Edmundas Radavicius
INTERNATIONAL TRADE
Course handbook
SMK University of Applied Social Sciences
SMK University of Applied Social Sciences
Laura Saltyte
Edmundas
Radavicius
INTERNATIONAL TRADE
BASICS OF APPLIED STATISTICS
Course handbook
Course Handbook
Klaipeda, 2015
Edmundas Radavicius
International trade
Course handbook
Approved by the decision of the Academic Board of SMK University of Applied Social
Sciences, 15th April 2014, No. 4.
The publication is financed within project „Joint Degree Study programme “International Marketing and Branding “ preparation and implementation“ No. VP1-2.2-ŠMM-07-K-02-086 funded in
accordance with the means VP1-2.2-SMM-07-K “Improvement of study quality, development of
Internationalization” of priority 2 “Lifelong Learning” of the Action Programme of Human Relations Development 2007 – 2013.
“This Course Handbook was prepared with support from the European Structural Funds. This
publication reflects the views only of the author, and the SMK University of Applied Social Sciences cannot be held responsible for any use which may be made of the information contained
therein”.
© Edmundas Radavicius, 2015
© SMK University of Applied Social Sciences, 2015
ISBN 978-9955-648-57-4
CONTENTS
Introduction
4
..................................................................................................................................................................................................
Part 1: The meaning of international trade .....................................................................................................................5
Part 2: Globalization .........................................................................................................................................................................24
Part 3: International trade policies ......................................................................................................................................49
Part 4: International trade regulation tools ................................................................................................................86
Part 5: World Trade Organization .....................................................................................................................................113
Part 6: Other international trade organizations ...................................................................................................154
Part 7: Comparative advantage ...........................................................................................................................................187
Part 8: Trade and exchange rates .......................................................................................................................................196
Literature ...................................................................................................................................................................................................216
INTRODUCTION
In this Methodical tool for study you will find a concentrated information –
Theory conspectus, exercises, topics for discussions and many more useful information
regarding International trade course.
The content of this tool is made of eight main parts. Each part is describing
different aspect of the international trade. Appropriate mix of theory and practical
examples, followed by exercises will help students to develop a common understanding
about International trade as such.
Special stress is appointed to a description of the regulations, self-regulatory
institutions and global trade model.
Globalization aspect is appointed throughout all the tool as an inevitable fact
which we need to consider while speaking about trade.
A decent part of this tool is dedicated to country policy and competitive
advantages.
This tool is a set of guidelines which allow lecturer flexibly adapt to the class and
student experience. Although it has a certain structure lecturer is free to choose format
lecture, as well as exercises, utilized to support the lecture frame.
The aim of International trade course unit is to introduce globalization processes
and trade regulation in different markets. The global market all over the world provided
necessity to know main differences in regulations of international trade and main
international trade organizations worldwide.
Learning outcomes of a Course International trade:
1.Will know specific regulations in various countries.
2.Will know how international trade organizations work.
3.Will know main concepts of globalization.
4.Will know main ideas of comparative advantage.
5.Will know main international trade regulation tools and policies.
6.Will know regulations made by international trade organizations.
7.Will know costs of international trade operations.
4 |
Edmundas Radavicius. INTERNATIONAL TRADE
Part 1: Th e m eanin g of international trade
Objective outline:
1. To introduce students with the definition of the international trade.
2. Introducing the students with the models of the international trade.
3. Define the advantages and disadvantages of the international trade.
Chapter One Glossary
1. ACCEPTANCE – Any agreement to purchase goods under specified terms. An
agreement to purchase goods at a stated price and under stated terms.
2. AD VALOREM – According to value
3. ADVANCE AGAINST DOCUMENTS – A loan made on the security of the documents
covering the shipment.
4. ADVISING BANK – A bank, operating in the exporter’s country, which handles
LETTERS OF CREDIT for a foreign bank by notifying the exporter that the credit
has been opened in his or her favor.
5. ADVISORY CAPACITY – A term indicating that shipper’s agent or representative is
not empowered to make definitive decisions or adjustments without approval of the
group or individual represented.
6. AIR WAYBILL – A BILL OF LADING that covers both domestic and international
flights transporting goods to a specified destination.
7. ALONGSIDE – A phrase referring to the side of a ship. Goods to be delivered
“alongside” are to be placed on the dock or barge within reach of the transport ship’s
tackle so that they can be loaded aboard the ship.
8. ALTERATION – A change in the boundaries of an activated zone or subzone.
9. ALTERNATIVE INVENTORY CONTROL SYSTEM (AICS) – A former system of
inventory control, manual or automated, based on records maintained by a zone
Edmundas Radavicius. INTERNATIONAL TRADE
| 5
grantee, operator or individual zone user.
10.APPLICANT – A corporation applying for the right to establish, operate and maintain
a foreign-trade zone.
11.ARBITRAGE – The process of buying FOREIGN EXCHANGE, stocks, bonds and
other commodities in one market and immediately selling them in another market at
higher prices.
12.ASIAN DOLLARS – U.S. dollars deposited in Asia and the Pacific Basin.
13.ATTRIBUTIVE BASIS – Method of accounting for merchandise where direct
identification of the goods with the shipment as admitted to the zone has been lost.
14.AUDIT-INSPECTION PROCEDURES – Provide the framework for Customs to
reduce on-site supervision of zones and for zone operators/users to increase zone
operating flexibility through the method of supervising zones.
15.BALANCE OF TRADE – The difference between a country’s total imports and
exports.
16.BARTER – Trade in which merchandise is exchanged directly for other merchandise
without use of money.
17.BENEFICIARY – The person in whose favor a LETTER OF CREDIT is issued or a
DRAFT is drawn.
18.BILL OF LADING – A document that establishes the terms of a contract between a
shipper and a transportation company under which freight is to be moved between
specified points for a specified charge.
19.BONDED WAREHOUSE – A warehouse authorized by CUSTOMS authorities
for storage of goods on which payment of DUTIES is deferred until the goods are
removed.
20.BOOKING – An arrangement with a steamship company for the acceptance and
carriage of freight.
21.CARNET – A customs document permitting the holder to carry or send merchandise
temporarily into certain foreign countries without paying duties or posting bonds.
6 |
Edmundas Radavicius. INTERNATIONAL TRADE
22.CASH AGAINST DOCUMENTS (C.A.D.) – Payments for goods in which a
commission house or other intermediary transfers title documents to the buyer upon
payment in cash.
23.CASH IN ADVANCED (C.I.A.) – Payment for goods in which the price is paid in full
before shipment is made.
24.CASH WITH ORDER (C.W.O.) – Payment for goods in which the buyer pays when
ordering and in which the transaction is binding on both parties.
25.CERTIFICATE OF INSPECTION – A document certifying that merchandise was in
good condition immediately prior to its shipment.
26.CERTIFICATE OF MANUFACTURE – A statement in which a producer of goods
certifies that manufacture has been completed and that the goods are now at the
disposal of the buyer.
27.CERTIFICATE OF ORIGIN – A document, certifying the country of origin of
specified goods.
28.COST AND FREIGHT (C & F) – A pricing term indicating that the cost of the goods
and freight charges are included in the quoted price.
29.CHARTER PARTY – Written contract between the owner of a vessel and a “charterer”
who rents use of the vessel or a part of its freight space.
30.COST AND INSURANCE (C & I) – A pricing term indicating that the cost of the
product and insurance are included in the quoted price.
31.COST, INSURANCE, FREIGHT – A pricing term indicating that the cost of the
goods, insurance, and freight are included in the quoted price.
32.CLEAN BILL OF LADING – A receipt for goods issued by a carrier that indicates that
the goods were received in “apparent good order and condition”, without damages or
other irregularities.
33.CLEAN DRAFT – A draft to which no documents have been attached.
34.COLLECTION PAPERS – All documents submitted to a buyer for the purpose of
receiving payment for a shipment.
Edmundas Radavicius. INTERNATIONAL TRADE
| 7
35.COMMERCIAL ATTACHÉ – The commerce expert on the diplomatic staff of his/her
country’s embassy or large consulate.
36.COMMERCIAL INVOICE – An itemized list of goods shipped, usually among an
exporter’s COLLECTION PAPERS.
37.COMMON CARRIER – An individual, partnership, or corporation that transports
persons or goods for compensation.
38.CONFIRMED LETTER OF CREDIT – A letter of credit, issued by a foreign bank,
whose validity has been confirmed by a U.S. bank.
39.CONSIGNMENT – Delivery of merchandise from an exporter (consignor) to an agent
(consignee) under agreement that the agent sell the merchandise for the account of
the exporter.
40.CONSTRUCTIVE TRANSFER – A legal fiction which permits acceptance of a
Customs entry for merchandise in a zone before its physical transfer to the Customs
territory.
41.CONSULAR INVOICE – A document, required by some foreign countries, describing
a shipment of goods and showing information such as the consignor, consignee, and
value of the shipment.
42.CONVERTIBLE CURRENCY – A currency that can be bought and sold for other
currencies at will.
43.CORPORATION, PRIVATE – Any corporation which is organized for the purpose of
establishing, operating and maintaining a foreign-trade zone and which is chartered
under a special act of the State within which it is to operate such a zone.
44.CORPORATION, PUBLIC – A State, political subdivision thereof, a municipality, a
public agency of a State, political subdivision thereof, or municipality, or a corporate
municipal instrumentality of one or more States.
45.CORRESPONDENT BANK – A bank that, in its own country, handles the business
of a foreign bank.
46.COUNTERTRADE – The sale of goods or services that are paid in whole or in part
8 |
Edmundas Radavicius. INTERNATIONAL TRADE
by the transfer of goods or services from a foreign country.
47.CREDIT RISK INSURANCE – Insurance designed to cover risks of nonpayment for
delivered goods.
48.CUSTOMS – The authorities designated to collect duties levied by a country on
imports and exports.
49.CUSTOMS TERRITORY – Territory of the U.S. in which the general tariff laws of
the U.S. apply.
50.CUSTOMHOUSE BROKER – An individual or firm licensed to enter and clear
goods through Customs.
51.DATE DRAFT – A draft that matures in a specified number of days after the date it
is issued, without regard to the date of ACCEPTANCE.
52.DEACTIVIZATION – Voluntary discontinuation of the activation of an entire zone or
subzone by the grantee or operator.
53.DEFAULT – An act or omission that will result in a claim for duties, taxes, charges
or liquidated damages under the FTZ Operator’s Bond
54.DEFERRED PAYMENT CREDIT – Type of LETTER OF CREDIT providing for
payment sometime after presentation of shipping documents by exporter.
55.DESTINATION CONTROL STATEMENT – Any of various statements that the
U.S. Government requires to be displayed on export shipments and that specify the
destinations for which export of the shipment has been authorized.
56.DEVALUATION – The official lowering of the value of one country’s currency in
terms of one or more foreign currencies.
57.DISCREPANCY - LETTER OF CREDIT – When documents presented do not
conform to the letter of credit.
58.DISPATCH – An amount paid by a vessel’s operator to a charterer if loading or
unloading is completed in less time than stipulated in the charter party.
59.DISTRIBUTOR – A foreign agent who sells for a supplier directly and maintains an
Edmundas Radavicius. INTERNATIONAL TRADE
| 9
inventory of the supplier’s products.
60.DISTRICT DIRECTOR – The district director of customs in whose district the zone
is located.
61.DISTRICT ENGINEER – The engineer of the Department of the Army in whose
district the zone is located.
62.DOCK RECEIPT – A receipt issued by an ocean carrier to acknowledge receipt of a
shipment at the carrier’s dock or warehouse facilities.
63.DOCUMENTARY AGAINST ACCEPTANCE (D/A) – Instructions given by a shipper
to a bank indicating that documents transferring title to goods should be delivered to
the buyer only upon the buyer’s acceptance of the attached draft.
64.DRAFT – An unconditional order in writing from one person (the drawer) to another
(the drawee), directing the drawee to pay a specified amount to a named drawer at a
fixed or determinable future date.
65.DRAWBACK – Articles manufactured or produced in the United States with the use
of imported components or raw materials and later exported are entitled to a refund
of up to 99% of the duty charged on the imported components.
66.DRAWEE – The individual or firm on whom a draft is drawn and who owes the
stated amount.
67.DRAWER – The individual or firm that issues or signs a draft and thus stands to
receive payment of the stated amount from the drawee.
68.DUMPING – Exporting/Importing merchandise into a country below the costs
incurred in production and shipment.
69.DUTY – A tax imposed on imports by the customs authority of a country.
70.EURODOLLARS – U.S. dollars placed on deposit in banks outside the United States;
usually in Europe.
71.EXCHANGE PERMIT – A government permit sometimes required by the importer’s
government to enable the importer to convert his or her own country’s currency into
foreign currency with which to pay a seller in another country.
10 |
Edmundas Radavicius. INTERNATIONAL TRADE
72.EXCHANGE RATE – The price of one currency in terms of another, i.e., the number
of units of one currency that may be exchanged for one unit of another currency.
73.EXHIBITION – The showing of merchandise within a zone, usually to prospective
buyers.
74.EXIMBANK – The Export-Import Bank of the United States.
75.EXPORT BROKER – An individual or firm that brings together buyers and sellers
for a fee but does not take part in actual sales.
76.EXPORT COMMISSION HOUSE – An organization which, for a commission, acts
as a purchasing agent for a foreign buyer.
77.EXPORT LICENSE – A government document that permits the “Licensee” to engage
in the export of designated goods to certain destinations.
78.EXPORT MANAGEMENT COMPANY – A private firm that serves as the export
department for several manufacturers, soliciting and transacting export business on
behalf of its clients in return for a commission, salary, or retainer plus commission.
79.EXPORT TRADING COMPANY – A firm similar or identical to an export management
company.
80.FIRST IN-FIRST OUT (FIFO) – An accounting method based on an assumption
regarding the flow of goods that older stock is disposed of first, in accordance with
good merchandising policy.
81.FORCE MAJEURE – The title of a standard clause in marine contracts exempting
the parties for nonfulfillment of their obligations as a result of conditions beyond
their control, such as earthquakes, floods, or war.
82.FOREIGN EXCHANGE – The currency or credit instruments of a foreign country.
83.FOREIGN FIRST (FOFI) – An accounting method based on an assumption regarding
the flow of goods that foreign status merchandise is disposed of first.
84.FOREIGN SALES AGENT – An individual or firm that serves as the foreign
representative of a domestic supplier and seeks sales abroad for the supplier.
Edmundas Radavicius. INTERNATIONAL TRADE
| 11
85.FOREIGN-TRADE ZONE/FREE TRADE ZONE – A port designated by the
government of a country for duty-free entry of any non-prohibited goods.
Merchandise may be stored, displayed, or used for manufacturing, etc., within the
zone and reexported without duties being paid.
86.FOREIGN-TRADE ZONES ACT – The Foreign-Trade Zones Act of June 18, 1934,
(48 Stat. 998-1003; 19 U.S.C. 81a-81u) as amended.
87.FOREIGN-TRADE ZONES BOARD – The Board which is established to carry out
the provisions of the Foreign-Trade Zones Act.
88.FOUL BILL OF LADING – A receipt of goods issued by a carrier with an indication
that the goods were damaged when received.
89.FREE ALONGSIDE (F.A.S.) – A pricing term indicating that the quoted price
includes the cost of delivering the goods alongside a designated vessel.
90.FREE IN (F.I.) – A pricing term indicating that the charter of a vessel is responsible
for the cost of loading and unloading goods from the vessel.
91.FREE PORT – An area such as a port city into which merchandise may be legally
moved without payment of duties.
92.FREIGHT FORWARDER – An independent business which handles export shipments
for compensation.
Description of the definition
International trade is the exchange of goods or services along international
borders.1 This type of trade allows for a greater competition and more competitive
pricing in the market. The competition results in more affordable products for the
consumer. The exchange of goods also affects the economy of the world as dictated by
supply and demand, making goods and services obtainable which may not otherwise be
available to consumers globally. In most countries, such trade represents a significant
share of gross domestic product (GDP). While international trade has been present
throughout much of history (see Silk Road, Amber Road), it’s economic, social, and
political importance has been on the rise in recent centuries.
12 |
Edmundas Radavicius. INTERNATIONAL TRADE
Industrialization, advanced in technology transportation, globalization,
multinational corporations, and outsourcing are all having a major impact on the
international trade system. Increasing international trade is crucial to the continuance
of globalization. Without international trade, nations would be limited to the goods and
services produced within their own borders.
Instead of importing a factor of production, a country can import goods that
make intensive use of that factor of production and thus embody it. An example is the
import of labor-intensive goods by the United States from China. Instead of importing
Chinese labor, the United States imports goods that were produced with Chinese labor.
One report in 2010 suggested that international trade was increased when a country
hosted a network of immigrants, but the trade effect was weakened when the immigrants
became assimilated into their new country.2
International trade is also a branch of economics, which, together with
international finance, forms the larger branch of international economics. For more,
see The Observatory of Economic Complexity. Trading is a value added function of the
economic process of a product finding its market, where specific risks are to be borne
by the trader, affecting the assets being traded which will be mitigated by performing
specific functions.
Models of the international trade
Adam Smith’s model
Adam Smith displays trade taking place on the basis of countries exercising
absolute advantage over one another.
In economics, the principle of absolute advantage refers to the ability of a party
(an individual, or firm, or country) to produce more of a good or service than competitors,
using the same amount of resources. Adam Smith first described the principle of absolute
advantage in the context of international trade, using labor as the only input.
Since absolute advantage is determined by a simple comparison of labor
productivities, it is possible for a party to have no absolute advantage in anything; in
that case, according to the theory of absolute advantage, no trade will occur with the
other party. It can be contrasted with the concept of comparative advantage which refers
Edmundas Radavicius. INTERNATIONAL TRADE
| 13
to the ability to produce specific goods at a lower opportunity cost.3
Example 14
In this example Factory No. 2 has the absolute advantage over the Factory No. 1.
Factory No. 1 has 60 employees and can produce 1 million pcs of the product
pieces per year.
Factory No. 2 has 50 employees and produces the same amount of the product
pieces per year.
Assuming that the employees of both parties are paid equally, factory No. 2 has
an absolute advantage over factory No.1 in production speed. This is because factory
No. 2 can produce more products in comparison to factory No.1 with the same number
of employees.
Example 24
Two companies are producing soap and shampoo.
Situation 1: Company No. 1 can produce 100 pcs of soap and 1000 bottles of
shampoo. Company No. 2 can produce 50 pcs of soap and 500 bottles of shampoo. In
this case Company No. 1 is more productive in making soap and shampoo, so it has
absolute advantage over company No. 2.
Situation 2: Company No. 2 has found a way to increase productivity of soap line
and from now on is able to produce 200 pcs of soap. In this case Company No. 1 still
has absolute advantage over the Company No. 2 in shampoo production, but in this case
Company No.2 will gain absolute advantage over Company No.1 in soap production.
Ricardian model
The law of comparative advantage was first proposed by David Ricardo.
The Ricardian model focuses on comparative advantage, which arises due to
differences in technology or natural resources. The Ricardian model does not directly
consider factor endowments, such as the relative amounts of labor and capital within a
country.
The Ricardian model is based on the following assumptions:
14 |
Edmundas Radavicius. INTERNATIONAL TRADE
- Labor is the only primary input to production
- The relative ratios of labor at which the production of one good can be traded
off for another differ between countries and governments
Ricardo was opposed to tariffs and other restrictions on international trade.
Ricardo devised an idea that is well known as the theory of comparative advantage
(Henderson 827, Fesfeld 325). According to the Washington Council on International
Trade, comparative advantage is the ability to produce a good at a lower cost, relative
to other goods, compared to another country. In the Principles of Economics, Ricardo
states that comparative advantage is a specialization technique used to create more
efficient production and describes opportunity cost between producers. With perfect
competition and undistorted markets, countries tend to export goods in which they have
a comparative advantage.5
For example, we should think of two countries that both make cards and pencils
and use the same amount of time to make one unit of items (please see table). Country
one can make 4 pencils if they specialize just in pencils at the expense of one card, but
this country can also make ¼ of a card at the expense of one pencil. The same logic goes
for country two: if country two makes only pencils, it will make 2 pencils at the expense
of 1 card.6
Country One
4 Pencils
1/4 of a Card
Country Two
2 Pencils
1/2 of a Card
If country two specializes only in cards, it will make ½ of a card at the expense
of a pencil. For this example, country one has a comparative advantage in pencils over
country two (4 pencils to 2 pencils), whereas, country two has a comparative advantage
in cards over country one (½ of a card to ¼ of a card). In Ricardo’s idea of comparative
advantage, these two countries should specialize in what they do best. According to The
Fortune Encyclopedia of Economics, Ricardo’s idea of comparative advantage is “the
main basis for most economists’ belief in free trade today”.
The Ricardian theory of comparative advantage became a basic constituent
of neoclassical trade theory. Any undergraduate course in trade theory includes a
presentation of Ricardo’s example of a two-commodity, two-country model. A common
Edmundas Radavicius. INTERNATIONAL TRADE
| 15
representation of this model is made using an Edgeworth Box.
This model has been expanded to many-country and many-commodity cases.
Major general results were obtained by McKenzie and Jones, including his famous
formula. It is a theorem about the possible trade pattern for N-country N-commodity
cases.
Inspired by Piero Sraffa, a new strand of trade theory emerged and was named
neo-Ricardian trade theory. The main contributors include Ian Steedman (1941–) and
Stanley Metcalfe (1946–). They have criticized neoclassical international trade theory,
namely the Heckscher-Ohlin model on the basis that the notion of capital as primary
factor has no method of measuring it before the determination of profit rate (thus
trapped in a logical vicious circle). This was a second round of the Cambridge capital
controversy, this time in the field of international trade.6
The merit of neo-Ricardian trade theory is that input goods are explicitly
included. This is in accordance with Sraffa’s idea that any commodity is a product made
by means of commodities. The limitation of their theory is that the analysis is restricted
to small-country cases.
Heckscher–Ohlin model
Additionally, owners of opposing specific factors of production (i.e., labor
and capital) are likely to have opposing agendas when lobbying for controls over
immigration of labor. Conversely, both owners of capital and labor profit in real terms
from an increase in the capital endowment. This model is ideal for understanding income
distribution but awkward for discussing the pate.7
New Trade Theory8
New Trade Theory tries to explain empirical elements of trade that comparative
advantage-based models above have difficulty with. These include the fact that most
trade is between countries with similar factor endowment and productivity levels, and
the large amount of multinational production (i.e., foreign direct investment) that exists.
New Trade theories are often based on assumptions such as monopolistic competition
and increasing returns to scale. One result of these theories is the home-market effect,
16 |
Edmundas Radavicius. INTERNATIONAL TRADE
which asserts that, if an industry tends to cluster in one location because of returns to
scale and if that industry faces high transportation costs, the industry will be located in
the country with most of its demand, in order to minimize cost.
Although new trade theory can explain the growing trend of trade volumes of
intermediate goods, Krugman’s explanation depends too much on the strict assumption
that all firms are symmetrical, meaning that they all have the same production coefficients.
Shiozawa, based on much more general model, succeeded in giving a new explanation
on why the traded volume increases for intermediate goods when the transport cost
decreases.
New trade theory is a collection of economic models in international trade which
focuses on the role of increasing returns to scale and network effects, which were
developed in the late 1970s and early 1980s. New trade theorists relaxed the assumption
of constant returns to scale, and some argue that using protectionist measures to build up
a huge industrial base in certain industries will then allow those sectors to dominate the
world market. Less quantitative forms of a similar “infant industry” argument against
totally free trade have been advanced by trade theorists since at least 1848.
The value of protecting “infant industries” has been defended at least since the
18th century; for example, Alexander Hamilton proposed in 1791 that this be the basis
for US trade policy. What was “new” in new trade theory was the use of mathematical
economics to model the increasing returns to scale, and especially the use of the network
effect to argue that the formation of important industries was path dependent in a way
which industrial planning and judicious tariffs might control. The models developed
predicted the national specialization-by-industry observed in the industrial world
(movies in Hollywood, watches in Switzerland, etc.). The model also showed how pathdependent industrial concentrations can sometimes lead to monopolistic competition or
even situations of oligopoly.
