Feb 25: Global Trade Laws

2/25/09 Clicker Question In this graph of a target price subsidy, which is false? A) without a subsidy US famers would be corn exporters B) With the subsidy the level of US exports is Q-target minus Q* C) The subsidy program changes the US from a corn importer to a corn exporter D) The subsidy program depresses the world price of corn as a result of the increased supply of corn Correct Answer A) without a subsidy US famers would be corn exporters US Tariff History Average tariffs rates (as % of imports) fluctuated between 10% and 60% until WWII Peak Rates War of 1812 (60%) Tariff of Abominations 1828 (60%) Civil War (50%) Smoot-Hawley Tariff of 1930 (60%) Accounted for 50% of reduction in world trade The General Agreement on Tariffs and Trade (GATT) 1947 Bretton Woods Agreement Forum for negotiations to lower trade barriers Framework for trade dispute resolution GATT Principles Non-discrimination ? most favored nation principle Most favorable trade laws granted to one nation must extend to all GATT members Primary reason for a country to join Exceptions China?s accession in ? 2001 National Treatment Foreign firms must be treated no worse than domestic firms in regulations, standards Venezuelan gasoline case\ Protecting Infant industries explains the benefits of allowing leeway for granting benefits to lower income countries experiencing economic growth Avg. tariffs today approximately 3 ? 5% on imports of manufactured goods into industrialized countries Uruguay Round ? 1994 Cut average tariffs by 40% - world welfare gain = $200 billion per year Reduce export subsidies Removal of quotas ? replace with tariffs End multifiber arrangement (2005) Increased protection of trade related intellectual property (TRIPS) Trade Related Intellectual Property Reach an agreement that one country?s patent laws are adopted by all members of the WTO Trade in services (national treatment) Accounting, financial, business, etc. Restricted before to protect these industries ? especially with banking and financial institutions A step to reduce these barriers Agreement in principle, not much of an agreement in practice