12/23/2017

SUBMITTED SUBMITTED TO: SIR M.YOUSAF

BY:SALMA “INTERNATIONAL TRADE
NASEER BARRIERS AND THEIR
ROLL:25
SOLUTION”
International trade promotes high standard of living for trading nations and hence, despite its various ill
effects, it is best to practice international trade as it provides economic and social benefits to economies
bringing about an upturn in global economy.This attempts to bring to light, the general barriers
international trade faces presently and its solutions with recent examples.

INTERNATIONAL TRADE: AN INTRODUCTION

Trade among countries has existed for a long period now. The trade between Asia and Europe marks this
fact as Morrison examines that these two continents have engaged in Trade since a long period. He also
suggests that with time, international trade has come a long way as far as volume and patterns of trade
between nations is concerned. Morrison (2006) has referred to figures by the World Trade Organisation
cited in International Trade Statistics from the official website of the WTO that Asia's share of global
merchandise exports has gradually increased, Northern America's share has slightly decreased and
Western Europe's share has recovered from a downfall in 2001, but not as much as it did in 1990.
Morrison further suggests China's exports and imports rose by 30 per cent and today, China is one of the
world's largest traders. Therefore, we may note that International trade plays a very essential role in
globalization trends in the world economy.

UNDERSTANDING 'TRADE PROTECTIONISM'

Protectionism is ''The deliberate use or encouragement of restrictions on imports to enable relatively
inefficient domestic producers to compete successfully with foreign producers, or to protect and preserve
those industries and producers considered of critical national interest.''
Coughlin et state that Protectionist Trade Policies are meant to improve the position of domestic products
as compared to its foreign equivalents, and that this may be done through various policies - by increment
of the market price of the foreign product or by barring access of foreign products to the domestic market.
They explain that protectionist trade policies aim to expand domestic production in the protected
industries for the benefit of the owners, suppliers and workers of the protected industry. However this
may lead to a downturn in the consumption of protected goods due to either associated rise in its price or
consumers start using less of other goods as a result of the decline in outputs and increase in prices.
Coughlin et al hence, argue that domestic consumers are said to be impaired as the price of the protected
goods keep increasing.
Hence, imposing of tariffs lead to domestic producers' and the government's gain, while domestic
consumers' and other domestic producers' loss. These trade policies also affect foreign interests.

'FREE TRADE' & ITS THEORIES

Free Trade is ''trade between nations that is unhampered by Government constraints such as tariffs,
restrictions, and other barriers.”
Theory of Absolute Advantage
Barnat (2005) highlighted certain points from Adam Smith's The Wealth of Nations 1776 that explain
what this theory talks about. He mentioned that the country's practicing or willing to practice free trade
should work towards maximising the efficiency of the goods and products they deal in, and that this
theory is based on the assumption that the nation producing a certain good is 'absolutely' better at
production of that good or commodity than the rest of its trading partners, hence calling this the 'absolute
advantage' of the nation over the other nations.
 Theory of Comparative Advantage
Barnat (2005, cited in Ricardo, 1817) had postulated that in Ricardo's theory of comparative advantage
even if a certain nation is able to produce all its goods at a comparatively lower cost than another country
then it benefits the trade of both the countries, based on the comparative costs.
Coughlin et al (1998, cited in Ricardo's Principles of Political Economy and Taxation, 1817)
demonstrated that two countries viz. England and Portugal were shown to produce the same two goods
wine and cloth and the only production costs were labour costs. It was shown that England was
comparatively less efficient to produce both goods as it was comparatively costlier to produce those
goods in England. Therefore, it was said in this demonstration that Portugal had an absolute advantage in
these two goods. According to this example, labour was the only resource considered to produce these
goods when labour is among the many resources used to produce these goods.
Elwell (2005) suggests that the gains from trade are mutual despite either nations' absolute advantage or
disadvantage in the efficiency with which they produce all tradable goods. The difference in rate of
production of one good must be limited for the expansion of another good among countries such that
there is a comparative advantage among the two nations such that both benefit efficiently from trade. A
nation is not to compete but look at the mutual benefits from trade. Therefore, each country must produce
what they do best relatively. Comparative advantage is evident in activities that make use of profuse
productive resource.Also, the production of goods can be practiced such that a part of the good is
produced in one country while another country can deal in producing another part required for the
production of the good hence practicing the theory of comparative advantage. For example - American
hardware companies send their products to China since it is much more cost effective due to low waged
labor in China. This acts as a comparative advantage for both countries.
Due to political motives, various governments still try to obstruct the system of free trade in spite of its
acceptance globally, in Henderson's view.

