Seminar Report on Recent World Trade Trends

8/8/2019 Seminar Report on Recent World Trade Trends

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T ABLE OF CON TE NT S

S.NO. CONTENT PAGE NO.

1. CHAPTER 1: INTRODUCTION 4

2 . CHAPTER 2: GGEE N NEER R AALL AAGGR R EEEE MMEE N NTT OO N N TTAAR R IIFFFFSS && TTR R AADDEE 1122

3 . CHAPTER 3 : WWOOR R LLDD TTR R AADDEE OOR R GGAA N N IIZZAATTIIOO N N 1166

4. CHAPTER 4: World Trade Report 2009 2 3

5. BIBLIOGRAPHY 28


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Introduction

1 T heory of World T rade

Traditional trade theory was well settled and accepted.

However the implications of traditional trade theory were found

to be at odds with data. That a lot of data did not seem to. It

traditional trade theories gave rise to the new trade theory

2Fundamental Ideas of T raditional

T rade T heory

2 .1 Comparative Advantage and G ains from T rade

Comparative advantage is one of the most fundamental ideas

in trade theory. A country has comparative advantage in a good

if has a lower opportunity cost of producing the good than

another country. Countries are expected to export goods for

which their autarky (no trade) relative prices are lower than

other countries. Countries gain from trade when they have

different autarky relative prices of goods.

2 .2 Hecksher-Ohlin T heory

One of the reasons why a country might have comparative

advantage in a good is that countries differ in their factor

endowments. There are two factors capital and labor. The homecountry is the capital abundant one, the one with more capital

per unit of labor. One of the goods is more capital intensive

than the other: it uses more capital per unit of labor than the

other good. Countries have access to same technologies - factor

endowments only difference between countries. Under free


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trade, the capital abundant country (home) is expected to

produce relatively more of the capital intensive good than the

other country. Capital abundant country (home) therefore is

expected to export the capital intensive good if no strong bias

in consumption. Owners of capital in the capital abundantcountry (home) benefit due to seeing their rents rise relative to

prices of goods, while owners of labor (home workers) suffer

due to seeing their wage fall relative to prices of goods. As long

as capital endowments in the two countries are not too different

and which good is capital intensive is the same in both

countries, the wage and rent will be the same across countries

under free trade with no transport costs.

2 .3 Some Implications of T raditional T rade T heory

1. Trade should be greatest between countries with the greatest

differences between them.

2. Gains from trade should be greatest between countries with

the greatest differences.

3. Trade should cause countries to specialize more in production and to export goods distinctly different from what

they import.

4. Countries should export goods that make relatively intensive

use of their relatively abundant factors.

5. Factor prices should be more similar between countries with

more liberal trade policies between them.

6. Free trade should equalize factor prices being countries with

similar enough relative factor endowments but not between

countries with very different factor endowments. Countries

with similar enough factor endowments to have equal factor

prices under free trade should use similar techniques and

produce similar goods.


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7 . Domestic interest groups should be identified by factors

rather than industries.

8. International investment should be stimulated by differences

in factor endowments.

9. International trade and international investment should benegatively correlated.

10. Trade policy should take the form of trade restrictions

rather than trade stimulants.

3 Confrontation with Reality

According to traditional trade theory, might think that United

States should trade more with Mexico than withCanada because

we have greater factor endowment and technology differences

with Mexico than Canada. But most trade is between countries

at similar stages of development - countries with similar factor

endowments and similar technologies. These developed

countries also are the ones who seem to gain the most from

international trade. Average tariffs are highest in developing

countries. What developed countries trade with each other look

very similar, there are not substantial differences in the factor

composition of a developed country.s imports and exports with

another developed country. There is a clearer factor endowment

basis for trade between developed and developing

countries.While factor prices are not equalized across countries,

do not observe free trade yet in the world. Factor prices do

become closer to being equalized as trade is liberalized. The

convergence of factor prices appears to be greatest for countries

with the most similar factor endowments. Predictions regarding

factor price equalization fairly well supported by the data.

