International trade
Download
1 / 193

International Trade - PowerPoint PPT Presentation


  • 110 Views
  • Uploaded on

International Trade. Cheng Ming 程铭 School of Economics, Shanghai University [email protected] Introduction. Importance of foreign trade -- one of the backbones of the growth of the economy -- ties or linkages with the world -- important political means

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about ' International Trade' - izzy


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
International trade
International Trade

Cheng Ming 程铭

School of Economics, Shanghai University

[email protected]


Introduction
Introduction

  • Importance of foreign trade

    -- one of the backbones of the growth of the economy

    -- ties or linkages with the world

    -- important political means

  • Overview of Chinese foreign trade


Important terms
Important Terms

  • International Trade vs. Foreign Trade

  • tangible goods trade vs. Intangible goods trade

    -- SITC (Standard International Trade Classification)

    -- HS (Harmonized System)

  • A.跨境交付 (cross border supply)

  • B.境外消费 (consumption abroad)

  • C.商业存在 (commercial presence)

  • D.自然人流动 (presence of natural person)


Important terms1
Important Terms

  • International trade value vs. international trade quatumn

  • international trade quatumn

  • = International trade value / import and export price index

  • international trade value= Sum of export value of the world (FOB)

  • China’s foreign trade value= Export(FOB)+ Import (CIF)


Important terms2
Important Terms

  • general trade vs. special trade

  • composition of foreign trade

  • direction of international trade

  • international trade by region


Important terms3
Important Terms

a. Net (commodity) terms of trade

N = Px/Pm χ 100

b. Income terms of trade

I = Px/Pm χ Qx

c. Single factor terms of trade

S=Px/Pm χ Zx

d. Double factor terms of trade

D = Px/Pm χ Zx/Zm χ 100

  • terms of trade

    ----The ratio of export price index/import price index

    --- Improvement and worsening of the terms of trade

    --- do not mix up with the concept of trade terms

    ---- Classification of terms of trade


China s foreign trade volume us billion
China’s Foreign Trade Volume($US billion)




Chapter one absolute advantages
Chapter One Absolute Advantages

  • Free trade theory

  • Put forward by Adam Smith

  • When the protectionism was popular at that time -- Mercantilism


Mercantilism
Mercantilism

  • It is the first international trade theory, emerged in the mid-16th century in England.

  • Main representative is Thomas Men, his principle is reflected in his book England’s Wealth from International Trade– regarded as the Bible of Mercantilism.


Mercantilism1
Mercantilism

  • the assertion was that gold & silver were the mainstays of national wealth & essential to vigorous commerce

  • under the gold standard system, gold & silver were the currency of trade between countries

  • the main tenet of Mercantilism was to maintain trade surplus

  • implication of Mercantilism – no virtue in a large volume of trade per se, rather to maximize exports by subsidies, and minimize imports by tariffs and non-tariff barriers.


Mercantilism2
Mercantilism

An inherent inconsistency in the Mercantilism

  • pointed out by the classical economist David Hume –Specie –flow mechanism

  • Mercantilism as a bankrupt theory that has no place in the modern world? -- is Mercantism passe?


Absolute advantage
Absolute Advantage

  • Adam Smith (1723-1790) attacked the Mercantilism assumption that trade is a zero-sum game (therefore is the game of beggar thy neighbor), instead , trade is a positive-sum game.

  • In his 1776 landmark book An Inquiry into the Nature and the Causes of the Wealth of the Nations (briefly, the Wealth of Nations),absolute advantage theory was put forward


Absolute advantage1
Absolute Advantage

  • Before Specialization


Absolute advantage2
Absolute Advantage

  • After Specialization


Chapter two comparative advantag e the ricardian model
Chapter TwoComparative Advantage--- The Ricardian Model

  • The Concept of Comparative Advantage

    Two basic reasons for International Trade

  • Countries can benefit from doing things they do well

  • Reaching economies of scale in production


  • David Ricardo, in his 1817 book “The Political Economy and Taxation” put forward the theory of Comparative Advantage

  • A company has a comparative advantage in producing a good if the opportunity cost in terms of other goods is lower.

  • Each country can benefit from the exporting the goods in which it has a comparative advantage.


2 a one factor economy
2. A One-factor Economy

  • In Ricardian model, international trade is SOLELY due to the differences in the productivity of labor

  • An Economy – Home

    Two Goods – Wine & Cheese

    One Factor – Unit labor requirement

  • We define:

    aLW – unit labor requirement in wine

    aLc – unit labor requirement in cheese

    L – total labor supply


Production possibility
Production Possibility

Qw

Slop: opportunity cost of cheese in terms of wine

L/a

LW

aLC/aLW

Qc

L/a

LC

Production Possibility Frontier


Relative prices and supply
Relative Prices and Supply

  • PPF illustrates the mixture of goods the economy can produce

  • The actual production mix is based on the relative prices (no profits in One-factor model)

  • If Pc/Pw > aLC/aLW, specialize in the production in cheese

  • If Pc/Pw = aLC/aLW, both goods will be produced

  • The economy will produce cheese if the relative price exceeds it opportunity cost


3 trade in a one factor world
3. Trade in a One-factor World

We assume: Home country is less productive than

Foreign in Wine, but more productive in Cheese

Therefore:

aLC/aLW < a*LC/a*LW

Or, equivalently, that

aLC/a*LC < aLW/ a*LW

Therefore, Home country has comparative advantage

in Cheese


Determining the relative pricafter trade
Determining the Relative Pricafter Trade

Relative price

of Cheese

a*LC/a*Lw

Rs

1

aLC/aLw

R

2

RD

L/aLc

Relative Quantity

of Cheese

Q

L/a*LW


  • Point 1, the intersection of demand curve R and RS curve, where the relative price of cheese is between the two countries’ pretrade prices. Each country will specialize in the production of the good in which it has a comparative advantage.

  • Point 2, the world relative price after trade is the same as the opportunity cost of cheese in terms of wine in Home, Home economy need not specialize, while Foreign does specialize in producing wine.


The gains from trade
The Gains from Trade where the relative price of cheese is between the two countries

  • The First Way

    -- to think of trade as an indirect method of production, i.e. Home can produce wine directly and trade with Foreign for cheese (produce indirectly)

    -- for an hour of labor, direct production 1/aLW wine, or 1/aLC cheese and be trade with wine

    -- if (1/aLC)(PC/PW) > 1/aLW, or PC/PW > aLC/aLW

    trade will be beneficial


  • The second way where the relative price of cheese is between the two countries– how trade will affect the possibilities for consumption.

Trade Expands Consumption Possibilities

Quantity

of wine, Qw

Quantity

of wine, Qw

T

F

P

F

P

T

Quantity

of cheese, Qc

Quantity

of cheese, Qc

(a) Home

(b) Foreign


Relative wages
Relative Wages where the relative price of cheese is between the two countries

  • Political discussion of international trade often focus on comparisons of wage rates in different countries.

Unit Labor Requirements

Cheese Wine

Home aLC = 1hr per pound aLW = 2hr per gallon

Foreign a*LC = 6 hr a*LW = 3hr


  • Since, where the relative price of cheese is between the two countriesaLC/aLW < a*LC/a*LW

  • So, Home will produce Cheese, Foreign produce Wine

  • Suppose a unit of cheese and wine both sell for $12, Home worker will earn $12 per hour, while Foreign worker will earn $4

  • As long as the relative price of cheese to wine is 1, the wage of Home workers will be 3 times that of Foreign workers.

  • Home still has a comparative advantage in producing cheese since this wage rate lies between the ratios of the two countries productivities in the two countries.


4 misconceptions about comparative advantage
4. where the relative price of cheese is between the two countriesMisconceptions aboutComparative Advantage

  • Productivity and Competitiveness

    Myth 1: Free trade is beneficial only if your country is strong enough to stand up to foreign competition.

  • The Pauper Labor Argument

    Myth 2: Foreign competition is unfair and hurts other

    countries when it is based on low wages.

  • Exploitation

    Myth 3: Trade exploits a country and makes it worse off if its workers receive much lower wages than workers in othernations.


5 comparative advantage with many goods
5.Comparative Advantage with many goods where the relative price of cheese is between the two countries

  • With many goods, we label aLi and a*Li as labor requirement for Home and Foreign, and rearranged as:

    aL1/a*L1< aL2/a*L2 < aL3/a*L3 < …< aLN/a*LN

  • Let w and w* be the wage rate per hour in Home and Foreign, respectively

  • We know that it would produce cheaper in Home if

    waLi < w*a*Li, and it can be rearranged to yield

    a*Li/aLi > w/w*


Home and Foreign Unit Labor Requirements where the relative price of cheese is between the two countries

Relative Home

Good Home Unit Labor Foreign Unit Labor Productivity

Requirements(aLi) Requirements(a*Li) Advantage(a*Li/aLi)

Apples 1 10 10

Bananas 5 40 8

Caviar 3 12 4

Dates 6 12 2

Enchiladas 12 9 0.75


6 adding transport cost and nontraded goods
6. Adding Transport Cost and Nontraded Goods where the relative price of cheese is between the two countries

There are three reasons why specialization in the real international economy is not the extreme:

  • The existence of more than one factor

  • Countries sometimes protect industries from foreign competitions

  • It is costly to transport goods and services. i.e. because of the transport cost, there exists nontraded goods


Chapter three
Chapter Three where the relative price of cheese is between the two countries

Specific Factors and Income Distribution


1 the specific factors model
1.The Specific Factors Model where the relative price of cheese is between the two countries

  • Although international trade is beneficial to both of the countries, it is, however, has strong effects on the distribution of income. While trade may benefit a nation as a whole, it often hurts significant groups within the country, at least in the short run.

