SEU Trade Liberization on Agricultural Markets Discussion

Description

Discussion: Global economics
Consider the effect of trade liberalization on agricultural markets. Using your weekly readings and additional research, discuss the challenges experienced by the Saudi Arabia agriculture industry:
1- What financial support does the KSA government provide for its agricultural sectors?
2- How could the KSA improve its agricultural sectors policies?
3- What types of results would you expect for these improvements? Any foreseen consequences?
Required readings:
Chapter 6 in International Economics (attached)
Hoekman, B. (2020). WTO reform priorities post-COVID-19. East Asian Economic Review, 24(4), 337-348.  Retrieved from https://doi-org.sdl.idm.oclc.org/10.11644/kiep.eaer.2020.24.4.383
Trosic, J. (2019). China’s accession to the World Trade Organization: the process and the effects. Megatrend Review, 16(1), 173-192. Retrieved from https://doi-org.sdl.idm.oclc.org/10.5937/MegRev1901173J 

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INTERNATIONAL
ECONOMICS
SEVENTEENTH EDITION
ROBERT J. CARBAUGH
© 2019 Cengage. All rights reserved.
1
Chapter 6
Trade
Regulations &
Industrial
Policies
© 2019 Cengage. All rights reserved.
2
Chapter Outline
(1 of 2)
U.S. Tariff Policies before 1930
Smoot-Hawley Act
World Trade Organization (WTO)
Trade Promotion Authority (Fast Track
Authority)
Safeguards (The Escape Clause):
Emergency Protection from Imports
Countervailing Duties: Protection against
Foreign Export Subsidies
© 2019 Cengage. All rights reserved.
3
Chapter Outline
(2 of 2)
Antidumping Duties: Protection against Foreign
Dumping
Section 301: Protection against Unfair Trading
Practices
Protection of Intellectual Property Rights
Trade Adjustment Assistance
Industrial Policies of the United States
Strategic Trade Policy
Economic Sanctions
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4
U.S. Tariff Policies before 1930
(1 of 5)
U.S. Trade policy marked by fluctuations
Dominant motive behind early tariff laws was
to provide tax revenue
• First tariff law, 1789
• Today, tariffs represent less than 1% of total federal
revenues
As revenue argument for tariffs weakened,
protective argument gained strength
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5
U.S. Tariff Policies before 1930
(2 of 5)
• The Protective Argument
• 1791, Alexander Hamilton, “Report on
Manufacturers” proposed
• Young industries of the United States be granted
import protection until they could grow and prosper
– the infant industry argument
• By 1820s, protectionist sentiments in the U.S.
well established in northern states; opposed
by southern states
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6
U.S. Tariff Policies before 1930
(3 of 5)
• 1828, Tariff of Abominations, 45% duties
• Provoked South ? wanted low duties for its
imported manufactured goods
• Compromise Tariff of 1833, reducing tariffs
• 1840s and 1850s, Walker tariffs, 23%
• To eliminate budget surplus
• Civil War–era Morrill Tariffs of 1861, 1862,
and 1864 to pay for Civil War
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7
U.S. Tariff Policies before 1930
(4 of 5)
• Late 1800s, cheap foreign labor argument
• McKinley and Dingley Tariffs
• 1897, tariffs of 46%
• Payne-Aldrich Tariff of 1909
• Turning point against rising protectionism
• Underwood Tariff of 1913
• Reduced duties to 27%
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8
U.S. Tariff Policies before 1930
(5 of 5)
• World War I
• Protectionist pressures returned
• Early 1920s, scientific tariff concept
• 1922, Fordney-McCumber Tariff
• Tariff rates 38%
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9
Smoot-Hawley Act
Smoot-Hawley Act, 1930
• At onset of Great Depression, attention to
domestically produced goods
• Average tariffs raised to 53%
• Sparked retaliation by 25 trading partners
President Hoover ? protectionist trap
President Roosevelt-dismantled SmootHawley legislation with caution
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10
Reciprocal Trade Agreements Act
Reciprocal Trade Agreements Act, 1934
• Transferred authority from Congress to President
• President – tended to consider national interest in
forming trade policy
• Led to lower tariffs, trade liberalization
Most favored nation (MFN) clause-agreement between
two nations to apply tariffs to each other at rates as low as
those applied to any other nation having MFN status