Objections to trade liberallization appear to be aligned

according to industry a liation and not according to factor

identities (capital vs labor). Traditional trade theory suggests

international investments Should flow from capital abundant


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countries to capital scarce countries. While there is some

foreign direct investment (FDI) from developed countries to

developing countries and that share is growing, the bulk of FDI

still occurs from one developed country to another and back

again. Similar to trade in goods, international investment occurs primarily between similar developed countries and among

similar goods such that factor endowments do not appear to be

major motive for FDI among developed countries.

4 Conservative Responses

4 .1 HO Model

The HO model can be extended to a world of many goods and

many factors. In a more general setting, the stronger predictions

of two good and two factor model do not survive. When

making predictions about the relative production of goods, still

able to say that one good will have its production expand and

another good will have its production fall. But with many more

than two goods, there are many goods that we are not saying

anything about. Can also make predictions about how factor

endowments are correlated with production on average, but

weaker than being able to say exactly what happens for each

good as in the 2 x 2 model. For income distribution, can say

that one factor will lose income and one factor will gain income

but do not identify which in a general setting and do not

necessarily say anything about the many other factors. Can

prove that factor prices are correlated with the prices of goods

on average, a weaker result than in the 2 x 2 model. Factor

price equalization result survives best in the general many

goods and many factors setting; interesting given that this is

also the one that is best supported by the data. Recent empirical

work has found support for factor endowment theories as long


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as technological differences across countries are permitted and

also tasty differences .

4 .2 Specific Factors Model

The specific factors model is another model based on factor

endowment differences between countries. In this model there

are two goods and each of these goods uses a factor that is not

used in the production of the other good, as well as one

common factor that is used in the production of both goods.

The specific factors model has many features similar to the HO

model but the income distribution effects are aligned with

industries rather than factors and thus better the data. For

example suppose agriculture uses capital specific to agriculture

and labor, while manufacturing uses capital specific to

manufacturing and labor. Labor is allowed to shift back and

forth between agriculture and manufacturing based on where

wages highest but capital specific to agriculture can only be

employed in agriculture and capital specific to manufacturing

can only be employed in manufacturing. Suppose opening up to

trade causes the manufacturing sector to expand and agricultureto contract. The capital specific to manufacturing gains while

the capital specific to agriculture loses as a result of trade, and

labor is in the middle and can be affected either way depending

on the prices of the two goods. The specific factors model can

be viewed as a short run the version of the HO model where for

a year or perhaps more some factors are tied to sectors, but over

a longer period of time all factors can be shifted across sectors,

for example as capital is replaced.

5 Scale E conomies

HOS would predict little gains from trade between similar

countries, yet these countries seem to have prospered due to


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their openness. Need other models of gains from specialization,

where countries are able to produce more at lower cost through

international trade. Scale economies provide a basis for trade

logically independent of (pre-existing) comparative advantage.

5.1 National Ex ternal E conomies of Scale

Assume increasing returns to scale external to the firm but

internal to the industry in the country. Production of IRS good

tends to be concentrated all in one country, if possible. If start

with identical countries, role of countries random and so

multiple equilibria can occur . Mirror equilibria where only

identity of countries is changed.

_ Knife edge: both incompletely specialized (unstable)

_ Graham: one specialized in IRS good, other income - pletely

specialized; incompletely specialized country loses from trade

but identity of the losing country not known before trade occurs

_ FPE: one specialized in CRS good, other income-pletely

specialized; equal factor prices across countries since CRS

good produced in both countries

_ Ricardian: both countries completely specialized; as if the

IRS technology were CRS with the technology at equilibrium

level of output - wages re.ect technology differences across

countries Move to more general models of scale economies

without multiplicity of equilibrium.