  • We use the specific factors model to explain.


  • Assumption of the Model: where the relative price of cheese is between the two countries

    -- an economy produce two goods: manufactures and

    food.

    -- three factors: labor(L), capital(K), and land(T)

    -- labor is the Mobil factor, while K and T are specificfactors for manufactures and food, respectively

    -- so, QM = Q M(K,LM)

    QF = QF(T,LF)

    LM + LF = L


Production possibilities
Production Possibilities where the relative price of cheese is between the two countries

The Production Function for Manufactures

Output, QM

The more labor input, the larger the output.

Because of the

diminishing returns,

the successive input will have less output.

Reflected by a flatter

Curve.

QM=QM(K,LM)

Labor

Input,LM


The marginal product of labor
The Marginal Product of Labor where the relative price of cheese is between the two countries

Marginal product

of labor, MPLM

The marginal productof labor equal to theslop of the productionfunction.

MPLM

Labor

Input,LM


The production possibility frontier in the specific factors model
The Production Possibility Frontier in the Specific Factors Model

Output of food, QF, (increasing )

Economy’s Production

Possibility

Frontier(PPF)

QF=QF(T,LF)

1’

QF

L

QM

LF

PP

Labor input

In food, LF

(increasing )

Output of

Manufactures,

QM

(increasing )

1

LM

L

Labor input

In manufacturers, LM

(increasing )

OM=QM(K,LM)


  • In the Specific Factors Model, the PPF is an convex line (reflecting diminishing returns to labor), while in the Ricardian Model, it is a straight line (reflecting constant returns)

  • The slop of the production possibility curve

    = - MPLF/MPLM

  • The slop represents the opportunity cost for manufactures in terms of food.


Price wages and labor allocation
Price, Wages, and Labor Allocation (reflecting diminishing returns to labor), while in the Ricardian Model, it is a straight line (reflecting constant returns)

  • Each sector will hire labor to the point until to the point where the value produced by an additional person-hour equals to the cost of employing that hour. In manufacturing sector, for instance:

  • MPLM хPM = W, because of the diminishing returns, MPLM is a downward curve, giving the constant price of the manufactures.

  • We can also consider the above equation as the demand curve.


  • Since (reflecting diminishing returns to labor), while in the Ricardian Model, it is a straight line (reflecting constant returns)

  • MPLMхPM = MPLFхPF = w, therefore,

  • - MPLF/MPLM = - PM/PF

  • The result tells us that at the production point the production possibility frontier

    must be tangent to a line whose

    slop is minus the price of

    manufactures divided by

    that of food.

QF

Slop =

-(PM/PF)

QM


An equal proportional increase in the prices of manufactures and food
An equal proportional increase in the prices (reflecting diminishing returns to labor), while in the Ricardian Model, it is a straight line (reflecting constant returns)of manufactures and food

Wage

Rate, w

2

PFхMPLF

1

PFхMPLF

PM

Increase

10%

PF Increase 10%

w2

10%

Wage

increase

2

2

PMхMPLM

w1

1

1

PMхMPLM

Labor used in

Manufactures, LM

Labor used

In food,LF


  • If both goods (reflecting diminishing returns to labor), while in the Ricardian Model, it is a straight line (reflecting constant returns)’ prices increase by 10%, the labor demand curves will both shift up by 10%. The allocation of labor between the sectors and the outputs of the two goods do not change.

  • So it generates a general principle: changes in the overall price level have no real effects, that is, do not change any physical quantities in the economy. Only changes in relative prices -- affect welfare or the allocation of resources.


A change in relative prices
A change in relative prices (reflecting diminishing returns to labor), while in the Ricardian Model, it is a straight line (reflecting constant returns)

Wage

Rate,w

1

PFхMPLF

7% upward

Shift in labor

demand

2

W1

w2

2

Wage rate

Rises by

Less than

7%

PMхMPLM

1

1

PMхMPLM

Labor used in

Manufactures,

LM

Labor used

In food,

LF

Amount of labor

shifted from food

to manufactures


  • Two important facts about the results of the shift of the labor in the above diagram

  • First, although the wage rate rises, it rises by less than the increase in the price of manufactures.

  • Second, when only PM rises, in contrast to the case of a simultaneous rise in PM and PF, labor shifts from the food sector to the manufacturing sector and the output of manufactures rises while that of food falls. (This is why w dose not rise as much as PM: because manufacturing employment rises, the marginal product of labor in that sector falls.


Relative prices and the distribution of income
Relative prices and the distribution of Income labor in the above diagram

  • Let’s discuss the the results of the shifts of labor for the incomes of three groups:

  • 1) Workers – their wage rate has risen, but less than in the proportion to the rise in PM. Thus, their real wage in terms of manufactures (w/PM) falls, while (w/PF) rises.

  • So, the warfare of workers are uncertain, depending upon their preferences of consumption.


  • 2) Owners of capital, are definitely better off. The real wage rate in terms of manufactures has fallen, so that the profits of capital owners in terms of what whey produce rises.

  • 3) Owners of land are definitely worse off. The lose for two reason:

    --- the real wage in terms of food rises, squeezing their income, and

    --- the rise in manufactures prices reduces the purchasing power of any given income.


2 international trade in the specific factors model
2. International Trade in the Specific Factors Model wage rate in terms of manufactures has fallen, so that the profits of capital owners in terms of what whey produce rises.

  • We know that an increase in the supply of manufactures (or land) would increase manufactures (food) output and reduce the food (manufactures) output.

  • Now we suppose that American has a larger supply of land than Japan; while Japan has a larger supply of capital than American.


  • We also suppose that under any PM/PF, the demand of two countries is the same, i.e. trade is occurred only because of the difference of the relative supply

  • Therefore, the relative price of manufactures is determined by the world relative supply RSworld and world relative demand Rdword.


Relative price countries is the same, i.e. trade is occurred only because of the difference of the relative supply

Of manufactures, PM/PF

RSA

RSworld

RSj

(PM/PF)A

(PM/PF)world

(PM/PF)j

RDworld

Relative quantity

Of manufactures,

QM/QF


Trade pattern and budget constraint
Trade pattern and Budget constraint countries is the same, i.e. trade is occurred only because of the difference of the relative supply

  • In a closed economy, output equals to consumption, so

    DM = QM, DF = QF

  • Although trade makes it possible for a country to consume the different mix of manufactures and food, the value of consumption must be equal to the value of production, so

    PM хDM + PF хDF = PM хQM + PF хQF, or

    DF – QF = (PM/PF) х(QM – DM)


The budget constraint for a trading economy
The budget constraint for a trading economy countries is the same, i.e. trade is occurred only because of the difference of the relative supply

Consumption of food, DF

Output of food, QF

Point 1 represents the economy’s

Production. The economy’s con-

sumption must lie along a line that

Passes through point 1 and has a

Slope equal to minus the relative

Price of manufacturers.

Budget constraint

(slope = - PM/PF)

1

1

QF

Production

Possibility

frontier

1

QM

Consumption of

Manufacturers,DM

Output of

Manufacturers, QM


3 income distribution and the gains from trade
3. Income distribution and the gains from trade countries is the same, i.e. trade is occurred only because of the difference of the relative supply

  • After trade, it leads to a convergence of relative prices.

  • Trade benefits the factor that is specific to the export sector of each country but hurts the factor specific to the import-competing sectors, with ambiguous effects on mobile factors.

  • Do the gains outweight the losses? Through the diagram in the next page, we find that trade potentially benefits a country since it expends the economy’s choices of consumption.


Trade expands the economy s consumption possibilities
Trade expands the economy countries is the same, i.e. trade is occurred only because of the difference of the relative supply’s consumption possibilities

Consumption of food, DF

Output of food, QF

Before trade, economy’s pro-

duction and consumption were at Point 2 on its production possibilities frontier (PP). After trade, The economy can consume at any point on its budet constraint in the colored region consists of feasible posttrade consumption choices with consumption of both goods higher than at the pretrade point 2.

2

Budget constraint

(slope = - PM/PF)

1

QF

1

PP

Consumption of

Manufacturers, DM

Output of

Manufacturers, QM

1

QM


4 the political economy of trade a preliminary review
4. The political economy of trade: a preliminary review countries is the same, i.e. trade is occurred only because of the difference of the relative supply

  • Optimal trade policy

    In spite of the real importance of income distribution, most economists remain strongly in favor of more or less free trade, reasons are:

    a. Income distribution effects are not specific to international trade.

    b. It is always better to allow free trade and compensate those who are hurted by trade than to prohibit it.


c. countries is the same, i.e. trade is occurred only because of the difference of the relative supplyThose who stand to lose from increased trade are typically better organized than those who stand to gain. This imbalance creates a bias in the political process that requires a counterweight.

  • Income distribution and trade politics in most of the countries, including the U.S.A., those who want trade limited are more effective politically than those who want it extended. Typically, those who gain from trade in any particular product are a much less concentrated, informed, and organized group than those who lose.


