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Business-Government Trade Relations

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on 1 March 2014

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Transcript of Business-Government Trade Relations

Tariff
-In simplest terms, a tariff is a tax, which is collected by the federal government . It adds to the cost of imported goods
Tariffs usually aim first to limit imports and second to raise revenue

Protecting Domestic Employment
Protecting Consumers
Infant Industries
National Security
Retaliation

Quotas
Quotas are much more intense than a tariffs. They limit or allow an amount of goods to come into a country (mostly limit).
Embargoes
A complete ban on trade (imports and exports) in one or more products with a particular country;


Currency Controls
Example: Argentina's foreign exchange controls
Weakening peso
Increase tax on credit- and debit-card purchases made abroad
Aim : protect foreign reserves and reduce the flight of dollars
Financial assistance to domestic producers in the form of cash payments, low-interest loans, tax breaks, product price supports, or some other form. (Wild, Wild and Han, 2009)
The origin of the Global Trading System
Uruguay Round of Negotiations
General Agreement on Tariffs and Trade (GATT), 1947
Agreement on Services
Agreement on Intellectual Property
Agreement on Agricultural Subsidies
Founding of the WTO
Benefits of the WTO
The supply system of primary energy resources in Latvia consists of 3 resources: natural gas, oil and biomass.

Subsidies in energy industry: Latvia
Supply of energy sources in EU
Energy import dependency in Latvia is above the EU-27 average with oil and natural gas imported mainly from Russia.  

How Latvia can become less energy dependent on Russia?
Direct State Aid or SUBSIDIES to producers of biomass fuels

Source: Renewable Energy Policy Review Latvia. 2009
FOR LATVIA it is:
The objective of the Investment and Development Agency of Latvia (LIAA) is to promote business development by facilitating more foreign investment, in parallel increasing the competitiveness of Latvian entrepreneurs in both domestic and foreign markets.

What they do?

Provision of information
Trade seminars
Consultancy and foreign market studies
International exhibitions, export promotion campaigns

Annual Export and Innovation Awards


International and Regional Trade Fairs in Latvia

The Enterprise Europe Network is the largest network of contact points providing information and advice to EU companies, in particular small and medium enterprises (SMEs).
free trade
low tariffs
helping developing countries increase their trading prospects
"There are some who believe that simply opening markets on a global scale is the be-all and end-all, no matter how it is done or no matter who benefits. I subscribe to a different view. It is imperative that we open markets in a manner consistent with the rules of the WTO, but we must make sure Americans benefit directly from the process, and to do that Americans must drive the rules of the new global landscape and the opening of markets."—Charlene Barshefsky, U.S. Trade Representative
"In broad terms, the WTO is designed to entrench 'grow-now, pay-later' globalization by removing the power of governments to regulate corporate activity in the public interest. The result is that it will undermine our capacity to redirect current economic, development and trade policies towards a truly sustainable path."—Steven Shrybman, former Executive Director, West Coast Environmental Law Association, Canada
"From the free-market paradigm that underpins it, to the rules and regulations set forth in the different agreements that make up the Uruguay Round, to its system of decision-making and accountability, the WTO is a blueprint for the global hegemony of Corporate America."—Walden Bello, Director, Focus on the Global South, Thailand
"The WTO is basically the first constitution based on the rules of trade and the rules of commerce. Every other constitution has been based on the sovereignty of people and countries. Every constitution has protected life above profits. But WTO protects profits above the right to life of humans and other species."—Vandana Shiva, Director, Research Foundation for Science, Technology, and Natural Resource Policy, India
The Dark Side of World Trade
We are writing the constitution of a single global economy."—Renato Ruggiero, former WTO Director-General, Italy
free flow of trade

further opening of markets

settling trade disputes

dumping

subsidies
Helps promote peace
Disputes
Rules
Cuts cost of living
Raises income
Creates jobs
More efficient economy
Shield governments from narrow interests
Encourages good government
Current Negotiations
Doha Round of Negotiations, 2001
lower trade barriers further
lower agriculture subsidies
help developing countries enter the agriculture market
The Cotton Wars
market access
elimination of subsidies
domestic support
The Dark Side Of World Trade
'Pattern of imports and exports that occurs in the absence of trade barriers'
(Wild, Wild and Han, 2010)
Free trade
Motives for Government Intervention in Trade
Political
Economic
Cultural
Business-Government Trade Relations
Political
Job Protection