5.2 International E conomies of Scale

Global size of an industry may be more relevant

for scale economies than geographic location. Returns to

scale modeled as depending on the size of the world industry

rather than national industry. World production possibilities


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well-de.ned although national production possibilities are not.

Efficient resource allocation same as if no scale economies.

Inconveniences of Graham equilibria eliminated by making

scale economies international. Thus the possibility of a country

losing from trade relies on national IRS (and parameters thatlead to the Graham equilibrium rather than Ricardian or FPE).

5.3 Intra industry T rade

Assume IRS sector has horizontally differentiated

product (different varieties). Assume all existing varieties enter

consumers utility symmetrically. All varieties will be produced

and consumed in equal amounts. Countries will both import

and export differentiated IRS good; intra industry trade occurs.

Assuming factor endowment differences as well generates

HOS-style inter industry trade also. As factor endowments

become more similar, intra industry trade expands. Inter

industry trade, based on factor differences, substitutes for

international factor mobility. Intra industry trade, based on

differentiated products, is complementary to factor mobility.

Dissimilar countries have predominantly inter industry trade;

similar countries have predominantly intra industry trade.

6 Product Dierentiation

Each variety of a good is produced by a single form operating

under monopolistic competition. Vertically differentiated

products (quality) have all consumers agree on what brand is

best; horizontally differentiated products (variety) have

consumers disagree on what brand is best. Ideal variety


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approach equivalent to having consumers love variety for its

own sake. Even if national IRS, product differentiation is

sufficient to ensure that no country loses from international

trade (and so Graham case requires homogeneous goods).

7 . Foreign Direct Investment

Many models developed to explain why firms

produce in more than one country when doing so is expensive

(due to lack of familiarity with the foreign economic

environment, difficulty coordinating activities over large

distances, etc.). Ownership advantage if some patent or special

ability (even reputation) can be exploited in multiple markets.

Locational advantage if tariff (or transportation cost or factor

price difference) rules out concentrating production in one

country and exporting to the other. Internalization advantage if

arms length use of markets unattractive due to risk of

opportunistic behaviour by licensee (international enforcement

of contracts difficult) or other reasons. When ownership,

location and internalization advantages coexist, optimal way to

serve a foreign market is though foreign direct investment (FDIor DFI). Firms with production or other activities in multiple

countries are culled multinational firms (or multinational

enterprises or multinational corporations or MNEs or MNCs or

just plain multinationals). FDI has been growing rapidly,

making FDI a ripe area for further research.


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GG EE NN EE R R AA LL AA GG R R EE EE MM EE NN TT OO NN TT AA R R II FF FF SS && TT R R AA DD EE

1 .3 Introduction

General Agreement on Tariffs and Trade (GATT) originated

after World War II (1939-1945) as a charter for the

International Trade Organization (ITO), a proposed specialized

agency of the United Nations. GATT was signed by 23 nations

at a trade conference in 194 7 and became effective in January

1948. Although the ITO failed to win ratification by the United

States Congress in 1950 and never came into being, the GATT

remained in use to govern international trade. It is a treaty

among international trade organization in existence from 1948

to 1995. GATT members, known as contracting parties, worked

to minimize tariffs, quotas, preferential trade agreements

between countries, and other barriers to international trade.

GATT was founded on the principle of nondiscrimination and

the most-favored-nation (MFN) clause, which required

members to treat all other contracting parties equally. Once a

member reduced a tariff for another member country, thatreduction applied to all member countries. However, an escape

clause allowed a nation to withdraw its tariff reduction if it

seriously harmed the country's domestic producers. The latter

says that a country cannot restrict or promote imports of certain

goods from country A if it does not do so from countries B to Z

as well - all countries' imports must get the same deal. The

former says that, once a good has entered the country, it must

be treated no differently than "like" goods produceddomestically. In practice, these rules also mean that a country

cannot discriminate against goods produced in an

environmentally damaging way, such as paper made by

chlorine bleaching. This is because the GATT interprets "like

goods" to be those which are similar at point of import.