Chapter four resources and trade the heckscher ohlin model
Chapter Four countries is the same, i.e. trade is occurred only because of the difference of the relative supplyResources and Trade –The Heckscher-Ohlin Model

1. A model of Two-factor Economy

  • The economy produce two goods – cloth and food

  • Two factors – labor and land

  • aTC = acres of land used to produce one unit of cloth

  • aLC = hours of labor used to produce one unit of cloth

  • aTF = acres of land used to produce one unit of food

  • aLF = hours of labor used to produce one unit of food

  • L and T = supply of labor and land


Input possibilities in food production
Input Possibilities in food production countries is the same, i.e. trade is occurred only because of the difference of the relative supply

Unit land input aTF,

in acres

Input combinations

that produce oneunit

of food

A farmer can

Produce a unit of

Food with less land

If he or she uses more

Labor,and vice versa.

II

Unit land input aLF,in hours


  • What he or she will actually use? countries is the same, i.e. trade is occurred only because of the difference of the relative supply

  • It depends on the relative cost of land and labor

    -- factor prices: w/r (wage rate per hour of labor/ cost of one unit of land)

  • It is represented by the Figure as the curve FF.

  • There is a corresponding relationship between w/r and the land-labor ratio in cloth production. As showed by the curve CC.

  • Curve CC lies to the left of FF, indicating production of food uses a higher ratio of land to labor than the production of cloth.


Factor prices and input choices
Factor prices and input choices countries is the same, i.e. trade is occurred only because of the difference of the relative supply

在每个部门,生产中所使用的土地与劳动的比例取决于劳动与土地的相对价格,即w/r。图中的FF曲线表示在粮食生产中的土地-劳动比的选择,CC曲线则表示在棉布生产中的土地-劳动比率。对于任何一个给定的工资-租金比,粮食生产会使用较高的土地-劳动比率。在这种情况下,我们称粮食生产为土地密集型(land intensive),棉布生产为劳动密集型(labor intensive).

Wage-rental

ratio, w/r

CC

FF

Land-labor

Ratio, T/L


Factor prices and goods prices
Factor prices and goods prices countries is the same, i.e. trade is occurred only because of the difference of the relative supply

Relative price of Cloth, PC/PF

由于棉布生产是劳动密集型的,粮食生产是土地密集型的,要素相对价格w/r与商品相对价格PC/PF存在着一 一对应的关系,劳动的相对成本越高,劳动密集型产品的相对价格就越高。图中的SS曲线显示了这种关系。

SS

Wage-rental

ratio, w/r


From goods prices to input choices
从商品价格到要素投入的选择 countries is the same, i.e. trade is occurred only because of the difference of the relative supplyFrom Goods Prices to Input Choices

给定棉布的相对价格,工资与地租的比例一定等于(w/r)1. 对应于这一工资—地租比例,棉布和粮食生产中的土地与劳动比例分(TC/LC)1和(TF/LF)1. 如果棉布的相对价格上升(PC/PF)2, 工资—地租比就一定会上升到(w/r)2,从而造成两个部门生产中使用的土地– 劳动比例提高.

Relative

Price of cloth

PC/PF

CC

FF

2

w/r

1

w/r

Land-

Labor

Ratio

T/L

1

1

2

2

1

2

PC/PF

PC/PF

TC/LC

TC/LC

TF/LF

TF/LF

Increasing

Increasing


The allocation of resources
The allocation of resources countries is the same, i.e. trade is occurred only because of the difference of the relative supply

Increasing

Labor used in food production

OF

Increasing

Land used in food

production

Increasing

C

Land used in clothproduction

1

F

OC

Labor used in cloth production

Increasing


  • What will be happen, if the economy resources change, say, by increasing the offer of land.

  • We notice that an increase the economy’s supply of land will lead to a fall in the output of the labor intensive good, with the rise of the output of the land intensive good.

  • That is, there is a biased expansion of production possibilities.


Resources and production possibilities
Resources and Production Possibilities by increasing the offer of land.

资源供给的变动对生产可能性的偏向性效应是理解资源差异如何导致国际贸易的关键。土地供给的增加使一国的生产可能性向偏向于粮食生产的方向扩张,而劳动的增加使生产可能性向偏于棉布生产的方向扩张。因此,土地对劳动的相对供给比较高的国家在生产粮食生产上具有相对优势。一般说来,一个国家生产本国相对充裕资源密集型的产品具有比较优势。

Output of food,QF

Slope= -PC/PF

2

2

QF

Slope=

-PC/PF

TT2

1

1

QF

TT1

1

2

Output of cloth, QC

QC

QC

-- known as the “Rybcznski effect” (罗布津斯基效应)


2 effects of international trade between two factor economies
2. Effects of International Trade Between Two-Factor Economies

  • Relative prices and the Pattern of Trade

    -- since Home is the labor-intensive economy, Home tends to produce a higher ratio of cloth to food.

    -- When Home and Foreign trade, their relative prices converge.

    -- Since Home is abundant in labor, cloth production uses a higher ratio of labor to land in its production than food, since cloth is labor-intensive product, Home will export cloth and import food.


Trade leads to a convergence of relative prices
Trade Leads to a Convergence of Relative Prices Economies

Relative price

of cloth, PC/PF

贸易前,点1是本国的均衡

点,即本国的相对需求曲线 RD和相对供给曲线RS的交点。同理,点3是外国贸易前的均衡点。贸易后,世界相对价格位于贸易前两国均衡点之间,如点2所示。

RS*

RS

3

.2

1

RD

Relative quantity

of cloth, QC+QC*

QF+QF*


Trade and distribution of income
Trade and Distribution of Income Economies

  • Owners of a country’s abundant factors gain from trade, but owners of a country’s scarce factors lose.

  • We find that factors of production that are “stuck” in an import-competing used intensively by the import-competing industry are hurt by the opening of trade.

  • The distinction between income distribution effects due to immobility and those due to differences in factor intensity also reveals that there is frequently a conflict between short-term and long-term interests in trade.


Factors price equalization
Factors Price Equalization Economies

  • There is a tendency toward the equalization of factor prices.

  • However, we find the assumption do not meet the real world: reasons are:

    -- we assume countries produce both goods;

    -- countries have the same technologies;

    -- factor price equalization depends on the complete convergence of the prices of the goods which is not the fact.


3 empirical evidence on the h o model
3. EconomiesEmpirical Evidence on the H-O Model

  • Leontief Paradox

  • H-O model has been less successful at explaining the actual patterns of international trade than one might hope, it remains vital for understanding the effects of trade, especially its effects on the income distribution.


Chapter five the standard trade model
Chapter Five EconomiesThe Standard Trade Model

  • Ricardian Model has conveyed the essential idea of comparative advantage, but difficult for discussing the distribution of income.

  • The Specific Model is effective in explaining the income distribution, however, awkward for discussing the trade pattern.

  • The H-O Model is helpful in deeper understanding of the trade pattern due to the differences of resources.


1 a standard model of trading model
1. A Standard Model of Trading Model Economies

  • All of the above models can be viewed as special cases of a more general model of a trading economy.

  • The Standard Model is much more effective in explaining the issues such as:

    -- the effects of shifts in world supply resulting from economic growth;

    -- shifts in world demand resulting from foreign aid;

    -- simultaneous shifts in supply and demand resulting from tariffs and export subsidies.


Production possibilities and relative supply
Production Possibilities and Relative Supply Economies

  • The basic assumption of the model: two goods – food (F) and cloth (C), with a smooth PPF(TT).

  • We know that the actual mix of production is determined by the relative price PC/PF.

  • Any economy will maximize the value of output: V = PCQC + PFQF, or

    QF = V/PF – (PC/PF)QC

  • Isovalue lines – lines along which the value of output is constant.


Relative prices determine the economy s output
Relative Prices Determine the Economy Economies’s Output

Food

Production, QF

An economy whose

Production possibility

frontier is TT will

produce at Q, which

is on the highest

possible isovalue

line.

Isovalue lines

. Q

TT

Cloth

Production, QC


Relative prices and demand
Relative Prices and Demand Economies

  • Giving any economy,

  • PCQC + PFQF = PCDC + PFDF = V

  • The economy’s choice of a point on the isovalue line depends on the tastes of its consumers – represented by a series of indifference curves.

  • Please note the three characteristics of the indifference curves


How an increase in the relative price of cloth affects relative supply
How an Increase in the Relative Price of Cloth Affects Relative Supply

Food

Production, QF

The isovalue lines become steeper when the relative price of cloth rises from VV1(PC/PF)1 to VV2(PC/PF)2. As a result , the economy produces more cloth and less food and the equilibrium output shifts form Q1 to Q2

.

Q1

.

VV1(PC/PF)1

Q2

VV2(PC/PF)2

Cloth

Production,QC


Production consumption and tradein the standard model
Production,Consumption, and Tradein the Standard Model Relative Supply

The economy produces at point Q, where the production possibility frontier is tangent to the highest possible isovalue line. It consumes at point D, where that isovalue line is tangent to the highest possible indifference curve. The economy produces more cloth than it consumes and therefore export cloth; correspondingly, it consumes more food than it produces and therefore imports food.

QF

Indifference curves

.

D

Food

import

.