Some economists, such as Ha-Joon Chang, had argued that protectionist policies
had facilitated the development of the Japanese auto industries in the 1950s, when quotas
and regulations prevented import competition. Japanese companies were encouraged
to import foreign production technology but were required to produce 90% of parts
domestically within five years. Japanese consumers suffered in the short-term by being
unable to buy superior vehicles produced by the world market, but eventually gained by
Edmundas Radavicius. INTERNATIONAL TRADE
| 17
having a local industry that could out-compete their international rivals.
The econometric evidence for New Trade Theory was mixed, and highly
technical. Due to the timescales required, and the particular nature of production in
each sector, which is possible to monopolize, statistical judgments were hard to make.
In many ways, the available data have been too limited to produce a reliable test of the
hypothesis, which doesn’t require arbitrary judgments from the researchers.
Japan is cited as evidence of the benefits of “intelligent” protectionism, but critics
of New Trade Theory have argued that the empirical support post-war Japan offers for
beneficial protectionism is unusual, and that the New Trade Theory argument is based
on a selective sample of historical cases. Although many examples (like Japanese cars)
can be cited where a ‘protected’ industry subsequently grew to world status, regressions
on the outcomes of such “industrial policies” (which include failures) have been less
conclusive; some findings suggest that sectors targeted by Japanese industrial policy had
decreasing returns to scale and did not experience productivity gains.
The theory was initially associated with Paul Krugman in the late 1970s;
Krugman claims that he heard about monopolistic competition from Robert Solow.
Looking back in 1996 Krugman wrote that International economics a generation earlier
had completely ignored returns to scale. “The idea that trade might reflect an overlay of
increasing-returns specialization on comparative advantage was not there at all: instead,
the ruling idea was that increasing returns would simply alter the pattern of comparative
advantage.” In 1976, however, MIT-trained economist Victor Norman had worked out
the central elements of what came to be known as the Helpman-Krugman theory. He
wrote it up and showed it to Avinash Dixit. However, they both agreed the results were
not very significant. Indeed Norman never had the paper typed up, much less published.
Norman’s formal stake in the race comes from the final chapters of the famous DixitNorman book.
Marc Melitz and Pol Antràs stated a new trend in the study of international trade.
While new trade theory put emphasis on the growing trend of intermediate goods, this
new trend emphasizes firm level differences in the same industry of the same country
and this new trend is frequently called ‘new’ new trade theory. ‘New’ new trade theory
stresses the importance of firms rather than sectors in understanding the challenges and
the opportunities countries face in the age of globalization.
18 |
Edmundas Radavicius. INTERNATIONAL TRADE
rive. The resulting intra-industry reallocations of market shares and productive resource
As international trade is increasingly liberalized, industries of comparative
advantage are expected to expand, while those of comparative disadvantage are
expected to shrink, leading to an uneven spatial distribution of the corresponding
ew trade theory
and "new" new trade theory need their own trade theory. New trade the
economic activities. Within the very same industry, some firms are not able to cope with
e often based
on assumptions
suchothers
as monopolistic
competition
and reallocations
increasing return
international
competition while
thrive. The resulting
intra-industry
of the
market
shares
and productive
resources
much more
pronounced
interale. One of
typical
explanation,
given
by P. are
Krugman,
depends
on thethan
assumption
th
industry reallocations driven by comparative advantage.
ms are symmetrical, meaning that they all have the same production coefficients. This i
New trade theory and “new” new trade theory need their own trade theory.
rict as an
deprived
applicability
of Krugman's
explana
Newassumption
trade theories and
are often
based ongeneral
assumptions
such as monopolistic
competition
and increasing
returns
scale. One
of the succeeded
typical explanation,
given
by P. explanation
Krugman,
hiozawa, based
on much
moreto general
model,
in giving
a new
on
depends on the assumption that all firms are symmetrical, meaning that they all have
e traded volume
increases for intermediates goods when the transport cost decreases.
the same production coefficients. This is too strict as an assumption and deprived
general applicability of Krugman’s explanation. Shiozawa, based on much more general
model, succeeded in giving a new explanation on why the traded volume increases for
9
intermediates goods when the transport
cost model
decreases.
gravity
uch more pronounced than inter-industry reallocations driven by comparative advantage
9
he Gravity model
of trade
presents
a more empirical analysis of trading patterns. The gr
Gravity
model
odel, in its basic
form, model
predicts
trade
based
on empirical
the distance
and
The Gravity
of trade
presents
a more
analysisbetween
of trading countries
patterns.
gravity model, in its basic form, predicts trade based on the distance between
teraction The
of the
countries' economic sizes. The model mimics the Newtonian law of gr
countries and the interaction of the countries’ economic sizes. The model mimics the
hich also Newtonian
considerslaw
distance
andwhich
physical
size between
Thebetween
model has
of gravity
also considers
distancetwo
and objects.
physical size
objects. Thestrong
model has
been proven
to be empirically
strong through econometric
oven to betwo
empirically
through
econometric
analysis.
analysis.
he gravity model
trademodel
in international
economics,
similar
to other
The of
gravity
of trade in international
economics,
similar
to othergravity
gravity mode
models
in socialbilateral
science, trade
predictsflows
bilateral
tradeon
flows
on the sizes
economic
sizesusing
cial science,
predicts
based
thebased
economic
(often
(often using GDP measurements) and distance between two units. The model was first
easurements)
and distance between two units. The model was first used by Tinberge
used by Tinbergen in 1962. The basic model for trade between two countries (i and j)
form of:
962. The takes
basicthe
model
for trade between two countries (i and j) takes the form of:
Fij = G
MiM j
Dij
here F is the trade flow, M is the economic mass of each country, D is the distance and
Edmundas Radavicius. INTERNATIONAL TRADE
| 19
constant. The model has also been used in international relations to evaluate the impa
eaties and alliances on trade, and it has been used to test the effectiveness of
Where F is the trade flow, M is the economic mass of each country, D is the
distance and G is a constant. The model has also been used in international relations to
evaluate the impact of treaties and alliances on trade, and it has been used to test the
effectiveness of trade agreements and organizations such as the North American Free
Trade Agreement (NAFTA) and the World Trade Organization (WTO).
The model has been an empirical success, but for a long time some scholars
believed that there was no theoretical justification for the gravity equation. However,
a gravity relationship can arise in almost any trade model that includes trade costs that
increase with distance. The gravity model estimates the pattern of international trade.
While the model’s basic form consists of factors that have more to do with geography and
spatiality, the gravity model has been used to test hypotheses rooted in purer economic
theories of trade as well.
An alternative theory, first proposed by Staffan Linder, predicts that patterns of
trade will be determined by the aggregated preferences for goods within countries. Those
countries with similar preferences would be expected to develop similar industries.
With continued similar demand, these countries would continue to trade back and forth
in differentiated but similar goods since both demand and produce similar products.
For instance, both Germany and the United States are industrialized countries with a
high preference for automobiles. Both countries have automobile industries, and both
trade cars. The empirical validity of the Linder hypothesis is somewhat unclear. Several
studies have found a significant impact of the Linder effect, but others have had weaker
results. Studies that do not support Linder have only counted countries that actually
trade; they do not input zero values for the dyads where trade could happen but does
not. This has been cited as a possible explanation for their findings. Also, Linder never
presented a formal model for his theory, so different studies have tested his hypothesis
in different ways.10
Specialties of the international trade
International trade is, in principle, not different from domestic trade as the
motivation and the behavior of parties involved in a trade do not change fundamentally
regardless of whether trade is across a border or not. The main difference is that
international trade is typically more costly than domestic trade. The reason is that a
20 |
Edmundas Radavicius. INTERNATIONAL TRADE
border typically imposes additional costs such as tariffs, time costs due to border delays
and costs associated with country differences such as language, the legal system or
culture.1
Another difference between domestic and international trade is that factors
of production such as capital and labor are typically more mobile within a country
than across countries. Thus international trade is mostly restricted to trade in goods
and services, and only to a lesser extent to trade in capital, labor or other factors of
production. Trade in goods and services can serve as a substitute for trade in factors of
production.2
DISCUSSION
In this case it is strongly recommended to include students in the defining process
itself. Therefore practical curriculums should be integrated into the flow of theory
aspects introduction, mainly in the forms of:
- Reflection;
- Discussion;
- Feedback;
- Role-play…
Or any other relevant activities which, by lecturer seems appropriate to the level
of the class.
REFERENCES
The context of this part has been adapted from the following product(s):
1. “Trade - Define Trade at Dictionary.com”. Dictionary.com.
2. Kusum Mundra (October 18, 2010). “Immigrant Networks and U.S. Bilateral
Trade: The Role of Immigrant Income”. Papers.ssrn. Retrieved 2011-09-01. Mundra,
Kusum, Immigrant Networks and U.S. Bilateral Trade: The Role of Immigrant Income.
IZA Discussion Paper No. 5237. Available at SSRN: http://ssrn.com/abstract=1693334
... This paper finds that the immigrant network effect on trade flows is weakened by the
increasing level of immigrant assimilation.
3. “Absolute and comparative advantage” (pdf). International encyclopedia of
Edmundas Radavicius. INTERNATIONAL TRADE
| 21
the social sciences, 2nd editioN. Pp. 1–2. Retrieved 2015-05-04.
4. Marrewijk, Charles van (2007-01-18). “Absolute advantage”. Department
of Economics, Erasmus University Rotterdam: world economy. Princeton University
Press. Retrieved 2009-05-03.
5. “The Theory of Comparative Advantage: Overview”. Flat World Knowledge.
Retrieved23 February 2015.
6. Dixit, Avinash; Norman, Victor (1980). Theory of International Trade: A
Dual, General Equilibrium Approach. Cambridge: Cambridge University Press. P. 2.
7. Blaug, Mark (1992). The methodology of economics, or, How economists
explain. Cambridge University Press. P. 286. ISBN 0-521-43678-8.
8. Shiozawa, Y. (2007). “A New Construction of Ricardian Trade Theory: A
Many-country, Many-commodity with Intermediate Goods and Choice of Techniques”.
Evolutionary and Institutional Economics Review 3 (2): 141–187. Doi:10.14441/
eier.3.141
9. Deardorff, Alan (1998). “Determinants of Bilateral Trade: Does Gravity
Work in a Neoclassical World?” (pdf). The Regionalization of the World Economy.
10.“An Essay on Trade and Transformation”, Staffan Burenstam Linder,
Stockholm: Almqvist & Wicksell, 1961.
FURTHER READING
1. “Absolute Advantage”. Dictionary. Investopedia: A forbe’s digital company.
2009. Archived from the original on 13 April 2009. Retrieved 2009-05-03.
2. O’Sullivan, Arthur; Sheffrin, Steven M. (2003) [January 2002]. Economics:
Principles in Action. The Wall Street Journal:Classroom Edition (2nd ed.). Upper Saddle
River, New Jersey 07458: Pearson Prentice Hall: Addison Wesley Longman. p. 443.
ISBN 0-13-063085-3. Retrieved May 3, 2009.
3. Johnson, Paul M. (2005). “Absolute advantage”. A Glossary of Political
Economy Terms. Department of Political Science, 7080 Haley Center, Auburn
University, Auburn, AL 36849. Retrieved 2009-05-03.
4. “The Principle of Comparative and Absolute Advantage”. Theories. Virtual
Zambia. 2009. Archived from the original on 2 February 2009. Retrieved 2009-03-03.
5. Keller, Lana. “Economics: Global Trade”. GED Lesson Plan. Retrieved 200905-03.
22 |
Edmundas Radavicius. INTERNATIONAL TRADE
6. Guillory, Gil (March 25, 2005). “Comparative advantage versus absolute
advantage”. Mises Economics Blog. Ludwig von Mises Institute. Archived from the
original on 30 April 2009. Retrieved 2009-05-03.
Edmundas Radavicius. INTERNATIONAL TRADE
| 23
Part 2: Glob aliz ation
Objective outline:
1. Explain the globalization process to the students.
2. Identify the globalization measurement indexes.
Chapter Two Glossary
1. Accessibility - A measure of the ease with which an individual can reach features
in the wider world- overcoming “friction of distance”
2. Anti- capitalism – Any challenge to profit driven economies. It was given media
prominence 1990 WTO summit Seattle, where there were protests.
3. Anti-globalisationists – Individuals who believe that globalization is having
a negative impact on cultural diversity.
4. Appropriate technology – Technology that can be made with local
materials by local people at an affordable price, whilst benefitting individuals and
communities, it will have a limited impact on the environment.
5. Assimilation - The process of becoming integrated into mainstream society.
6. ASEAN – The Association of Southeast Asian Nations, is a geo-political and
economic organization of 10 countries located in Southeast Asia, which was formed
1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand. Since then,
membership has expanded to include Brunei, Burma (Myanmar), Cambodia, Laos,
and Vietnam. The surprise collapse of the Southeast Asian economies has weakened
ASEAN and made it more vulnerable to Western pressure. The level of oppression
of the opposition and people in Burma has increased, rather than abated, since its
admission to ASEAN, contrary to ASEAN’s wishful thinking. ASEAN initiatives
to modify the regime’s behavior have gone unheeded, revealing a major flaw in the
ASEAN approach – namely, its inability to deal with an obstinate member.
7. AT Kearney – The AT Kearney Foreign Policy index measures twelve variables,
which are sub divided into four “baskets”: economic integration, personal contact,
24 |
Edmundas Radavicius. INTERNATIONAL TRADE
technological connectivity and political engagement. Nations are ranked according
to a calculated globalization index. Top in 2010 were Belgium, Austria and the
Netherlands. Bottom were Myanmar, Kiribati and Solomon Islands.
8. Balance of Payments – The difference between the exports and imports of a
country. Deficit is when the imports of a country are greater than its exports. Surplus
is when the exports of a country are greater than its imports.
9. Bilateral trade agreements – An agreement between two countries that
regulates the terms of trade between them. If conditions are attached, loans that can
only be spent on the resources or services of the donor country, it is called tied aid.
In 1991 the UK provided £234 million pounds of funding for the Pergau River Dam
in Malaysia, in return Malaysia spent £1 billion on British arms. Tied aid is now
illegal in the UK.
10.Black Holes – Represent the 15 countries that limit or prohibit their citizens’
access to internet as a way of censoring the free flow of information.
11.BRICs – The BRICs matter because of their economic weight. They are the four
largest economies outside the OECD (Organisation for Economic Co-operation and
Development, the rich man’s club). They are the only developing economies with
annual GDPs of over $1 trillion (Indonesia’s is only half that). With the exception
of Russia, they sustained better growth than most during the great recession and,
but for them, world output would have fallen by even more than it did. China also
became, by a fraction, the world’s largest exporter. Meanwhile, the BRICs are also
increasing their trade with one another: Chinese-Indian trade has soared and is likely
to reach $60 billion this year. China has also become the largest market for the fastindustrializing countries of East Asia.
12.Bulk carriers – Designed to carry cargoes such as iron ore, coal and wheat as
cheaply as possible, in very large quantities, slowly e.g. by boat.
13.Capitalism – The social and economic system which relies on market mechanism
to distribute factors of production (land, labor, capital) in the most efficient way.
14.Civil society – Any organization or movement that works in the area between
the household, the private sector and the state to negotiate matters of public concern.
Edmundas Radavicius. INTERNATIONAL TRADE
| 25
Civil societies include non-governmental organizations (NGOs), community groups,
trade unions, academic institutions and faith based organizations.
15.Colonialism – Permanent rule of one country or region by another, usually based
on conquest. Feature of European expansion since sixteenth century, as Western
powers took control of people and territory across much of globe. Last wave in
Africa, late-nineteenth century. South American colonies gained independence in
nineteenth century, African and Asian after WW II.
16.Communications systems – The ways in which information is transmitted
from place to place in the form of ideas, instructions and images.
17.Connectivity – Tangible and intangible ways that places are connected by
telephone lines, retail outlets, roads, rivers, language and families. Connectedness
combines information on terrain and access to road, rail and river networks. It also
considers how factors like altitude, steepness of terrain and hold-ups like border
crossings slow travel
18.Containerization – Transport in a standard sized unit which can be sent by road
rail or ship, requiring specialized handling equipment for freight like machine parts
or manufactured electronic equipment.
19.Core – Wealthy countries with dominant role in world economy. Geographic
equivalent of capitalist ruling class. World-system theory designation for areas that
control capital, operate with leading-edge technology and free labor, are supported
by strong states, can set global terms of trade and exploit regional division of labor.
I.e. Europe (excluding Russia, Ukraine, and Belarus), the United States, Canada,
Australia, New Zealand, Japan, South Korea, and Israel.
20.Cultural diffusion – Culture provides a sense of identity and attachment to
place. It has several modes of expression or traits. Including; Language Religion
Customs Music Art Architecture Dress Food Technology and Skills. The process
of expansion diffusion involves the gradual spread of culture by person-to person
contact. It may result in a pattern of distance decay and an S-shaped curve of adoption
over time.
21.Cultural dilution – marginalization and reduction in strength of local cultures
26 |
Edmundas Radavicius. INTERNATIONAL TRADE
through the efforts of Western media and brand marketing
22.Cultural Imperialism – Form of cultural hegemony enabling some states to
impose worldview, values, and lifestyles on others. Term used by critics of American
global influence to describe how U.S. dominates others, e.g., by disseminating
ideology of consumerism, hedonistic popular culture, or particular model of freemarket society
23.Cultural fusion – It is not only America that has influenced global culture,
Asian countries such as Japan has had a huge influence, for example computing
and gaming. People have choice. There is not international conspiracy; consumers
have a choice in the culture they consume. Increasing interconnectedness makes
the process of conflict more difficult, we have more in common. There have been
no global conflicts in over half a century. – Global Village- tolerance through
uniformity so improved equality. Some believe that exposure to Western culture has
had a positive impact on the rights of individuals, for example the role of women in
certain societies.
24.Debt Crisis – Widespread inability in 1980s among developing countries to
service loans, and resulting strains in domestic development, due to rising oil prices,
higher real interest rates, reduced lending, and declining exports, with total debt
burden reaching $1 trillion in 1986. Addressed through debt management led by
IMF, involving new loans on condition of structural adjustment of state finances. For
overview by an anti-debt organization,
25.Deregulation – Lifting of government controls over an industry which usually
results in greater competition and lower prices for consumers.
26.Deterritorialization – weakening of and loss of nation states
27.Developing country – Low-income and middle-income countries in which
most people have a lower standard of living and access to fewer goods and services
than do most people in high-income countries.
8. Development Indicator – Usually a numerical measure of quality of life in a
country. Indicators are used to illustrate progress of a country in meeting a range of
economic, social, and environmental goals. Since indicators represent data that have
Edmundas Radavicius. INTERNATIONAL TRADE
| 27
been collected by a variety of agencies using different collection methods, and there
may be inconsistencies among them.
29.Diffusion – The spread of phenomena over time and space
30.Digital divide Inequalities – between individuals, households, businesses
and nations (rural and periphery are disadvantaged) some have very effective access
others limited access and some have none.
31.Distance decay – Is the effect of distance on cultural or spatial interactions. The
distance decay effect states that the interaction between two places declines as the
distance between them increases.
32.Emergency aid – Provided after or during a disaster. Often short term aid. E.g.
Emergency temporary shelters after an earthquake.
33.Emerging markets – Developing countries that are experiencing the fastest rate
of growth in the global economy
34.Energy pathways – Supply routes between energy producers and consumers;
they can be pipelines, shipping routes or electricity cables.
35.Export-processing zones – Also free trade zones. Selected areas in
industrializing countries marked by low taxes and tariffs, subsidized infrastructure,
and exemption from some regulations, designed to attract foreign direct investment
and stimulate growth
36.Food miles – A measure of the distance food travels from its source to the
consumer. This can be given either in units of actual distance or of energy consumed
during transport.
37.Foreign Direct Investment – (FDI) Investment by firm based in one country
in actual productive capacity or other real assets in another country, normally through
creation of a subsidiary by a multinational corporation. Measure of globalization of
capital. Effects on growth and inequality in developing countries disputed.
38.Free trade – A situation where there are no restrictions on trade between nations.
This situation will never exist because nations have very strict rules about trading
28 |
Edmundas Radavicius. INTERNATIONAL TRADE
in some items, such as pornography, or they may ban goods for quarantine reasons,
such as meat products from countries with outbreaks of ‘mad cow’ disease.
39.Friction of distance – describes the force that creates distance decay and
Waldo R. Tobler’s First law of geography, an informal statement that “All things
are related, but near things are more related than far things. Distance is seen as a
disadvantage due to the time and cost needed to overcome it.
40.Global city – An important nodal point in the economic global system, New
York London and Tokyo are top. London has 34% of global share foreign exchange,
53% stocks and shares, has the world’s leading market for international insurance,
75% of the world’s largest 500 companies are located in The City, 254 foreign banks,
700 foreign companies are listed on the London Stock Exchange.- a world city.
41.Global civil society – All movements, associations or individual citizens,
independent from the state, whose aim is to transform policies, standards or social
structures through communal efforts at a national or international level.
42.Global financial crisis – The 2008 financial crisis is considered by many
economists to be the worst financial crisis since the Great Depression of the 1930s.
It was triggered by a liquidity shortfall in the United States banking system, and has
resulted in the collapse of large financial institutions, the bailout of banks by national
governments, and downturns in stock markets around the world. In many areas,
the housing market has also suffered, resulting in numerous evictions, foreclosures
and prolonged vacancies. It contributed to the failure of key businesses, declines in
consumer wealth estimated in the trillions of U.S. dollars, and a significant decline
in economic activity, leading to a severe global economic recession in 2008.
43.Global Shift – In which production processes are relocated from developed
countries (the USA, Europe and Japan) to developing countries in Asia (for example
China, Vietnam and India) and Latin America. This is because companies search
for the cheapest locations to manufacture and assemble components, so low-cost
labor-intensive parts of the manufacturing process are shifted to the developing
world where costs are substantially lower. Companies do so by taking advantage
of transportation and communications technology, as well as fragmentation and
Edmundas Radavicius. INTERNATIONAL TRADE
| 29
locational flexibility of production. From 1953 to the late 1990s, the industrialized
economies’ share of world manufacturing output declined from 95% to 77%, and the
developing economies’ share more than quadrupled from 5% to 23%
44.Globalization – Expansion of global linkages, organization of social life on
global scale, and growth of global consciousness, hence consolidation of world
society
45.Glocalization – Process by which Tran societal ideas or institutions take specific
forms in particular (i.e., local) places. A term that was invented to emphasize that the
globalization of a product is more likely to succeed when the product or service is
adapted specifically to each locality or culture in which it is marketed. The increasing
presence of McDonald’s restaurants worldwide is an example of globalization, while
changes made to the menus of the restaurant chain, in an attempt to appeal to local
tastes, are an example of glocalization.
46.Green data center – Data centers that are much more efficient at cooling
computers compared with national data centers.
47.Gross Domestic Product – GDP the value of all the goods and services
earned by a country excluding foreign earnings.
48.Gross national income – GNI (now used in preference to gross national
product—GNP). The total value of goods and services produced within a country
together with the balance of income and payments from or to other countries.
49.Internet penetration rate – The % of the population of a country or a world
region with access to the internet
50.Gross National Product – GNP the value of all the goods and services earned
by a country including companies working abroad.
51.Growth rate – The change (increase, decrease, or no change) in an indicator
over a period of time, expressed as a percentage of the indicator at the start of the
period.
52.Guest worker – Foreigner who is permitted to work in a country on a temporary
basis, e.g. seasonal fruit pickers.
30 |
Edmundas Radavicius. INTERNATIONAL TRADE
53.Homogenized – Landscapes which show monoculture (agriculture) clone towns/
cityscape uniformity (urban) architecture
54.Human development Index HDI – made up of life expectancy, literacy rates,
infant mortality and also school enrolment
55.Human suffering index – Made up of daily calorie intake, access to clean
water, inflation rate, and access to communications, political freedom and civil
rights.