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Most of the rounds dealt with tariff reduction only, but as tariffs

came down, non-tariff barriers went up. The Kennedy round

(1964-196 7 ) came to agreement on anti-dumping. And the

Tokyo Round went further; dealing with subsidies and

countervailing measures, technical barriers to trade, importlicensing procedures, government procurement and other non-

tariff areas of concern. GATT members sponsored eight

specially organized rounds of trade negotiations. The last round

of negotiations, called the Uruguay Round, began in 1986 and

ended in 1994. At the end of the negotiations, the members of

GATT, as well as representatives from seven other nations,

signed a trade pact that will eventually cut tariffs overall by

about one-third and reduce or eliminate other obstacles to trade.

The pact also took steps toward opening trade in investments

and services among member nations and strengthening

protection for intellectual propertythat is, creative works that

can be protected legally. The 1994 trade agreement officially

took effect in January 1995, but it will be years before its

provisions are fully implemented.

T he G ATT 1994 Agreements included:

y Agriculture Agreement where reduced subsidies for agricultural

products would allow for increased production in developing

countries, and reduce use of chemical pesticides, fertilizers.

y Agreement on the Application of Sanitary and Phytosanitary

Measures

y Agreement on Technical Barriers to Tradey

Agreement on Subsidies and Countervailing Measuresy Anti-Dumping and Safeguard Measures Agreementsy Agreement on Trade-Related Investment Measuresy Agreement on Textiles and Clothing tries to do away with a

long-standing protectionist agreement called the Multifibre

Arrangement (MFA) which effectively restricted developed


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country imports of textiles and clothing from developing

countries.The 1994 GATT pact also provided for establishment

of the WTO. In 1995 GATT's functions were taken over by the

World Trade Organization (WTO), an international body that

administers trade laws and provides a forum for settling tradedisputes among nations. Throughout 1995, GATT and the

WTO coexisted while GATT members sought their

governments' approval for WTO membership. After the

transition period, GATT ceased to exist. All of the 128 nations

that were contracting parties to the 1994 GATT agreement

eventually transferred membership to the WTO. Although the

WTO operates a dispute settlement process similar to the one

under GATT, it has stronger power to enforce agreements,

including authority to issue trade sanctions against a country

that refuses to revoke an offending law or practice.

Rounds : GATT/WTO held a total of 8 rounds.

G ATT and W T O trade rounds

Name Start Duration Countries Subjects covered Achievements

Geneva April 194 7 7 months 23 Tariffs

Signing of GATT,45,000 tariff concessions affecting$10 billion of trade

A nnecy April 19495months 13 Tariffs

Countries exchangedsome 5,000 tariff concessions

Torqu ay September 1951

8months 38 Tariffs

Countries exchangedsome 8, 7 00 tariff concessions, cutting the

1948 tariff levels by25%

Geneva II January1956

5months 26

Tariffs,admission of Japan

$2.5 billion in tariff reductions


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Dill on September 1960 -1961

11months 26 Tariffs

Tariff concessionsworth $4.9 billion of world trade

K ennedy

May1964 -1967

37

months 62 Tariffs, Anti-dumping

Tariff concessionsworth $40 billion of world trade

Tok yoSeptember 197 3 -197 9

7 4months 102

Tariffs, non-tariff measures,"framework"agreements

Tariff reductions worthmore than $300 billiondollars achieved

Urugu ay September 1986 -1994

87 months 123

Tariffs, non-tariff measures, rules,services,intellectual

property, disputesettlement,textiles,agriculture,creation of WTO, etc

The round led to thecreation of WTO, andextended the range of trade negotiations,leading to major

reductions in tariffs(about 40%) andagricultural subsidies,an agreement to allowfull access for textilesand clothing fromdeveloping countries,and an extension of intellectual propertyrights.