Q

Isovalue lines

TT

QC

Cloth exports


Effects of a rise in the relative prices of cloth
Effects of a Rise in the Relative SupplyRelative Prices of Cloth

QF

The slop of the isovalue lines is equal to minus the relative price of cloth PC/PF, so when that relative pricerises all isovalue lines become steeper. In particular, the maximum-value line rotates from VV1 to VV2. Production shifts from Q1 to Q2, consumption shifts from D1 to D2.

.

D2

.

D1

.

Q1

.

VV1(PC/PF)1

Q2

VV2(PC/PF)2

TT

QC


The welfare effect of changes in the terms of trade
The Welfare Effect of Changes in the Terms of Trade Relative Supply

  • When PC/PF increases, a country that initially exports cloth is made better off, since its consumption moved from D1 to D2.

  • The general conclusion: a rise in the terms of trade increases a country’s welfare, while a decline in the terms of trade reduces its welfare.

  • Economic growth(represented by the shift of the RS curve) vs. welfare – is economic growth in other countries good or bad for Home? And is growth in a country more or less valuable when that nation is part of a closely integrated world economy?


Growth and the ppf
Growth and the PPF Relative Supply

  • Economic growth means an outward shift of a country’s PPF.

  • International trade

    effects of growth

    results from the

    fact that such growth

    has a bias.

QF

.

.

TT1

TT2

QC

Growth biased toward cloth


Relative supply and the terms of trade
Relative Supply and the Terms of Trade Relative Supply

Suppose Home has a growth strongly biased toward cloth, so the World as a whole the relative output of cloth to food will rise, resulting a decrease in the relative price of cloth. Export-biased growth tends to worsen a growing country’s terms of trade, to the benefit of the rest of the World.

PC/PF

RS1

RS2

.

1

(PC/PF)1

.

2

(PC/PF)2

RD

QC+QC*

QF+QF*

Cloth –biased growth


Immiserizing growth
Immiserizing Growth Relative Supply

  • Some analysts suggested that the growth in poorer nations would actually be self-defeating. The export-biased growth would worsen their terms of trade.

  • Jagdish Bhagwati of Columbia University argued that such perverse effects of growth can in fact arise within a rigorously specified economic model. It can be occurred when the export-biased growth combined with very steep RS and RD curves, so that the change in the terms of trade is large enough to offset the initial favorable effects of an increase in a country’s productivity capacity.


2 international transfers of income effects on a transfer on the terms of trade
2. International Transfers of Income Relative Supply-- effects on a transfer on the terms of trade

  • If Home makes a transfer of its income to Foreign, Home’s income is reduced, and Foreign’s expenditure is increased.

  • It would lead to a shift in world relative demand and thus affect the terms of trade.

  • The shift of the RD curve is the only effect of a transfer of income. The RS curve does not change.

  • However, the terms of trade is also depended on the allocation of the spending.


Effects of a transfer on the terms of trade
Effects of a transfer on the terms of trade Relative Supply

If Home has a higher propensity to spend on cloth than Foreign, a transfer of income by Home to Foreign shifts the RD curve left from RD1 to RD2, reducing the equilibrium relative price of cloth.

PC/PF

1

.

(PC/PF)1

.

2

(PC/PF)2

Qc+QC*

QF+QF*


  • therefore, a transfer worsens the donor Relative Supply’s terms of trade if the donor has a higher marginal propensity to spend on its export goods than the recipient.

  • Since the actual spending patterns of each country seems to have a relative preference for its own goods, and also there exists the nontrade goods, as well as the effect of barriers to trade, most international economists believe that the transfer of income worsens the donor’s terms of trade.


3 tariffs and export subsides simultaneous shifts in rs and rd
3. Tariffs and export subsides: Relative Supplysimultaneous shifts in RS and RD

  • If Home imposes a certain percentage of tariff on the value of food, say, 20%, the internal price of food relative to cloth faced by Home producers and consumers will be 20% higher than the external relative price of food on the world market

  • At any given world relative price of cloth, Home will face a lower relative cloth price, and then will produce less cloth and more food. So the world relative supply of cloth will fall, while the relative demand for cloth will rise.

  • Therefore, Home’s terms of trade will improve at the expense of Foreign.


Effects of a tariff on the terms of trade
Effects of a tariff on the terms of trade Relative Supply

Relative price

Of cloth,PC/PF

RS2

An import tariff imposed by Home will both reduces the relative supply of cloth and increase the relative demand of cloth. As result, the relative price of cloth must rise. Home’s terms of trade will improve.

RS1

2

(PC/PF)2

RD2

1

(PC/PF)1

RD1

Relative quantity

Of cloth, QC+QC*

QF+QF*


Effects of an export subsidy
Effects of an export subsidy Relative Supply

  • If Home offers a 20% subsidy on the value of any cloth exported. For any given world prices this subsidy will raise Home’s internal price of cloth relative to food by 20%.

  • Therefore, Home will produce more cloth and less food, while leading Home consumers to substitute food for cloth.

  • A Home export subsidy worsens Home’s terms of trade and improves Foreign’s.


Chapter six economies of scale imperfect c ompetition and international trade
Chapter Six Relative SupplyEconomies of Scale,Imperfect Competition,and International Trade

1. Economies of scale and international trade:-- an overview

  • Economies of scale, also referred to as increasing returns, exists in many industries. Therefore, production is more efficient in the larger scale.

  • Classification of economies of scale:

    -- External/internal economies of scale,

    -- Static /dynamic economies of scale


2 the theory of imperfect competition
2. The theory of imperfect competition Relative Supply

  • Perfect vs. imperfect competition

    -- perfect competition: there are many buyers and sellers, none of whom represents a large of part of the market, so firms are price takers.

    -- imperfect competition: only a few major producers in an industry, firms will view themselves as price setters.

  • Two characteristics of imperfect competition

    -- in an industry, there are only a few major producers, and

    -- each producer’s product is seen by consumers as strongly differentiated from those of rival firms.


Monopolistic pricing and production decision
Monopolistic Pricing and Production Decision Relative Supply

一个具有垄断地位的厂商

会选择这样一个产量: 在该

产量上, 边际收益等于边际

成本。这个利润最大化的

产量就在图中的点QM,

与QM对应的价格为PM。

由于边际收益总是低于

价格,因此边际收益曲线

MR位于需求曲线D的下方。

垄断利润等于阴影的长

方形面积,即等于价格与

平均成本之差乘以产量QM。

Cost, C and

Price, P

Monopoly profit

PM

AC

AC

D

MC

MR

QM

Quantity,Q


Monopolistic competition model
Monopolistic Competition Model Relative Supply

  • Two key assumptions:

  • Each firm is assumed to be able to differentiate its product from that of its rivals.

  • Each firm is assumed to take the prices charged by its rivals as given – that is, it ignores the impact of its own price on the prices of other firms.

    -- assumption of the model

    Q = S× [1/n– b× (p –p)]

    Where, Q is the sales volumes of the firm, S is the overall sales volumes of the industry, n is the number of firms, p and p stand for the price of the firm and the average price of the industry.

_


Equilibrium in a monopolistically competition
Equilibrium in a monopolistically competition Relative Supply

垄断竞争市场里的厂商数以及各厂商的定价由两个关系所决定:一方面,市场中的厂商数越多,则它们的竞争越激烈,相应地定价也较低。这一关系由曲线PP反映。另一方面,厂商数越多,各厂商的销售量也越少,因而平均成本较高。这一关系由曲线CC表示。如果价格高于平均成本,该行业就会赢利,更多的厂商进入该行业。反之,亦然。当平均成本与价格相等时(E)点,形成均衡的价格与厂商数。

Cost C, and

Price, P

CC

AC3

P1

P2,AC2

AC1

P3

.

PP

n1

n3

n2

Number

Of firms,n


Limitations of the monopolistic competition model
Limitations of the Monopolistic Competition Model Relative Supply

  • There are two kinds of behavior arises in the general oligopoly setting that are excluded by assumption from the monopolistic model:

  • First is the collusive behavior (合谋行为) – through explicit agreements between firms, or through tacit coordination strategies, such as price leader.

  • Second is the strategic behavior (战略行为)– through some of the behaviors that may affect the competitors. E.g. additional production capacity,


3 monopolistic competition and trade
3.Monopolistic Competition and Trade Relative Supply

  • Since,

  • AC = F/Q + c = n×F/S + c

  • International trade will increase the total sales S, reducing the average costs for any given number of firms n. Therefore, the CC curve in the larger market will be below that in the smaller market.

  • P = c + 1/(b× n)

  • The size of the market does not enter into the equation, so an increase in S does not shift the PP curve. (sea slide 95)


Effects of a larger market
Effects of a larger market Relative Supply

Cost, C and

Price P

在其他条件不变的

情况下,随着市场

规模的扩张,各厂商

能生产更多的产品,

平均成本也随之下降,

结果是厂商数目的

增加,可获取的商品

种类也因之而丰富,

各种商品的价格下跌。

CC1

CC2

1

P1

P2

2

PP

n1n2

Number of

Firms,n


Economies of scale and comparative advantage
Economies of scale and Comparative advantage Relative Supply

  • The difference between this model and the factor proportional model is that manufacturers is not a perfectly competitive industry in which a number of firms all produce differentiated products.

  • Because of economies of scale, neither country is able to produce the full range of manufactured products by itself; thus, although both countries may produce some manufactures, they will be producing different things.

  • If we assume the manufacture is a monopolistic competitive sector, Home will be a net exporter of manufacture and an importer of food.


