Global Benefits of Trade

The effects of growing global influences on domestic economies have been significant. Policymakers have increasingly come to recognize that it is very difficult to isolate domestic economic activity from international market events. Decisions that were once clearly in the domestic purview have to be revised due to influences from abroad. At the same time, the clash between the fixed geography of nations and the non-territorial nature of many of today’s problems and solutions continues to escalate. Consider, too, that some of today’s products would be nearly impossible to build if manufacturers were unable to source supplies from and sell resulting goods into multiple global markets.

At its root, international trade assumes that trade will improve the quality of life for the consumers, both as individuals and as a nation. The WTO identifies ten core benefits of trade:

  • The system helps promote peace
  • Disputes are handled constructively
  • Rule make life easier for all
  • Freer trade cuts the cost of living
  • It provides more choice of products and qualities
  • Trade raises incomes
  • Trade stimulates economic growth
  • The basic principles make life more efficient
  • Governments are shielded from lobbying
  • The system encourages good government

To some extent however, the complex links that trade fosters between nations have turned the economic world inside out. For example, trade flows once determined currency flows and exchange rates. Recently, currency flows have taken on a life of their own, increasing from a daily average of $18 billion in 1980 to a record $5.3 trillion in 2013. As a result, currency flows have begun to set the value of exchange rates, independent of trade. These exchange rates, in turn, have now begun to determine the level of trade.

To regain some power to influence policies, some governments have sought to restrict the influence of world trade by erecting barriers, charging tariffs, and implementing some import regulations. However, these measures too have been restrained by the existence of international agreements forged through institutions such as the WTO or by bilateral negotiations. World trade has therefore changed many previously held notions about the sovereignty of nation-states and extraterritoriality. The same interdependence that made us all more affluent has also left us more vulnerable.

This is an excerpt from the book by: Michael R Czinkota, Ilkka A Ronkainen, and Michael H. Moffett. Fundamentals of International Business (New York: Wessex, 2015), 50-53.

US alleges that China unfairly helps its exporters

The US is alleging that the Chinese government is unfairly subsidizing its exports in seven industries. The Office of the US Trade Representative says that China paid the suppliers of certain companies in the textile, materials, chemical manufacturing, light industrial, medical products, and agricultural industries almost $1 billion over three years to provide free or discounted services.

The US says that the subsidies violate the WTO rules. These services can range from subsidized IT services, product design services, or training services. “All of these services, provided for free or at a discount undermine fair competition,” says US Trade Representative Michael Froman.

The Office of the US Trade Representative says that it will try to reach a settlement with China at the WTO and if that fails, the US will ask the WTO to rule on the dispute.

The complaint comes as the Obama administration seeks congressional support for the Trans-Pacific Partnership which includes Japan, Australia, Canada, and Mexico but excludes China.

See the full and original article here: http://finance.yahoo.com/news/us-alleges-china-unfairly-helps-exporters-150826633–finance.html

 

U.S. appeals WTO COOL meat-label ruling

The ruling last month found that changes the U.S. made to its country-of-origin policy known as COOL violate trade rules because it treats Canadian and Mexican livestock less favourably than U.S. livestock.

Federal Trade Minister Ed Fast said Friday that Canada is deeply disappointed with the U.S. decision to appeal.

“Canada fully expected the United States to live up to its international trade obligations and comply with the WTO ruling, which reaffirms Canada’s long-standing view that the revised U.S. COOL measure is blatantly protectionist and fails to comply with the WTO’s original ruling against it,” Fast said in a release.

Agriculture Minister Gerry Ritz has said Ottawa would consider imposing retaliatory tariffs on some U.S. goods as early as next year if Washington doesn’t comply with the rulings.

Along with U.S. beef , those tariffs could be placed on cheese, apples, corn, maple syrup, chocolate, pasta, frozen orange juice, wine and spirits, jewelry and mattresses.

COOL rules require all packaged meat to identify where the animal was born, raised and slaughtered.

Supporters of the law say it better informs U.S. consumers, while opponents argue that segregating animals and tracking them adds costs and violates free-trade agreements.

The federal government estimates the policy costs the Canadian pork and beef industries about $1 billion a year.

Ritz said Canada is confident the U.S. will lose its latest appeal.

