Free trade areaA group of countries agreeing to abolish all trade restrictions and barriers or charge low rates of tariffs. They may impose barriers on othre countries.
They abolish all trade barriers and low tariffs They have uniform commercial policy towards non-member countries.
All members will abolish restrictions and barriers Uniform policy with respect to other memebers Free movement of human resources and capital.
All members will have no barriers and least tariffs Uniform policy with respct to non members Free movement of capital and human resoruces Uniform monetary and fiscal policy.
Increases size of markets The resources are pooled. Rapid technological innovations and economies of scale. Reduced prices for cusumers.
Trade diversion A can of beer from a potential country is 1.20$ Non partner is 1$. Now If there is tariff for partner it will cost 1.20 for the country If it is 40% tariff for non partner it will be 1.40$. With out the trade agreement countries will be benefited by free trade so that they can get it for 1$.
Tariff refers to tax imposed on imports. Specific tariffs- fixed charge per unit 1000rs for a TV Ad Valorem- Propotion to the value of imported good 100% on imported cars. Advantages Revenue, jobs protected. Disadvantages Highers prices They reduce the efficiency of world economy as the highly efficiently produced goods will not be available to customers.
To protect the domestic producer government pays by costs. In India fertilizer subsidy, power subsidy,pesticides, fixing prices for agricultural inputs etc Due to this foreign produced cannot enter the market. However, advanced countries also provide subsidies USA =.05%, Japan=2%, Sweden=2%, Ireland=7and they in the form of cash grant.
It provides easy access to foreign markets Boeing has the advantage of first mover. However, WTO discourages subsidies as they encourage inefficiency.
India started reducing the subsidies for fertilizers and other farm subsidies The reservation of SSI is removed for most of the SSI units.
Import quota is direct restriction on quantity of goods which are imported into a country. These are done by issuing import licences for different goods. They are removed from 31 March 2001.
It is by exporting country not to export beyond a quantity to a particular country. US request to Japan on import of cars during 1981. Local content requirement is another form of restriction.
LCR requires atleast a particular percentage (50% of compenents or 50% of value should be manufactured in a country).
National security. ( Chinese communication hardware) Protecting domesting industries. ( loss of dolls business, locks etc in India) Protecting jobs Retaliation: Due to political reasons we retaliate other coutries. US not to trade with Cuba.
Market Agriculture Textiles ( Multi Fiber Agreement- 1 January 2005) Trade Related Intellectual property rights. Trade related investment Measures. Trade in services
Government should lessen its control over market forces
Trade distorting support policies should be stopped (Amber Policy or Green Box) Expenditure on research, disease control, expansion of infrastructure, environmental protection, fod security and direct payment for environmental programme.
1 January 2005. Protection of Patents for 20 years. Copy rights and computer programmes is protected for 50 years Trade marks for 7 years
Abolition of restriction on Foreign capital Offering equal rights to foreign investor No limitation for a foreign company No limitation on import of machinary Not to force use of local material Export is not mandatory Restriction on repartiation, divident and royalty