Home Relative Supply

(capital abundant)

Manufactures Food

Trade in a World

Without Increasing

Returns

Foreign

(labor abundant)

Home

(capital abundant)

Manufactures Food

Interindustry

trade

Trade with

Increasing Returns

and Monopolistic

Competition

Intraindustry

trade

Foreign

(labor abundant)


Four points about this pattern of trade
Four points about this pattern of trade Relative Supply

  • Interindustry trade(manufactures and food) – due to comparative advantage.

  • Intraindustry trade(manufactures for manufactures) – due to economies of scale

  • The pattern of intraindustry trade itself is unpredictable.

  • The relative importance of intraindustry and interindustry trade depends on how similar countries are. The importance of intraindusty trade equals to

exports – imports

I = 1 -

exports + imports


4 dumping and reciprocal dumping
4. Dumping and Reciprocal Dumping Relative Supply

Cost,C and

Price,P

MC

3

PDOM

1

2

DFOR=MRFOR

PFOR

DDOM

MRDOM

QMONOPOLY

QDOM

Quantities produced

and demanded,Q

Domestic Sales

Exports

Total Output


5 the theory of external economies
5. The Theory of External Economies Relative Supply

  • Economies of scale apply at the level of the industry rather than at the level of the individual firms.

  • Three main reasons why a cluster of firms may be more efficient than an individual firm in isolation:

    -- Specialized Suppliers

    -- Labor Market Pooling

    -- Knowledge Spillovers


External economies and international trade
External Economies and International Trade Relative Supply

As this model shows, external economies potentially give a strong role to historical accident in determine who produce what, and may allow established patterns of specialization to persist even they run counter to comparative advantage.

Price, Cost (per watch)

C0

1

P1

ACSWISS

2

ACTHAI

D

Quantity of Watches

Produced and demand

Q1


Trade and welfare with external economies
Trade and Welfare with External Economies Relative Supply

Price,Cost (per watch)

Clearly in this

situation trade

leaves Thailand

worse off than

it would be in

the absence of

trade

Co

1

P1

P2

ACSWISS

2

ACTHAI

DWORLD

DTHAI

Quantity of watches

Produced and demanded


Dynamic increasing returns
Dynamic increasing returns Relative Supply

  • External economies arising from the accumulation of knowledge differ something from the external economies considered above.

  • Dynamic increasing returns -- learning curve is determined by the cumulative output of the industry to date.

  • While for ordinary external economies, the cost of the industry is determined by the prevailing production quantity.


Chapter seven international factor movements
Chapter Seven Relative Supply:International Factor Movements

  • 1. International Labor Mobility

  • A One- good Model without factor mobility

Marginal Product

Of labor, MPL

Output, Q

Q (T,L)

Rents

Real

wage

MPL

Wages

Labor, L

Labor, L


Causes and effects of international labor mobility
Causes and Effects of International Labor Mobility Relative Supply

MPL*

MPL

Marginal product

of labor

B

A

MPL*

MPL

C

L2 L1

Foreign Q*

Employment

QHome

employment

Migration of labor

From Home to Foreign

Total world labor force


2 international borrowing and lending
2. International Borrowing and Lending Relative Supply

  • When we speak of capital flow in this part, we refer to it as a financial transaction – that is one country make loan to another.

  • International borrowing and lending can be interpreted as a kind of trade –intertemporal trade (跨时贸易)

  • Any economy will produce and consume its output either at present or in the future, therefore, it involves a trade-off between present and future production of the consumption good.

  • We can summarize by drawing an intertemporal production possibility frontier.


The intertemporal production possibility frontier
The Intertemporal Production Possibility Frontier Relative Supply

A country can trade current consumption for future consumption in the same way that it can produce more of one good by producing less of another.

Future

consumption

Present

consumption


  • The shape of intertemporal PPF will differ among countries Relative Supply

  • Let suppose Home’s PPFs are biased toward current consumption, while Foreign toward future

  • Without international borrowing and lending, Home will have a higher relative price of future product consumption than in Foreign

  • Therefore, Home will export present consumption and import future consumption

  • The relative price of future consumption is determined by interest rate --- 1/(1+r)


  • Let’s assume that Home’s intertemporal PPF is biased toward present production – therefore Home has a comparative advantage in present production – a low relative price of present consumption.

  • A country has a comparative advantage in future production of consumption goods is one that in the absence of borrowing and lending would have a low relative price of future consumption – a high real interest rate.A high interest rate means a high return to diverting resources from current production to future

  • So countries that borrow in the international market will be those where highly productive investment opportunities are available relative to current productive capacity. (lenders are actually export their current consumption ).


3 direct foreign investment and multinational firms
3. Direct Foreign Investment and Multinational Firms toward present production – therefore Home has a comparative advantage in present production – a low relative price of present consumption.

  • Another important form of capital movement is direct foreign investment (FDI)

  • A distinctive feature of FDI is that it involves not only a transfer of resources but also the acquisition of control

  • The point is that while multinational firms sometimes act as a vehicle for international capital flows is to allow the formation of multinational organizations – the extension of control is the essential purpose.


The theory of multinational firms
The theory of Multinational Firms toward present production – therefore Home has a comparative advantage in present production – a low relative price of present consumption.

  • Location – why should a firm to produce the same product in different countries

    -- differences of resources / transportation costs / government restrictions

  • Internalization – why is production in different location done by the same firm in stead of a different country?

    -- it turns out to be more effective and profitable to carry out transactions within a firm rather than between firms, because:

    a) technology transfer – difficult to determine the price

    b) vertical integration – upstream and downstream often get into conflicts, these problems can be reduced or avoided through a single vertically integrated firm.


Chapter eight the instrument of trade policy tariffs
Chapter Eight toward present production – therefore Home has a comparative advantage in present production – a low relative price of present consumption.The Instrument of Trade Policy -- Tariffs

1. Purposes of Tariffs

  • (1) revenues

  • (2) protections


2 ways of calculation of the tariffs
2.Ways of Calculation of the Tariffs toward present production – therefore Home has a comparative advantage in present production – a low relative price of present consumption.

(1) specific duty

(2) compound duty or mixed duty

(3) alternative duty: natural rubber

(4) sliding duty: cotton

(5) tariff quote rate: wheat, cotton, sugar, wool, fertilizer ,etc


2 ways of calculation of the tariffs1
2.Ways of Calculation of the Tariffs toward present production – therefore Home has a comparative advantage in present production – a low relative price of present consumption.

(1) ad valorem duty

  • Tariffs = Dutiable Valuex Tariff Rate

  • The dutiable value is determined based on the "transaction value", -- Tokyo Round of GATT


3 categories of tariffs
3. Categories of Tariffs toward present production – therefore Home has a comparative advantage in present production – a low relative price of present consumption.

(1) import duty

since 2002, China has four different rates: Common rate, MFN rate, Agreement rate and Special rate

(2) export duty

Purposes: revenue, maintaining domestic production, ect.


3 categories of tariffs1
3. Categories of Tariffs toward present production – therefore Home has a comparative advantage in present production – a low relative price of present consumption.

  • (3) import surtax

  • purposes: to cope with balance-of-payment crisis, maintaining trade balance, anti-dumping, and discrimination against foreign counties

  • temporary duties

  • Most commonly are: anti-dumping and counter-vailing duties


3 categories of tariffs2
3. Categories of Tariffs toward present production – therefore Home has a comparative advantage in present production – a low relative price of present consumption.

  • Anti-dumping duty

  • Article 6 of GATT:

  • 1. For the purpose of this agreement, a product is to be considered as being dumped, i.e., introduced into the commerce of another country at less than its normal value, if the export price of the product exported from one country to another is less than the comparable price, for the like product when destined for consumptions in the exporting country.

  • 2. Sales of the like product in the domestic market of the exporting country or sales to a third country at prices below per unit (fixed and variable) costs of production plus administrative, selling and general costs may be treated as not being in the ordinary course of trade by reason of price and may be disregarded in determining normal value …


3 categories of tariffs3
3. Categories of Tariffs toward present production – therefore Home has a comparative advantage in present production – a low relative price of present consumption.

  • Counter-vailing duty

  • any subsidies directly or indirectly from the government

  • Production subsidies and export subsidies

  • GATT classification:

  • prohibited subsidies

  • actionable subsidies

  • non-actionable subsidies


3 categories of tariffs4
3. Categories of Tariffs toward present production – therefore Home has a comparative advantage in present production – a low relative price of present consumption.

  • summary:

  • Conditions for the anti-dumping and counter-vailing duties:

  • 1. the fact of dumping or subsidies

  • 2. material damages (or threats of the damages) to the domestic industry

  • 3. The existence of a cause and effect relationship between the dumping or subsidy and the damages


3 categories of tariffs5
3. Categories of Tariffs toward present production – therefore Home has a comparative advantage in present production – a low relative price of present consumption.

  • generalized system of preferences, GSP

  • It was put forward by 77 members from the developing countries in 1964 on the first session UNCTAD, and came into effect in July 1971.

  • Basic principles of GSP:

  • 1.general --- all products (manufactured goods and primary products)

  • 2.non discrimination--- all developing countries

  • 3. non-reciprocal — developing countries only offer MFN to the products from the developed countries.


4 optimal tariff
4. optimal tariff toward present production – therefore Home has a comparative advantage in present production – a low relative price of present consumption.