56.Human Rights – Rights of persons to freedom of speech and conscience, equal
treatment, work and health, among others, as defined in Universal Declaration
adopted by UN in 1948, supplemented by 1960s Covenants on social, economic,
political, and civil rights. Variously interpreted by states, hence subject of global
debate.
57.Import/Export Quota – The amount or the number of goods that can be
imported or exported.
58.Indigenous People’s – Groups held to be original residents of certain areas,
especially non literate groups under threat of displacement due to development,
now possessing globally recognized claims to autonomy and identity fostered by
supportive movements.
59.Intermodal transportation – Transporting freight by using two or more
transportation modes. This is made possible by transportation terminal linking
different modes of transport.
60.Internationalism – The extension of economic activities across international
boundaries.
61.International Monetary Fund – IMF. A sister organization of the World
Bank. The IMF was set up in 1944 to regulate the post-war global system. It is
still concerned with the functioning of the world financial system but its role has
changed from regulator of a managed co-operative international system to enforcer
of the values and practices of a deregulated competitive open market system. Like
the World Bank, voting rights are allocated according to financial contributions.
Edmundas Radavicius. INTERNATIONAL TRADE
| 31
62.Japanization – Is the process in which Japanese culture dominates, assimilates,
or influences other cultures, in general. E.g. Taiwan, South Korea
63.KOF – The KOF index measures three main dimensions of globalization: economic,
political and social, and nations are ranked accordingly. It is designed by the
Swiss Federal Institute of Technology on a yearly basis. According to this index,
the world’s most globalized country is Belgium, followed by Austria, Sweden, the
United Kingdom and the Netherlands. The least globalized countries according to
the KOF-index are Haiti, Myanmar, the Central African Republic and Burundi. The
nearer to 100 the more globalised.
64.Kyoto Protocol – sets binding targets for 37 industrialized countries and the
European community for reducing greenhouse gas (GHG) emissions .These amount
to an average of five per cent against 1990 levels over the five-year period 20082012.
65.Liberalization of trade – Removal of or reduction in the trade practices
that thwart free flow of goods and services from one nation to another. It includes
dismantling of tariff (such as duties, surcharges, and export subsidies) as well as
non-tariff barriers (such as licensing regulations, quotas, and arbitrary standards).
66.Loan – Money borrowed that is usually repaid without interest- see debt crisis.
67.Logistics – The management of the flow of goods, information and other resources
including energy and people, between the point of origin and consumption.
68.Long term aid – Purpose is to develop the quality of life of individuals and
communities over time. Also called development aid.
69.CAMFED ‘s – work in Zambia improving female literacy
70.Loss of Diversity - Physical diversity : the development of homogenized
landscapes or monoculture cultural diversity Convergence of culture
71.Maquiladoras – Assembly plants in Mexico, especially along the border with
the USA, to which foreign materials and parts are shipped and from which finished
products are returned to the original market.
32 |
Edmundas Radavicius. INTERNATIONAL TRADE
72.Mass media – Improvements in technology have also lead to the development of
a mass media, television, radio and internet, far off places now seem much closer…
we can even see them in real time.
73.Megacities – is usually defined as a metropolitan area with a total population
in excess of 10 million people- The rural-to-urban migration and high birth rates
of the periphery are creating megacities. E.g. Sao Paulo or Mumbai which, have
little infrastructure and feature rampant crime, massive unemployment, and a huge
informal sector.
74.Multiculturalism – Doctrine asserting value of different cultures coexisting
within single society; globally, vision of cultural diversity deliberately fostered and
protected
75.Multilateral aid – Donations are pooled from a number of countries and
distributed through an international organisation, such as the World Bank. This may
also be conditional. The World Bank usually requires market liberalisation in return
for development loans.
76.NAFTA – North American Free Trade Agreement is an agreement signed by the
governments of Canada, Mexico, and the United States, creating a trade bloc in
North America.
77.Nation state – Existing as an independent state- the sovereignty of countries
78.Network – Routes connecting places- structured and channeled flows
79.New international division of labor (NIDL) – is an outcome of
globalization. It is the spatial division of labor which occurs when the process of
production is no longer confined to national economies.
80.Non-governmental organization – NGO. These are private organizations
of a charitable, research or educational nature. Examples in Britain would be
OXFAM & Christian Aid. There are also many NGOs in less wealthy countries.
Their role is often to seek funding from abroad to provide basic welfare services.
81.North south divide – The simple division set up in 1980 (Brundtland) between
the MEDCs (mostly North) and developing countries (South).
Edmundas Radavicius. INTERNATIONAL TRADE
| 33
82.Official development assistance – ODA. Aid given by governments
and other agencies to support the economic, social and political development of
developing countries.
83.Organization for Economic Cooperation and Development
OECD – Whose membership includes the industrialized countries of Western
Europe, North America, Japan and Australia, Asia. OECD is AKA “the rich man’s
club.”
84.Outsourcing – The concept of taking internal company functions and paying an
outside firm to handle them. Outsourcing is done to save money, improve quality or
free company resources for other activities. E.g. Bangalore India
85.People’s Global Action – PGA worldwide co-ordination of radical social
movements, grassroots campaigns and direct actions in resistance to capitalism and
for social and environmental justice. PGA is part of the anti-globalization movement.
PGA is an instrument for communication and coordination, not an organization.
86.Periphery – Poor, exploited regions, historically dominated by strong,
wealthy countries. World-system theory concept denoting militarily weak regions
economically dominated by capitalist core, subject to unequal exchange, limited
to raw material exports, reliant on labor-intensive production. I.e.: Africa, South
America, Asia (excluding Japan and South Korea), and Russia and many of its
neighbors.
87.Physical quality of life index – PQLI made up of life expectancy, literacy
rates and infant mortality.
88.Primary product dependent – Countries that rely on one or a small number
of raw materials for the majority of their export earnings.
89.Protectionism – Protecting domestic producers by impeding or limiting the
importation of foreign goods and services. This is done through tariffs or quotas.
Popular among critics of trade for countering job loss and environmental harm;
criticized by economists for ignoring comparative advantage doctrine.
90.Purchasing power parity (PPP) – A method of measuring the relative
34 |
Edmundas Radavicius. INTERNATIONAL TRADE
purchasing power of different countries’ currencies across the same regimen of
goods and services. Because goods and services may cost more in one country than
in another, PPP allows us to make more accurate comparisons of standards of living
across countries. Since not all items can be matched exactly across countries and
time, they are only rough guides.
91.Remittances – a transfer of money by a foreign worker to his or her home country.
92.Semi- periphery – Occupies a position between the cores and the periphery and
countries can more from one level to another. NICs fall into this category; BRIC
Thailand, Mexico, Malaysia and Indonesia
93.Social media – e.g. Facebook Twitter and SMS alerts
94.Subsidies – Government grants to local producers to assist in the production of
particular crops or goods. Opponents of this kind of assistance argue that it is an
inefficient use of resources as it makes the production of certain goods economically
viable, when they otherwise would not be. This leads to unfair competition and lower
returns for those producers producing the good without assistance, and rewards those
whose production processes may be inefficient.
95.Supply chain – Movement of products from a manufacturer to a distributor to a
retailed and any points in between.
96.Sustainable development – Development that meets the needs of the people
today without compromising the ability of future generations to meet their own
needs.
97.Tariffs – Taxes placed by a government on imported or exported goods and
services.
98.Tiger economy – Is the economy of a country which undergoes rapid economic
growth, usually accompanied by an increase in the standard of living. The term was
initially used for Japan, South Korea, Singapore, Hong Kong, Thailand and Taiwan
(the East Asian Tigers or Four Little Tigers), and in the 1990s it was applied to the
Republic of Ireland (the “Celtic Tiger”). Later on Dubai, Slovakia and the Baltic
countries developed a tiger economy as well
Edmundas Radavicius. INTERNATIONAL TRADE
| 35
99.Time-Space Compression – Increased pace of life and overcoming of
spatial barriers, through communication and transportation technology, resulting
in apparent shrinking of time to the present and globe to a single space, altering
everyday experience of social relations and awareness of global interdependence.
Cf. D. Harvey, The Condition of Post modernity, 1990, p. 240.
100.Time–space convergence – The reduction in the time taken to travel between
two places due to improvements in transportation or communication technology
(Janelle 1968)
101.Time-space divergence – When the journey time between places increases
due to congestion, lower speed limits or other limiting factors.
102.Total external debt – Debt owed to non-residents repayable in foreign
currency, goods or services. It is the sum of publicly guaranteed and private nonguaranteed long-term debt, as well as use of IMF credit and short-term debt. Shortterm debt includes all debt having an original maturity of one year or less, and
interest in arrears on long-term debt.
103.Trade – Trade allows people to buy goods and services that are not produced
in their own countries. The money countries receive from exports helps determine
how much they can afford to spend on imports, and how much they can borrow
from abroad. It can stimulate a country’s development and economic growth. This
helps create new jobs, raises living standards and gives people an opportunity to take
charge of their lives.
104.Trade Blocs – NAFTA, EU, ASEAN
105.Trade deficit – When the value of a country’s exports is less than the value of
its imports.
106.Trade liberalization – The movement towards removing barriers that
restrict the importation and exportation of goods and services (flow of trade) between
countries.
107.Trade protection – Restrictions on the imports of goods and services from
other countries in order to protect local producers from overseas competition. This
36 |
Edmundas Radavicius. INTERNATIONAL TRADE
may be through tariffs, subsidies and quality assurance standards, or labelling, safety
and packaging requirements
108.Transnational Corporations – TNCs are corporations that trade in
many countries. TNCs in their most basic sense are firms that not only export their
products to other countries but have also established sourcing supplies of materials,
production, marketing, and managerial operations in countries other than their home
base. The basic idea is not new but in recent years TNCs have become so big and
powerful that authors such as Hertz (2001) argue they may be a threat to democracy.
109.TNCs – seek to illuminate competition and typically including amongst their
operations as many activities as necessary to enable them to have total control over
the production and sale of their products. E.g. a clothing manufacturer (Nike) will
also control a packaging and shipping company. Their size and power means they
can (and do) change the location of their factories and other production units at will.
If governments try to enforce environmental controls or workers try to claim higher
wages or better working conditions they simply move to another country.
110.Transparency – Evolving global standard for state institutions and international
organizations, requiring open processes according to general rules subject to
monitoring; regarded as basis of accountability, diminishing corruption
111.Transport systems – The means by which people materials and products are
transferred from place to place.
112.Underemployment – A situation where people are working less than they
would like to and need to in order to earn a reasonable living.
113.United Nations – The United Nations was formed from the former League
of Nations in 1945, at about the same time as the Bretton Woods institutions. Its
main aim is to persuade countries to resolve their differences without resorting to
violence by establishing the norms and framework that would lead to ‘the economic
and social advancement of all people’s’. The UN has a democratic structure – the
General Assembly, however Assembly decisions can be over-ruled by a veto from
one of the Security Council’s five Permanent Members (China, France, Russia, the
UK and USA). The UN is funded by its member states but it is currently owed over
Edmundas Radavicius. INTERNATIONAL TRADE
| 37
2.5 billion US dollars, over half of which is due from the USA alone. Most of its
work is carried out by specialist bodies such as UNDP (UN Development Program),
UNICEF (children) or UNCTAD (UN Council for Trade and Development). It has
debated and adopted the world’s major international standards e.g. the Universal
Declaration of Human Rights and the Conventions on Women, Children, Refugees,
Genocide. The UN has also sent peace keeping forces to several countries. Some
Western nations seem happy to use the UN when it suits their foreign policy objectives
but have undermined it by pulling out of crucial UN development agencies, favoring
instead non-democratic bodies such as the World Bank, World Trade Organization
and IMF, in which they enjoy unchallenged power.
114.Voluntary aid – Funded by the public through NGOs (Non-Governmental
Organizations). E.g. Oxfam
115.Wallerstein – Immanuel Wallerstein‘s World- systems theory (1970s)– the
distinction between different types of world region and attempting to explain the
interactions between them- Core Periphery.
116.Westernized – Adoption of western ideas and lifestyles by other countries
Language Music Art Dress Food and Technology. The spread of consumer culture
117.World Bank The International Bank for Reconstruction and
Development (better known as the World Bank) – was founded in
1944 as a means of reviving war-damaged European economies, a mandate that was
later extended to developing nations. The Bank is funded by dues from members
and by money borrowed in international markets. It makes loans to member nations
at rates below those of commercial banks to finance development ‘infrastructure’
projects (power plants, roads, hydro dams) and to help countries ‘adjust’ their
economies to globalization. Like the IMF, the Bank was an early and enthusiastic
supporter of the neo-liberal agenda. The World Bank group also includes: the
International Development Association (IDA) which makes ‘soft’ loans (no or very
low interest) to the poorest nations; the International Finance Corporation (IFC)
which tries to attract private-sector investment to Bank-approved projects; and the
Multilateral Insurance Guarantee Agency (MIGA) which provides risk insurance to
private investors in member countries. Like the IMF, voting rights are allocated
38 |
Edmundas Radavicius. INTERNATIONAL TRADE
according to financial contributions so the countries with the largest economies have
control.
118.World- systems theory – Immanuel Wallerstein - the distinction between
different types of world region and attempting to explain the interactions between
them- Core Periphery.
119.World Trade Organization – The WTO replaced the General Agreement
on Tariffs and Trade (GATT) in 1995. GATT was one of the original Bretton
Woods initiatives which established a set of rules to govern world trade. Its aim
was to reduce national trade barriers and to stop the ‘beggar-thy-neighbour’ actions
that had hobbled trade in the pre-World War Two period. Seven rounds of tariff
reductions were negotiated under the GATT treaty; the final ‘Uruguay Round’
began in 1986. The WTO vastly expands the GATT’s mandate in new directions.
It includes the GATT agreements, which mostly focus on trade in goods. But it
folds in the new General Agreement on Trade in Services (GATS) which covers
areas like telecommunications, banking and transport. There are also agreements
covering trade-related intellectual property rights (TRIMS) and trade-related
investment measures (TRIPS). These new treaties have far-reaching implications
for environmental standards, public health, cultural diversity, food safety and many
other areas. The old GATT had no legal teeth to enforce rules but the WTO can
impose tough trade sanctions. The organization currently has 134 member countries.
Definition of Globalization
Globalization is the worldwide movement toward economic, financial, trade, and
communications integration. Globalization implies the opening of local and nationalistic
perspectives to a broader outlook of an interconnected and interdependent world with
free transfer of capital, goods, and services across national frontiers. However, it does
not include unhindered movement of labor and, as suggested by some economists,
may hurt smaller or fragile economies if applied indiscriminately. It is the process of
international integration arising from the interchange of world views, products, ideas,
and other aspects of culture. Advances in transportation and telecommunications
infrastructure, including the rise of the telegraph and its posterity the Internet, are major
Edmundas Radavicius. INTERNATIONAL TRADE
| 39
factors in globalization, generating further interdependence of economic and cultural
activities. Though scholars place the origins of globalization in modern times, others
trace its history long before the European age of discovery and voyages to the New
World. Some even trace the origins to the third millennium BCE. In the late 19th century
and early 20th century, the connectedness of the world’s economies and cultures grew
very quickly.1;2
The term globalization has been increasingly used since the mid-1980s and
especially since the mid-1990s. In 2000, the International Monetary Fund (IMF) identified
four basic aspects of globalization: trade and transactions, capital and investment
movements, migration and movement of people, and the dissemination of knowledge.
Further, environmental challenges such as climate change, cross-boundary water, air
pollution, and over-fishing of the ocean are linked with globalization. Globalizing
processes affect and are affected by business and work organization, economics, sociocultural resources, and the natural environment.3
Economic globalization is the increasing economic interdependence of national
economies across the world through a rapid increase in cross-border movement of
goods, service, technology and capital. Whereas the globalization of business is
centered on the diminution of international trade regulations as well as tariffs, taxes, and
other impediments that suppresses global trade, economic globalization is the process
of increasing economic integration between countries, leading to the emergence of a
global marketplace or a single world market. Depending on the paradigm, economic
globalization can be viewed as either a positive or a negative phenomenon. Economic
globalization comprises the globalization of production, markets, competition,
technology, and corporations and industries. Current globalization trends can be largely
accounted for by developed economies integrating with less developed economies
by means of foreign direct investment, the reduction of trade barriers as well as other
economic reforms and, in many cases, immigration.4
Global financial system
By the early 21st century, a worldwide framework of legal agreements,
institutions, and both formal and informal economic actors came together to facilitate
international flows of financial capital for purposes of investment and trade financing.
40 |
Edmundas Radavicius. INTERNATIONAL TRADE
This global financial system emerged during the first modern wave of economic
globalization, marked by the establishment of central banks, multilateral treaties, and
intergovernmental organizations aimed at improving the transparency, regulation,
and effectiveness of international markets. The world economy became increasingly
financially integrated throughout the 20th century as nations liberalized capital accounts
and deregulated financial sectors. With greater exposure to volatile capital flows, a
series of financial crises in Europe, Asia, and Latin America had contagious effects on
other countries. By the early 21st century, financial institutions had become increasingly
large with a more sophisticated and interconnected range of investment activities. Thus,
when the United States experienced a financial crisis early in that century, it quickly
propagated among other nations. It became known as the global financial crisis and is
recognized as the catalyst for the worldwide Great Recession.5
The world economy became increasingly financially integrated throughout
the 1980s and 1990s as nations liberalized capital accounts and deregulated financial
sectors. With greater exposure to volatile capital flows, a series of financial crises in
Europe, Asia, and Latin America had contagious effects on other countries. In the 2000s,
financial institutions became increasingly large with a more sophisticated range of
investment activities. During 2007 and 2008, the United States experienced a financial
crisis characteristic of earlier systemic crises, which quickly propagated among other
nations. It became known as the global financial crisis and is recognized as the catalyst
for the worldwide Great Recession. Following revelations of Greece’s falsified fiscal data
in 2009, financial markets began to adjust to the realization that Greece was no longer
in compliance with the European Economic and Monetary Union. The crisis spread to
other European nations experiencing sovereign debt problems and became known as the
Eurozone crisis. A country’s decision to operate with an open economy and globalize
its financial capital carries monetary implications captured by the balance of payments,
which can indicate the degree to which a nation is living within its means and can reveal
the composition of a nation’s wealth as well as its economic competitiveness. Globalized
financial capital also carries exposure to systemic risks unique to international finance,
such as political deterioration, regulatory changes, foreign exchange controls, and legal
uncertainties for foreign investments and property rights.6
Edmundas Radavicius. INTERNATIONAL TRADE
| 41
Austerity7;8;9
Governments sometimes impose austerity policies to reduce budget deficits
during adverse economic conditions. These can include spending cuts, tax increases,
or a mixture of the two. Austerity policies demonstrate governments’ liquidity to their
creditors and credit rating agencies by bringing fiscal income closer to expenditure. The
economic effects of austerity are unclear due to its wide and non-specific definition,
the limited historic sample of natural experiments and potential for conflation with the
effects of other events that tend to precede austerity, such as recessions and financial
crises. In macroeconomics, reducing government spending generally increases
unemployment. This increases safety net spending and reduces tax revenues, to some
extent. Government spending contributes to gross domestic product (GDP), so the debtto-GDP ratio which signifies liquidity may not immediately improve. Short-term deficit
spending, particularly, contributes to GDP growth when consumers and businesses are
unwilling or unable to spend. Under the theory of expansionary fiscal contraction (EFC),
a major reduction in government spending can change future expectations about taxes
and government spending, encouraging private consumption and resulting in overall
economic expansion. Since 2011, the International Monetary Fund has issued cautionary
guidance against austerity measures imposed without regard to underlying economic
fundamentals and many commentators have suggested that austerity measures have
indeed been misguided and harmful to the economies where they have been imposed.
In economics, austerity describes policies used by governments to reduce budget
deficits during adverse economic conditions. These policies may include spending cuts,
tax increases, or a mixture of the two. Austerity policies may be attempts to demonstrate
governments’ fiscal discipline to their creditors and credit rating agencies by bringing
revenues closer to expenditures; they may also be politically or ideologically driven.
In macroeconomics, reducing government deficits generally increases
unemployment in the short run. This increases safety net spending and reduces tax
revenues, partially offsetting the austerity measures. Government spending contributes
to gross domestic product (GDP), so reducing spending may result in a higher debt-toGDP ratio, a key measure of the debt burden carried by a country and its citizens. Higher
short-term deficit spending (stimulus) contributes to GDP growth particularly when
consumers and businesses are unwilling or unable to spend. This is because crowding
42 |
Edmundas Radavicius. INTERNATIONAL TRADE
out (i.e., rising interest rates as government bids against business for a finite amount
of savings, slowing the economy) is less of a factor in a downturn, as there may be a
surplus of savings.
There are other views contrary to traditional macroeconomic theory. Under
the controversial theory of expansionary fiscal contraction (EFC), a major reduction
in government spending can change future expectations about taxes and government
spending, encouraging private consumption and resulting in overall economic expansion.
Capital flight10
Capital flight occurs when assets or money rapidly flow out of a country because
of that country’s recent increase in taxes, tariffs, labor costs, or other unfavorable
financial conditions such as government debt defaulting, which disturb investors. This
leads to a sometimes very rapid disappearance of wealth and is usually accompanied by a
sharp drop in the exchange rate of the affected country, leading in turn to depreciation in
a variable currency exchange rate regime or a forced devaluation under fixed exchange
rates. This can be particularly damaging when the capital belongs to the people of the
affected country, because not only are the citizens now burdened by the loss of faith in
the economy and devaluation of their currency, but probably also their assets have lost
much of their nominal value. This leads to dramatic decreases in the purchasing power
of the country’s assets and makes it increasingly expensive to import goods.
Capital flight can cause liquidity crises in the affected countries from which
capital is flowing, the countries in which investors are trying to liquidate their assets, and
other countries involved in international commerce such as shipping and finance. A 2008
paper published by Global Financial Integrity estimated capital flight or illicit financial
flows out of developing countries to be at a rate of “some US$850 billion to $1 trillion a
year.” Market participants in need of cash find it hard to locate potential trading partners
to sell their assets. This may result as a consequence of limited market participation or
because of a decrease in cash held by financial market participants. Thus, asset holders
may be forced to sell their assets at a price below the long term fundamental price.
Borrowers typically face higher loan costs and collateral requirements, compared to
periods of ample liquidity, and unsecured debt is nearly impossible to obtain. Typically,
during a liquidity crisis, the interbank lending market does not function smoothly either.
Edmundas Radavicius. INTERNATIONAL TRADE
| 43
Capital flight affects advanced economies, as well. A 2009 article in The Times
reported that hundreds of wealthy financiers and entrepreneurs had recently fled the
United Kingdom in response to recent tax increases, relocating in low tax destinations
such as Jersey, Guernsey, the Isle of Man, and the British Virgin Islands. In May 2012 the
scale of Greek capital flight in the wake of the first “undecided” legislative election was
estimated at €4 billion a week and later that month the Spanish Central Bank revealed
€97 billion in capital flight from the Spanish economy for the first quarter of 2012.
Examples
In 1995, the International Monetary Fund (IMF) estimated that capital flight
amounted to roughly half of the outstanding foreign debt of the most heavily indebted
countries of the world.
Capital flight was seen in some Asian and Latin American markets in the 1990s.
The Argentine economic crisis of 2001 was in part the result of massive capital flight,
induced by fears that Argentina would default on its external debt (the situation was
made worse by the fact that Argentina had an artificially low fixed exchange rate and
was dependent on large levels of reserve currency). This was also seen in Venezuela in
the early 1980s with one year’s total export income leaving through illegal capital flight.
In the last quarter of the 20th century, capital flight was observed from countries
that offer low or negative real interest rate (like Russia and Argentina) to countries that
offer higher real interest rate (like the People’s Republic of China).
