolivia, Chile, Colombia, Ecuador and Peru (AKA Andean Community of Nations or CAN)<br />1 Observer: Mexico<br />MERCOSUR<br />MERCOSUR and CAN are negotiating a merger to create a South American Free Trade Area (SAFTA)<br />Source: wikipedia.org<br />
10 Members:<br />Brunei Darussalam, Cambodia, Indonesia, Laos PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam <br />1 Observer:<br />Papua New Guinea<br />2 Potential Members:<br />East Timor, Australia<br />Source: aseansec.org; wikipedia.org<br />association of south east asian nations (ASEAN)<br />
Caribbean Community and Common Market (CARICOM)<br />15 Members:<br />Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, Saint Kitts and Nevis, Saint Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago<br />5 Associate Members:<br />Anguilla, Bermuda, British Virgin Islands, Turksand Caicos Islands, Cayman Islands<br />7 Observers:<br />Aruba, Colombia, Dominican Republic, Mexico, Netherland Antilles, Puerto Rico, Venezuela<br />Source: wikipedia.org<br />