  • optimal tariff refers to the rate of tariff where the welfare of a nation can be maximized.

  • Generally speaking, there will be a dual effect of the improvement of terms of trade and reduction of trade volume. Therefore, the overall welfare is based on the degree of these two effects.

  • “small country” will have no effect of the improvement of the terms of trade, the optimal tariff is zero.

  • For “big country”, it is somewhere in between the prohibitive and zero rate.

  • The optimal tariff is inversely proportional to the elasticity of the supply curve of the foreign exporter. The less of the elasticity, the higher of the level of the optimal tariff.


5 degree of protection of tariffs
5. Degree of protection of tariffs toward present production – therefore Home has a comparative advantage in present production – a low relative price of present consumption.

  • 1.tariff level: the average of the import duty. In 2008, it was 9.8% for China,among which agricultural products was 15.2%,industrial goods was 8.9%.

  • Nominal rate of protection – arithmetic average

    Actual rate of protection – weighted average

  • 2. nominal rate of protection: the ratio between the part of the domestic price above the international price with the international price.

  • 3.effective rate of protection: refers to the change of the value added for a certain product because of the overall tariff system.

  • Z = (W-V)/V ×100% = (T-at)/(1-a) ×100%


Chapter eight the instrument of trade policy
Chapter Eight toward present production – therefore Home has a comparative advantage in present production – a low relative price of present consumption.The Instrument of Trade Policy

  • 6. Basic tariffs analysis

  • Supply, demand, and trade in a single industry

    -- without tariffs, the world

    price is determined by

    Home import demand

    (MD) and Foreign export

    supply (XS)

Price, P

XS

PW

MD

Quantity,Q

QW


Effects of a tariff
Effects of a Tariff toward present production – therefore Home has a comparative advantage in present production – a low relative price of present consumption.

Foreign Market

Home Market

World Market

S

Price,P

Price,P

Price,P

S*

XS

2

PT

1

t

PW

PT*

3

D

MD

D*

Quantity,Q

Quantity,Q

Quantity,Q

QT QW

A tariff raises the price in Home while reduces the price in Foreign. The volume traded declines.


  • Note, the increase in the price in Home is less than the amount of the tariff, because part of the tariff is reflected in a decline in Foreign’s export price

  • Therefore, Home has the effect of the improvement of trade terms

  • If Home is a “small country”, where it cannot affect foreign export price. As a result of the tariff, imports fall in the country imposing the tariff, while price raises equal to the tariff imposed. (see next figure)


A tariff in a small country
A tariff in a small country amount of the tariff, because part of the tariff is reflected in a decline in Foreign

Price,P

When a country is small, a tariff it imposes cannot lower the foreign price of the good it imports. As a result, the price of the import rises and the quantity of imports demanded falls

S

PW+t

PW

D

S1 S2 D1 D2

Quantity,Q

Imports after tariff

Imports before tariff


2 costs and benefits of a tariff
2.Costs and Benefits of a tariff amount of the tariff, because part of the tariff is reflected in a decline in Foreign

The costs and

benefits to

different groups can be represented as sums of the five areas a, b, c, d and e

Price,P

S

PT

Pw

PT*

c

a

b

d

e

D

Quantity, Q

S1 S2 D1 D2

QT


  • Consumers surplus loss: amount of the tariff, because part of the tariff is reflected in a decline in Foreigna + b + c + d

  • Domestic producers gain: a

  • Government revenue gain through tariff: c + e

  • e represents the terms of trade gain

  • Production distortion loss: b

  • Consumption distortion loss: d

  • Efficiency loss: b + d

  • The net cost of a tariff:

    = (a + b + c + d) – a – (c + e)

    = b + d – e


Net welfare effects of a tariff
Net welfare effects of a tariff amount of the tariff, because part of the tariff is reflected in a decline in Foreign

Terms of

Trade

gain

Consumption

distortion

loss

d

b

e

Production distortion loss


7 others instruments of trade policy
7. Others instruments of trade policy amount of the tariff, because part of the tariff is reflected in a decline in Foreign

  • Export subsidies

Price,P

S

PS

PW

PS*

Producer gain:a+b+c

Consumer loss:a+b

Government subsidy:

b+c+d+e+f+g

Consumption and pro-

duction loss:b and d

Additional terms of

trade loss:e+f+g

a

b

c

d

Subsidy

e

f

g

D

Quantity,Q

Exports


Price, $/ton amount of the tariff, because part of the tariff is reflected in a decline in Foreign

Supply

  • Import quota – U.S. Import Quota on Sugar

Consumer loss: a+b+c+d

Producer gain: a

Quota rents: c

a

c

d

b

Demand

5.14 6.32 8.45 9.26

Quantity of

Sugar million

tons

Import quota

2.13 million tons


  • Voluntary Export Restraints (VER) – or Orderly Market Agreements (OMA)

  • Local Content Requirements

    -- no strict limit on imports, it allows firms to import as long as it buy more domestically, so the effective price of inputs of the firms is an average of the price of imported and domestically produced inputs. This differences of prices pass on to consumers.

  • Export credit subsidies

  • National procurement

  • Red-tape barriers – War of Poitiers


Comparing a tariff and a quota
Comparing a Tariff and a Quota Agreements (OMA)

Price,P

A quota leads

to lower domestic output and a higher price than a tariff that yields the same level of imports.

MC

Pq

PW+t

PW

D

Dq

MRq

Quantity,Q

QqQt



Chapter nine the political economy of trade policy
Chapter Nine Agreements (OMA)The Political Economy of Trade Policy

  • 1. The case for Free Trade

  • Free Trade and Efficiency

    -- a free trade would remove both production and consumption distortions and increases national welfare

  • Additional Gains From Free Trade

    -- economies of scale

    -- providing entrepreneurs with an incentive to seek new ways to export or compete with imports, since free trade offers more opportunities for learning and innovation than are provided by a system of “managed” trade.


  • Political Argument for Free Trade Agreements (OMA)

    -- it reflects the fact that a political commitment to free trade may be a good idea in practice even though there may be better policies in principle.

    1) The conventionally measured costs of deviating from free trade are large.

    2) There are other benefits from free trade that add to the costs of protectionist policies.

    3) Any attempt to pursue sophisticated deviations from free trade will be subverted by the political process.


2 national welfare arguments against free trade
2. National Welfare Arguments Against Free Trade Agreements (OMA)

  • The terms of trade argument for a tariff

    -- a sufficiently small

    Tariff the terms of trade

    benefits must

    outweight the cost.

National Warfare

1

Optimal Prohibitive Tariff Rate

tariff,t0 Tariff, tp


  • The Domestic Market Failure Argument Against Free Trade Agreements (OMA)

    -- the basic theoretical case for free trade rested on cost-benefit analysis using the concepts of consumer and producer surplus.

    -- some economists argue that these concepts do not properly measure the benefits of producing a good.

    -- since labor in a sector may be unemployed or underemployed, the existence of defects in the capital and labor market may prevent the transfer, the possibility of technological spillovers from industries – domestic market failure


Distortion from tariff a and b, however, the calculation overlooks an additional benefit that may make the tariff preferable to free trade. Since the increase in production yields a social benefit

Price,P

s

a

PW+t

PW

b

D

Quantity,Q

S1 S2 D2 D1

Dollars

Marginal

Social

benefit

c

Quantity,Q

S1 S2


  • The social benefit is derived from the experience of production that improve the technology of the economy as a while but that the firms in the sector cannot appropriate this benefit and therefore do not take it into account in deciding how much to produce.

  • The marginal social benefit is the additional production that is not captured by the producer surplus measure.

  • We can prove that as the economy impose a sufficient small tariff, the extra social benefit (c) would outweight the distortions (a) and (b).

  • The domestic market failure argument against free trade in a particular case of a more general concept known in economies as the theory of the second best.


3 income distribution and trade policy
3. Income Distribution and Trade Policy production that improve the technology of the economy as a while but that the firms in the sector cannot appropriate this benefit and therefore do not take it into account in deciding how much to produce.

-- the discussion so far is confined to the national warfare, when we look at the reality, there is always individual’s desire reflected in the objectives of the government.

-- in the following model we will assume the governments are trying to maximize political success rather than the abstract measurement of national welfare.

  • Electoral Competition

    -- the so-called median voter.(中点选民)


选民被依照其偏好的关税税率的高低而排成一条直线。如果一个党派提出高关税选民被依照其偏好的关税税率的高低而排成一条直线。如果一个党派提出高关税A, 那么另一个党派就可能提出通过一个较低的关税税率B而赢得大部分选票。政治竞争迫使两个党派对提出接近于M的关税率, 其中M是中点选民所偏好的关税税率。

Preferred tariff rate

tA

tB

tM

Political support

Median

Voter

Voters


  • however, this model doest not work well, in fact, it makes an almost precisely wrong prediction.

  • According to this model, a policy should be chosen on the basis of how many voter it pleases. A policy that inflicts large losses on a few people but but benefits a large number of people should be a political winner.

  • What is the reality?


  • Collective Action an almost precisely wrong prediction.

    - there is a problem of collective action: while it is in the interests of the group as a whole to press for favorable policies, it is not in any individual’s interests to do so.

  • Modeling the Political Process

    - politicians may win the elections partly because they advocate popular policies – need money. So the relevant policies favoring the group that offering sufficient financial contribution will be put forward. Some people therefore envision the trade policy as a sort of auction – in which interest groups “buy” policies.