A 2006 article in The Washington Post gave several examples of private capital
leaving France in response to the country’s wealth tax. The article also stated, “Eric
Pinchet, author of a French tax guide, estimates the wealth tax earns the government
about $2.6 billion a year but has cost the country more than $125 billion in capital flight
since 1998.”
A 2008 paper published by Global Financial Integrity estimated capital flight,
also called illicit financial flows to be “out of developing countries are some $850 billion
to $1 trillion a year.”
A 2009 article in The Times reported that hundreds of wealthy financiers and
entrepreneurs had recently fled the United Kingdom in response to recent tax increases,
and had relocated in low tax destinations such as Jersey, Guernsey, the Isle of Man, and
44 |
Edmundas Radavicius. INTERNATIONAL TRADE
the British Virgin Islands.
In May 2012 the scale of Greek capital flight in the wake of the first “undecided”
legislative election was estimated at €4 billion a week and later that month the Spanish
Central Bank revealed €97 billion in capital flight from the Spanish economy for the
first quarter of 2012.
Ultimately, the most benefited from capital flight are multinational banks.
Measuring globalization11
Indices
Measurement of economic globalization focuses on variables such as trade,
Foreign Direct Investment (FDI), portfolio investment, and income. However, newer
indices attempt to measure globalization in more general terms, including variables
related to political, social, cultural, and even environmental aspects of globalization.
One index of globalization is the KOF Index, which measures the three main
dimensions of globalization: economic, social, and political. Another is the A.T. Kearney
/ Foreign Policy Magazine Globalization Index.
KOF Index of Globalization
The KOF Index of Globalization measures the three main dimensions of
globalization:
- Economic;
- Social;
- Political.
In addition to three indices measuring these dimensions, we calculate an overall
index of globalization and sub-indices referring to:
- Actual economic flows;
- Economic restrictions;
- Data on information flows;
- Data on personal contact;
- Data on cultural proximity.
Edmundas Radavicius. INTERNATIONAL TRADE
| 45
Table 1. Typical structural division of the KOF index evaluation11
A.
B.
C.
46 |
Indices and Variables
Economic Globalization
i) Actual Flows
Trade (percent of GDP)
Foreign Direct Investment, stocks (percent of GDP)
Portfolio Investment (percent of GDP)
Income Payments to Foreign Nationals (percent of GDP)
ii) Restrictions
Hidden Import Barriers
Mean Tariff Rate
Taxes on International Trade (percent of current revenue)
Capital Account Restrictions
Social Globalization
i) Data on Personal Contact
Telephone Traffic
Transfers (percent of GDP)
International Tourism
Foreign Population (percent of total population)
International letters (per capita)
ii) Data on Information Flows
Internet Users (per 1000 people)
Television (per 1000 people)
Trade in Newspapers (percent of GDP)
iii) Data on Cultural Proximity
Number of McDonald’s Restaurants (per capita)
Number of Ikea (per capita)
Trade in books (percent of GDP)
Political Globalization
Embassies in Country
Membership in International Organizations
Participation in U.N. Security Council Missions
Edmundas Radavicius. INTERNATIONAL TRADE
Weights
[36%]
(50%)
(21%)
(28%)
(24%)
(27%)
(50%)
(24%)
(27%)
(26%)
(23%)
[37%]
(34%)
(25%)
(3%)
(26%)
(21%)
(24%)
(35%)
(33%)
(36%)
(31%)
(31%)
(45%)
(45%)
(10%)
[26%]
(25%)
(28%)
(22%)
International Treaties
(26%)
Free trade policies
The Enabling Trade Index measures the factors, policies and services that
facilitate the trade in goods across borders and to destinations. It is made up of four
sub-indexes: market access; border administration; transport and communications
infrastructure; and business environment.
DISCUSSION
In this case it is strongly recommended to include students in the defining process
itself. Therefore a practical curriculums should be integrated into the flow of theory
aspects introduction, mainly in the forms of:
- Reflection;
- Discussion;
- Feedback;
- Roleplay…
Or any other relevant activities which, by lecturer seems appropriate to the level
of the class.
REFERENCES
The context of this part has been adapted from the following product(s):
1. Al-Rodhan, R.F. Nayef and Gérard Stoudmann. (2006). Definitions of
Globalization: A Comprehensive Overview and a Proposed Definition.
2. Albrow, Martin and Elizabeth King (eds.) (1990). Globalization, Knowledge
and Society. London: Sage. ISBN 978-0803983243 p. 8. “...all those processes by which
the peoples of the world are incorporated into a single world society.”
3. “Globalization”. Online Etymology Dictionary. Retrieved 7 July 2015.
4. Joshi, Rakesh Mohan, (2009) International Business, Oxford University
Press, New Delhi and New York ISBN 0-19-568909-7.
5. Cassis, Youssef (2006). Capitals of Capital: A History of International
Financial Centres, 1780-2005. Cambridge, UK: Cambridge University Press. ISBN
Edmundas Radavicius. INTERNATIONAL TRADE
| 47
978-0-511-33522-8.
6. Cassis, Youssef (2006). Capitals of Capital: A History of International
Financial Centres, 1780-2005. Cambridge, UK: Cambridge University Press. ISBN
978-0-511-33522-8.
7. “Austerity measure”. Financial Times Lexicon. Retrieved 1 March 2013.
8. Traynor, Ian; Katie Allen (11 June 2010). “Austerity Europe: who faces the
cuts”. London: Guardian News. Retrieved 29 September 2014
9. Wesbury, Brian S.; Robert Stein (26 July 2010). “Government Austerity: The
Good, Bad And Ugly”. Forbes. Retrieved 29 September 2014.
10.Hundreds of bosses flee UK over 50% tax, The Times, 13 December 2009
11.Vujakovic, Petra (2010). “How to Measure Globalization? A New
Globalization Index (NGI)”. Atlantic Economic Journal 38 (2): 237. doi:10.1007/
s11293-010-9217-3
FURTHER READING
1.Al-Rodhan, R.F. Nayef and Gérard Stoudmann. (2006). Definitions of
Globalization: A Comprehensive Overview and a Proposed Definition.
2.Albrow, Martin and Elizabeth King (eds.) (1990). Globalization, Knowledge
and Society London: Sage. ISBN 978-0803983243 p. 8. “...all those processes by which
the peoples of the world are incorporated into a single world society.”
3.Stever, H. Guyford (1972). “Science, Systems, and Society.” Journal of
Cybernetics, 2(3): 1–3.
4.Frank, Andre Gunder. (1998). Global economy in the Asian age. Berkeley:
University of California Press. ISBN 978-0520214743
5.“Globalization and Global History (p.127)”. Retrieved 3 July 2012.
6.International Monetary Fund . (2000). “Globalization: Threats or Opportunity.”
12th April 2000: IMF Publications.
7.Bridges, G. (2002). “Grounding Globalization: The Prospects and Perils of
Linking Economic Processes of Globalization to Environmental Outcomes”. Economic
Geography 78 (3): 361–386.
48 |
Edmundas Radavicius. INTERNATIONAL TRADE
Part 3: International trade policies
Objective outline:
1. Define the international trade policy to the students.
2. Describe to the students how international trade policies are implemented.
3. Introduce student to Lithuanian trade policy
Chapter Three Glossary
1. ASEAN Association of South-East Asian Nations
2. BIT – bilateral investment treaty
3. CARICOM – Caribbean Community
4. CARIFORUM – Caribbean Forum
5. COMESA – Common Market for Eastern and Southern Africa
6. ECT – Energy Charter Treaty
7. EPA – economic partnership agreement
8. EU – European Union
9. FDI – foreign direct investment
10.FTA – free trade agreement
11.GATS – General Agreement on Trade in Services
12.ICJ – International Court of Justice
13.ICSID – International Centre for Settlement of Investment Disputes
14.IIA – international investment agreement
15.IMF – International Monetary Fund
16.IPR – intellectual property right
17.LDC – least developed country
Edmundas Radavicius. INTERNATIONAL TRADE
| 49
18.NAFTA – North American Free Trade Agreement
19.OECD – Organisation for Economic Cooperation and Development
20.R&D –Research and development
21.SCC – Stockholm Chamber of Commerce
22.TNC – transnational corporation
23.UNCITRAL – United Nations Commission on International Trade Law
24.WTO – World Trade Organization
Definition of the trade policy
A governmental policy governing trade with third countries. This covers
tariffs, trade subsidies, import quotas, Voluntary Export Restraints, restrictions on the
establishment of foreign-owned businesses, regulation of trade in services, and other
barriers to international trade.1
State intervention is a reality of international trade, encompassing a series of
trade policy instruments, beyond tariffs, as explored in relationship to the operation
of the customs union. To understand the implications of trade liberalisation along with
the operation of a single market we would benefit from the investigation of a series of
alternative trade policy instruments, and their effects. Hence, a variety of trade policy
instruments are introduced here, and their individual merits are questioned.1
The Analysis of Foreign Policy in Comparative Perspective2
Recent and far-reaching changes in the world present a challenge to leaders who
make foreign policy, as well as to those who study foreign policy. Consider the changes
in global politics that have occurred in the past few decades. The world has transformed
from one in which the two superpowers, the United States and the Soviet Union,
were the primary players in an international drama dominated by military tensions, to
something very different. European countries have moved toward greater political and
economic integration, and new powers have emerged in Africa, Asia, Latin America,
and the Middle East. We have also seen new transnational challenges arise, such as
climate change and terrorism.
50 |
Edmundas Radavicius. INTERNATIONAL TRADE
New means of interdependence have also emerged—from the Internet to satellite
communications technology to global financial networks. These changes reflect broad
pressures for globalization and economic liberalization. As a result more economies
are opening up and becoming connected across country borders. Pressures for
democratization are also sweeping the world, as witnessed by the revolutions of the “Arab
Spring” of 2011. New groups inside countries are demanding a voice in governance or
are competing with governments for representation. Outside of countries, organizations
such as the United Nations, the International Monetary Fund, and Amnesty International
argue that a state’s internal affairs and human rights records are legitimate concerns of
the international community. These and other events in recent years have significantly
transformed international relations and domestic politics.
Although some countries and leaders today are facing an identity crisis, actions
of the sovereign state remain critical to shaping global politics. They can define the level
of a country’s engagement with the world, economic liberalization and trade, as well
as war or peace with other countries. Thus, this book adopts as its focus states’ foreign
policies in the context of contemporary internal and external developments.
Studying Foreign Policy in Comparative Perspective3
It is precisely because states are experiencing challenges and transformations
both internally and externally that the analysis of foreign policy is important. Foreign
policy analysis as a distinct area of inquiry connects the study of international relations
(the way states relate to each other in international politics) with the study of domestic
politics (the functioning of governments and the relationships among individuals, groups,
and governments). Most theories of international relations are primarily concerned with
state behavior, but some include discussions of foreign policy. Theories of domestic
politics, found in the study of U.S. politics and in the study of comparative politics,
share this attention to internal factors. These theories tend to explain the functioning
of the state or political system and the domestic policies that are chosen and rarely
comment on the effects of internal politics on a state’s foreign policies.
Thus, the study of foreign policy serves as a bridge by analysing the impact of
both external and internal politics on states’ relations with each other. Leaders cannot
forge effective foreign policies without being aware of these connections; students
Edmundas Radavicius. INTERNATIONAL TRADE
| 51
cannot effectively evaluate foreign policy choices without recognizing these linkages.
Defining Foreign Policy2
The first step in a comparative investigation of foreign policy is to define what we
mean by foreign policy. This also raises issues concerning how foreign policy is studied
and how it may be changing. We begin with the first term: “foreign.” We typically make
the distinction between foreign policy and domestic policy. “Foreign” is meant to apply
to policy toward the world outside states’ territorial borders, and “domestic” is meant to
apply to policy made for the internal political system. Going to war with another country,
signing an international trade agreement, or aiding a rebel insurgency in another country
are examples of foreign policy. Taxes, education standards, and civil rights are examples
of domestic policy.
In the recent past, this distinction between foreign and domestic policy was easier
to make, but contemporary politics and globalization have blurred the line between what
is foreign and what is domestic. For example, the revolutionary uprising in Libya that
threatened the rule of authoritarian leader Moammar Gadhafi in early 2011 began as a
domestic issue. Antigovernment protestors launched a rebellion in the eastern part of
Libya, and Gadhafi’s forces responded with a military crackdown. However, as reports
of vicious attacks against the rebels and civilians circulated throughout the media, social
networks, and blogs, western governments re-framed the civil war as a humanitarian
crisis demanding international response. The United Nations Security Council voted to
impose a no-fly zone over Libya, and members of the North Atlantic Treaty Organization
(NATO) and a few Arab states launched airstrikes to protect civilians. By mid-2011,
countries like the United States and Germany were engaged in delivery of humanitarian
supplies, while Italy and France deployed military advisors to assist the rebels in the
civil war. What began as a domestic uprising quickly became a foreign policy issue for
Libya and many other countries in the world.
Another example of this blurring between foreign and domestic issues can be
found in comparative public policy, a subject area that may seem less dramatic than war,
but potentially can be equally, or more dangerous to public health. Government safety
standards for food are typically aimed at the citizens of a country, but they also shape
the amount and type of foods exporting countries produce. When the U.S. Food and
52 |
Edmundas Radavicius. INTERNATIONAL TRADE
Drug Administration (FDA) issued an alert regarding Melamine – a chemical used in
the manufacturing of food items like dairy products and even baby formula – Chinese
exports to the United States were adversely affected. So, when countries make domestic
policies that have the effect of changing the interactions between states, the line defining
international and domestic policymaking is unclear. Today’s economic interdependence
means more policies have consequences inside and outside state borders.
This does not mean that there is no longer a difference between foreign and
domestic policy, and a distinction can be made based on the intended target of the policy.
If the primary target lies outside the country’s borders, it is considered foreign policy,
even if it has secondary consequences for politics inside the country. Similarly, if the
primary target is inside the country, it is considered domestic policy, even if it affects
others outside the country’s borders. If the intention of new economic policy is to alter the
trade balance with another country by placing restrictions on imports, we consider that
foreign policy. Many policies, of course, have multiple targets. Ensuring clean air for a
country’s domestic population and limited imports from foreign automobile competitors
might be equally important in the design of the environmental policy, for example. In
such cases, a single policy can be both foreign and domestic. It should be clear from our
discussion that the targets of foreign policy are not limited to other countries. Foreign
policy may be targeted at specific individuals such as a particular leader, Non-state
actors such as international organizations, human rights groups working across borders,
multinational corporations, terrorist groups, other states, the international environment,
or the global economy.
Another difficulty in distinguishing foreign from domestic policy concerns the
status of territorial borders. Many states’ borders are in dispute. Part of a country, like the
Catalan region of Spain, may be attempting to establish its independence but has only
partial control in running its own affairs. Meanwhile, the rest of the country is engaged in
suppression of its attempt at secession and independence. In this case, is Spain’s policy
toward a group seeking self-determination foreign or domestic policy? In some ways,
it depends on your point of view. If you are part of the group claiming independence,
as are the citizens of the region of Catalan (some 15% of Spain’s population), you see
the country acting across a border that you have defined and thus it is foreign policy. If
you are the leader of the government of Spain, you deny this independence and see the
Edmundas Radavicius. INTERNATIONAL TRADE
| 53
situation as strictly an internal, domestic affair.
For such cases, we tend to rely on the judgment of the international community to
distinguish foreign policy from domestic policy. If most other countries have recognized
the breakaway region as independent, the relations between it and the country are
perceived as foreign policy. Although in some cases it is clear what the judgment of the
international community is, in others it is not. The issue of how much a country actually
controls its borders is of extreme importance in states that are so weak internally that
rival factions control different parts of the territory. Such “failed” countries, or countries
that are sovereign only in international legal terms, have become part of the twentyfirst century international landscape and raise further questions regarding the distinction
between foreign and domestic policy.1
Now that we have defined foreign, let us further clarify the term “policy.” This
is a broad term, representing a whole range of activities and/or subjects. It can include
specific decisions to sign a treaty on climate change, for example, and general guidelines
to support initiatives to address global warming. Policy can include observable behaviors
by countries, such as the Australian commitment of troops to Afghanistan, or verbal
pronouncements that do not necessarily lead to follow-up action, such as Turkey’s
condemnation of Israeli foreign policy toward the Palestinians. As you can see, foreign
policy is not limited to military or security policy. It also includes such areas as foreign
economic policy, international environmental policy, and human rights policy.
Who makes policy? The answer to this question is also an important part of
the definition of “foreign policy.” Policies are typically thought of as the product of
governments, and thus governments are the “actors.” Other players whose actions are
intended to influence targets outside a country’s borders may also be foreign policy actors.
For example, businesses may market their products in other countries. Multinational
corporations are businesses that are owned by interests in various countries or divide
their production across country borders. International organizations, such as the United
Nations, act across borders. By traveling to foreign countries, you may be supporting their
economies and interacting with foreign nationals. Although these actions are certainly
“foreign,” and are an increasingly significant part of international politics, we rarely
consider them “policy.” Instead, the term “policy” is typically reserved for the actions
of governments, government institutions, and government officials. Hereafter, when we
54 |
Edmundas Radavicius. INTERNATIONAL TRADE
refer to “countries” or “states” in a discussion of foreign policy, we are referring to the
governments or their officials that are acting in their name.
Analysing Foreign Policies2
The analysis of foreign policy begins with theories that identify different factors
– various forces that influence a state’s foreign policy. Most analysts recognize that any
explanation of foreign policy typically involves multiple factors. As you will see, there
is no shortage of theories on what factors influence foreign policy. These multiple factors
can be grouped into two broad categories of explanations: those dealing with factors
outside the state, and those dealing with factors inside the state. The first category points
to the international environment as the explanation for countries’ foreign policy. In other
words, factors external to the state—how the international system is organized, the
characteristics of contemporary international relations, and the actions of others—can
lead the state to react in certain ways. The second category points to factors internal to
the state. In other words, characteristics of the domestic political system—citizens and
groups within that system, the government organizations, and the individual leaders—
serve as the source of a state’s foreign policy. As previously noted, the study of foreign
policy uniquely bridges the study of international relations and domestic politics by
considering how both internal and external factors influence state behavior. We turn
now to a discussion of these categories and the variety of theories associated with each.
External Factors4
All states, regardless of their type of political system, their history, or their
culture, reside within an international system that limits choices they can make. The
worldwide distribution of economic wealth and military power and the actions of
other powerful states, multinational corporations, and international and transnational
organizations often mean that states cannot pursue their preferred option in foreign
policy. Scholars of foreign policy have long recognized that to understand how states
behave toward each other, it is important to understand the influence of these systemic
factors and the external actors and conditions outside the control of policy makers. In
fact, for a long time, many argued that states’ foreign policies were solely a product
Edmundas Radavicius. INTERNATIONAL TRADE
| 55
of the international system—merely a reaction to external conditions and other actors.
This is the expectation derived from theories of international relations such as realism
and variants of liberalism and constructivism. Thus, foreign policy analysts often use
perspectives on the international system to infer the actions states are likely to take in
their foreign policies.
Anarchy and Power in the International System: Realism4
The lack of an overarching government in the international system is one of
the most important external conditions that affects foreign policy. Realist theory
proposes that anarchy is the characteristic of the international environment that makes
international politics so dramatically different from domestic politics. In domestic
political systems, political actors (such as groups and individuals) can those rules. In
the international political system, however, conflict is more likely because the absence
of an overall system of law and enforcement means that each political actor (almost
200 states in 2012) must look out for itself.3 In addition, realists argue that power is a
relative concept. In a condition of anarchy, any gain in power by one state represents an
inherent threat to its neighbors. Realists prescribe policies that maximize state interests
in an effort to seek relative gains and preserve balances of power.
What is the effect of anarchy on foreign policy? Without the protection of an
international legal system or global police force, states must look out for their own
interests. The result is distrust, competition, and conflict among states. The driving
force behind foreign policies then becomes the constant need to acquire and safeguard
one’s security and power. For most realists, the key components of power are military
in nature, because ultimately it is the goal of every state to survive and to protect its
territorial integrity (if not its citizens as well). Factors that contribute to military strength
include the size and sophistication of military forces, economic wealth to purchase
military strength, and good leadership. Geopolitical factors, such as natural defenses and
abundant resources, have also long figured into the calculation of military strength. If a
state does not have much power, it must enter into an alliance with states that are more
powerful and can protect it. Thus, alliances and powerful allies also become additional
external conditions that can constrain states.
The realist perspective leads to several expectations about foreign policy based
56 |
Edmundas Radavicius. INTERNATIONAL TRADE
on the power capabilities of a state and the potential threats to it.5 The foreign policies
of states that are quite powerful militarily, such as China and Russia, focus on preserving
their power by maintaining a high profile in world affairs and balancing against other
powerful states. Policies aimed at demonstrating military capabilities and securing
spheres of influence are most important. If there is only one other major power in the
international system, such as was true during the Cold War, competition for allies and
possible conflict with the other power likely dominates the foreign policy agenda.
For states with some capabilities but who are not global powers, such as Brazil
and Great Britain, foreign policy often depends on the distribution of power in the
international system (another systemic characteristic that realism sees as important). In
a bipolar system, a middle power faces strong pressures to become a compliant alliance
partner of one of the major powers and ultimately give up autonomy in its foreign
policy for the sake of security. During the Cold War, Germany and Japan were arguably
so dependent on their alliance with the United States that their potential influence as
middle powers in the international system was largely constrained. Middle powers may
instead try to play one major power off against another (as India and France attempted
to do at times during the Cold War), but this can be a risky business.
In a multipolar system, realists argue, middle powers often have the most
autonomy and regional influence because there is greater choice in alliance partners
when the major powers are competing. Middle powers often worry, however, that
the great powers will cooperate and rule the international system like an “oligarchy,”
ignoring the interests of the middle and smaller states. In terms of military capabilities,
the current international system might be hegemonic, with the United States as the lone
superpower. This presents new opportunities for middle powers. Although they are no
match for the hegemonic state and must often follow its lead in areas of interest to the
hegemon, a middle power may assert its influence regionally. Indeed, we are currently
witnessing a resurgence of regional powers around the globe with states like Brazil,
Nigeria, and South Africa, playing new, more independent roles in their regions. As
hegemony in the international system declines, contenders may adopt foreign policies
that challenge the dominance of the hegemon. For example, some may interpret Chinese
foreign policy today as focused on rivalling the United States as a world leader.
States with fewer military capabilities at the beginning of their existence (such
Edmundas Radavicius. INTERNATIONAL TRADE
| 57
as South Korea, East Timor, or Belarus) are the most constrained. According to realism,
they have little opportunity to forge an independent foreign policy, for they must satisfy
their protector. For example in the 1950s, geographic vulnerability and regional threats
impacted South Korea’s relationship with the United States and necessitated the build-up
of South Korea’s defense forces. In the 2000s, East Timor sought support from Australia
and other western powers in the face of threats from the government of Indonesia.
All states, according to the realist perspective, must be vigilant and react to potential
threats, regardless of their military capability and their place in the international system.
They constantly seek to attain a balance with the power of others. For instance, Russia
and China must be wary of attempts by the United States to dominate the international
system. France must be concerned about Germany’s influence in the European monetary
union. The Iranian government may be pursuing nuclear weapons, in part, to increase
its security against western threats. India must carefully watch and react to Pakistan’s
military capabilities, including its nuclear capability. And finally, Ukraine might seek
support from western European countries in an effort to maintain a balance against its
powerful neighbor, Russia.
Although realism captures an important aspect of states’ foreign policies – the
primacy of security interests and the drive for power among all states – it is often
criticized for its excessive focus on military conflict at the expense of economic
cooperation. Military capability supposedly gives a state influence in international
politics, for example the influence to deter others from attacking and the influence to
protect its allies. But economic power, not just economic wealth to purchase military
capability, can also give a state influence in international politics. Even if a state does
not use its wealth to build a strong military, it may be able to influence others through
the use of economic sanctions or promises of an economically rewarding relationship.
