Traditional international trade involves a complex system of trade barriers to ensure the protection of domestic industry and its workers interests. The trade impediments and subsidies include protective tariffs, import quotas, non-tariff barriers such as licensing, and export subsidies. Originally, a country’s economy acted independently of other nations. The growing trend ever since the establishment of GATT in 1947 is globalization. Introduction In globalization, a country acts as a part of a free trading community consisting of member nations around the globe. As a trading community, trade problems can easily be resolved through negotiations rather than a trade war (McConnell 104-105). The US government employs the use of protective tariffs and export subsidies to protect and aid domestic industry. Types of Tariffs The two types of tariffs used on imports are the Antidumping (AD) duty and the Countervailing (CVD) duty.
These duties shield domestic industry from foreign competition. By raising the price of imports, domestic products become more attractive to the consumer, such as the phrase “Buy American!” Export subsidies are government payments made to domestic producers. The payments allow lower operating costs, enabling producers to compete on the world market with similarly priced goods and services. An example is US subsidization of agriculture to boost the US food supply on the world market (Import).
The Department of Commerce (DOC) oversees the establishment and maintenance of trade orders, policies implementing tariffs, non-tariff barriers, import quotas, and subsidies. These orders are continually updated as new trade issues arise. Under the DOC is the International Trade Administration (ITA), which ensures the protection of domestic industry from international trade for both imports and exports. Within the ITA is the Import Administration (IA) that specifically handles the imports for ITA. Both the DOC and IA work together to form policies for antidumping and countervailing duties, and export subsidies. Dumping Dumping is the selling of a product on a foreign market at a price “less than fair value” (LTFV). This practice can cause material injury to the domestic industry producing a similar product. To counteract this problem, an antidumping duty (AD) is taxed onto specific imports to raise the price. An example is the duty on Belgium Sugar. Untaxed, Belgium sugar would sell on the US market for a lower price than domestic growers causing internal economic effects.
Currently, there are several products, which have an AD order on them; barbed wire and barb less wire strands, welded carbon steel pipe and tubing, line and pressure pipe, oil country tubular goods, hot rolled carbon steel flat products, corrosion-resistant carbon steel flat products, cotton shop towels, solid urea, steel concrete reinforcing bars, sugar, cut-to-length carbon steel plate, stainless steel plate in coils, iron construction casting, carbon steel butt-weld pipe fittings, brass sheet and strip, frozen concentrated orange juice, industrial nitrocellulose, silicon metal, circular welded non-alloy steel pipe, stainless steel wire rod, silicomanganese, stainless steel wire rod, stainless steel bar, line and pressure pipe, new steel rails, pure and alloy magnesium, fresh Atlantic salmon, preserved mushrooms, chloropicrin, barium chloride, greig polyester cotton print cloth, natural bristle paint brushes and brush heads, petroleum wax candles, porcelain-on-steel cooking ware, tapered roller bearings, heavy forged hand tools w/wo handles, sparklers, sulfur chemicals, sulfanilic acid, helical spring lock washers, sebacic acid, paper clips, cased pencils, coumarin, fresh garlic, furfuryl alcohol, glycine, melamine institutional dinnerware, to obtain a complete product listing visit the antidumping website. Countervailing duties are used to help industry compete against foreign subsidized industry.
A country will subsidize an industry it determines cannot compete fairly on the open market without support. Thus, the country makes government payments to offset the operating costs and in turn, lowering prices. As an example, the Norwegian government subsidizes the Atlantic salmon. This causes the price of Atlantic salmon to drop on the open market. Domestic producers cannot compete with Norwegian prices. As a result, a CVD is imposed on salmon. The amount of products with CVD orders is small compared to AD orders. The products are: carbon steel flat products, stainless steel plate in coils, iron construction castings, brass sheet and strip, carbon steel flat products, new steel rails, pure and alloy magnesium, sugar, cut-to-length carbon steel plate, in-shell pistachios, grain-oriented electrical steel, seamless line and pressure pipe, oil country tubular goods, certain pasta, stainless steel wire rod, top-of-the-stove stainless steel cooking ware, structural steel beams, fresh ; chilled Atlantic salmon, and cotton shop towels a more complete list can be obtained from the antidumping website.
Specialization and economic growth are the principal benefits associated with globalization. When a country becomes specialized, it is possible to increase total GDP (gross domestic product) using the same resources available. For a country to specialize, it is necessary to export goods and services that can be supplied on the global market at a competitive price. All else the country may need is imported from a country specialized in producing that certain good. For example, the US exports soy and wheat because it can be produced in excess at a minimum cost. When buying oil, the US will buy abroad because it is cheaper than producing it domestically. NAFTA and the EU For free trade to work, trade zones and communities need to be organized. Trade zones are geographically situated trade blocs that are devoted to the dismantling of trade barriers between one another. Two trade blocs are NAFTA (North American Free Trade Agreement) and the EU (European Union).
The commercial structure of the EU is very similar to that between states in the US. There are minimal internal tariffs, while keeping some external tariffs to ensure stability. NAFTA is a trade agreement between Mexico, US, and Canada. Established in 1993, NAFTA has slowly dissolved trade barriers between the countries. By 2008, all barriers should be eliminated. Despite criticism of NAFTA, it was able to raise the amount of US jobs by 14 million and reduce unemployment from 6.9 to 4.2 percent. This exemplifies the effectiveness of free trade. GATT The first attempt at globalization and a world trade community was the signing of GATT (General Agreement on Tariffs and Trade) in 1947. Twenty-three nations signed the agreement enacting equal, nondiscriminatory trade treatment for all member nations, by the reduction of tariffs by multilateral negotiation, and the elimination of import quotas. GATT enabled countries from around the world to negotiate trade deals that would benefit all members.
During the Uruguay Round of negotiations, the WTO (World Trade Organization) was established as the successor to GATT on January 1, 1995. Since the conception of GATT, world trade has increased fifteen fold and average tariffs have declined 90 percent. In the United States alone, economic output has tripled while the physical weight of goods produced has stayed the same. Since the inception of the WTO, global trade has increased by 25 percent. The ultimate goal of the WTO is to ensure upward economic growth for all nations. By eliminating the downward effects of trade barriers, all nations will prosper. In the future, investors will hold much more influence. Government practices will be influenced by investor confidence. Investors will not tolerate governments that act on beaurocratic caprice, cronyism, or corruption. Because of this, it will be necessary for governments to act according to investors possibly creating grounds for regulation of peace by trade.
Trade barriers are short-term trade solutions. In the long run, it is not an efficient means of international trade. Consumers are forced to pay for a cost benefiting an industry and not themselves. In response to a trade order, an affected country may put up trade barriers to offset those of another country. The end result is a lose-lose situation for both countries. Free trade and globalization are the only effective means to generating economic increase worldwide.
Antidumping and Countervailing Duty Statistics (Feb 6, 2004) Retrieved from the World Wide Web: http://ia.ita.doc.gov/stats/ Import Administration (May 27, 2005). International Trade Administration Retrieved from the World Wide Web: http://ia.ita.doc.gov DOC: United States Department of Commerce (June 16, 2005) Retrieved from the World Wide Web: http://www.doc.gov Hill, C.W.L. (2003) International Business: Competing in the Global Marketplace 4th ed. McGraw-Hill/Irwin, 2003 New York, NY Retrieved from University of Phoenix E-Resource page: http://aapd.phoenix.edu/UBAM/citation.htm#MGT/448