• Tariff reductions made on a nondiscriminatory basis
• In 1998, U.S. replaced term “most favored nation”
with “normal trade relations”
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11
General Agreement on Tariffs &
Trade (GATT) (1 of 4)
General Agreement on Tariffs & Trade
(GATT), 1947
• Agreement among member nations to
decrease trade barriers and place all nations
on equal footing in trade relations
GATT became World Trade Organization
(WTO) in 1995
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12
General Agreement on Tariffs &
Trade (GATT) (2 of 4)
• Two pillars of nondiscrimination principle
• Most Favored Nation principle (normal trade)
• National treatment principle
• Promoting Freer Trade
• Settling trade disputes
• Improved dispute resolution process by
formulating complaint procedures, providing
conciliation panel
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13
General Agreement on Tariffs &
Trade (GATT) (3 of 4)
• Predictability: Through Binding &
Transparency
• Promising not to increase trade barrier as
important as reducing one
• Businesses had clearer view of future opportunities
• Countries required to disclose trade policies
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14
General Agreement on Tariffs &
Trade (GATT) (4 of 4)
• Multilateral Trade Negotiations
• Prior to GATT, negotiations bilateral, with GATT,
negotiations multilateral
•
•
•
•
1964–67- Kennedy Round
1973–79 – Tokyo Round
1986–1993 – Uruguay Round
1999 – “Battle in Seattle”
• 2002 – Doha Round
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15
World Trade
Organization (WTO)
(1 of 8)
World Trade Organization (WTO)
• Governs conduct of trade relations among
members
• WTO members bind their commitments;
adhere to
• GATT rules
• Broad range of trade pacts that have been
negotiated under GATT auspices in recent
decades
• Database ? trade measures and statistics
© 2019 Cengage. All rights reserved.
16
World Trade
Organization (WTO)
(2 of 8)
• 164 nations, > 97% of world trade
• International organization, headquartered in
Geneva, Switzerland – established in 1995
• Multilateral trading system
• Trade in services, intellectual property, and
investment
• Administers a unified package of agreements
to which all members are committed
• Watchdog of international trade
© 2019 Cengage. All rights reserved.
17
World Trade
Organization (WTO)
(3 of 8)
• WTO is not a government
• Individual nations free to set own appropriate
levels of environmental, labor, health, and safety
protections
• Oversees implementation of tariff cuts and
reductions in nontariff barriers
• Reverses policies of protection in certain
“sensitive” areas
• Settles trade disputes
© 2019 Cengage. All rights reserved.
18
World Trade
Organization (WTO)
(4 of 8)
• Settling Trade Disputes
• Major objective of WTO is to strengthen GATT
mechanism for settling trade disputes
through:
• Consultations
• Dispute panel and appellate body
• Retaliatory tariffs
© 2019 Cengage. All rights reserved.
19
World Trade
Organization (WTO)
(5 of 8)
• Does WTO Reduce National Sovereignty?
• Critics – yes; WTO settles disputes, not U.S.
• Supporters – no; decision of WTO dispute
panel cannot force U.S. to change laws
• Are the specific obligations WTO imposes
greater or less than the benefits U.S.
receives?
© 2019 Cengage. All rights reserved.
20
World Trade
Organization (WTO)
(6 of 8)
• Does the WTO Harm the Environment?
• Two arguments that trade liberalization harms
environment
• Fosters “race to the bottom” in environmental
standards
• Trade liberalization encourages some practices
that are unacceptable to some people (e.g.,
catching dolphins in tuna nets)
© 2019 Cengage. All rights reserved.
21
World Trade
Organization (WTO)
(7 of 8)
• Does Trade Liberalization Improve the
Environment?
• Trade stimulates economic growth, demand
for cleaner environment, tougher
environmental laws
• Trade and growth lead to development and
dissemination of environmentally friendly
production techniques
© 2019 Cengage. All rights reserved.
22
World Trade
Organization (WTO)
(8 of 8)
• Future of the WTO
• Major barrier to multilateral trade deals is
evolving balance of world economic power
• Brazil, Russia, India, & China (BRICs) see
themselves as poor enough to need protection
• Rich countries consider BRICs major competitors
• Trade liberalization proceeds along 2 tracks:
• With trade, attempts to enforce environmental,
labor, & I.P. protections (favored by U.S.)