In other words, it may be able to “buy” its influence. Indeed, because of changes in
the international system, economic power may be more significant in contemporary
international relations. Military force, for example, is often ineffective at solving some
problems (such as trade imbalances and global environmental threats) and may be more
costly to a state than economic sanctions. Such problems are arguably more important
in an era of increasing interdependence and globalization.8
58 |
Edmundas Radavicius. INTERNATIONAL TRADE
Interdependence in the International System: Liberalism4
Liberal theories of international relations focus on the distribution of economic
wealth as a primary characteristic that affects states’ foreign policies. Liberalism sees
the world as markedly different from what it was fifty years ago. With the increase
in global trade and financial relationships and the technological advances that have
facilitated this increase, states have become more interdependent. One variant, neoliberal
institutionalism contends that states cooperate because of expected mutual benefits, and
they are likely to form multilateral regimes to increase information certainty, lower
transaction costs, and foster mutual gains. For example, the Treaty on Non-Proliferation
of Nuclear Weapons (NPT) represents the core of the non-proliferation regime, a set of
nested agreements and institutions that collectively help prevent the spread of nuclear
weapons.
Neofunctionalism is another theory which argues that trade is the most important
spark for regional integration. Governments agree to pool sovereignty to manage
technical issues created by expanding economic transactions, but integration quickly
acquires a life of its own due to the dynamics of functional spill over (i.e., integration in
one sector increases pressure to integrate in other areas). As flows of intraregional trade
and investment increase, players may advocate creation of supranational institutions
that allow them to reduce the uncertainty and the transaction costs, and to reap the
benefits of advantages in an integrated economic system.
How is foreign policy affected by interdependence? According to liberalism,
states find cooperation rather than conflict, more in line with their interests. Arms control
agreements, trade agreements, and cultural exchanges are examples of cooperation that
can benefit states. Cooperating with other states, and building international institutions
to facilitate that cooperation, allows states to further their goals of economic wealth.
Indeed, economic liberalism argues that all states will be better off if they cooperate
in a worldwide division of labour, with each state specializing in what it is relatively
better at producing. Japan, for example, decided long ago that it was not possible to
try to produce all that it needed to consume. Its experience in World War II of trying to
control its access to resources through conflict was not successful in the end. Instead, it
came to see participation in regional and global trade networks as a more efficient way
to generate wealth in the 1950s and beyond.
Edmundas Radavicius. INTERNATIONAL TRADE
| 59
An increase in interdependence can have a downside. The more numerous the
connections are between states, the greater the opportunities for conflicts of interests.
For example, Japan and western European states are highly dependent on Middle
East oil, and their economic interests have often diverged with Middle Eastern states’
political and military interests. When states fail to resolve these differences through
cooperation and compromise, states may resort to force to ensure access to resources
on which they are dependent. This logic partly explains events in the 1991 Persian Gulf
War and suggests a different interpretation of tensions between India and Pakistan over
water resources originating in Kashmir today. More generally, when states become
intertwined in one area, they often become sensitive to state behavior in other areas.
Interdependence also means states can be fairly constrained in their foreign
policy. Because the fortunes of one state are connected to the fortunes of others, when
one state harms another, it does so at its own peril. Going to war in an effort to gain
power may make sense militarily, but states in an interdependent world harm themselves
by destroying potential trading partners and markets in which to sell their goods. After
World War II, France and Germany deliberately chose the path of interdependence and
constraint and transformed a centuries-old relationship of distrust and rivalry into one
of economic cooperation. Thus, liberalism views economic interdependence as the key
characteristic of the international environment that states must consider when they make
foreign policy.
Some states are more dependent than others. Richer states, such as China and
Saudi Arabia, are very much affected by the actions of other states, but they can afford
to sacrifice part of their economic wealth in order to pursue other goals. Their wealth and
the centrality of their state in the world economy give them a choice in trading partners,
and they do not have to rely on others for economic assistance. Poor states that are less
engaged in the global economy, such as Bulgaria or Chad, enjoy no such luxury and are
highly constrained in their foreign policy. Their very economic existence depends on
their relationships with other states, as well as with nonstate actors such as multinational
corporations and international financial organizations. Thus, they are often forced to
comply with the foreign policy wishes of their benefactors. Furthermore, some suggest
that the leaders of poor states often act in collusion with the rich states that exploit the
poor states’ cheap labour and abundant raw materials.
60 |
Edmundas Radavicius. INTERNATIONAL TRADE
As noted above, because there is no overarching authority to ensure cooperation,
states may support international organizations such as the United Nations and the World
Trade Organization as forums for coordinating states’ interests. What may be sacrificed
in the short term, from that support, liberals believe is offset by the long-term benefits
of stability, efficiency, and greater wealth. However, with international cooperation in
the form of international organizations and with the rise of multinational corporations as
the engines of globalization, states have no choice but to deal with these nonstate actors
and sometimes compete with them for influence in international politics. At times, states
even compete with nonstate actors for control over their own domestic politics.
Current globalization and liberalization pressures complicate the effects
of interdependence in the early twenty-first century. Globalization connects more
economies in worldwide financial and trading markets, but it has not done so evenly.
Indeed, the gap between rich and poor states is widening, according to some measures.
Poor states have little ability to resist pressures to open up their markets, even when they
disagree with the liberal philosophy and risk political retribution when the gap between
rich and poor becomes greater within their economies. Some states, such as China,
have changed their past positions and embraced some elements of the liberal economic
philosophy.
One response to current globalization is regional economic integration. Both
rich and poor states are engaging in agreements and dialogues to establish greater
interdependence at the regional level. The European Union (EU) is the most successful
example of regional integration, particularly with the establishment in 1999 of a common
currency, the Euro. There have been other recent attempts at regional integration in
response, in part, to globalization. This is particularly true for states in Latin America
and southern Africa that are trying to replicate the benefits of regional cooperation seen
in the EU. If these attempts are successful, states in southern Africa and Latin America
may find they are constrained by the new international organizations that they build—
much as British, French, and German states are sometimes constrained by the political
and economic structures of the EU. Thus, regional integration provides another layer of
external factors that may affect states’ foreign policies.
Edmundas Radavicius. INTERNATIONAL TRADE
| 61
International Norms and Legitimacy: Constructivism4
A constructivist perspective sees the international system as composed of the social
interactions of states and shared understandings in a global society. The international
system includes more than objective forces of power, interests, and organization. For
constructivism, anarchy and interests are not objectively determined. Instead, they are
constituted by the actions of agents, such as states, and the meanings or ideas that agents
attach to them. Given the breadth of this approach in the first decade after the Cold War,
constructivism quickly emerged as a leading contender to rationalism in international
relations theory.
Constructivists view norms of appropriate behavior as socially constructed
international structures that constrain states’ foreign policies. Norms represent shared
expectations about appropriate behavior that derive from a combination of beliefs,
standards of behavior, international conventions, and decision-making procedures.
For example, a norm evolved in the past two centuries to reframe the international
slave trade as repugnant and immoral, and some scholars suggest that there is a new
norm prohibiting the use of nuclear weapons today. Norms are characterized as both
regulative and constitutive in that they shape national interests and identity. States often
avoid violating norms, but when they do, other actors may sanction them or shame them.
For some of the same reasons, states tend to avoid foreign policies that are not seen as
legitimate by the international community. International laws may codify what counts
as legitimate. Although states do not always comply with international laws, the system
does carry some kind of moral, normative authority that states support. In sum, external
factors focus on aspects of the international system that push or pull states toward
certain foreign policy choices. Realism proposes that states motivated by self-interests
seek military power and create alliances while weak states submit to more powerful
actors. Liberalism suggests that an interdependent international system results in more
cooperation, more support for organizations that help coordinate activities, and the
submission of economically weak states to the forces of the international marketplace.
Constructivist perspectives point to socially-created meanings that develop into
international norms that serve to guide actors’ behaviors. Proponents of each of these
perspectives agree that foreign policies are a result of states’ rank, status, and links to
other actors in the international system.
62 |
Edmundas Radavicius. INTERNATIONAL TRADE
Internal Factors4
Theories that focus on internal sources of foreign policy offer a rather different
perspective and set of expectations. In contrast to the externally based theories, those
who point to sources internal to the state expect differences across states’ foreign policies,
despite similar international circumstances. For these analysts, the great diversity of
political systems, cultures, and leaders are the factors that point states in different
directions, even though they are facing the same external forces. Furthermore, externally
based theories often assume the policies states make are in response to their interests
and the demands of the international system. Their response is “rational,” or the most
optimal decision given those interests and demands. Domestically oriented explanations,
in contrast, argue that states sometimes make decisions that do not necessarily benefit
them in international politics. These theories explain such “deviations from rationality”
by pointing to the need of leaders to satisfy both domestic political goals and foreign
policy interests or by examining the imperfect nature of the decision-making process.
Finally, those who focus on external sources of foreign policy tend to examine states
as if they were “unitary actors” whose politicians and citizens put aside any differences
they may have and act with one voice for the sake of national security. Conversely, those
who point to domestic sources of foreign policy highlight the many different voices and
conflicts over foreign policy. These many voices reside at several levels of actors and
institutions within countries—the public, societal groups, government organizations,
and leaders.
The Public: Opinion, Identity and Culture4
For purposes of this study, public opinion is defined as the attitudes citizens
have about particular foreign policy issues. The public may agree on an issue or may
be deeply divided. For example, the public may be for or against their state intervening
militarily in another country or signing a particular trade agreement. Scholars continue
to debate the impact of public opinion on foreign policy, even in highly democratized
states in which policy supposedly reflects “the will of the people.” Based on numerous
findings in research, the conventional wisdom is that the public simply does not influence
foreign policy. The average person tends to know little and care little about his or her
Edmundas Radavicius. INTERNATIONAL TRADE
| 63
country’s foreign affairs. Even if the public were knowledgeable about foreign policy
issues, it is not clear that leaders would follow public opinion. They may instead try to
lead the public to opinions that are in line with their preferences or ignore their opinion
altogether. Many times, evidence suggests that leaders who do ignore the public are not
held accountable at the polls because elections typically revolve around domestic rather
than foreign policy concerns. The media also play a role in the relationship between the
public and the state, as they, too, may influence public opinion on foreign policy.
However, the question of public opinion and foreign policy may be more
complicated than this conventional wisdom implies. Some evidence suggests that
there is more congruence than sceptics assume between changes in public opinion and
changes in foreign policy. In many specific cases of foreign policy decisions, we know
leaders were quite sensitive to public reactions. Furthermore, although the public may
not formulate specific stable opinions about foreign policy, it often expresses rather
enduring “core values” or opinion “moods.” These refer to underlying beliefs – such
as isolationism, anticommunism, non-appeasement, neutrality, and anti-imperialism –
the public holds and uses to judge foreign policy. In Germany and Japan, the public
has come to value multilateralism and antimilitarism. In post–Cold War Russia and in
contemporary India, core values support the maintenance of a “great power” identity.
Indeed, a country’s identity—how it sees itself in relations to others—and its conception
of its role in the world can be powerful ideas that are shared by members of the public
and that set boundaries within which leaders must remain or risk public opposition. As
with public opinion on a specific policy, identity and role may be constructed by elites
and used to support particular foreign policy positions.
Thus far, most research on public opinion as a source of foreign policy has
focused on democracies in which there are institutionalized channels for the public to
hold leaders accountable for their decisions. The public is often assumed not to have
any influence on the foreign policies of more authoritarian political systems. The views
of society, however, may be just as important in these types of systems, although in
an indirect fashion. As in democracies, core values held by the public may work to set
boundaries. Indeed, authoritarian systems may be built on the foundation of such foreign
policy orientations, such as self-determination and defense in North Korea, and antiimperialism in Venezuela, Bolivia, and Iran. Thus, despite the fact that nondemocracies
64 |
Edmundas Radavicius. INTERNATIONAL TRADE
may not be “of the people, by the people, and for the people,” the people may still
constrain the government in its foreign policy decisions.
Core values and national identities are connected to a society’s political culture –
the values, norms, and traditions that are widely shared by its people and are relatively
enduring over time. These enduring cultural features may also set parameters for
foreign policy. A country’s culture may value individualism, collectivism, pragmatism,
or moralism, and these culturally based values may affect foreign policy. Cultures that
place a premium on morality over practicality may be more likely to pass moral judgment
over the internal affairs and foreign policy behaviors of others. Culture also affects the
way foreign policy is determined. Cultures where consensual decision making is the
norm, for example, may take longer to make policy, because the process of consultation
with many people may be just as important as the final decision. Despite the general
recognition that cultural particularities do affect foreign policy, it is often difficult to
assess the impact of culture.
Societal Groups: Links and Opposition4
Leaders may be more likely to pay attention to, and react to, the opinions of
specific, organized societal groups than to the society at large, as they play the role of
linking society to the state or of opposing and competing with the state. Interest groups
articulate a particular societal sector’s position and mobilize that sector to pressure and
persuade the government. Interest groups come in a variety of forms. They may be
based on a single issue, on ethnic identification, on religious affiliation, or on economics.
For example, nongovernmental organizations focused on human rights are becoming
increasingly visible in countries as different as the United States and Egypt.
Economic interest groups can be an especially important societal source of
foreign policy because they help to generate wealth, and economic welfare has become
one of the primary functions of the modern state. Economic groups often have an interest
in foreign relations as they seek to promote their foreign business adventures abroad or
to protect markets from competitors at home. Business groups in Japan have often been
considered partners with the bureaucracy on foreign, economic, policy making, and
a wide range of business, labour, financial, and trade groups quite actively attempt to
influence foreign policy in Ireland.
Edmundas Radavicius. INTERNATIONAL TRADE
| 65
An interest group’s influence on foreign policy often depends on the particular
issue, how organized the group is, and the relationship between the interest group and
the government. Interest groups face an uphill struggle in attempting to influence a
government that disagrees with their position. The government typically has greater
resources to bring to bear on the issue and more control of the information that flows
to the public. Depending on the political system, the government also has more diffuse
political support from the public. Globalization and liberalization trends have certainly
increased the number of economic groups that have an interest in their state’s foreign
policies, as can be seen in contemporary Nigeria. Such trends have also arguably
strengthened the capability of these groups to influence foreign policy.
Political parties, although often part of the government, also play the role of
linking societal opinion to political leadership. In many ways, political parties function
much like interest groups. In some countries, such as Iran, only one party exists or
dominates the political system and that party’s ideology can be important in setting
the boundaries for debate over foreign policy decisions and in providing rhetoric for
leader’s speeches. In such cases, parties become less important than factions, which
often develop within political parties. Factions are also important in political systems
in which one party holds a majority in parliament and rules alone. In these countries
too, factions may disagree over the direction of the country’s foreign policy, as have the
pro- versus anti-European integration factions in the British Conservative Party. Party
factions may seek to outmaneuver each other or they may be forced to compromise
for the sake of party unity. Even if there is a consensus within the party, foreign policy
might get captured by the intraparty fighting as factions compete with one another for
party leadership. These internal dynamics of political parties can be seen in countries as
different as China, Turkey, and Canada.
Factions are also important in more fragmented multiparty political systems, but
in such countries the competition between parties becomes significant as well. In vying
for the public’s support, parties may attempt to distinguish themselves ideologically from
each other, thus polarizing the debate over foreign policy, or they may rush to the center
of the political spectrum to capture the moderates, who often decide elections. In some
multiparty systems, such as India and Germany, the political scene is so fragmented that
parties must enter into coalitions and share power to make policy. In such cases, each
66 |
Edmundas Radavicius. INTERNATIONAL TRADE
foreign policy decision can be a struggle between coalition partners, who must get along
to keep the coalition together.
A country’s military is, of course, part of the government, but in many countries
military leadership competes with civilian leadership for control over policy. At times,
the military can be a powerful source of opposition to a government’s foreign policy
goals, especially if those goals concern national security issues or imply a cut in the
military’s resources. At other times, military groups might push leaders in expansionist
directions to further self-interested goals of organizational growth and prestige. Since
a military that is not subordinate to civilian leaders controls the primary means of
coercion, policy makers may be very sensitive to this opposition. If they are not, they
risk a military coup.
Government Organization: Democracies and Bureaucracies4
How a government is organized may also affect foreign policy. Two characteristics
are particularly important: democratization and bureaucratization. The foreign policy
process is quite different for democracies – decision-making authority tends to be
diffused across democratic institutions, and thus more actors are involved. In contrast,
authoritarian leaders often make decisions by themselves. Democratic leaders are also
directly accountable to political parties and the public and thus must build a consensus
for foreign policy. Authoritarian leaders do not face these constraints and may enjoy
considerable latitude in choosing their own policies.
Liberal theory argues that because of these differences in government
organization, democracies will behave more peacefully than will authoritarian systems.
Even if a leader is inclined to war, they will have difficulty building political support
among a larger set of actors and mobilizing them for conflict. These leaders are
accountable to a public that is often more concerned with economic than military issues.
Furthermore, democratic institutions are built on and create a political culture that is
likely to emphasize the value of peaceful resolution. In a democracy, citizens learn that
conflicts of interest can be resolved non-violently – for example, through elections,
peaceful means of influence, or in the courts. They transfer that value to their relations
with other states.
Despite these expectations, the proposition that democracies are generally more
Edmundas Radavicius. INTERNATIONAL TRADE
| 67
peaceful in their foreign policy is not supported by most evidence. Democracies and
authoritarian governments, it seems, are both likely to be involved in and initiate conflict.
For example, democratic constraints did not prevent British involvement in Iraq, French
military interventions in Africa, India’s conflicts with China and Pakistan, and Israel’s
participation in numerous Middle East conflicts. Democracies, however, rarely fight
other democracies. Scholars continue to work on the answer to this puzzle, but many
return to the ideas that democratic cultural values and institutional constraints make
democratic foreign policy different, even if only when dealing with other democracies.
The differences between the making of foreign policy in democratic and
authoritarian governments may be exaggerated. First, actual decision-making authority
may not be as diffuse, or constrained, in democracies as sometimes supposed. As noted
earlier, citizens in a democracy are often not well informed, and their influence over
foreign policy is debatable. Furthermore, foreign policy decisions, unlike most domestic
policy decisions, are often highly centralized at the top of the government’s hierarchy, as
they typically are, for example, in France, Palau, and Poland.
Second, it is not always the case that authoritarian leaders act without constraint.
These leaders often face considerable opposition from society, interest groups, party
factions, and their own militaries and may consult frequently with these groups before
making foreign policy decisions. Although citizens in authoritarian systems cannot vote
their leaders out of office, they do have other means of holding leaders accountable,
including forming or pledging allegiance to nongovernmental groups who oppose
the authoritarian leader, backing a coup and change of government, assassinating a
leader, and starting a revolution. Indeed, simply being voted out of office may pale in
comparison.
Authoritarian regimes that are fairly new, face tremendous internal opposition,
or are otherwise weak in their control of the country need to pay special attention to
public reaction to foreign policy. Countries such as India, Iraq, and Spain have serious
economic, religious, and ethnic internal divisions that can detract from the legitimacy of
the state. Leaders of such governments may use foreign policy to build national identity,
demonstrate strong leadership, or divert attention away from internal problems. Finally
in some authoritarian systems, no single leader controls foreign policy; decisions are
made collectively, as in modern-day Iran. Since there are considerable differences in
68 |
Edmundas Radavicius. INTERNATIONAL TRADE
the organization of authoritarian governments and democratic governments, it may be
better to think of government organization in regard to how centralized the decisionmaking authority is, and how strong the government is, in relation to societal opposition.
A second feature of government organization that affects foreign policy concerns
the bureaucracy, which is charged with gathering information, developing proposals,
offering advice, implementing policy, and, at times, making foreign policy decisions.
Because of the complexities involved in dealing with the many issues of international
politics, governments organize themselves bureaucratically, assigning responsibility for
different areas or jurisdictions of policy to separate agencies or departments. Separate
agencies, for example, are responsible for diplomatic relations, for trade ties, and for
different parts of the military.
Although such bureaucratic organization is necessary to deal with a complex
world, it can create problems for foreign policy. The different departments, for example,
may come into conflict over what foreign policy should be adopted, partly because
departments tend to develop their own sense of identity, or organizational mission.
Bureaucratic conflict is a common problem, for example, in the process of making foreign
policy in the United States and Japan. The conflict in viewpoints may create inconsistent
foreign policy if departments are acting on their own rather than in coordination. It
may also result in compromises that are not necessarily in the best interests of the state.
Critics argue that the U.S. occupation of post-war Iraq was so chaotic, in part due to
bureaucratic struggles for control over policies there.
These types of problems that stem from bureaucratic organization in a
government are less likely under certain conditions. Although most states have some
sort of bureaucracy, in some, a single leader or a single unifying force (such as one
political party) can impose a decision on a reluctant or conflicted bureaucracy. On
some issues, moreover, all agencies may share an overriding value that guides foreign
policy, making inconsistencies and conflict less likely. Finally, in crisis situations, the
top leadership often takes over, minimizing (but not always eliminating) the effects of
bureaucratic politics.
Leaders: Personalities and Beliefs4
At the top of government sits a leader, or leaders, who have the authority to
Edmundas Radavicius. INTERNATIONAL TRADE
| 69
make foreign policy. Characteristics of leaders are generally more important when they
have significant latitude in shaping policy and the situation is ambiguous, uncertain, or
complex. Under these conditions, which occur frequently in foreign policy making, a
leader’s personality and beliefs may shape what the state does.
Leaders’ decisions may be shaped by their own personal history. Their childhood
or early political experiences, for example, may have taught them that certain values and
ways of handling problems are important. The revolutionary tendencies of the Chinese
leader Mao Tse-tung, for example, might be traced back to when he was a child. German
Chancellor Angela Merkel was profoundly influenced by her upbringing in the former
East Germany. Manmohan Singh is India’s first Sikh prime minister, and holds a Ph.D.
in political economy from Oxford University. His values and professional training have
influenced his government’s emphasis on economic development and trade policy. Since
every leader’s personal history is unique, one might expect each individual to draw on
a particular set of beliefs, values, and experiences in coping with foreign policy issues.
Despite their individual differences, all humans prefer to be consistent in their
beliefs, and studies show we often ignore or distort information that contradicts what
we already believe. This is especially likely when we have strongly held stereotypes
or “images” of other countries. Leaders who see another country as their enemy, for
example, will often selectively attend to or perceive information about that country in a
way that confirms their original belief. For this reason, images are extremely resistant to
change, even if the “enemy” is making cooperative gestures. U.S. President George W.
Bush’s image of Saddam Hussein, for example, was significant in his decisions about
going to war with Iraq in 2003.
Leaders can also be categorized into types of personalities. Some leaders may
be motivated by a need to dominate others and may thus be more conflictual in foreign
policy; others may be more concerned with being accepted, and may therefore be more
cooperative. Some leaders are more nationalistic, more distrustful, and believe that the
world is a place of conflict that can only be solved through the use of force, whereas
others see themselves and their state as part of the world community that can be trusted
and believe that problems are best solved multilaterally.
Leaders’ decision-making style and how they manage information and the people
around them can also be important. Some leaders, like Brazil’s Luiz Inácio Lula da
70 |
Edmundas Radavicius. INTERNATIONAL TRADE
Silva, choose to be quite active in foreign policy making, whereas others, like Brazil’s
Itamar Franco, tended to delegate the authority to make foreign policy decisions. Some
leaders are “crusaders” who come to office with a foreign policy goal. They tend not to
compromise on their vision and are less open to advice. Others are interested in keeping
power or bridging conflicts. They tend to be sensitive to advice and are reluctant to
make decisions without consultation and consensus. Historically, India’s Prime Minister
Indira Gandhi, for example, tended to be an advocate for her own positions, whereas her
father, Nehru, preferred to build a consensus among those around him.