D oh a November 2001 141

Tariffs, non-tariff measures,agriculture, labor standards,environment,competition,investment,transparency,

patents etc

The round is not yetconcluded.

The 1994 GATT treaty was one of the most ambitious international trade

agreements to be signed by such a large number of nations. A number of groups,

including environmentalists, human-rights activists, and labor organizations in theUnited States and other countries, argued against the treaty, claiming that it failed

to link trade preferences to protections for environment and workers rights.


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WW OO R R LL DD TT R R AA DD EE OO R R GG AA NN II ZZ AA TT II OO NN

1 .4 Meaning

The World Trade Organization (WTO) is the only global

international organization dealing with the rules of trade between nations . Its main function is to ensure that trade flows

as smoothly, predictably and freely as possible. At its heart are

the WTO agreements, negotiated and signed by the bulk of the

worlds trading nations and ratified in their parliaments. The

goal is to help producers of goods and services, exporters, and

importers conduct their business. Its an organization for

liberalizing trade. Its a forum for governments to negotiate

trade agreements. Its a place for them to settle trade disputes.

It operates a system of trade rules.

1 .5 Facts

Location: Geneva, Switzerland

Established: 1 January 1995

Created by: Uruguay Round negotiations (1986-94)

Membership: 153 countries on 23 July 2008

Budget: 189 million Swiss francs for 2009Secretariat staff: 625

Head: Pascal Lamy (Director-General)

1 .6-Functions

Administering WTO trade agreements

Forum for trade negotiations

Handling trade disputes

Monitoring national trade policies Technical assistance and training for developing countries

Cooperation with other international organizations


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1 .7 Role

Its a negotiating forum - The WTO is a place where member

governments go, to try to sort out the trade problems they face

with each other. The first step is to talk. The WTO was bornout of negotiations, and everything the WTO does is the result

of negotiations. The bulk of the WTO's current work comes

from the 1986-94 negotiations called the Uruguay Round and

earlier negotiations under the General Agreement on Tariffs

and Trade (GATT). The WTO is currently the host to new

negotiations, under the Doha Development Agenda launched

in 2001.Where countries have faced trade barriers and wanted

them lowered, the negotiations have helped to liberalize trade.But the WTO is not just about liberalizing trade, and in some

circumstances its rules support maintaining trade barriers for

example to protect consumers or prevent the spread of disease.

Its a set of rules - At its heart are the WTO agreements,

negotiated and signed by the bulk of the worlds trading

nations. These documents provide the legal ground-rules for

international commerce. They are essentially contracts, binding

governments to keep their trade policies within agreed limits.

Although negotiated and signed by governments, the goal is to

help producers of goods and services, exporters, and importers

conduct their business, while allowing governments to meet

social and environmental objectives.The systems overriding

purpose is to help trade flow as freely as possible so long as

there are no undesirable side-effects because this is

important for economic development and well-being. That partly means removing obstacles. It also means ensuring that

individuals, companies and governments know what the trade

rules are around the world, and giving them the confidence that

there will be no sudden changes of policy. In other words, the

rules have to be transparent and predictable.


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It helps to settle disputes - Trade relations often involve

conflicting interests. Agreements, including those painstakingly

negotiated in the WTO system, often need interpreting. The

most harmonious way to settle these differences is through

some neutral procedure based on an agreed legal foundation.That is the purpose behind the dispute settlement process

written into the WTO agreements.

1 .8 Principles of T rading System

The WTO agreements are lengthy and complex because they

are legal texts covering a wide range of activities. They deal

with: agriculture, textiles and clothing, banking,

telecommunications, government purchases, industrial

standards and product safety, food sanitation regulations,

intellectual property, and much more. But a number of simple,

fundamental principles run throughout all of these documents.