Preserve National Security
Respond to Unfair Trade
Moldovan wine banned in Russia
EU decided to open their market for Moldovan wine
Gain Influence
Lithuanian dairy products banned in Russia in the end of September 2013
Also banned all Ukrainian goods in August 2013
Economic Motives
Protect Infant Industries
Pursue Strategic Trade Policy
Recycling fee on imported second-hand cars in Russia
If a 4-year-old car costs £10,000 in Germany with 1.6l engine, in Russia it will be € 18,000-20,000
Motivate people to buy cars from local manufacturers
Benefits and Drawbacks of Strategic Trade policy
Cuba and North Korea don't sell Coca-Cola
Both countries are under long-term US trade embargoes
Cultural Motives
France protested against free trade talks between US and EU in 2012, unless digital media and movies were excluded from negotiations, to protect its ''cultural identity'' which is seen as being under threat from Hollywood.
Tobacco ban in Bhutan
Alcohol banned in some Muslim countries for religious reasons (e.g. Saudi Arabia, Iran, Libya)
Nationalists in China urged the government to protect China Lucky Film and prohibit the joint venture between US giant Kodak and Lucky film as well as provide $240 million in cash and low-interest loans to rescue Lucky.
Ha-Chang ''Almost all of today's rich countries used tariff protection and subsidies to develop their industries''
Problems:
Difficult to distinguish which industries are worth protecting.
Brazil's infant computer industry in 1980's failed to mature.
Barriers to imports risk facing retaliatory barriers
Becoming complacent to innovation
Consumers end up paying more for domestic products
Economic nationalism- policies to protect domestic consumption, jobs and investment using barriers to the movement of labour, goods and capital.
Increased national income
Governmental protection
New jobs for domestic workers (temporarily)
Inefficiency and high costs
Lack of innovation and improvement
Consumers pay more for lower quality products
As a result, the industry weakens
To promote well-being
To protect the environment
To preserve the culture
Coca-Cola ban
Dual-uses items (Cold War)
Oil import quotas (USA 1960-70s)
Lecture Overview
Government Intervention in Trade
Motives: - Political
- Economic
- Cultural
Methods of: - Trade Promotion
- Trade Restriction
Global Trading System
- WTO
Lecture based on real life case studies
Political Motives: Background information
Eastern Partnership - free trade zone between the EU and Armenia, Moldova, Ukraine and Georgia
Customs Union - free trade zone between Russia, Belarus and Kazakhstan
Trade Promotion
Subsidies
Export
Financing
Special
Agencies
Free Trade
Zones
Drawbacks of Subsidies
encourage inefficiency
companies benefit not consumers (subsidies paid out from taxes collected)
overuse of resources
negative environmental effects
Energy subsidies paired with the negative impacts of fossil fuel consumption total


$2 trillion annually
FYI: Gross World Product (GWP) was $84.97 trillion in 2012
In 2011, WTO claimed Airbus received $18 billion in subsidies from European governments.
EU increase the tariff on chinese Solar Panel import, from 11.8 % to 47.6%.
According to the EU, Chinese solar panels are sold 88 percent below fair market value in Europe, and command more than 80 percent of the market there.

Tariff War
Tariff War
The Softwood Lumber Dispute
It is estimated that recent American tariffs have cost Canadian lumber producers 1.5 billion Canadian dollars
Specific tariff
Ad valorem tariff
Compound tariff
Types of Tariff
You may wonder why a nation would ever choose to use a quota when a tariff has the added advantage of raising revenue


The main beneficiaries of quotas are the domestic producers who face less competition.
Types of quota
Absolute quotas
Tariff-rate quotas

In a TRQ, the quota component works together with a specified tariff level to provide the desired degree of import protection.
You may wonder why a nation would ever choose to use a quota when a tariff has the added advantage of raising revenue

Subsidy
Export Financing
- governments offer loans that a company could otherwise not obtain

or charge them an interest rate that is lower than the market rate

- governments also can guarantee that they will repay the loan of a company if the company defaults on repayment

Latvian Guarantee Agency (LGA) is a State Limited Liability company, which provides support to Latvian businesses for implementing business ideas.

Export credit guarantees are issued for the export of goods of Latvian origin.

Export credit guarantee is only intended for covering the risk for those transactions to countries with a heightened risk.
Tobacco Ban in Bhutan
(IMF)
Import quotas vs tariffs

Why Are Tariffs and Trade Barriers Used?
Who Benefits?
• The World Bank estimates that if all barriers to trade such as tariffs were eliminated, the global economy would expand by 830 billion dollars by 2015.
Tariffs and trade barriers tend to be pro-producer and anti-consumer.
Fuel types with added biofuels enjoy a reduced rate of excise tax. Biofuel made entirely of rapeseed oil is exempted from excise tax)

Current Negotiations
How have these arguments shaped recent history of the W.T.O?
"The WTO is basically the first constitution based on the rules of trade and the rules of commerce. Every other constitution has been based on the sovereignty of people and countries. Every constitution has protected life above profits. But WTO protects profits above the right to life of humans and other species."
—Vandana Shiva, Director, Research Foundation for Science, Technology, and Natural Resource Policy, India
"There are some who believe that simply opening markets on a global scale is the be-all and end-all, no matter how it is done or no matter who benefits. I subscribe to a different view. It is imperative that we open markets in a manner consistent with the rules of the WTO, but we must make sure Americans benefit directly from the process, and to do that Americans must drive the rules of the new global landscape and the opening of markets."
—Charlene Barshefsky, U.S. Trade Representative
The W.T.O is fundamentally undemocratic
How the W.T.O's undemocratic functioning is having a negative impact on world trade
- A Kenyan case study

Positives of the WTO
promotes peace
solves disputes
rules
more efficient economy
cuts cost of living
raises income
creates jobs
shields governments
encourages good government
Special Government Agencies
Some of the consequences
Points per unit:
Gold-5
Oil-4
Lumber-3
Electronics-2
Coffee-1
Restrictions on the convertibility of a currency into other countries.
Example of a currency control: Argentina foreign exchange controls
Banitsa
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