As noted earlier, we have chosen a variety of countries in which to examine the
links between international and domestic politics and the various propositions presented
above. The following chapters afford a look at these various theories, which expect
states’ foreign policies to differ according to their level of economic development,
dependence, and military power. We gain insight by comparing Germany with Nigeria,
Russia with Venezuela, and China with Turkey. We also assess other theories that point
to countries that are very similar in their placement in the international security and
economic system (such as Great Britain and France), but that choose different paths in
their foreign policies, possibly because of internal factors. These countries also include
a variety of different political systems, cultures, core values, historical experiences,
societal opposition, degrees of centralization of political authority, and levels of
bureaucratization, and they are led by leaders with their own beliefs and styles.
In addition, the countries represented in the chapters that follow provide an
excellent opportunity to examine some of the recent changes in domestic and international
politics and the effects these changes might have on foreign policy. Many of these states
(such as Germany and Japan) were constrained by the Cold War international system.
An examination of contemporary foreign policy allows us to assess how such states are
coping with the post–Cold War world and its new security structures. Also of interest
is how states, especially poorer states, are coping with globalization and pressures for
liberalization, which may not be new but have intensified in the last decade. In internal
matters, many of the states in this book have experienced changes in leadership over the
past few years; several states have seen wholesale changes in their governing structures;
others are facing significant pressures for reform. We examine how changes in domestic
politics have influenced foreign policy in these states.
Edmundas Radavicius. INTERNATIONAL TRADE
| 71
As you read the following chapters, we invite you to learn about the contemporary
politics (both domestic and global) of central actors in the world today. We also encourage
you to apply the theories discussed in this chapter to understand each country’s foreign
policy and to think critically about these theories as you compare the countries’
experiences. As you go along, consider the questions presented below. In addition,
try to assess which theories or group of factors are being emphasized as important for
understanding the country’s foreign policy. Each chapter presents a brief historical
review of the country’s foreign policy, an analysis of the most important external
and internal factors in the country’s foreign policy, and a discussion of contemporary
foreign policy issues. In the book’s final chapter, we return to a discussion of thinking
comparatively and analytically about contemporary foreign policies.
International trade policy in Lithuania5; 6
International trade for such a small country as Lithuania is crucial. The ratio of
foreign trade to GDP has always been at least 100%, and exceeded it for the last several
years.
The EU is Lithuania’s largest trading partner, which in 2011 accounted for 56% of
Lithuania’s total imports and 61% of total exports. The Commonwealth of Independent
States runs closely behind as an economic union, with 34% in imports and 25% in
exports), focusing mainly on mineral fuels, mineral oils and products of distillation,
bituminous substances and mineral waxes. Russia has been Lithuania’s largest trading
partner, followed by Germany, Poland, and Latvia.
Certain economic sectors in Lithuania are basically geared to export markets.
Two-thirds of the transport and logistics sector production and/or services have been
exported. The export of biotechnologies accounts for 84%, plastics industry – 56%, laser
technology – 86%, metal processing, machinery and electrical equipment manufacturing
– 59%, furniture manufacturing and wood processing – 55%, textile and clothing
industry – 79%, and food – 44%.
With the international trade-to-GDP ratio at the level of some 90 percent,
Lithuania is a strongly outward-oriented economy as of 2000. Its foreign trade is
liberalized and regulated largely via market economy instruments known in the West
and approved by the World Trade Organization (WTO) of which Lithuania is a member.
72 |
Edmundas Radavicius. INTERNATIONAL TRADE
The earlier licensing and foreign exchange surrender requirements have been repealed.
Over two-thirds of the Lithuanian imports enter duty free; the rest face 5 to 15 percent
duties, becoming more and more uniform as required by the WTO. By 2000, Lithuania
maintained economic relations with over 160 countries. The country has bilateral trade
treaties with 22 nations. However, accounting for almost one-quarter of Lithuania’s trade
turnover, Russia remains a major trade partner. Part of the Lithuanian output decline
during transition was due to too slow a reorientation of trade away from the former
Soviet Union (FSU) and towards the West. Foreign direct investment into Lithuania is
still rather modest due to this and related factors having to do with instability in Russia
and elsewhere in the FSU but also shortcomings of the Lithuanian reforms and some
communist legacies.
From 1997 to 1999, the nation’s imports increased by 27 percent, and its exports
increased by 10.6 percent. Lithuania’s main exports in 1998 included machinery and
equipment (19 percent of exports), mineral products (19 percent), textiles and clothing
(19 percent), and chemicals (10 percent). The nation’s main export markets were
Russia at 17.4 percent, Germany at 15.8 percent, Latvia at 12.7 percent, Denmark at 5.9
percent, and Belarus at 5.2 percent. In 1998, Lithuania’s main imports were machinery
and equipment at 30 percent, mineral products at 16 percent, chemicals at 9 percent,
and textiles and clothing at 9 percent. In 1999, the country’s major import partners were
Russia with 20.4 percent of imports, Germany with 16.5 percent, Denmark with 3.8
percent, Belarus with 2.2 percent, and Latvia with 2 percent. Lithuania has consistently
had a trade deficit. In 1996, the nation imported US$1.2 billion more than it exported,
and by 1998 that deficit had increased to US$2.1 billion.
There seems to be a trend to go deeper into external debt. The external debt
amounted to over US$2 billion at the end of 2000, balancing around the level of
Lithuania’s hard currency reserves. However, the increasing levels of foreign investment
have helped offset the debt by providing inflows of capital for new investment. The
Swedish-Finnish company, Amber Consortium, is the largest single investor in
Lithuania with US$510 million in investments, followed by Williams International of
the United States with US$150 million and Telia-Sonera, also a joint Swedish-Finnish
firm, with US$66 million. By 2000, total foreign investment in Lithuania was US$2.66
billion. Investments in telecommunications accounted for 28.8 percent of total foreign
Edmundas Radavicius. INTERNATIONAL TRADE
| 73
investment while manufacturing accounted for 25 percent, and wholesale and retail
trade accounted for 19.5 percent.
In an additional effort to attract foreign trade, in 1995, the Lithuania government
established 3 free trade zones, located in Siauliai, Klaipeda, and Kaunas. Companies
that locate themselves in these zones receive incentives of up to 30 percent of the cost of
building or relocating to the areas.
The entry of Lithuania into the EU will greatly expand the nation’s international
trade. It will give Lithuania access to the markets of 15 countries which will also be able
to use Lithuania as a gateway for entry into the markets of the former Soviet Union.
Already, trade between Lithuania and the EU members has dramatically increased.
Since 1997, exports to the EU have increased by 21.8 percent. Meanwhile imports from
the EU increased by 13.3 percent. Lithuania is also a member of the Baltic free trade
zone, a 1994 agreement between the 3 Baltic countries which abolished tariffs on all
industrial goods traded among Lithuania, Latvia, and Estonia.
National foreign trade is the economic sphere that determines the development
of the international trade. Participation in global world markets is especially important
for Lithuania as it is a free-market economy with the characteristics of a developing
post-Soviet market. The vulnerability of the Lithuanian economy and the general level
of globalization worldwide made integration into the European Union a necessity. This
was one of the most significant events for the Lithuanian economy that gave start to a
great number of changes in foreign trade. The world economic and financial crisis of
the past few years has contributed to and made the problems under investigation more
evident. Based on this background, the article analyses a topic relevant to the overall
current development of Lithuania’s economy—the specifics of Lithuania’s foreign trade
development—by determining its underlying problems.
The aim of the article is to analyze the trends and problematic areas in Lithuania’s
foreign trade development. Export and import flows have been chosen as objects for the
analysis. The methodology for the investigation comprises statistical data, chronological
comparative analysis and use of the theory of constraints. The paper discusses the
European Union’s foreign trade policy and the course of Lithuania’s integration into
its trade system. Lithuania’s foreign trade development throughout the period of 1995–
2008 has been analyzed by using statistical database analysis. By using the method
74 |
Edmundas Radavicius. INTERNATIONAL TRADE
of the theory of constraints, a comprehensive foreign trade investigation has been
carried out, in which the underlying problems in this economic area that hinder the
functioning of foreign trade have been identified. Also, proposals on how to improve the
effectiveness of the functioning of foreign trade have been provided. During the period
of occupation, the independent functioning of Lithuania’s foreign trade was restricted.
Only after Lithuania regained its independence in 1991 did the volume of international
trade begin to grow. Since the country became a member of the integral European
Union, it expanded its foreign trade markets and substantially improved its conditions
for international trade.
The statistical database analysis that has been carried out enabled us to conclude
that during the periods of 1995-2003 and from the admittance to the European Union
until 2009, exports and imports increased more than fourfold. The foreign trade balance
deficit doubled in the periods under the investigation. The following major problems
in Lithuania’s foreign trade have been identified: a large trade balance deficit, the
dependence of the dominant share of exports on imported raw materials, and the export
of goods that are small value-added.
By using the method of the theory of constraints, the fundamental obstacles
that conditioned the problems in Lithuania’s foreign trade have been identified: a
cheap labor force in the country—an insufficient advantage in the long run, export and
production structure typical of developing countries, lack of data on foreign countries’
trade regulations, and Lithuania’s low image. Apart from these problematic areas, the
recent global economic and financial crisis has also contributed.
To reduce problematic areas in Lithuania’s foreign trade, the trade balance deficit
ought to be decreased by means of export stimulation. This calls for changes in trade
conditions: the expansion of export zones, an improvement of the country’s image,
the reduction of trade risk by fostering cooperation, the establishment of an effective
business insurance system, and the improvement of financing conditions. To improve
the structure of exports, it is necessary to switch from the energy and labour intensive
sectors to those that create higher value-added goods by utilizing the intellectual
potential of the country and by investing in scientific research. To improve export
infrastructure its dependence on the import of raw materials ought to be decreased by
exploiting local renewable energy sources. Stimulating the consumption of Lithuanian
Edmundas Radavicius. INTERNATIONAL TRADE
| 75
goods and services is also of great importance.
An examination of the Lithuanian foreign trade statistics database clearly shows
that the main problems are a large deficit balance, as well as a large share of exports
being dependent on imported raw materials and being low added value. This indicator
reached a negative level for the economy for many reasons. A “real current tree”
represents the causal relationship between problems and their consequences, in which
the fundamental obstacles to effective Lithuanian foreign trade are provided. The main
Lithuanian foreign trade problem is a significant trade deficit. This score is determined
by the fact that during the whole period of Lithuanian independence, the import flows of
the country are significantly higher than export volumes. A severe export backlog when
compared with imports was caused by many reasons that can be divided into several
branches in the “real current tree”:
Dependence on imports of raw materials
The Lithuanian historical experience—a long-term occupation regime in the
former Soviet Union – led to the country’s dependence on its currently important trade
partner, Russia. Russia was the main supplier of raw materials, and has remained so
until now. As observed from the statistics of Lithuania’s export and import data analysis,
mineral products compose the main part of the import and export trade. It is noticed that
the majority of Lithuanian exports consists of natural resources-intensive industries,
whose main source of resources is Russia. Supplying vital raw materials, this country
binds Lithuania with firm, but useless links with regard to competitiveness. The negative
effect of this dependence manifests itself through expensive imports of natural resources,
increasing the export prices so that Lithuania is not competitive in foreign trade.
Export structure is to developing countries
The same historical reasons predetermined one more difficult circumstance
for Lithuanian foreign trade – the export structure of developing countries. Such
countries differ from the economically powerful and developed countries because the
latter develop high added-value export industries and promote high-tech innovation.
Lithuania’s occupation regime restricted such access; it hindered Lithuania from
76 |
Edmundas Radavicius. INTERNATIONAL TRADE
developing parallel to other advanced countries (Mačys and others, 2004). Therefore,
the country’s economy is now only growing with the inherent industrial structure which
does not include high added-value industries. Lithuania also actively works with the
advanced countries’ uncompetitive energy-intensive sectors.
Low labour costs and insufficient advantage
In the competitive international trade struggle, Lithuania uses one of its existing
comparative advantages – cheap labour. But this advantage allows countries to compete
with other foreign countries only in the short term. Using this cheap labour in export
industries like textiles will not obtain a lasting and viable dominance in foreign markets
because it does not provide for increases in labour productivity. Rapidly increasing
global processes, better Lithuanian integration into the EU market and a growing strong
reduction of differences between countries mean that labour costs in the country will
gradually increase. The prime cost of products will also grow, so Lithuanian goods may
become less competitive.
Shortage of
clusters
Barriers to enter and keep
the position in the market
Enlarged export
bankruptcy risk
Low labour productivity
Short-run competitiveness
Leakage of professional
workforce
Word trade
slowdown
Economic crisis
Shortage of
innovations
Shortage of
technologies
Absence of the common
business information
centre
Dormant intellectual
potential
Low share in exports of
high tech sectors
Poor international
representation of country
Lack of foreign
market research
Lack of business
information
Predominance of the
natural resourcesintensive sectors in
exports
Dependence on raw
resources imports
Predominance of the
energy-intensive sectors
in exports
Predominance of cheap
labour-intensive sectors
in exports
Imports overrun an export
Typical of the developing
countries structure
Cheap labour force
Large deficit of the
foreign trade balance
Lack of
recognition
Lack of market
information
Poor image of
country
Figure 3. Current real tree for Lithuanian foreign trade and main barriers5
Edmundas Radavicius. INTERNATIONAL TRADE
| 77
Imperfect Lithuanian image
Lithuanian foreign trade issues involve one more negative consequence
originating with the Soviet regime—lack of knowledge about this country. The result
is that countries of the former Soviet Union receive much criticism. However, the
effect from this is not that negative. The poor development of the Lithuanian image on
the world market happens because of insufficient dissemination of information about
Lithuania in the international sphere.
Inadequate information about foreign markets
For Lithuania, as a small open market economy, it is necessary to promote
exports. This requires knowledge of existing and potential foreign markets. However,
this process has not yet been implemented in Lithuania. The country has no single
institution that compiles information for manufacturers and exporters of all the relevant
data on trade in foreign markets – regulatory, quality, packaging, and delivery, billing
information and so on.
Economic hardship
In addition to all the factors limiting Lithuanian foreign trade performance, the
global economic and financial crisis caused economic losses. The crisis involved not
only Lithuania but also the whole world, reducing industrial and commercial activity
of numerous countries. This is particularly significant to Lithuania as it plays a larger
part in foreign markets and cooperates with them more. It is much harder for such
countries to survive during this hardship than in 1999 because at that time trade in the
CIS countries had slowed down, while Lithuania was still gaining European markets
that weren’t touched by the crisis and could reorient their export flows. The current
situation is more complicated since the crisis covers the whole world. Lithuanian
manufacturers temporarily lost export markets and the hardship encountered created
risks of insolvency for businesses. Business enterprises, the main country exporters, in
addition to staying in the world market, also have difficulties in surviving in the local
market. The economic crisis has spurred the emigration of labour, forcing a part of the
skilled workforce capable of creating high value-added products to be lost. In conclusion,
78 |
Edmundas Radavicius. INTERNATIONAL TRADE
the main issues in foreign trade that have caused the deeply uncompetitive Lithuanian
business climate were acquired from the former Soviet Union. These issues are the
dependence on imports of raw materials, industrial structure specific to developing
countries, domination of low added-value industries, little information about foreign
markets and their regulations, imperfect Lithuanian image as a useful trading partner.
In addition to these major problems of foreign trade, the global economic crisis has had
a negative effect. The “current real tree” has revealed the fundamental efficiency of
foreign trade barriers. In order to solve or reduce these main problems the “progressive
future tree” is developed, which suggests how to increase foreign trade efficiency. As
one can see, the main goal is to reduce the trade balance deficit, which can be done by
promoting exports.
Promote
entrepreneurship in
education
Promotion of national
production and markets
Create a business
insurance system
Promote the foreign
market research
Use regenerative energy
recources
Reduce business risk
Promote cluster creation
Promote the medium and
high tech production
Promote investments
in NIS
Improve the lending
policy
Reduce the imported
recource-intensive
production
Promote IT and e-business
Improve the business
environment
Promote high value added
sectors
Promote FDI
Restrain imports
without prejudice to the
international regulations
Promote the consumption
of national goods
Reduce imports
Apply the intellectual
potential
Promote exports
Reduce the trade gap
Amend the export
structure
Improve export
infrastructure
Figure 4. The progressive future tree for Lithuanian foreign trade5
Improving the business environment
Entrepreneurs are the economic link that is of greatest benefit to the national
economy and population because they create the most value-added products. This
Edmundas Radavicius. INTERNATIONAL TRADE
| 79
produces a healthy environment for business development in Lithuania, constituting
one of the most important opportunities for promoting exports.
Export market development
Lithuania, because of its favorable geographical location, has good opportunities
not only to maintain the existing export markets but also to expand into new trade areas.
Some countries are more affected by economic hardship than others. Lithuania, being
of the former, has an easier time strengthening its position in markets which are less
affected by the economic hardship and which tend to recover in the short term. The
country should direct its exports towards areas strategically close to the sea – the Baltic
and Scandinavian countries. Also, it should be more actively involved in the less popular,
but high purchasing power markets – the USA, the Arab countries, Israel, the Balkans.
Foreign markets research
It is necessary to carry out research on existing and potential markets concerning
the terms of trade, the real situation and perspectives in other countries. An information
center which provides structured materials on foreign markets would be useful for
Lithuania. Discrete search of such information is expensive and requires a lot of time
and effort, so this measure should be initiated and financed by state institutions.
Improving Lithuania’s image
Fostering an appropriate image of Lithuania in the international arena would
enhance its attractiveness to existing and potential trading partners and ensure
competitiveness. To reach this goal Lithuania could create attractive and informative
web sites and distribute publications abroad that carry competitive Lithuanian products,
business opportunities, transportation services and publishing. The country could
effectively advertise its national trade mark by demonstrating it in international forums
and communicating with foreign representatives. Lithuanian businessmen’s active
participation in international seminars, conferences and other export development
events would lead to improved market penetration for business dealing internationally
and improve the reputation of the country for distribution.
The representation of Lithuania abroad
Greater Lithuanian diplomatic participation in foreign activities contributes to the
country overall image-building and partnership networking in regards to the country’s
80 |
Edmundas Radavicius. INTERNATIONAL TRADE
business trends, requirements and opportunities.
FDI attraction
Thanks to FDI, the competitiveness of Lithuanian goods is increasing. It also
helps vulnerable businesses to survive under the harsh conditions and helps new
businesses enter the market, contributing to export promotion.
Reduce business risk
One way to improve the business climate is the development of an export credit
insurance system with the presence of the state. As the risk of customer insolvency
grows, the state may undertake to bear the risk for this. Another way of reducing risk is
the diversification of markets through export expansion in order to avoid future negative
consequences caused by external shocks.
Encourage the creation of clusters
While the circumstances in today’s business economy may be aggravating, one
of the ways to reduce the risk of business bankruptcy and to improve the situation is
to cooperate collectively. The merger of a few crisis-sensitive businesses or the merger
of large and strong businesses into clusters would help them survive in the long term
(Mačys, 2005). The state could encourage such business initiatives and support the idea
of cooperation.
E-business
Reducing the transportation, logistics, billing, and other expenses, makes it
possible to shift a significant part of export processes into cyberspace. The e-business
concept is gradually growing in the Lithuanian market but there is an insufficient shift
of business opportunities when transferring from the real into the virtual space. This
concept should be promoted because, through e-business, a significant part of business
efficiency gains are not only in the form of financial resources but also time, productivity,
and competitiveness. Electronic entrepreneurship would also encourage the use of
intellectual potential, generating higher added-value. Therefore, the implementation of
information technologies should be encouraged in business.
Improve the financial conditions for businesses
Financial issues are very important when starting a business. The availability
Edmundas Radavicius. INTERNATIONAL TRADE
| 81
of sufficient financial resources is also an important requirement for the existence
of a business. Ensuring financial stability for businesses should contribute to export
promotion. One example is improvement of businesses credit conditions.
Improvements in the structure of exports
Most importantly, what has to be changed in this field is the dominant position
of competitive, low labour, small added-value productive firms. It is necessary
to gradually reduce the number of firms producing such exports and to seek higher
added-value producing firms utilizing advanced engineering, biotechnology, medical
services, information and communication technology, mechatronics, laser technology
and nanotechnology.
Applying the intellectual potential
The Lithuanian comparative advantage in the international market is low-cost
skilled labour. However, labour costs will grow over time, so this advantage will be
competitive only in the short term. It is therefore necessary to gradually re-orient
production in the raw materials and cheap labor-intensive industries towards knowledgebased production. In Lithuania, the possibilities of these branches are encouraged by
foreign investment.
Investing in research and development (R & D)
In order to increase the added-value of the firms in Lithuanian exports, it is
necessary to invest in research and development. These projects will help to create
innovations, produce medium- and high-tech products and increase added value.
Corporate education
Many Lithuanian business professionals lack sufficient management skills and
knowledge of planning, organization and trade. Therefore, it is important to boost
exporter counselling, education, and training. The education of future managers
and business training programs should also be improved to link theoretical teaching
with practical international business experience to achieve the integration of young
professionals into the business market.
82 |
Edmundas Radavicius. INTERNATIONAL TRADE
Development of export infrastructure
Relying on advanced foreign experience and promoting export development
should be used at more institutions concerned with foreign trade, for example, the
Export Bank and the Export Information Centre.
Import suppression
In spite of significant import flows into Lithuania with their limited reduction
opportunities, a small amount of import goods suppression would be a good thing. As
one of the options, it may be too heavily relied on by foreign experience in this field. For
example, Germany has announced that its market reacts sensitively to price changes. It
takes anti-dumping measures to protect local products from cheap imported goods. These
are entry barriers like quality, safety and environmental requirements. In order to protect
goods produced in Lithuania from foreign encroachment, it may be possible to set high
environmental requirements (Mačys, 2006). For example, the country could require a
product to have a quality mark, which would require the importer to comply with higher
environmental standards. Another method of suppression of a conditional import is to
reduce the dependence on imports of raw materials. Rational use of natural resources
– using them sparingly – could partially restrict this dependence. As a substitute for
imported resources it is possible to activate renewable energy resources. The using of
mineral oil for the production of electricity needs to be stopped in favor of solar, wind,
geothermal, hydro-, biomass energy instead. Lowering the oil consumption of energy
resources attaches more passive usage of them in transport, which can be changed
in not so efficient but in resource-efficient ways. In order to increase the demand for
Lithuanian local goods, the people’s patriotism should be activated in an attempt to
make them buy local rather than imported commodities. For this purpose, active public
education is necessary.
QUESTIONS/DISCUSSION
Based on the read information and additional reading please give you answers to
the following questions:
1.Give two possible examples of compound tariffs.
Edmundas Radavicius. INTERNATIONAL TRADE
| 83
2. Identify and discuss concrete protectionist instruments that area practised by
the EU relative to the rest of the world.
3. Starting from the analysis of costs and benefits of trade policy instruments
undertaken in this topic, discuss online the possible justification of protectionist
measures adopted by the EU relative to the rest of the world.
4. Has the foreign policy behavior of many countries changed in the past two
decades? What theories best explain different measures of change in countries’ foreign
policies?
5. Which theories of international constraints on state behavior are most
important, and for which countries? Overall, how do these perspectives help to account
for the foreign policy behavior of countries in comparative perspective?
6.How are states coping with globalization and the pressures for liberalization in
contemporary international relations? Are there fundamental differences in how states
deal with these challenges?
7.How do constructivists explain state foreign policy behaviors? How important
is political identity in shaping decisions about foreign affairs?
8.Which internal influences on state behavior are most important and for which
countries? Overall, how do these perspectives help to account for the foreign policy
behavior of various countries?
9.Can external and internal factors be linked to better understand foreign policy
in the twenty-first century? What type of conceptual framework would capture the
interaction of these levels?
10. What are the benefits of studying foreign policy in comparative perspective?
What are the limitations?
REFERENCES
The context of this part has been adapted from the following product(s):
1. Patric, L. and Lattimore, R. “International trade”. Corrigenda to OECD
publications may be found on line at: www.oecd.org/publishing/corrigenda. © OECD
2009
2. Baron, J. and S. Kemp, 2004. ‘Support for trade restrictions, attitudes, and
understanding of comparative advantage.’ Journal of Economic Psychology. 25(5), pp.