“With this delay, the United States is yet again preventing both of our countries from enjoying the benefits of freer and more open trade and is hurting farmers, ranchers and workers in the United States and Canada,” Ritz said.

“We are confident that the WTO appellate body in the compliance process will uphold the principal finding of the report: that the amended U.S. COOL measure discriminates against Canadian livestock.”

The Canadian Cattlemen’s Association called the U.S. appeal a stall tactic and noted it is Washington’s last option before Canada can request permission from the trade organization to retaliate.

Association president Dave Solverson said the October ruling was the third time that the trade group has ruled that the U.S. was not meeting its international trade obligations because of COOL.

“This is a stall tactic by the U.S. for sure, but one that can only end with the U.S. making an appropriate resolution to COOL that is acceptable to Canada and Mexico in order to avoid retaliation,” he said.

Once a decision on the appeal is made, possibly by spring, Canada will be in a position to ask the WTO for authority to retaliate with trade sanctions, Solverson said.

By John Cotter, The Canadian Press

WTO Favors US in AG Trade Dispute with India

Christopher Doering for The Des Moines Register

The trade panel struck down a 2007 agricultural ban put in place by India to prevent avian influenza from making its way into the country even though the United States has not had a case of the highly pathogenic disease since 2004. The only other U.S. outbreak detected since then was low-pathogenic, which does not support an import ban.

The WTO ruled India breached numerous international trade rules, including imposing the ban without adequate scientific evidence.

The United States challenged the ban in March 2012.

U.S. trade and agricultural officials declared the WTO decision a major victory for American farmers. “Our farmers and producers deserve a level playing field – and this dispute reflects that we will accept nothing less,” said Agriculture Secretary Tom Vilsack.

The WTO ruling would help U.S. agricultural producers, including Iowa, the nation’s largest egg producer, that have been affected by India’s restrictions. The poultry industry estimates U.S. exports to India could jump to more than $300 million annually after the restrictions are lifted. India has 60 days to appeal the ruling.
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The Politics of Free Trade Agreements

Seeking to address the liberalization concerns of WTO’s less-developed members, the Doha Development Round was supposed to culminate in 2005 with a new trade agreement.

Read also: WTO TRADE FACILITATION AGREEMENT GUIDE

The envisioned deal concerned the reduction of trade barriers in commodities and services, as well as a new international framework for intellectual property rights. But soon after negotiations began, governments from developing countries — India, Brazil, China, and South Africa — and NGOs (non-governmental organization) began to worry that international negotiations were an obstacle to the governmental protection of developing sectors and regulation of financial services. After the failure of the Cancún proceedings in 2004, trade scholars worried that Doha might not be completed by its original deadline, but kept the hope that negotiations would continue. However, trade talks came to a deadlock in 2006, 2009, and 2011, mainly due to differences in agricultural policies. The US and the EU even backed out of previous agreements to reduce export support and agricultural subsidies, arguing that they did not want to weaken their bargaining positions too early in the Round.

Read also: ITC publishes business guide on new WTO trade facilitation agreement by ITC Communications

Attempts to reconcile disagreements among countries since then have been largely in vain. But in December 2013, new tailwinds seemed to push the Doha Round to more favorable shores. The Bali Ministerial Conference, which concluded with the signing of a package deal on trade customs collection and a post-Bali development agenda, was touted to have “achieved what many believed was impossible”: bringing together the 160 WTO members for the first time in twelve years. But even though the Bali package does not have much to do with free trade — it facilitates the collection, but not the reduction, of custom duties — the agreement still wasn’t signed by all members in July 2014. This time, India vetoed the ratification to gain more bargaining power for Prime Minister Modi’s program of domestic food subsidies. Reuters reported that “trade diplomats in Geneva have said they are ‘flabbergasted,’ ‘astonished,’ and ‘dismayed,’ and described India’s position as ‘hostage-taking’ and ‘suicidal’.”

Perhaps commentators would have been less surprised if they had identified the negotiation deadlock as only the symptom of a more pervasive underlying cause: the national — read: political — interest of all countries at the negotiations table. The bread and butter of WTO member states is the extent to which they can encroach upon private enterprise, and control both product and financial markets. Under these circumstances, committing to open one’s borders to international trade is simply idle talk. Free exchange and competition would undermine the leverage of domestic interest groups, and cut through the structure of government intervention.

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