These principles are the foundation of the multilateral trading

system. The trading system should be:

1 . T rade without discrimination

1. a. Most-favoured-nation (MFN): treating other people

equally Under the WTO agreements, countries cannot normally

discriminate between their trading partners. Grant someone a

special favour (such as a lower customs duty rate for one of

their products) and you have to do the same for all other WTO

members. Some exceptions are allowed. For example, countriescan set up a free trade agreement that applies only to goods

traded within the group discriminating against goods from

outside. Or they can give developing countries special access to

their markets. Or a country can raise barriers against products

that are considered to be traded unfairly from specific


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countries. And in services, countries are allowed, in limited

circumstances, to discriminate. But the agreements only permit

these exceptions under strict conditions. In general, MFN

means that every time a country lowers a trade barrier or opens

up a market, it has to do so for the same goods or services fromall its trading partners whether rich or poor, weak or strong.

1 . b. National treatment : Treating foreigners and locals

equally imported and locally-produced goods should be treated

equally at least after the foreign goods have entered the

market. The same should apply to foreign and domestic

services, and to foreign and local trademarks, copyrights and

patents. This principle of national treatment giving others thesame treatment as ones own nationals.

National treatment only applies once a product, service or item

of intellectual property has entered the market. Therefore,

charging customs duty on an import is not a violation of

national treatment even if locally-produced products are not

charged an equivalent tax.

2 . Freer trade: gradually, through negotiation

Lowering trade barriers is one of the most obvious means of

encouraging trade. The barriers concerned include customs

duties (or tariffs) and measures such as import bans or quotas

that restrict quantities selectively. From time to time other

issues such as red tape and exchange rate policies have also

been discussed. Since GATTs creation in 194 7 -48 there have

been nine rounds of trade negotiations. At first these focused on

lowering tariffs (customs duties) on imported goods. As a result

of the negotiations, by the mid-1990s industrial countries tariff

rates on industrial goods had fallen steadily to less than 4%.

But by the 1980s, the negotiations had expanded to cover non-

tariff barriers on goods, and to the new areas such as services


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and intellectual property.Opening markets can be beneficial,

but it also requires adjustment. The WTO agreements allow

countries to introduce changes gradually, through progressive

liberalization. Developing countries are usually given longer

to fulfill their obligations.

3. Predictability: through binding and transparency

Sometimes, promising not to raise a trade barrier can be as

important as lowering one, because the promise gives

businesses a clearer view of their future opportunities. With

stability and predictability, investment is encouraged, jobs are

created and consumers can fully enjoy the benefits of

competition choice and lower prices. The multilateral

trading system is an attempt by governments to make the

business environment stable and predictable.

In the WTO, when countries agree to open their markets for

goods or services, they bind their commitments. For goods,

these bindings amount to ceilings on customs tariff rates.

Sometimes countries tax imports at rates that are lower than the

bound rates. Frequently this is the case in developing countries.

In developed countries the rates actually charged and the bound

rates tend to be the same.

A country can change its bindings, but only after negotiating

with its trading partners, which could mean compensating them

for loss of trade. One of the achievements of the Uruguay

Round of multilateral trade talks was to increase the amount of

trade under binding commitments. In agriculture, 100% of

products now have bound tariffs. The result of all this: a

substantially higher degree of market security for traders and

investors.


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The system tries to improve predictability and stability in other

ways as well. One way is to discourage the use of quotas and

other measures used to set limits on quantities of imports

administering quotas can lead to more red-tape and accusations

of unfair play. Another is to make countries trade rules as clear and public (transparent) as possible. Many WTO agreements

require governments to disclose their policies and practices

publicly within the country or by notifying the WTO.