84 |
Edmundas Radavicius. INTERNATIONAL TRADE
565-80.
3.Juliet Kaarbo, Jeffrey S. Lantis, and Ryan K. Beasley. “The Analysis of Foreign
Policy in Comparative Perspective”. 2012 by CQ Press, a division of SAGE.
4. Ryan K Beasley, Juliet Kaarbo. Foreign policy in Comparative Perspective:
Domestic and International Influences on State Behavior. 2012 by SAGE Publications,
ISBN-13: 978-1608716968
5. Ibp Usa. Lithuania Investment and Trade Laws and Regulations Handbook
(World Law Business Library). 2009 by World Law Business Library; ISBN-13: 9781433076213. Book may be found on line at: http://www.e-bookdownload.net/search/
lithuania-investment-and-trade-laws-and-regulations-handbook
6. Vijeikis. J., Mačys, G. Trade policy in lithuania: past experience and
benchmarks for the future. Department of Business Economics, Mykolas Romeris
University, Intellectual economics 2010, No. 1(7), p. 76–86. file:///C:/Users/New/
Downloads/Macys-Vijeikis%20(1).pdf
FURTHER READING
1.Krugman and Obstfeld (2003), ch. 8
2.Caves, Frankel, Jones (2001), ch. 10, ch. 11
3. Baron, J. and S. Kemp, 2004. ‘Support for trade restrictions, attitudes, and
understanding of comparative advantage.’ Journal of Economic Psychology. 25(5), pp.
565-80.
4. Breuning, Marijke. Foreign Policy Analysis: A Comparative Introduction.
New York, NY: Palgrave Macmillan, 2007.
5.Hudson, Valerie. Foreign Policy Analysis: Classic and Contemporary Theory,
2nd ed. Lanham, MD: Rowman and Littlefield, 2007.
Edmundas Radavicius. INTERNATIONAL TRADE
| 85
Part 4: International trade regulation tools 1 ; 2
Objective outline:
1. To introduce students with international trade regulations.
2. Describe the regulatory model and impact on an international trade.
3. Discuss international trade system self-regulatory levers and their impact towards
trading countries and market players.
Chapter Four Glossary
1. Accreditation – The formal verification, often based on internationally
recognized criteria or procedures, of an organization’s competence to carry out a
specific function.
2. Certification – The procedure by which an official certification body or other
recognized body provides written or equivalent assurance that control systems
conform to requirements, where this includes, as appropriate, continuous online
inspection, auditing of quality assurance systems, and examination of finished
product.
3. Compatibility – A state existing between two or more equivalent regulations if
they have been designed and implemented in such a way as to minimize or eliminate
conflicting or duplicative requirements, processes, administration, and/or procedures
in achieving compliance. This has the effect of permitting goods or services to be
used in place of one another or to fulfil the same purpose.
4. Conformity Assessment Procedure – The determination that a product,
process, or service conforms to particular standards, specifications, or regulatory
requirements, where this includes certification (pre- and post-market), testing,
quality management, and environmental management systems registration.
5. Regulations – A form of law – they have binding legal effect and usually set out
rules that apply generally rather than to specific persons or situations. Often referred
to as “delegated” or “subordinate legislation,” regulations are made by persons to
86 |
Edmundas Radavicius. INTERNATIONAL TRADE
whom or bodies to which Parliament has delegated authority, such as Cabinet (the
Governor in Council), a minister, or an administrative agency. Authority to make
regulations must be expressly delegated through enabling legislation.
6. Standard – A set of rules, guidelines, or characteristics approved by a recognized
body and intended for repeated use for goods or related processes and production
methods, or for services or related operating methods or manner of supply with
which compliance is not mandatory. It may also include or deal exclusively with
terminology, symbols, packaging, marking, or labelling requirements as they apply
to a good, process, or production or operation method.
7. Technical Regulation – A measure that lays down goods’ characteristics
or their related processes and production methods, or services’ characteristics
or their related operating methods or manner of supply, including the applicable
administrative provisions with which compliance is mandatory. It may also include
or deal exclusively with terminology, symbols, packaging, marking, or labelling
requirements as they apply to a good, process, or production or operating method.
Technical Information on Technical barriers to trade
In recent years, the number of technical regulations and standards adopted by
countries has grown significantly. Increased regulatory policy can be seen as the result
of higher standards of living worldwide, which have boosted consumers’ demand for
safe and high-quality products, and of growing problems of water, air and soil pollution
which have encouraged modern societies to explore environmentally-friendly products.1
Although it is difficult to give a precise estimate of the impact on international
trade of the need to comply with different foreign technical regulations and standards,
it certainly involves significant costs for producers and exporters. In general, these
costs arise from the translation of foreign regulations, hiring of technical experts to
explain foreign regulations, and adjustment of production facilities to comply with the
requirements. In addition, there is the need to prove that the exported product meets the
foreign regulations. The high costs involved may discourage manufacturers from trying
to sell abroad. In the absence of international disciplines, a risk exists that technical
regulations and standards could be adopted and applied solely to protect domestic
Edmundas Radavicius. INTERNATIONAL TRADE
| 87
industries.1
The provisions of the GATT 1947 contained only a general reference to technical
regulations and standards in Articles III, XI and XX. A GATT working group, set up to
evaluate the impact of non-tariff barriers in international trade, concluded that technical
barriers were the largest category of non-tariff measures faced by exporters. After years of
negotiations at the end of the Tokyo Round in 1979, 32 GATT Contracting Parties signed
the plurilateral Agreement on Technical Barriers to Trade (TBT). The Standards Code, as
the Agreement was called, laid down the rules for preparation, adoption and application
of technical regulations, standards and conformity assessment procedures. The new
WTO Agreement on Technical Barriers to Trade, or TBT Agreement, has strengthened
and clarified the provisions of the Tokyo Round Standards Code. The TBT Agreement,
negotiated during the Uruguay Round is an integral part of the WTO Agreement. Before
examining the Agreement in detail, it is necessary to define the meaning of “technical
regulations”, “standards” and “conformity assessment procedures”.1
Definitions
Technical regulations and standards in the TBT Agreement
Technical regulations and standards set out specific characteristics of a product
— such as its size, shape, design, functions and performance, or the way it is labelled
or packaged before it is put on sale. In certain cases, the way a product is produced can
affect these characteristics, and it may then prove more appropriate to draft technical
regulations and standards in terms of a product’s process and production methods rather
than its characteristics per se. The TBT Agreement makes allowance for both approaches
in the way it defines technical regulations and standards.
Difference between a technical regulation and a standard
The difference between a standard and a technical regulation lies in compliance.
While conformity with standards is voluntary, technical regulations are by nature
mandatory. They have different implications for international trade. If an imported
product does not fulfil the requirements of a technical regulation, it will not be allowed
to be put on sale. In case of standards, non-complying imported products will be allowed
on the market, but then their market share may be affected if consumers’ prefer products
88 |
Edmundas Radavicius. INTERNATIONAL TRADE
that meet local standards such as quality or color standards for textiles and clothing.
Conformity assessment procedures
Conformity assessment procedures are technical procedures – such as testing,
verification, inspection and certification — which confirm that products fulfil the
requirements laid down in regulations and standards. Generally, exporters bear the cost,
if any, of these procedures. Non-transparent and discriminatory conformity assessment
procedures can become effective protectionist tools.
Objectives1
Protection of human safety or health
The largest number of technical regulations and standards are adopted to aim
at protecting human safety or health. Numerous examples can be given. National
regulations that require that motor vehicles be equipped with seat belts to minimize
injury in the event of road accidents, or that sockets be manufactured in a way to
protect users from electric shocks, fall under the first category. A common example of
regulations whose objective is the protection of human health is labelling of cigarettes
to indicate that they are harmful to health.
Protection of animal and plant life or health
Regulations that protect animal and plant life or health are very common. They
include regulations intended to ensure that animal or plant species endangered by water,
air and soil pollution do not become extinct. Some countries, for example require that
endangered species of fish reach a certain length before they can be caught.
Protection of the environment
Increased environmental concerns among consumers, due to rising levels of air,
water and soil pollution, have led many governments to adopt regulations aimed at
protecting the environment. Regulations of this type cover for example, the re-cycling
of paper and plastic products, and levels of motor vehicle emissions.
Prevention of deceptive practices
Most of these regulations aim to protect consumers through information, mainly
in the form of labelling requirements. Other regulations include classification and
Edmundas Radavicius. INTERNATIONAL TRADE
| 89
definition, packaging requirements, and measurements (size, weight etc.), so as to avoid
deceptive practices.
Other objectives
Other objectives of regulations are quality, technical harmonization, or simply
trade facilitation. Quality regulations — e.g. those requiring that vegetables and
fruits reach a certain size to be marketable — are very common in certain developed
countries. Regulations aimed at harmonizing certain sectors, for example that of
telecommunications and terminal equipment, are widespread in economically integrated
areas such as the European Union and EFTA.
Divergent regulations — costs for exporters1
Loss of economies of scale
If a firm must adjust its production facilities to comply with diverse technical
requirements in individual markets, production costs per unit are likely to increase. This
imposes handicap particularly on small and medium enterprises.
Conformity assessment costs
Compliance with technical regulations generally needs to be confirmed. This
may be done through testing, certification or inspection by laboratories or certification
bodies, usually at the company’s expense.
Information costs
These include the costs of evaluating the technical impact of foreign regulations,
translating and disseminating product information, training of experts, etc.
Surprise costs
Exporters are normally at a disadvantage vis-à-vis domestic firms, in terms of
adjustments costs, if confronted with new regulations.
What are the sources of technical barriers to trade?1
Technical barriers to trade generally result from the preparation, adoption and
application of different technical regulations and conformity assessment procedures. If
a producer in country “A” wants to export to country B, he will be obliged to satisfy the
90 |
Edmundas Radavicius. INTERNATIONAL TRADE
technical requirements that apply in country “B”, with all the financial consequences
this entails. Differences between one country and another in their technical regulations
and conformity assessment procedures may have legitimate origins such as differences
in local tastes or levels of income, as well as geographical or other factors. For example,
countries with areas prone to earthquakes might have stricter requirements for building
products; others, facing serious air-pollution problems might want to impose lower
tolerable levels of automobile emissions. High levels of per capita income in relatively
rich countries result in higher demand for high-quality and safe products.
TBT provisions on technical regulations
The TBT Agreement takes into account the existence of legitimate divergences of
taste, income, geographical and other factors between countries. For these reasons, the
Agreement accords to Members a high degree of flexibility in the preparation, adoption
and application of their national technical regulations. The Preamble to the Agreement
states that “no country should be prevented from taking measures necessary to ensure
the quality of its exports, or for the protection of human, animal, and plant life or health,
of the environment, or for the prevention of deceptive practices, at the levels it considers
appropriate”. However, Members’ regulatory flexibility is limited by the requirement
that technical regulations “are not prepared, adopted or applied with a view to, or with
the effect of, creating unnecessary obstacles to trade”.
Avoidance of unnecessary obstacles to trade
For a government, avoiding unnecessary obstacles to trade means that when
it is preparing a technical regulation to achieve a certain policy objective - whether
protection of human health, safety, the environment, etc. - the negotiations shall not
be more trade-restrictive than necessary to fulfil the legitimate objective. According to
the TBT Agreement, specifying, whenever appropriate, product regulations in terms of
performance rather than design or descriptive characteristics will also help in avoiding
unnecessary obstacles to international trade. For example, a technical regulation on fireresistant doors should require that the door passes successfully all the necessary tests
on fire resistance. Thus it could specify that “the door must be fire resistant with a
30-minute burn through time”; it should not specify how the product must be made,
e.g., that “the door must be made of steel, one inch thick”. Avoidance of trade obstacles
Edmundas Radavicius. INTERNATIONAL TRADE
| 91
means also that if the circumstances that led a country to adopt technical regulations
no longer exist or have changed, or the policy objective pursued can be achieved by an
alternative less trade-restrictive measure, they should not be maintained.
When is a technical regulation an unnecessary obstacle to trade?
Unnecessary obstacles to trade can result when (i) a regulation is more
restrictive than necessary to achieve a given policy objective, or (ii) when it does not
fulfil a legitimate objective. A regulation is more restrictive than necessary when the
objective pursued can be achieved through alternative measures which have less traderestricting effects, taking account of the risks non-fulfilment of the objective would
create. Elements that Members can use for risk assessment are: available technical and
scientific information, technology or end-uses of the products. The Agreement specifies
that legitimate objectives include inter alia: national security requirements, prevention
of deceptive practices, protection of human health or safety, protection of animal and
plant life or health or the environment.
TBT provisions on conformity assessment procedures
The obligation to avoid unnecessary obstacles to trade applies also to conformity
assessment procedures. An unnecessary obstacle to trade could result from stricter or
more time-consuming procedures than are necessary to assess that a product complies
with the domestic laws and regulations of the importing country. For instance,
information requirements should be no greater than needed, and the siting of facilities
to carry out conformity assessment, and the selection of samples should not create
unnecessary inconvenience to the agents.
Non-discrimination and national treatment1
Technical regulations
Like many other WTO Agreements, the TBT Agreement includes the GATT’s
Most Favored Nation (MFN) and national treatment obligations. Article 2.1 of the
Agreement states that “in respect of their technical regulations, products imported from
the territory of any Member be accorded treatment no less favorable than that accorded
to like products of national origin and to like products originating in any other country”.
92 |
Edmundas Radavicius. INTERNATIONAL TRADE
Conformity Assessment Procedures
The MFN and national treatment provisions also apply to conformity assessment
procedures. Procedures for conformity assessment shall be applied to products imported
from other WTO Members “in a manner no less favourable then that accorded to like
products of national origin and to like products originating in any other country”.
This means that imported products must be treated equally with respect to any fees
charged to assess their conformity with regulations. Similarly, Members must respect
the confidentiality of information about the results of conformity assessment procedures
for imported products in the same way as for domestic products so that commercial
interests are protected.
Harmonization1
Producers’ benefits
The arguments for harmonization of technical regulations are well-known.
Harmonization is necessary for the connection and compatibility of parts of products,
i.e. telecommunications equipment or car parts. Lack of technical compatibility
might otherwise generate barriers to international trade. For example, television sets
suitable for the US market would be unsaleable in Europe due to divergences in color
broadcasting formats (NTSC vs PAL or SECAM). Similarly, in order to be marketable
in the United Kingdom, French or German motor vehicles need to be adjusted to righthand drive. The costs of designing, manufacturing, and delivering the same product in
various configurations may be high.
Consumers’ benefits
Technical harmonization may increase consumer welfare. Within a harmonized
regulatory environment, competition ensures that consumers have a wide and
economically attractive choice of products. This presupposes, however, that harmonized
standards do not go beyond fulfilling their legitimate regulatory objective, i.e. that
they do not stifle innovation or otherwise discourage producers from introducing new
products or product variants.
Introduction
For many years, technical experts have worked towards the international
Edmundas Radavicius. INTERNATIONAL TRADE
| 93
harmonization of standards. An important role in these efforts is played by the
International Standardization Organization (ISO), the International Electrotechnical
Commission (IEC) and the International Telecommunication Union (ITU). Their
activities have had major impact on trade, especially in industrial products. For example,
ISO has developed more than 9,600 international standards covering almost all technical
fields.
Harmonization and the TBT Agreement
The Agreement encourages Members to use existing international standards for
their national regulations, or for parts of them, unless “their use would be ineffective
or inappropriate” to fulfil a given policy objective. This may be the case, for example,
“because of fundamental climatic and geographical factors or fundamental technological
problems”. As explained previously, technical regulations in accordance with relevant
international standards are reputably presumed “not to create an unnecessary obstacle
to international trade”. Similar provisions apply to conformity assessment procedures:
international guides or recommendations issued by international standardizing bodies,
or the relevant parts of them, are to be used for national procedures for conformity
assessment unless they are “inappropriate for the Members concerned for, inter alia,
such reasons as national security requirements, prevention of deceptive practices,
protection of human health or safety, animal or plant life or health, or protection of
the environment; fundamental climatic or other geographical factors; fundamental
technological or infrastructural problems”.
Participation in international standardizing bodies
Widespread participation in international standardizing bodies can ensure that
international standards reflect country-specific production and trade interests. The TBT
Agreement encourages Members to participate, within the limits of their resources,
in the work of international bodies for the preparation of standards and guides or
recommendations for conformity assessment procedures.
Special and differential treatment
Implementing and enforcing international standards may require technical and
financial resources beyond the capabilities of developing countries. The TBT Agreement
eases the impact of certain provisions whose full application would not be compatible
94 |
Edmundas Radavicius. INTERNATIONAL TRADE
with developing country Members’ development, financial and trade needs. Moreover,
in view of their particular technological and socio-economic conditions, developing
country Members may adopt technical regulations, standards or test methods aimed at
preserving indigenous technologies and production methods and processes compatible
with their development needs. Finally, developing country Members may request
international standardizing bodies to examine the possibility of, and if practicable,
prepare international standards for products of special trade interest to them.
Equivalence
The process leading to the preparation of an international standard can be
lengthy and costly. Reaching consensus on technical details can take several years. The
time gap between the adoption of an international standard and its implementation by
national regulators can also be significant. For these reasons, negotiators introduced in
the TBT Agreement a complementary approach to technical harmonization, known as
equivalence. Technical barriers to international trade could be eliminated if Members
accept that technical regulations different from their own fulfil the same policy objectives
even if through different means. This approach, based on the European Community’s
1985 “new approach” to standardization, is contained in TBT Agreement.
How does equivalence work?
Let us assume that country “A”, wishing to protect its environment from high
auto emission levels, requires that cars be equipped with a catalytic converter. In
country “B”, the same objective is achieved through the use of diesel engines in motor
vehicles. Since environmental concerns are identical in the two countries — to reduce
the levels of pollutants in the air — A and B can agree that their technical regulations
are essentially equivalent. Thus, if car manufacturers in country “A” want to export to
“B”, they will not be obliged to satisfy country B’s requirement to fit diesel engines,
and vice versa. This will eliminate the costs of adjusting production facilities to fulfil
foreign regulations.
Edmundas Radavicius. INTERNATIONAL TRADE
| 95
Mutual recognition
Costs of multiple testing
As explained in the previous section, demonstrating compliance with technical
regulations may impede international trade. In particular, if products are to be exported to
multiple markets, multiple testing may be required. Manufacturers can have difficulties
in securing approval for their products on foreign markets, for instance because testing
experts disagree on optimal testing procedures, from bureaucratic inertia, or even
from manipulation of the testing process by protectionist groups. Whatever the reason
might be, such diversity of procedures and methods significantly increases the costs of
producers who sell in multiple markets.
What is mutual recognition of conformity assessment procedures?
One of the main difficulties exporters face is costly multiple testing or certification
of products. These costs would be drastically reduced if a product could be tested once
and the testing results be accepted in all markets.
How does mutual recognition work?
In practice, countries would agree to accept the results of one another’s conformity
assessment procedures, although these procedures might be different.
Mutual recognition and the TBT Agreement
TBT Agreement strongly encourages WTO Members to enter into negotiations
with other Members for the mutual acceptance of conformity assessment results. The
presence of a high degree of confidence in testing and certification bodies is, in fact,
a prerequisite for the good functioning of an MRA. For this reason, TBT Agreement
recognizes that prior consultations may be necessary to arrive at a mutually satisfactory
understanding regarding the competence of the conformity assessment bodies. It also
points out that compliance by conformity assessment bodies with relevant guides or
recommendations issued by international standardizing bodies can be regarded as an
indication of adequate technical competence.
96 |
Edmundas Radavicius. INTERNATIONAL TRADE
Transparency
Technical regulations and conformity assessment procedures
Members must notify when two conditions apply: (1) whenever a relevant
international standard or guide or recommendation does not exist, or the technical content
of a proposed or adopted technical regulation or procedure is not in accordance with the
technical content of relevant international standards or guides of recommendations; and
(2) if the technical regulation or conformity assessment procedure may have a significant
effect on the trade of other Members. Draft regulations should be notified to the WTO
Secretariat, if possible sixty days prior to their formal adoption so as to allow time for
other Members to make comments. Regulations can also be notified ex-post whenever
urgent problems of safety, health, environment protection arise. Local Governments at
the level directly below central government are required to notify technical regulations
and conformity assessment procedures which have not been previously notified by their
central government authorities.
Statements on the implementation and administration of the Agreement
Each WTO Member must, promptly after the Agreement enters into force for
it, notify Members of the measures in existence or taken to ensure the implementation
and administration of the Agreement and of any subsequent changes to them. This
written statement has to include, inter alia, all relevant laws, regulations, administrative
orders, etc., to ensure that the provisions of the Agreement are applied; the names of
the publications where draft and final technical regulations, standards and conformity
assessment procedures are published; the expected length of time for the presentation
of written comments on technical regulations, standards or conformity assessment
procedures; and the name and address of the enquiry points has to be established.
Bilateral or plurilateral agreements
Member who has reached an agreement with any other country or countries on
issues related to technical regulations, standards or conformity assessment procedures
which may have a significant effect on trade must notify other Members through the
WTO Secretariat of the products to be covered by the agreement, and provide a brief
description of the agreement.
Edmundas Radavicius. INTERNATIONAL TRADE
| 97
Code of good practice
The Code of Good Practice for the Preparation, Adoption and Application of
Standards lays down disciplines in respect of central government, local government,
non-governmental and regional standardizing bodies developing voluntary standards.
The Code is open for acceptance by any of these standardizing bodies. Central
government standardizing bodies must accept and comply with the provisions of the
Code. A standardizing body wishing to adhere to, or withdraw from, the Code has to
notify its acceptance of, or withdrawal from, the Code using the appropriate notification
format. Standardizing bodies which have accepted the Code must notify at least twice
a year the existence of their work program, and where details of this program can be
obtained. Notifications have to be sent either directly to the ISO/IEC Information Centre
in Geneva, or to the national member of ISO/IEC or, preferably, to the relevant national
member or international affiliate of ISONET.
Enquiry points
As a complement to the obligation to notify, each WTO Member must set up
a national enquiry point. This acts as a focal point where other WTO Members can
request and obtain information and documentation on a Member’s technical regulations,
standards and test procedures, whether impending or adopted, as well as on participation
in bilateral or plurilateral standard-related agreements, regional standardizing bodies and
conformity assessment systems. Enquiry points are generally governmental agencies,
but the relevant functions can also be assigned to private agencies. The obligation to
set up enquiry points is particularly important for developing countries. On the one
hand, it is the first step by a developing country Member towards implementation of
the TBT Agreement. On the other, developing countries can acquire information from
other Members’ enquiry points on foreign regulations and standards affecting products
in which they have a trade interest.
The Committee on Technical Barriers to Trade
Finally, transparency is also ensured through the existence of a TBT Committee.
This allows WTO Members the possibility of consulting on any matters relating to the
operation of the Agreement or the furtherance of its objectives. The Committee holds on
average two to three meetings a year and, if necessary, can establish working parties to
98 |
Edmundas Radavicius. INTERNATIONAL TRADE
carry out specific functions.
The Code of Good Practice1
Product standards can be prepared by governmental or non-governmental
standardizing bodies. Over the years there has been a proliferation of private standardizing
bodies. The Code of Good Practice, of the WTO TBT Agreement provides disciplines,
including those related to transparency, for the preparation, adoption and application
of standards by all central governmental, local government, non-governmental and
regional standardizing bodies.
Who can accept the Code?
The Code is open for acceptance to any standardizing bodies, whether central
government, local government or non-governmental and regional standardizing bodies.
The Code of Good Practice seeks to bring all standards within its purview and provides
for [and gives] transparency in the preparation, adoption and application of standards.
What does membership entail?
Members of the TBT Agreement are responsible for the acceptance and compliance
with the Code of Good Practice by their central government standardizing bodies.