BARRIERS TO INTERNATIONAL TRADE

Trade barriers are government policies which place restrictions on international trade. Trade
barriers can either make trade more difficult and expensive (tariff barriers) or prevent trade
completely (e.g. trade embargo)

Examples of Trade Barriers

 Tariff Barriers. These are taxes on certain imports. They raise the price of goods making
imports less competitive.
 Non-Tariff Barriers. These involve rules and regulations which make trade more difficult.
For example, if foreign companies have to adhere to complex manufacturing laws it can be
difficult to trade.
 Quotas. A limit placed on the number of imports
 Voluntary Export Restraint (VER). Similar to quotas, this is where countries agree to limit
the number of imports. This was used by US for imports of Japanese cars.
 Subsidies. A domestic subsidy from government can give the local firm a competitive
advantage.
 Embargo. A complete ban on imports from a certain country. E.g. US embargo with Cuba.
Real world examples of trade barriers
Chinese import tariffs. This link shows that China is reducing its import tariffs on luxury
foreign goods such as Scottish Whiskey from 10% to 5%. It is a sign Chinese government
want to encourage consumer spending. BBC – China cuts import tariffs

50% tariff on imports of washing machines. The US Trade body has recommended tariffs
of 50% on imports of washing machines – especially from South Korean manufacturers IG
and Samsung. The Trade body is concerned IG are selling washing machines below cost and
dumping surplus supply on the US market. US manufacturer Whirlpool brought the case.

Custom duties post-Brexit. If the UK leaves the Single Market as part of Brexit process
there will be custom forms and regulations to meet on exports and imports. These rules and
regulations provide a significant barrier to trade.

Quotas on low-tariff food. The EU has a quota for allowing a certain number of food items
to enter without attracting tariffs.

VER. In 1981, the US implemented a 1981 voluntary restraint agreement limited the
Japanese to exporting 1.68 million cars to the U.S. per year. This limited the import of cars,
though ironically made it more profitable for Japanese exporters. With a limit on the
quantity, they could increase prices. Another consequence of this is that Japanese firms
began assembling cars in the US and entering into partnerships with American car companies
to get around the export restrictions.

Subsidies. The EU gives €39 billion to farmers in direct subsidies. Indirectly, this makes EU
agricultural exports more competitive and gives EU farmers an advantage in trade.

Embargoes are usually implemented for political reasons. After Fidel Castro came to power,
the US imposed a trade embargo on Cuba, which was strictly enforced..
Tariff-Rate QuotaThe implementation of a TRQ is a very good idea for the benefit of both countries -
that importing and the one exporting, and the concerned governments.Policies like the Tariff-Rate Quota
help implement trade practice between countries in a healthy manner as it not only implements low tariff
prices but also keeps a check on the quantity of products being imported.According to TRQ, a low tariff is
set against imports of a fixed quantity and if the quantity of the imports increases, a higher tariff is set
against the goods. Sumner et al have given the example of United States that follows this policy for
various products like beef, sugar, peanuts and other dairy products. In these cases, the initial tariff is said
to be low but the over-quota tariff is very highly priced and in some cases, even unaffordable.
GLOBAL TRADE IN PRESENT ECONOMIC
CLIMATE
Post the economic crisis, the general belief of countries is to be very careful as far as dealing with
international trade is concerned and to protect their economies, nations are practicing protectionism,
however, free trade is in the interest of most countries, but it is not in the economic interest of the nations
to practice free trade in times of crisis.
There are some basic solutions for the removal of trade barriers put forward by Crean (2009, ed. Baldwin
and Evenett, 2009) one of which is G20 leadership - such that countries lift each other up rather than pull
each other down through protectionism. He adds that the G20 can play an important role in encouraging
open trade flows between countries. Here is a notable example as proposed by Crean - To help open
markets in Washington, Australia helped build support to execute considerable measures last year with
the agreement of G20 leaders by putting forward an Action Plan for the purpose of restoring growth,
addressing the progress of the WTO Doha negotiations and to put a halt to protectionism.
He proposes, it is important to avoid inefficient incentives while crafting the fiscal and industry support
packages and also, huge subsidies will give rise to competitive response. Crean further suggests, it is of
utmost importance especially in these times post economic crisis to preserve open trade flow among
nations. He adds growth and prosperity are transmitted within countries through trade. He mentioned,
according to Organization of Economic Co-operation and Development (OECD) analysis, a 10 percent
increase in trade is associated with a 4% rise in per capita income, however, the crisis has now brought
about a slowdown in trade.