4 . Promoting fair competition -The WTO is sometimes

described as a free trade institution, but that is not entirely

accurate. The system does allow tariffs and, in limited

circumstances, other forms of protection. More accurately, it isa system of rules dedicated to open, fair and undistorted

competition. The rules on non-discrimination MFN and

national treatment are designed to secure fair conditions of

trade. So too are those on dumping (exporting at below cost to

gain market share) and subsidies. The issues are complex, and

the rules try to establish what is fair or unfair, and how

governments can respond, in particular by charging additional

import duties calculated to compensate for damage caused byunfair trade. Many of the other WTO agreements aim to

support fair competition: in agriculture, intellectual property,

services, for example. The agreement on government

procurement (a plurilateral agreement because it is signed by

only a few WTO members) extends competition rules to

purchases by thousands of government entities in many

countries. And so on.

5. E ncouraging development and economic reform

The WTO system contributes to development. On the other

hand, developing countries need flexibility in the time they take

to implement the systems agreements. And the agreements


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themselves inherit the earlier provisions of GATT that allow

for special assistance and trade concessions for developing

countries. Over three quarters of WTO members are developing

countries and countries in transition to market economies.

During the seven and a half years of the Uruguay Round, over 60 of these countries implemented trade liberalization

programmes autonomously. At the same time, developing

countries and transition economies were much more active and

influential in the Uruguay Round negotiations than in any

previous round, and they are even more so in the current Doha

Development Agenda. At the end of the Uruguay Round,

developing countries were prepared to take on most of the

obligations that are required of developed countries. But the

agreements did give them transition periods to adjust to the

more unfamiliar and, perhaps, difficult WTO provisions

particularly so for the poorest, least-developed countries. A

ministerial decision adopted at the end of the round says better-

off countries should accelerate implementing market access

commitments on goods exported by the least-developed

countries, and it seeks increased technical assistance for them.

More recently, developed countries have started to allow duty-

free and quota-free imports for almost all products from least-

developed countries. On all of this, the WTO and its members

are still going through a learning process. The current Doha

Development Agenda includes developing countries concerns

about the difficulties they face in implementing the Uruguay

Round agreements.


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World T rade Report 2009

The World Trade Report 2009 focuses primarily on certain

contingency measures available to WTO members in the import

and export of goods. The legal framework for such measures ismuch less developed in services trade, although this is also

discussed. The Report covers safeguard measures,

antidumping, and countervailing duties. In order to appreciate

better the trade-off among alternative policy instruments

available to governments to address difficult economic

situations, or situations in which a government decides to

modify a policy stance, the Report also discusses a number of

other mechanisms of flexibility available to WTO members.Trade agreements define rules for the conduct of trade policy.

These rules must strike a balance between commitments and

flexibility. Too much flexibility may undermine the value of

commitments, but too little flexibility may render the rules

unsustainable


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DUMPIN G AND AN T I-DUMPIN G

M E ASUR E S

In economics only predatory dumping results unambiguouslyin welfare-reducing effects for the importing country.


Dumping can arise from price discrimination by firms with

market power in international markets. It can also arise from

cyclical shifts in demand coupled with an inability by firms to

adjust production capacity over the course of the business

cycle. Predation the strategic firm objective of forcing

competing producers to exit the market cannot be ruled out as

a motive for dumping. But the difficulty involved in

successfully carrying out predation on international markets

discounts this as an important explanation for practicing price

discrimination in different markets. There are costs and benefits

associated with antidumping. Economic theory suggests that in

the first instance, with the possible exception of predatory

dumping, all dumping either increases, or at worst, has an

ambiguous effect on the economic welfare of the importing

country. This is because dumped imports lower the cost of the

good in the importing country. Further, if dumping increases

the productivity of the foreign firm, the welfare benefits for the

importing country may increase over time. Many countries rely

on antidumping law to counteract dumping. Antidumping law

may be seen as a form of ex ante flexibility required in a trade

agreement so that countries can make deeper market access

commitments. Antidumping measures can act like a safety

valve to let off protectionist steam which might otherwise

threaten a governments programme of trade reform. There are

also ex post benefits from antidumping measures. Antidumping


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law can lead domestic firms to behave in a way that is

beneficial for consumers. Domestic firms may expand

production in the hope of sufficiently depressing prices in order

to trigger an antidumping investigation. The growing number

of countries adopting antidumping statutes may increaseconsumer welfare across the board if it succeeds in reducing or

preventing international price discrimination.

