University of Dammam International Trade Essay

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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 © 2019 Cengage. All rights reserved. 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 © 2019 Cengage. All rights reserved. 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 © 2019 Cengage. All rights reserved. 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 © 2019 Cengage. All rights reserved. 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% © 2019 Cengage. All rights reserved. 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% © 2019 Cengage. All rights reserved. 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 © 2019 Cengage. All rights reserved. 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” © 2019 Cengage. All rights reserved. 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 © 2019 Cengage. All rights reserved. 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 © 2019 Cengage. All rights reserved. 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 © 2019 Cengage. All rights reserved. 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 © 2019 Cengage. All rights reserved. 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) © 2019 Cengage. All rights reserved. 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 © 2019 Cengage. All rights reserved. 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 © 2019 Cengage. All rights reserved. 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 © 2019 Cengage. All rights reserved. 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 © 2019 Cengage. All rights reserved. 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 © 2019 Cengage. All rights reserved. 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 12 points maximum score Grading Criteria Tap for detail < TOPIC International trade is subject to trade regulations and industrial policies. The Kingdom of Saudi Arabia is also subject to these regulations because of signed trade treaties or membership in various trade organizations. For this week's discussion, please: 1. Discuss Saudi Arabia's participation in the World Trade Organization (WTO). 2. Then, compare and contrast the Kingdom's WTO involvement with its participation in the Gulf Cooperation Council, League of Arab States, and the Trade and Investment Framework Agreement (TIFA) Saudi Arabia signed with the United States. 3. Which membership or trade agreement benefits Saudi Arabia the most? 4. Please explain your position. Directions: • Embed course material concepts, principles, and theories, which require supporting citations along with at least one scholarly peer reviewed reference in supporting your answer unless the discussion calls for more. Keep in mind that these scholarly references can be found in the Saudi Digital Library by conducting an advanced search specific to scholarly references. • Use Saudi Electronic University academic writing standards and APA style guidelines. • You are required to reply to at least two peer discussion question post answers to the weekly discussion question. These peer replies need to be substantial and constructive in nature. They should add to the content of the post and evaluate/analyze that answer. Normal course dialogue does not fulfill these two peer replies but is expected throughout the course. Answering all course questions is also required. 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International Trade outline
Thesis statement: In addition, Saudi Arabia is a member of the World Trade Organization
(WTO), enabling the Kingdom to participate in the Gulf Cooperation Council, League of Arab
States, and the Trade and Investment Framework Agreement (TIFA) signed with America.
I.
INTRODUCTION
A. Overview
1. International trade has enhanced economic development globally through exchanging
goods and services across foreign borders and territories due to the high demand for
commodities.
2. Foreign trade functions effectively under the instituted trade regulations and industrial
policies.
3. The Kingdom of Saudi Arabia serves an imperative purpose in international trade as it is
home to the universe's second vastest oil reserves.
B. Thesis Statement
II.
SAUDI ARABIA IN WTO
A. Saudi Arabia has been a member of the World Trade Organization since 2005.
B. The financial sector, particularly banking and cooperative insurance, has risen rapidly
since the country acceded to the trade organization.
C. Since the inception of the WTO membership, Saudi Arabia has devised development
strategies to diversify the nation's economy from the usual crude oil and natural gas.
D. These strategies included promoting downstream industries, boosting education ...


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