• Emphasizes decreasing tariffs outside sensitive
sectors (favored by China)
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23
Trade Promotion Authority
(Fast-Track Authority)
Trade promotion authority (fast-track
authority) granted to President
• President actively consults with Congress and
private sector throughout negotiations
• When negotiations complete, outcome subject to
up-or-down vote without amendment in both
houses of Congress within 90 legislative days
Fast-track authority instrumental to major trade
agreements, but efforts to renew face stiff
opposition
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24
Safeguards (The Escape Clause):
Emergency Protection from Imports
(1 of 3)
In addition to WTO rules re: unfair trade
practices, U.S. has trade remedy laws
• Escape clause – temporary safeguard
• President may terminate trade or modify
agreement to prevent injury to U.S. firms
• Initiated by petition from an American industry to
the U.S. International Trade Commission (USITC),
which investigates and recommends response to
president
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25
Safeguards (The Escape Clause):
Emergency Protection from Imports
(2 of 3) Table 6.4
Trade Remedy Law Provisions
Statute
Focus
Criteria for Action
Response
Fair trade (escape
clause)
Increasing imports
Increasing imports are
substantial
cause of injury
Duties, quotas, tariff-rate
quotas, orderly marketing
arrangements,
adjustment assistance
Subsidized imports
(countervailing duty)
Manufacturing
production, or export
subsidies
Material injury or threat of
material injury
Duties
Dumped imports
(antidumping duty)
Imports sold below cost
of production or below
foreign market price
Material injury or threat of
material injury
Duties
Unfair trade (Section
301)
Foreign practices
violating a trade
agreement or injurious
to U.S. trade
Unjustifiable, unreasonable,
or discriminatory practices,
burdensome to U.S.
commerce
All appropriate and
feasible action
© 2019 Cengage. All rights reserved.
26
Safeguards (The Escape Clause):
Emergency Protection from Imports
(3 of 3)
• U.S. Safeguards Limit Surging Imports of
Textiles from China
• Multifiber Arrangement (MFA) restricted
competition from developing exporting countries
with low-cost labor to industrialized nations
• Negotiated each year on per-country basis
© 2019 Cengage. All rights reserved.
27
Countervailing Duties: Protection
against Foreign Export Subsidies
• WTO views export subsidies as unfair
competition
• Importing countries can therefore retaliate by
levying countervailing duty
• Limited to amount of the foreign export subsidy
• Objective is to increase price of imported good to
its fair market value
© 2019 Cengage. All rights reserved.
28
Antidumping Duties: Protection
against Foreign Dumping (1 of 4)
Antidumping Duty
• Rather than seek countervailing duties, U.S.
firms have recently found it easier to convince
U.S. government to impose antidumping
duties
• Offsets
• Export sales in U.S. at prices below average total
cost of production; and
• Price discrimination, where foreign firm sells in
U.S. at price less than that in exporter’s home
market
© 2019 Cengage. All rights reserved.
29
Antidumping Duties: Protection
against Foreign Dumping (2 of 4)
• Antidumping Duty (cont.)
• Antidumping investigations seek:
• Evidence of dumping
• Evidence of material injury
• Link between the dumped imports and the alleged
injury
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30
Antidumping Duties: Protection
against Foreign Dumping (3 of 4)
• Remedies against Dumped & Subsidized
Imports
• Direct effect of dumping and subsidizing imports
is to lower prices, producing benefits and costs
for the importing country
• Benefits consumers, if imports are finished goods,
and consuming industries that use imports as
intermediate inputs (downstream industry)
• Imposes costs on import-competing industry, its
workers, and other domestic industries selling
intermediate inputs of the import-competing industry
(upstream industry)
© 2019 Cengage. All rights reserved.
31
Antidumping Duties: Protection
against Foreign Dumping (4 of 4)
• Remedies against Dumped & Subsidized
Imports (cont.)
• Dumping at prices below fair market value and
subsidizing exports are unfair trade practices
under international trade law
• Can be neutralized by imposition of antidumping or
countervailing duties on dumped or subsidized
goods
© 2019 Cengage. All rights reserved.