Trade Barriers and Solutions: US & EU

The U.S. Trade Representative (USTR) 2009, states, the National Trade Estimate Report 2009 describes
significant barriers to trade in the US. The barriers, as cited in the report, according to USTR, obstruct
access to markets for the products of American workers, irrespective of the workers employment status -
self or employed by company. The various tariff and non tariff barriers by foreign governments that need
to be addressed are highlighted in the report - difficulty in testing and requirements of certification on
thousands of consumer goods, inspection and registration of a wide range of import products by new
means, ineffective enforcement against counterfeiting and copyright piracy; subsidies being exported
illegally was another issue of concern, onerous import requirements or bans not based in science and also
said to not be competitive internationally; approval processes for biotech products were said to be
cumbersome and ineffective; imported products are made to pay rates 10 to 43 times higher than before as
according to discriminatory excise taxes; foreign participation in the telecom market is very limited, and
many other such issues were raised.
The USTR states that exports contribute about 13 per cent to the US Economy; therefore, measures by the
USTR and the Government for the sake of the economy of the country, is necessary.
The report, as USTR suggests, states what measures could be taken by the United States Trade
Representative to embark upon these barriers. After reading this article, I have tried to pull together the
matter in brief. The article suggests that the USTR is reviewing the functioning of the existing trade
agreements, including enforcement of labour and environment provisions. The USTR is going to
prioritize the trade barriers put forward by the report, in order of importance and hence, deal with each
barrier according to relevance tackling the most vital barrier at first. They are planning on handling these
cases by multilateral and bilateral dispute resolution. The USTR is also working with the Congress to
improve the trading system in the country. The US Trade Representative Ron Kirk (2009) proposed the
opening of new markets around the world. The USTR suggests that manufacturers and service providers
and the American workers should make use of the benefits of previous trade agreements through strong
enforcement.
Kirk, in 2009, as cited in the USTR (2009) suggests that the proposals made will also help in the
economic recovery procedure and incremental gains in market access and in reduction of trade barriers
and thus, will help Americans attain good salary jobs.
Castle (2009) states that European exporters have faced many new trade barriers since the global
economic crisis however, measures to prevent protectionism have been taken by the EU. He adds that
global trade volumes in August 2009 were 18 per cent below its peak in 2008 due to the economic crisis.
Castle (2009, cited in Ashton, 2009) states that classical tariff increases, import and export bans or
ceilings, non-tariff barriers and government procurement and investment measures are the major trade
barriers faced in the EU with classical barriers alone affecting about 5 per cent of the EU exports. Another
trade restricting measure according to the Foreign Manufacturers Legal Accountability Act of 2009 in the
US that states that it aims to protect US customers and businesses from defective products manufactured
abroad, is, another barrier between EU and US trade as Castle (cited in Ashton, 2009) has mentioned.
Castle further cites, one of the bills state that it is unsafe to grant unfair tax disadvantages to subsidiaries
of the EU companies in the US in the insurance sector.
The EU and U.S. are each other's most important trading and investment partners and hence it is
important for these two sides to work towards the reduction of these barriers. As cited by Palmer (2009),
the two sides have agreed on meeting for identification of labeling, energy efficiency and nanotechnology
for increased cooperation on regulation; and that these two sides have plans for a new US-EU Energy
Council and also to set up a dialogue dealing in creating jobs in various sectors such as IT and energy.
Addressing Trade Barriers: Canada & EU
Another notable example of nations that have pledged to remove trade barriers is that of Canada and The
EU. Czech Trade (2009) suggests, these two nations have signed a summit to remove trade barriers and
that the Canadian Government is trying their best to remove trade barriers for Canadian exporters and
open Canada's market to foreign companies such as the EU. Canada is one of EU's main trading partners
and the fact that Canada has maintained a healthy economy despite the global economic crisis, has helped
EU promote its business and trade relations with Canada. It has been said to be believed that both
countries will benefit largely in terms of economy post this summit in the next couple of years.

CONCLUSION
Trade should satisfy the theory of comparative advantage benefitting both nations engaged in trading
activities. It has a positive effect on economies, both economically and socially, but it also has its ill
effects for example, as Elwell (2005) suggests, while it helps benefit the economic condition of relatively
efficient activities, it hampers the relatively less competent activities. However, impressing barriers
prevent nations from economic gain. Elwell further suggests that tariffs, quotas and non tariff barriers
result in a loss of the exporting sector and gain of the importing sector. But, it is also important to note
that this may lead to an increase in prices and reduced goods available to the consumer, thereby, leading
to the downfall of the economy.
It is true that it is important for the domestic industry to protect, improve and sell their products but it is
also important to note the profits foreign goods bring to both economies and thus, it is important for the
benefit of every economy to work towards addressing the barriers they face today.
Trade, either in the form of import or export contributes largely to the economy of the country. Just like
the U.S. Government and the U.S. Trade Representatives are working hand in hand to fight the barriers
hence working towards the security of the country's economy, other economies should also address their
respective barriers. The G 20 must also help trade flow in developing countries. Developed countries
should aim to remove all trade barriers and try giving up on protectionist measures like The EU and The
U.S. have pledged to do for the economic benefits of either country. Also, ideas like the free trade deal
between Canada and the EU should be encouraged and worked upon by other nations as well, hence,
encouraging trade among nations which in turn, shall benefit the global economy.