SU B SIDI E S AND COUN TE RVAI L IN G

DU T I E S-

Duties imposed to countervail subsidies will generally not raise

aggregate welfare in the country that imposes them. Twoexceptions are circumstances when a terms of trade argument

can be made and when markets fail. Political economy

considerations help to explain why governments might use

countervailing duties. Under the assumption that markets

function perfectly, countervailing duties typically have a

negative effect on aggregate welfare in the country imposing

them. There are two main caveats to this proposition. First, in

theory, countervailingduties can improve the importingcountrys terms of trade. If the terms-of-trade gain from the

duty is larger than the efficiency loss, there may be an

aggregate welfare argument for the government to countervail.

Second, countervailing duties may deter subsidization

altogether and thereby confer benefits to producers in the

importing country who must compete with subsidized goods in

their export markets.


Revenue which makes it better off than before

the subsidy. In this particular case, however, the negative

externality imposed by the subsidy does not necessarily


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correspond to a loss of aggregate economic welfare for the

importing country. This means that the rationale for

countervailing duty law could be seen as protecting an

entitlement of domestic producers to be shielded from the

harmful effects of foreign subsidies rather than as Legal provisions in the Agreement on Subsidies and Countervailing

Measures support the idea that governments need

countervailing duties to help domestic producers. However,

they do not lend much support to the idea that in the WTO

system countervailing duties serve the purpose of discouraging

subsidies.an instrument to promote global efficiency. The

economic discussion of WTO disciplines on countervailing

duties has focused on two features of the provisions the

rationale of a unilateral as opposed to multilateral track for

addressing subsidies, and the nature of the injury test.

EX POR T T AXE S

A lack of binding commitments on export taxes on the part of

most members reflects the incompleteness of the WTOAgreement and provides members with a largely uncontrolled

form of flexibility. Potentially, members could heavily restrict

trade through the imposition of export taxes without having to

comply with specified procedural requirements, to demonstrate

the existence of specified circumstances, or to submit to the

limitation imposed by sunset reviews. On the other hand, a

limitation on the discretionary use of export taxes is imposed

by the general applicability of the most-favoured-nation principle. In addition, for some WTO members the use of

export taxes is limited by binding commitments assumed at the

time of accession to the WTO. Other countries face limitations

in the use of export taxes through commitments under regional

trade agreements or as a result of national legislation Export


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taxes may be used for a variety of reasons, but generally they

do not amount to first-best policy under perfect market

assumptions

WorldT

rade Report2009

An analysis of Trade Policy Reviews conducted from 1995 to

2008 shows that governments use export taxes primarily with

the stated objectivesof insulating a country from sudden price

changes (shocks), easing government revenue constraints in a

situation of sharp currency devaluation, nurturing infant

industries, and protecting the environment. Export restrictions,

like tariffs, are in general not a first-best policy in market-based

neoclassical analysis. But in some circumstances their use may

be justified as a second-best policy and they may be preferred

to import restrictions


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B IBL IO G RAPHY

B OOKS AND JOURNA L S

y K.Aswathappa Essentials of Business Environmenty Sheak Business Environmenty T.R.Jain, MukeshTrehan, Ranju Trehan Business environment

IN TE RN ET R E SOURC E S

y http://en.wikipedia.org/wiki/Worldtradey http://www.nipfp.org.in/working_paper/wp_2009_53.pdf y http://business.mapsofindia.com/globalization/world-trade.htmly http://people.brandeis.edu/~cecchett/pdf/cpi18.pdf y http://www.ibef.org/artdisplay.aspx?tdy=1&cat_id=60&art_id=

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Seminar Report on Recent World Trade Trends

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