32
Section 301: Protection against
Unfair Trading Practices
Section 301 of Trade Act of 1974
• Empowers U.S. Trade Representative (USTR)
to respond to unfair trading practices by
foreign nations
• Foreign-trade restrictions that hinder U.S. exports
• Foreign subsidies that hinder U.S. exports to thirdcountry markets
• USTR can impose tariffs/import restrictions on
products and services or deny foreign country
trade-agreement concessions
© 2019 Cengage. All rights reserved.
33
Protection of Intellectual
Property Rights (1 of 3)
Intellectual property right (IPR) awards
inventor or author exclusive rights to use the
invention for a certain time period
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34
Protection of Intellectual
Property Rights (2 of 3)
• Copyrights
• Protect works of original authorship for remainder of
author’s life plus 50 years
• Trademarks
• Grant manufacturers exclusive rights to a
distinguishing name or symbol
• Patents
• Provide inventors ? for a certain term (15 years or
more) ? exclusive rights to make, use, or sell
inventions
© 2019 Cengage. All rights reserved.
35
Protection of Intellectual
Property Rights (3 of 3) Table 6.7
Examples of Intellectual Property Right Violations in China
Affected Firm
Violation in China
Epson
Copying machines and ink cartridges are counterfeited.
Microsoft
Counterfeiting of Windows and Windows NT, with packaging virtually
indistinguishable from the real product and sold in authorized outlets.
Yamaha
5 of every 6 JYM150-A motorcycles and ZY125 scooters bearing Yamaha’s
name are fake in China. Some state-owned factories manufacture copies
for months following the introduction of a new model.
Gillette
Up to one-fourth of its Parker pens, Duracell batteries, and Gillette razors
sold in China are pirated.
Anheuser-Busch
Some 640 million bottles of fake Budweiser beer are sold annually in China.
Bestfoods
Bogus versions of Knorr bouillon and Skippy Peanut Butter lead to tens of
millions of dollars in forgone sales each year.
Source: From U.S. Trade Representative, National Trade Estimate Report on Foreign Trade Barriers, various
issues, available at http://www.ustr.gov.
© 2019 Cengage. All rights reserved.
36
Trade Adjustment Assistance
U.S. Trade Adjustment Assistance (TAA)
program
Rationale = if society enjoys welfare gains
from increased efficiency from trade
liberalization, some sort of compensation
should be provided for those who are injured
by import competition.
Is TTA necessary?
© 2019 Cengage. All rights reserved.
37
Industrial Policies of the U.S.
(1 of 7)
Industrial policies
• Increase competitiveness of domestic firms
• Offer tax incentives; loan guarantees; lowinterest loans
Export-Import Bank (Eximbank)
• Independent agency of U.S. government that
guarantees working capital loans for U.S.
exporters, credit insurance that protects U.S.
exporters, & commercial loans to creditworthy
foreign buyers of U.S. goods and services
© 2019 Cengage. All rights reserved.
38
Industrial Policies of the U.S.
(2 of 7) Table 6.8
Examples of Loans Provided by Eximbank of the United States
Foreign Borrower/U.S. Exporter
Purpose
Banco Santander Noroeste of Brazil/General Electric
Locomotives
Government of Bulgaria/Westinghouse
Instruments
Air China/Boeing
Aircraft
Government of Croatia/Bechtel International
Highway construction
Government of Ghana/Wanan International
Electrical equipment
Government of Indonesia/IBM
Computer hardware
Japan Airlines/Boeing
Aircraft
Fevisa Industrial of Mexico/Pennsylvania Crusher Inc.
Glass manufacturing equipment
Delta Communications of Mexico/Motorola
Communications equipment
Source: From Export-Import Bank of the United States, Annual Report, various issues, http://www.exim.gov.
© 2019 Cengage. All rights reserved.
39
Industrial Policies of the U.S.
(3 of 7) Figure 6.4
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40
Industrial Policies of the U.S.
(4 of 7)
Figure 6.4:
• Quantity of loanable funds is horizontal axis
• Price of a loan (the interest rate) is vertical axis
• Demand curve (D) for loanable funds is underlaid by JAL’s
demand for investment capital; curve’s downward slope
implies borrowing increases as interest rate decreases
• Supply of loanable funds offered by Bank of America is
denoted by S; its upward slope reflects the law of supply.
• Bank offers more funds to borrowers when the price
(interest rate) increases
• In absence of loan guarantee, market equilibrium occurs at
point A, where $20M is lent at 6% interest rate
© 2019 Cengage. All rights reserved.