4 international negotiations and trade policy
4. International Negotiations and Trade Policy an almost precisely wrong prediction.

The Advantages of Negotiation

  • Helps mobilize support for free trade

  • Helps governments avoid getting caught in destructive trade wars.

    Intentional Trade Agreements: A Brief History

  • GATT – in 1947

  • WTO – 1995

  • Free Trading Agreements/Customs Union/Common Market/Economic Union


Chapter ten trade policy in developing and developed countries
Chapter Ten an almost precisely wrong prediction. Trade Policy in Developing and Developed Countries

1. Trade Policy in Developing Countries

  • Import-substitution Industrialization

    -- The Infant Industry Argument

    Pitfalls of the Infant Industry Arguments

  • It is not always good to try to move today into the industries that will have a comparative advantage in the future

  • Protecting manufacturing does no good unless the protection itself helps make industry competitive.


c. an almost precisely wrong prediction. The implementation of the policy is costly and time consuming to build up an industry.

Justifications for Infant Industry Protection: -- two reasons why infant industry should be protected:

a. Imperfect capital market(市场失灵): infant industry in developing countries does not have a set of financial institutions, through protection, it allows more rapid growth – as a second best policy

b. The problem of appropriability(无偿占用问题) – the idea is that firms in new industry generate social benefits for which they are not compensated.


-- an almost precisely wrong prediction. Promoting Manufacturing Through Protection, in most developing countries, the basic strategy for industrialization has been used to develop industries oriented toward the domestic market by using trade restrictions such as tariffs and quotas to encourage the replacement of imported manufactures by domestic products.

As a strategy of promoting manufactures, the import-substituting industrialization has worked. The problem is :has the strategy promoted the growth of economic development?


The problems of the dual economy
The Problems of the Dual Economy an almost precisely wrong prediction.

  • The division of a single economy into two sectors that appear to be at very different levels of development is referred to an economic dualism.

  • The presence of economic dualism is often used to justify tariffs that protect the apparently efficient manufacturing sector.

  • Some economists have argued that import-substitution policies have actually helped to create the dual economy or at least aggravate some of its symptoms.


Export oriented industrialization
Export-oriented industrialization an almost precisely wrong prediction.

  • Those countries adopting the policies have achieved spectacular economic growth. The so called HPAEs – high performance Asian economies.

  • Some people argue that there is a correlation between rapid growth in exports and rapid overall economic growth, and the relatively low rates of protection in the HPAEs helped them to growth.

  • The miracle can be contributed to : high trade ratio, high saving rate and rapid growth of education level


2 strategic trade policies in advanced countries
2. Strategic Trade Policies an almost precisely wrong prediction. in Advanced Countries

  • Arguments for strategic trade policy

  • Technology and Externalities – firms can appropriate some of the benefits of their own investment in knowledge, while other firms can benefit through “reverse engineer”.

  • Imperfect Competition and Strategic Trade Policy– since there exists the market failure that justifies the government intervention in the lack of perfect competition.


The brander spencer analysis
The Brander-Spencer Analysis an almost precisely wrong prediction.

  • Effects of a subsidy to Airbus

Airbus

Boeing

- 5

0

Produce

Don’t produce

- 5

100

0

100

0

0


  • however, the problems of the strategic policies would face foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries’.

  • We should note that strategic policy cannot be judged by asking whether the targeted industries grew. Although some of the industries finally grow and achieve substantial market share, but this does not mean that the policies accelerated economic growth, because an interventionist policy will not accelerate economic growth unless it corrects a market failure.


Chapter eleven regional economic integration
Chapter foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries ElevenRegional Economic Integration

  • Levels of Regional Economic Integration

  • Theoretically, from the least to the most integrated levels:


Levels of regional economic integration
Levels of Regional Economic Integration foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

Preferential Trade Arrangement

Free Trade Area

Customs Union

Common Market

Economic Union

Political Union


Preferential trade arrangement
Preferential Trade Arrangement foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

  • Features:

  • Remove barriers partly or fully, within one or more areas between member countries.


Free trade area
Free Trade Area foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

  • Features: Removing all barriers of goods and services; each country is allowed to determine its own trade policies.

  • Examples:

  • Most enduring one: EFTA(1960), between Norway, Iceland, Liechtenstein, and Switzerland

  • Most inflectional one: NAFTA (1994), between U.S.A., Canada and Mexico


Customs union
Customs Union foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

  • Features: adopts a common external trade policy

  • Typical example:

  • Andean Pact (Bolivia, Colombia, Ecuador and Peru)

  • EU began as a customs Union and has moved well beyond this stage.


Common market
Common Market foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

  • Features: allows factors of production to move freely (needs significant degree of harmony and cooperation on fiscal, monetary and employment policies)

  • Typical example:

  • MERCOSUR, between Argentina, Brazil, Paraguay and Uruguay, 1991


Economic union
Economic Union foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

  • Features: requires a common currency, harmonization of tax rates, and a common monetary and fiscal policy.

  • Typical example: EU, 1993


  • China Singapore Free Trade Agreement. foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

    -- signed on the 23 Oct. 2008, and came into effect on the 1 Jan. 2009.

  • China Costa Rica Free Trade Agreement.

    -- was singed on 8 Apr. 2010, and came into effect on the 1 Aug. 2011.

  • China Peru Free Trade Agreement.

    -- was signed on the 28 Apr. 2009, and came into effect on the 1 Mar. 2010.


  • FTAs under negotiation: foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

    Gulf Cooperation Council (GCC), Australia, Norway, Iceland, and Southern African Customs Union (SACU).

  • FTAs under consideration:

    -- China India Regional Trade Arrangement Joint Feasibility Study

    -- China Korea FTA Joint Feasibility Study

    -- China Japan Korea Joint Feasibility Study

    -- China Switzerland FTA Joint Study

  • Preferential Trade Arrangement

    -- Asian Pacific Trade Arrangement


Briefings of apta
Briefings of APTA foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

  • The Asia-Pacific Trade Agreement (APTA) is a preferential trade arrangement formerly known as the Bangkok Agreement. The Bangkok Agreement, signed in 1975 as an initiative of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), is a preferential trade arrangement among developing countries. Till now, signatories to the Agreement include China, Bangladesh, India, Lao, Republic of Korea and Sri Lanka. At the First Session of the Ministerial Council of the Bangkok Agreement in Beijing on November 2, 2005, representatives from the member countries endorsed the revised text of the Agreement and decided to rename the Agreement as the Asia-Pacific Trade Agreement. Since Sep. 1, 2006, the outcome of the third round of tariff cut talks was successfully implemented by all members of APTA. At present, the fourth round of negotiations is underway and it involves tariff concessions of trade in goods, trade in services, investment, trade facilitation, and non-tariff measures, etc.


Chinese views
Chinese Views foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

  • The Chinese Government deems Free Trade Agreements (FTAs) as a new platform to further opening up to the outside and speeding up domestic reforms, an effective approach to integrate into global economy and strengthen economic cooperation with other economies, as well as particularly an important supplement to the multilateral trading system. Currently, China has 15 FTA partners comprising of 28 economies, among which 10 Agreements have been signed already.


The economic case for integration
The Economic Case for Integration foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

  • Economies of scale – production more efficiently, due to specialization

  • Dynamic gains from trade – due to the free flow of factors of production

  • As we see there still exist government intervention in international trade, regional economic integration is an attempt to remove barriers within few member countries.


The political case for integration
The Political Case for Integration foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

  • Enhancing the political weight in the world

  • Reducing violent conflict between nations


Impediments to integration
Impediments to Integration foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

  • It has its costs, involves some painful adjustments

  • It concerns over national sovereignty – member countries have to give up some degree of their control over some key policy issues


The case against regional economic integration
The Case Against Regional Economic Integration foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

  • Trade Creation

  • Trade Diversion

    Trade Creation > Trade Diversion ?

    WTO rules ensure that free trade agreement does not result in trade diversion.’

    How about Non-tariff barriers?


Implications for business
Implications for Business foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

  • Opportunities

    -- Market access

    -- lower costs of doing business

  • Threats

    -- firms within the blocs facing more competition

    -- firms outside the blocs facing long-term improvements of the firms within the blocs

    -- difficult to enter into the trading blocs

    -- influence the corporate strategies, such as mergers/acquisitions


APEC foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

Asian Pacific Economic Cooperation (APEC)

  • Established in 1989 in Canberra, Australia with 12 members. Mainland China, HK and Taiwan were accepted as members on the Seoul meetings in 1991. Now it has 21 members.

  • Main Characteristics:

  • 1. Openness: all the preferences reached also applied to non member countries and regions.

  • 2. Flexibility: trade and investment, developing and developed countries with different time table.

  • 3. Multi level: within the framework, sub regional cooperation widely accepted.