41
Industrial Policies of the U.S.
(5 of 7)
• U.S. Airlines & Boeing Spar over Export-Import Bank
Credit
• In 2014, U.S. airlines opposed cheap credit from
Eximbank to foreign countries and companies
• Credit extended at below-market rates
• Puts U.S. airline industry at cost disadvantage
• Delta: Export credit helps Boeing AND negatively
affects U.S. airline industry
• Boeing: Curtailing export credit would jeopardize U.S.
aerospace competitiveness
© 2019 Cengage. All rights reserved.
42
Industrial Policies of the U.S.
(6 of 7)
• U.S. Solar Industry Dims as China’s
Industrial Policy Lights Up
• Bankruptcy of three American solar power
companies leaves China in dominant position
• Chinese government’s effective industrial policy
subsidizes production of solar panels
• Glut of supply with weak demand depresses
prices and profits
• In 2010, President Obama visited Solyndra Inc.;
as it defaulted on government guaranteed loan,
was seen as symbol of failed industrial policy
© 2019 Cengage. All rights reserved.
43
Industrial Policies of the U.S.
(7 of 7)
• Carrier Inc. Agrees to Keep Jobs in
Indiana
• In December 2016, President Trump convinced Carrier
Inc. to keep 1,000 jobs at its Indianapolis factory from
moving to Mexico
• In exchange, Carrier would get a $7 million tax break over
10 years from Indiana and policy
• U.S. won’t become more prosperous by forcing
businesses to make noneconomic investments
© 2019 Cengage. All rights reserved.
44
Strategic Trade Policy
(1 of 2)
Strategic Trade Policy
• Government – help domestic companies to
capture economic profits from foreign
competitors
• Support for certain “strategic” industries
• Important to future domestic economic growth
• Provide widespread benefits (externalities) to
society
• Imperfect competition
• Potential to attain long-term economic profits
© 2019 Cengage. All rights reserved.
45
Strategic Trade Policy
(2 of 2)
• Critics of strategic trade policy
• Special-interest groups may dictate who will
receive government support
• Worldwide retaliation and counterretaliation
• Governments lack information to intervene
intelligently in market
© 2019 Cengage. All rights reserved.
46
Economic Sanctions
(1 of 6)
Economic Sanctions
• Government-mandated limitations placed on
customary trade and/or financial relations
among nations; used to
• Protect domestic economy
• Reduce nuclear proliferation
• Set compensation for property expropriated by
foreign governments
• Combat international terrorism
• Preserve national security
• Protect human rights
© 2019 Cengage. All rights reserved.
47
Economic Sanctions
(2 of 6)
• Imposing nation
• Nation initiating economic sanctions
• Trade sanctions
• Boycotts on imposing-nation exports
• Quotas on imposing-nation imports from
target nation
• Financial sanctions
• Limitations on official lending or aid
© 2019 Cengage. All rights reserved.
48
Economic Sanctions
(3 of 6)
• Target nation
•
•
•
•
•
Unused production capacity
Inward shift of production possibilities curve
Economic inefficiencies
Hardship for the population and government
Reduced growth rate
© 2019 Cengage. All rights reserved.
49
Economic Sanctions
(4 of 6)
• Factors influencing success of sanctions
• Number of nations imposing sanctions
• Degree to which target nation has economic
and political ties to imposing nation(s)
• Extent of political opposition in target nation
• Cultural factors in the target nation
© 2019 Cengage. All rights reserved.
50
Economic Sanctions
(5 of 6)
• Sanction and Nuclear Weapons:
• 1976 (and 2006) in response to Iran’s
continued pursuit of nuclear programs, the
U.S./others levied economic sanctions
• 1950 (when North Korea invaded South
Korea) the U.S. and U.N have imposed
sanctions, justified on the grounds that North
Korea is a threat to global security
© 2019 Cengage. All rights reserved.
51
Economic Sanctions
(6 of 6)
• Russia Hit by Sanctions over Ukraine
• Putin sent troops to Ukraine to support proRussian supporters
• U.S./others imposed economic sanctions
against Russia
• Sanctions hurt Russia, but have not (yet)
effected desired change
© 2019 Cengage. All rights reserved.
52

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Trade Liberalization

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