  • 4. Progressiveness:from easy to difficulty, from first stage to advanced, progressive development


  • APEC Meetings foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

  • 1. 1989 Canberra, Australia

  • 2. 1990 Singapore

  • 3. 1991 Seoul, Korea

  • 4.1992 Bangkok, Thailand

  • 5. 1993 Seattle, USA First Government leaders informal meeting

  • 6.1994 Bogor, Indonesia Second

  • 7.1995 Osaka, Japan Third

  • 8.1996 Subic, the Philippines Fourth

  • 9.1997 Vancouver, Canada Fifth

  • 10. 1998 Kuala Lumpur, Malaysia Sixth

  • 11. 1999 Oakland, New Zealand Seventh

  • 12.2000 Brunei Eighth


Apec meetings
APEC Meetings foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

13.2001 Shanghai, ChinaNineth “New Century New challenge” – Cooperation, participation, promotion and common prosperity

14.2002 Los Cabos, Mexico Tenth

15.2003 Bangkok, Thailand Eleventh

16.2004 Santiago, Chile Twelfth

17.2005 Busan, Korea Thirteen

18.2006 Hanoi, Vietnam Fourteenth “Hanoi Plan of Action” – Supporting Doha Round, achieving the target of Bogor meeting, FTA, economic and technological cooperation, anti-terrorism, energy, anti corruption, etc.

19.2007 Melbourne, Australia Fifteenth -- Climate change, regional economic cooperation, supporting Doha Round, liberalization of investment, APEC reform and new members.


Apec meetings1
APEC Meetings foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

20.2008 Lima de Chile : World economic and financial situation, food safety, energy safety, corporate social responsibility, climate change, disaster prevention and reduction. (16th)

21.2009 Singapore: regional food safety challenge, health system cooperation, prevention and controlling of worldwide new infectious diseases. (17th)

22.2010 Yokohama, Japan “Yokohama Vision”: promoting Free Trade Area of Asia Pacific (FTAAP), break down barriers of trade ,investment and logistics, food safety, disaster prevention, countering terrorist forces. (18th)

23.2011 Hawaii, USA : level of tariffs of all green products below 5% by 2015, avoiding any preventing measures of the transferring of IPs, and reduction of energy consumption by 45% by 2035, reduction of non tariff barriers of green products.(19th)

24. 2012 Vladivostok (符拉迪沃斯托克), Russia :Theme: integration and development, innovation and promote prosperity. (20th)

25. 2013 Bali, Indonisia: The APEC informal leadership meeting theme is “Resilient Asia-Pacific, Engine of Global Growth.”, focuses on achieving the Bogor goals, sustainable and equitable growth, Asia Pacific interoperability issues. (21st)


2001 apec
2001 APEC foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries


2007 apec australia
2007 APEC - Australia foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

Teresa


-11-14 10:24:55 foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries 来源: 网易财经有669人参与手机看新闻

转发到微博(15)


  • Trans -Pacific Partnership Agreement foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries,TPP)(跨太平洋伙伴协议)

  • It is initiated by New Zealand, Singapore, Chile and Brunei, aimed at promoting free trade in the Asia Pacific regions. Feb.2008 US joined in. Nov.2009, Australia and Peru are also invited. Malaysia joined in 2010. On Nov.11,2011, Japan is invited, while China is not.


Chapter twelve gatt and wto
Chapter Twelve foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countriesGATT and WTO


I general agreement on trade and tariffs gatt
I foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries. General Agreement on Trade and Tariffs, GATT

  • 1. Background of GATT

  • After the 2ed world war, initiated by the US, 23 countries signed the agreement in Geneva on October 30,1947, in order to reestablish the world trade order. It came into effect in 1948.

  • In the 1940’s,the US also initiated to establish the free trade organization -- International Trade Organization,ITO,as one of the international organization parallel to the IMF and the World Bank.

  • GATT at its beginning, was a transitional arrangement before the Charter of ITO came into effect.


2 main clauses
2. Main Clauses foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

  • GATT has preamble and Four Parts, 38 clauses all together, and several appendix and one protocol , as well.

  • First Part: including clause 1 and 2, stipulating the unconditional MFN among the Contracting Parties and the reduction of tariff.

  • Second Part:from clause 3 to 23, National Treatment, eliminating quantitive restrictions and emergency measures.

  • Third Part: from clause 24 to 35,applicable of the agreement, membership.

  • Fourth Part: from 36 to 38(added in 1965):Special treatment to the developing countries.


3 different rounds of negotiations
3. Different rounds of negotiations foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

From 1947 to 1994, eight rounds:

(1) from Apr. to Oct. 1947, Geneva, 23 members.

(2) from Apr. to Oct. 1949, Anthy (昂西), France,33 members.

(3) Sep.1950 to Apr. 1951, Torquay (托基), UK, 39 members.

(4) Jan. to May 1956, Geneva, 28 members.

(5) Sep. 1960 to July 1961, Geneva (Dillion Round),45members.

(6) May 1964 to June 1967, Geneva (Kennedy Round) , 54members,covering antidumping issues.

(7) Sep.1973 to Apr. 1979, Tokyo ,( TokyoRound), 99 members, covering NTBS.


4 uruguay round
4. Uruguay Round foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

  • On 15th, Sep. 1986, it is launched in Punta del Este, Uruguay(乌拉圭埃斯特角城), finalized on 15th, Dec. 1993. with 117 members participated in 7 years.

  • 15 topics , 4 categories:

  • (1)market accession:incl. tropic products, natural resources products, and tariffs and NTBs.

  • (2) return to the rules of GATT: agricultural products and textiles.

  • (3) trade competition rules: anti-dumping, countervailing duties, dispute settlement procedures and the system of GATT.

  • (4)three new topics: intellectual property protection, trade related investment measures and services.


Ii wto
II. WTO foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

  • 1.Organizational Structure of WTO

    Under the initiative of the USA and EU, the Uruguay

    Round was finally wrapped up on the 15,Nov. 1993.

    Representatives from 125 members signed the final act in Marrakech, Morocco.

  • Structure of WTO:

  • (1) Ministerial Meeting -- Supreme authority

  • (2) General Council – responsible for the monitoring of the execution of the agreements and the resolutions made by the Ministerial Meeting.

  • (3) The Secretariat and the Director-General — The Secretariat is responsible for the daily activities under the leadership of the Director-General.

  • (4) Councils for Trade in Goods, in Services and for TRIPs and Committee on Trade and Development,; Committee on Balance-of-payment and Committee on Budgets, Finance and Administration


2 functions of the wto article iii
2. Functions of the WTO (Article III) foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

(1) Facilitating the implementation, administration and operation; furthering the objectives

(2) Providing a forum for negotiations among members and a framework for the implementation of the results of such negotiation.

(3) Administering the DSU (Disputes Settlement Understanding).

(4) Administering the TPRM (Trade Policy Review Mechanism).

(5) Cooperating with the IMF and IBRD and its affiliated agencies, to achieve greater coherence in global economic policy-making.


3 characteristics of the wto
3. Characteristics of the WTO foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

(1) Wider range of administration.

(2) a legal personality, the so-called “UN of economics;

(3) the improvement of the mechanism of dispute settlement.

(4) establishment of the trade policy review mechanism.

(5) furthering the cooperation with IMF and IBRD.


4 basic principles of the wto
4. Basic Principles of the WTO foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

(1) Non-discrimination – MFN and National Treatment

(2) Elimination of quantitative Restrictions (Trade liberalization )

(3) Transparency

(4) Market accession

(5) Justice, fairness in dealing with trade disputes

(6) Preferential treatment towards developing and Least Developing Countries.


5 legal framework of the wto
5. Legal Framework of the WTO foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

Marrakesh Agreement Establishing WTO

Annex 1 A. Multilateral Agreements on Trade in Goods

B. General Agreement on Trade in Services (GATS)

C. Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPs)

Annex 2 Understanding on Rules and Procedures Governing the Settlement of Disputes

Annex 3. Trade Policy Review Mechanism

Annex 4. Plurilateral Trade Agreements

-- Agreement on Trade in Civil Aircraft

-- Agreement on Government Procurement

-- International Dairy Agreement *

-- International Bovine Meat Agreement *

*1997 Expires


Legal framework of the wto
Legal Framework of the WTO foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

  • Multilateral Agreement on Trade in Goods

  • -- GATT1994

  • --Agreement on Agriculture

  • --Agreement on the Application of Sanitary and Phytosanitory Measures

  • --Agreement on Textiles and Clothing

  • --Agreement on Technical Barriers to Trade

  • --Agreement on Trade-related Investment Measures

  • --Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade (Anti-dumping Duties)

  • --Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade (Customs Valuation)

  • --Agreement on Preshipment Inspection

  • --Agreement on Rules of Origin

  • --Agreement on Import Licensing Procedures

  • -- Agreement on Subsidies and Countervailing Measures

  • -- Agreement on Safeguards


6 china and the wto
6. China and the WTO foreign retaliation. Since the policies are beggar-thy-neighbor policies that increase the welfare at the expense of other countries

-- China is the initial contracting party and participated in the first round of negotiation.

-- On the 10thJuly,1986 , China applied for the resume of the status in GATT.

-- Basic principles:(1) resume of the status;(2) the status of developing country. (3) reduction of the tariffs as a basis to undertake the obligations of GATT.(4) acquiring unconditional MFN treatment. (5) eliminating discriminative quantitative restrictions.

-- The establishment of WTO on Jan.1,1995

-- On Nov. 15, 1999, bilateral agreement on the accession of China to WTO was signed between China and The States in Beijing.

-- On Nov.11,2001, China was accepted by WTO on The Doha Meeting, as the 143 member of WTO.


ad