Furthermore, they are required to take such reasonable measures as may be available to
them to ensure also that local government and non-governmental standardizing bodies
within their territories, and regional standardizing bodies of which they are members,
accept and comply with the Code.
Technical assistance
Any Member, and especially developing country Members, can request technical
assistance from other Members or from the WTO Secretariat, on terms and conditions to
be agreed by the Members concerned. Requests for technical assistance received from
least-developed Members have priority.
What type of assistance?
The coverage of technical assistance ranges from the preparation of technical
regulations and the establishment of national standardizing bodies to the participation
Edmundas Radavicius. INTERNATIONAL TRADE
| 99
in international standardizing bodies and the steps to be taken by developing country
Members to gain access to regional international conformity assessment systems.
Technical assistance can help firms in developing country Members to manufacture
products in accordance with the technical requirements existing in an importing country,
thus ensuring that the products are accepted on the importing Member’s market.
WTO Secretariat’s technical assistance activities
The WTO Secretariat’s assistance to developing and least-developing countries
on TBT matters often takes the form of regional or sub-regional seminars. Recently,
technical assistance seminars have been organized jointly with other international and
regional organizations.
Guidelines on International Regulatory Obligations and Cooperation
These Guidelines on International Regulatory Obligations and Cooperation
interpret the policy requirements in the Cabinet Directive on Streamlining Regulation
(CDSR) pertaining to international obligations and international regulatory cooperation
(IRC). They are intended to assist managers, functional specialists, and regulatory
staff to understand and comply with these requirements. These guidelines also clarify
expectations when exercising its challenge function on regulatory proposals.
Context
CDSR Commitment to International Regulatory Obligations and Cooperation
This commitment will be met through a number of principles and actions:
- protect and advance the public interest;
- promote a fair and competitive market economy;
- make decisions based on evidence;
- create accessible, understandable, and responsive regulation;
- advance the efficiency and effectiveness of regulation; and
- require timeliness, policy coherence, and minimal duplication.
Respecting international obligations and international regulatory cooperation
must be understood in the context of this commitment, and the principles and actions
listed above. The CDSR and these Guidelines encourage greater regulatory compatibility
100 |
Edmundas Radavicius. INTERNATIONAL TRADE
when it can provide the greatest overall benefits.
Under these guidelines and the CDSR, trading parties will maintain its high
regulatory standards, Departments and agencies will continue to pursue policy objectives
and maintain required levels of protection, while identifying opportunities for greater
international cooperation.
The activities that departments and agencies must undertake to meet the
international regulatory obligations and cooperation (IROC) requirements of the CDSR
should also be achieved in ways that maintain public confidence in the regulatory system.
IRC occurs in the context of broader coordination and cooperation requirements
of the CDSR, including coordination and cooperation with other federal departments,
provinces, and territories.
As such, analysis supporting regulations that pursue greater compatibility and
that aim to meet other IROC objectives should clearly demonstrate to decision makers
the benefits, costs, and risks of these approaches.
Legal and Policy Requirements for Regulators
The CDSR committed the government, among other things, to “require
timeliness, policy coherence, and minimal duplication throughout the regulatory process
by consulting, coordinating, and cooperating across the federal government, with other
governments abroad, and with businesses” when regulating. This commitment is a
recognition that:
- many problems require intergovernmental or even international solutions;
- multiple regulatory regimes can lead to duplication and waste;
- Countries has binding trade obligations that affect the way they can regulate;
and
- regulatory cooperation can help regulatory departments and agencies enhance
the effectiveness of the programs for which they are accountable.
- The requirements of the CDSR are a reflection of this broad commitment.
Regulatory Compatibility: An Opportunity for Regulators
By taking a strategic, proactive approach to achieving greater regulatory
compatibility with key international counterparts, departments and agencies can reach
policy goals more readily, with lower costs to the government.
Edmundas Radavicius. INTERNATIONAL TRADE
| 101
Furthermore, IRC is necessary to facilitate compliance with applicable
international treaty law and its implementation. It can result in better-informed decision
making through access to regulatory resources of international bodies and other
countries (e.g. assessment results, analysis, people). It can lead to greater transparency
and predictability of regulatory practices and allow country to contribute its expertise
and promote its best regulatory practices internationally, thus influencing standards
elsewhere.
By reducing obstacles to trade, IRC can also enhance the competitiveness of
country goods and services. Improved government efficiency and more effective
resource allocation in the development, implementation, and enforcement of regulations
can follow. The CDSR and these Guidelines also set out expectations regarding the way
IRC is to be achieved. They encourage departments and agencies to:
- take IRC into account throughout the entire life cycle of regulating—
development, implementation, evaluation, and review;
- think strategically about how IRC can assist in achieving regulatory outcomes;
- establish regulatory compatibility as a goal for regulators to achieve through
the design of regulations and through ongoing regulatory cooperation activities with key
international counterparts;
- actively consider IRC in the ongoing management of regulatory programs,
e.g. when developing or renewing compliance and enforcement policies, technical
guidelines, and procedures that are put in place to implement regulations; and
- regularly assess the effectiveness of their IRC activities, determine which have
yielded positive outcomes, and make adjustments as needed.
In striving for greater regulatory compatibility with our key international
counterparts, it is recognized that there are cases where the pursuit of sound policy
objectives may require unique standards or regulations. In these cases, a clear rationale
for this unique approach must be evident in the regulatory analysis.
Considerations in Choosing Partners for Cooperation
IRC includes a wide range of activities or practices such as the sharing of
information; collaboration on scientific work; common data collection, risk assessment,
or compliance methods; joint reviews; and development of standards. It also includes
work with international counterparts to build regulatory capacity or provide technical
102 |
Edmundas Radavicius. INTERNATIONAL TRADE
assistance, thus contributing to the improvement of international regulatory governance
practices. Departments and agencies have a wide range of existing and potential
international partners to choose from to engage in cooperation.
North America
The United States can be one of the largest economic partners and we share
one of the world largest and most comprehensive trading relationships. North American
Free Trade Agreement (NAFTA) working groups carry out a number of initiatives to
further regulatory cooperation between Canada, Mexico, and the United States. NAFTA
countries share many of the same regulatory objectives and have extensive networks
of cooperation within and outside of the NAFTA structure. However, opportunities
for greater regulatory cooperation remain. A more deliberate approach to regulatory
cooperation within North America will provide additional benefits by eliminating
unnecessary duplication and differences in regulatory measures, and by improving
regulatory outcomes through enhanced information exchange and coordination.
European Union
While regulatory cooperation within North America is important, the European
Union also seems to be one of the major trading region. It often leads in setting
international standards. Therefore this situation can be solved by utilizing agreements
such as the Government of Canada – European Commission Framework on Regulatory
Cooperation and Transparency. Such agreement seeks “[…] to address new challenges
and opportunities by enhancing regulatory co-operation, and to work towards preventing
and eliminating unnecessary barriers to trade and investment while ensuring better
quality and effective regulations to achieve public policy objectives.”
Emerging markets
Departments and agencies should also be aware of the competitive challenges
and opportunities from emerging and expanding economies (e.g. China, India, Brazil, or
Russia). IRC efforts should be geared to ensuring adequate protections on the products
and services imported from these countries and that products, services, and investors
have ready access to these emerging markets.
International standards and multilateral engagement
Departments and agencies should continue to actively engage in international
Edmundas Radavicius. INTERNATIONAL TRADE
| 103
standard-setting and harmonization initiatives aimed at improving international
regulatory consistency and finding cooperative approaches to global challenges.
Engaging multilaterally informs of regulatory practice and can improve regulatory
outcomes. For example, engagement in the OECD enhances leadership role by building
international partnerships and influencing the development of international standards
and regulatory best practices at the international level. In addition, regulators should
be aware of how international standards development may affect regional markets
(e.g. NAFTA) and commerce with major trading partners (e.g. the United States, the
European Union, and emerging economies).
In some cases, it may be the first country considering a regulatory response to
address an issue. While exercising leadership is important, departments and agencies
should consider if it would be more beneficial to work in collaboration with international
counterparts to develop a solution.
Guidelines to Interpreting CDSR Requirements
These guidelines are to be used with the Tools for International Regulatory
Cooperation (the Tools; under development) when implementing and assessing IRC
strategies, and include further explanation of the various forms of IRC.
Compliance With International Obligations
This section of the CDSR refers to obligations that are not discretionary and are
legally binding on the Government. The CDSR lists a number of requirements relating
to compliance with international obligations and identifies which departments and
agencies can best provide advice on them.
Departments and agencies are to respect international obligations in such areas
as human rights, health, safety, security, international trade, and the environment. They
must also implement provisions related to these obligations in all stages of regulatory
activity.
Trade obligations do not prevent from regulating products and services for the
protection of human health or safety, the environment, animal and plant life or health,
prevention of deceptive practices, and national security. However, country is obligated
to regulate in these areas in a way that does not arbitrarily or unjustifiably discriminate
104 |
Edmundas Radavicius. INTERNATIONAL TRADE
against other jurisdictions and that does not restrict trade more than necessary.
For instance, under the World Trade Organization Technical Barriers to
Trade Agreement (WTO TBT) country is obligated to base technical regulations and
conformity assessment procedures on available international standards where they
would achieve the intended regulatory outcomes. Departments and agencies have
the primary accountability for taking these obligations into account in the design and
implementation of regulations within their areas of accountability.
In meeting trade and other international obligations, it is essential to know which
department has responsibility for oversight of a given international agreement and to
consult with that department if a regulatory proposal may impact this agreement.
Foreign Affairs and International Trade departments has oversight responsibility
for all of country international agreements. It is also often the lead department in
implementing obligations related to these agreements. However, other departments and
agencies can also have delegated or lead responsibility for international agreements.
So that departments know what country international obligations are, and which
department or agency has the lead, the CDSR requires the following:
To ensure the compliance of regulatory proposals, departments and agencies
should seek the advice and assistance of:
- the Legal Bureau of Foreign Affairs and International Trade is responsible
for the negotiation, creation, and interpretation of international legal obligations and
provides advice concerning the interpretation and application of such obligations for
regulation;
- Foreign Affairs and International Trade House, which is responsible for
coordinating the implementation of international trade obligations, including the
implementation of the World Trade Organization (WTO) Agreement and the North
American Free Trade Agreement (NAFTA);
- the Department of Justice, with its specialized sections, and its departmental
legal services units that are responsible for advising departments and agencies on legal
matters, including consistency of regulatory proposals with international obligations;
and
- The Trade Law Bureau of Foreign Affairs and International Trade House and
the Department of Justice, which provides advice on international trade obligations.
Edmundas Radavicius. INTERNATIONAL TRADE
| 105
To obtain further clarification, departments and agencies should consider
consulting other divisions within the Legal Bureau of Foreign Affairs and International
Trade House as appropriate, as well as the department’s Technical Barriers and
Regulations Division. Foreign
Affairs and International Trade House is responsible for coordinating the
implementation of international trade obligations, including the implementation of the
WTO TBT Agreement and NAFTA.
In meeting TBT obligations on international standards development, mutual
recognition of testing and certification, and conformity assessment, departments and
agencies should seek guidance from the Standards Council of the country, which is
charged with implementing the Government of the country Standards Strategy.
Departments and agencies are expected to demonstrate in regulatory impact
analysis statements, when relevant, that their proposals do in fact meet Canada’s
international trade and other obligations.
International cooperation
The CDSR also introduces a broad set of requirements covering IRC activities
throughout the regulatory life cycle. These can be broken down into three areas, each of
which will be covered below.
International cooperation activities2
This first requirement listed in the CDSR under “International cooperation”
captures a wide array of possible activities. To meet this requirement, departments and
agencies are expected to do the following:
- Consider opportunities for IRC at every stage in the life cycle of regulation—
development, implementation, evaluation, and review. This includes consulting,
selecting, designing, and assessing regulatory responses, the implementation of
regulatory programs, performance measurement, evaluation, and review of regulatory
frameworks.
- Departments and agencies are to take advantage of opportunities for
cooperation, either bilaterally or through multilateral fora, by:
* reviewing and influencing international best practices, sharing knowledge,
adopting or contributing to the development and updating of international
106 |
Edmundas Radavicius. INTERNATIONAL TRADE
standards and conformity assessment procedures, and developing and
pursuing compatible approaches with international counterparts;
* limiting the number of specific Canadian regulatory requirements or
approaches to instances when they are warranted by specific Canadian
circumstances and when they result over time in the greatest overall
benefit to Canadians; and
* identifying the rationale for their approach, particularly when specific
Canadian requirements are proposed.
- Demonstrate how regulations contribute to both high standards of
environmental, health, and citizen protection and building a strong and competitive
economy, while minimizing adverse impacts on trade.
- Identify regulations, standards, and decision-making processes that produce
similar results, with a view to moving towards joint conformity assessment and review
processes, especially with countries that are major markets for related goods and
services.
- Engage stakeholders when developing IRC approaches and explain to interested
and affected parties why cooperating with other governments or adopting international
standards can benefit. The Guidelines for Effective Regulatory Consultations provides
further guidance in this regard.
- Systematically discuss proposed regulatory approaches with key international
counterparts at an early stage in the regulatory life cycle to prevent unnecessary
differences and promote compatibility with approaches that will meet policy objectives.
- Maintain long-standing involvement and influence in, and commitment to,
international standard-setting bodies.
- Consider recognizing equivalency where the regulations, standards or tests,
inspections, and certifications of other countries provide the same level of protection as
health and safety standards.
- Be proactive in monitoring regulatory developments in the national systems
of our key trading partners (e.g. NAFTA countries, the European Union, and emerging
markets) involved in regulation or standard setting to assess how other jurisdictions are
using regulatory instruments to address a similar issue.
- Select the appropriate form of IRC prior to selecting a course of action (e.g.
Edmundas Radavicius. INTERNATIONAL TRADE
| 107
joint technical or working groups, joint research, common procedures, and enforcement
policies; see the Tools for more examples).
- Consider what new institutional objectives, roles, duties, and mechanisms
may be required to implement and maintain regulatory cooperation, and what short-,
medium-, and long-term benefits are expected.
- Assess the risks and benefits of setting a precedent if Canada were the first
country to establish a regulatory standard or framework.
- Actively consider IRC in the ongoing management of regulatory programs,
e.g. when developing or renewing compliance and enforcement policies, technical
guidelines, and procedures that are put in place to implement regulations.
- In demonstrating compliance with the CDSR, departments and agencies
are expected to track their IRC activities, explain how these demonstrate proactive
engagement as described in this section, and explain the relationship of the activities to
either proposed or existing regulatory requirements.
Limiting specific requirements
In meeting the second requirement listed in the CDSR under “International
cooperation,” departments and agencies are expected to use international standards or
guidelines (e.g. those of NAFTA, the European Union, or other international standards),
unless they would be an ineffective or inappropriate means of achieving policy objectives
and required levels of protection.
When using international standards or guidelines, departments and agencies
must respect their legal obligations under the Official Languages Act.
In addition, they should:
- actively pursue approaches that are compatible with those of our key
international counterparts in order to prevent and reduce unnecessary regulatory
differences and improve the timeliness and predictability of the regulatory process (e.g.
through joint or parallel reviews);
- adopt a unique approach only when the approach of NAFTA countries, the
European Union, international organizations, or another relevant counterpart does not
meet policy objectives and required levels of protection; and
- even in cases where valid objectives have led to unique regulations, continue to
pursue forms of regulatory cooperation over the long term in order to reduce the impact
108 |
Edmundas Radavicius. INTERNATIONAL TRADE
of regulatory differences and move towards greater compatibility.
When relevant, departments and agencies are expected to demonstrate that
regulatory proposals have limited specific requirements and explain how the use of
international standards achieves the desired regulatory outcomes in the regulatory
impact analysis statement.
Providing a rationale for specific requirements2
The third aspect listed in the CDSR under “International cooperation” relates
to the analysis underpinning decisions to develop specific regulations. In meeting
this requirement, the following questions should be answered at an early stage in the
regulatory life cycle:
- Do relevant international standards exist or is their completion imminent?
If so, would such international standards be an effective and appropriate means for
achieving stated policy objectives? If this is the case, then such international standards
should be used as a basis for domestic regulation. If not, has the rationale been fully and
transparently documented?
- See the World Trade Organization Technical Barriers to Trade Agreement.
Guidelines on International Regulatory Obligations and Cooperation. Is the proposed
regulation compatible with existing regulations of NAFTA partners? If not, are there
practical ways to promote greater compatibility without compromising the achievement
of policy objective? Would the different approach used by our NAFTA partners be
equally effective and appropriate in the context?
- Does the proposed regulation create an unnecessary obstacle to trade? Is the
policy objective underlying the proposed regulation legitimate in the context of trade
obligations? Is the proposed regulation rationally connected to the achievement of a
legitimate policy objective in the context of trade obligations? Are there less traderestrictive alternatives that would equally achieve the legitimate policy objective? Is
there sufficient documentation to support the conclusions and analysis of each of these
steps?
- Does the proposed regulation discriminate against imported products or
services either on its face or in its effect? If so, is this discrimination justified under
applicable exemptions from trade obligations?
- Is the proposed regulation a legitimate exercise of governmental regulatory
Edmundas Radavicius. INTERNATIONAL TRADE
| 109
power? Could it constitute expropriation?
- Does the regulation comply with other international obligations, such as those
found in environmental treaties?
- If the proposed regulatory approach differs from international standards or the
approaches of key international counterparts, how is it different and why are the specific
requirements necessary? How does this approach provide greater overall benefits?
- Where proposed regulations may have a significant effect on trade, have
the appropriate international bodies been notified in accordance with the notification
obligations set out in trade agreements?
- Are resources and a strategy in place to reduce the impact of regulatory
differences on regulated parties in the implementation of the regulation?
When regulatory proposals contain specific requirements, departments and
agencies are expected to demonstrate why these are needed in the regulatory impact
analysis statement.
Measuring, Evaluating, and Reviewing Regulation2
Requirements for performance measurement apply to the full regulatory life
cycle; attention should be paid therefore to performance measurement of IRC activities.
Often IRC activities aim at achieving long-term objectives and expend significant
resources to produce measurable outcomes.
The evaluation of regulatory programs is required according to the time frames
and cycle established in the Treasury Board Policy on Evaluation to demonstrate results
for the people.
Further guidance on measuring the performance of IRC strategies is provided
in the Tools and the publication implementing the Cabinet Directive on Streamlining
Regulation.
Evaluations of regulatory programs are expected to address the elements of the
CDSR on international obligations and IRC when relevant. In particular, when regulatory
programs contain specific requirements instead of using international standards,
evaluations are expected to address whether these remain relevant and cost-effective.
110 |
Edmundas Radavicius. INTERNATIONAL TRADE
DISCUSSION
In this case it is strongly recommended to include students in the defining process
itself. Therefore a practical curriculums should be integrated into the flow of theory
aspects introduction, mainly in the forms of:
- Reflection;
- Discussion;
- Feedback;
- Roleplay…
Or any other relevant activities which, by lecturer seems appropriate to the level
of the class.
REFERENCES
The context of this part has been adapted from the following product:
1.World Trade Organization, information may be found on line at: https://www.
wto.org/english/tratop_e/tbt_e/tbt_info_e.htm; https://www.wto.org/
2.Guidelines on International Regulatory Obligations and Cooperation,
information may be found on line at: http://www.tbs-sct.gc.ca/rtrap-parfa/iroc-cori/
iroc-cori-eng.pdf
FURTHER READING
1.Amurgo-Pacheco, Alberto. “Mutual Recognition Agreements and Trade
Diversion: consequences for Developing Countries.” HEI Working Papers 012-2007,
Economics Section, Graduate Institute of International Studies. Geneva, April 2007.
2. Aorere, Manatu. “New Zealand and the World Trade Organisation: Non-Tariff
Barriers,” January 25, 2008.
3. APEC and OECD. Synthesis Report: The APEC – OECD Integrated Checklist
for Regulatory Reform: Results of Self Assessments, 2006-2007, in Five Economies.
First Economic Committee Meeting. Lima, Peru, February 25–26, 2008.
4. APEC. “Information Notes on Good Practice for Technical Regulation,”
September 2000.
5. Ballantine, Bruce. European Policy Centre. “Regulatory Impact Analysis:
Edmundas Radavicius. INTERNATIONAL TRADE
| 111
Improving the Quality of EU Regulatory Activity.” Occasional Paper. European Policy
Centre, Brussels, September 2001.
6. Baller, Silva. “Trade Effects of Regional Standards Liberalization: A
Heterogeneous Firms Approach.”
112 |
Edmundas Radavicius. INTERNATIONAL TRADE
Part 5: W orld Trade O rganization 1;2;3
Objective outline:
1. To introduce WTO (World Trade Organization to the students.
2. Describe the activities of WTO organization.
3. Define WTO advantages and disadvantages.
Chapter Five Glossary
1. GATT/GENERAL AGREEMENT ON TARIFFS AND TRADE – A multilateral treaty
intended to help reduce trade barriers between the signatory countries and to promote
trade through tariff concessions.
2. GENERAL EXPORT LICENSE – Any various export licenses covering export
commodities for which VALIDATED EXPORT LICENSES are not required.
3. GRANTEE – A corporation to which the privilege of establishing, operating, and
maintaining a foreign-trade zone has been granted by the Foreign-Trade Zones
Board.
4. GROSS WEIGHT – The full weight of a shipment, including goods and packaging.
5. IMPORT LICENSE – A document required and issued by some national governments
authorizing the importation of goods into their individual countries.
6. INLAND BILL OF LADING – A bill of lading used in transporting goods overland to
the exporter’s international carrier.
7. IRREVOCABLE LETTER OF CREDIT – A letter of credit in which the specified
payment is guaranteed by the bank if all terms and conditions are met by the drawee.
8. LETTER OF CREDIT (L/C) – A document, issued by a bank per instructions by
a buyer of goods, authorizing the seller to draw a specified sum of money under
specified terms, usually the receipt by the bank of certain documents within a given
time.
9. LICENSING – A business arrangement in which the manufacturer of a product grants
Edmundas Radavicius. INTERNATIONAL TRADE
| 113
permission to some other group or individual to manufacture that product in return
for specified royalties.
10.MANIPULATION – Processing wherein merchandise is packed, unpacked, repacked,
cleaned, sorted, graded or otherwise changed in condition but not manufactured.
11.MANUFACTURE – Generally, the production of articles for use from raw or prepared
materials by substantially transforming such materials into new forms.
12.MARINE INSURANCE – Insurance that compensates the owners of goods transported
overseas in the event of loss that cannot be legally recovered from the carrier.
13.MARKING – Letters, numbers, and other symbols on cargo packages to facilitate
identification.
14.MERCHANDISE – Includes goods, wares, and chattels of every description except
Prohibited Merchandise, building materials, production equipment and supplies for
use in operation of a zone.
15.MERCHANDISE, DOMESTIC – Merchandise which has been produced in the U.S.
and not exported therefrom.
16.MERCHANDISE, FOREIGN – Imported Merchandise which has not been properly
released from Customs custody into the Customs territory of the U.S.
17.MERCHANDISE, FUNGIBLE – Merchandise which for commercial purposes is
identical and interchangeable in all situations.
18.MERCHANDISE, MIXED STATUS – Foreign Merchandise which has been combined
with Domestic Merchandise in the zone.
19.MERCHANDISE/OPERATIONS, PROHIBITED – Merchandise, the importation of
which is prohibited by law on grounds of public policy or morals, or excluded by
order of the Foreign-Trade Zones Board..
20.MERCHANDISE/OPERATIONS, RESTRICTED – Merchandise which may not be
authorized for delivery from Customs custody without a special permit, or a waiver
thereof by an agency of the U.S. Government.
21.NONPRIVILEGED FOREIGN (NPF) – Foreign Merchandise or non-tax-paid
114 |
Edmundas Radavicius. INTERNATIONAL TRADE
domestic merchandise upon which the duty and applicable taxes will be determined
at the time of entry from the zone for consumption.
22.OCEAN BILL OF LADING – A bill of lading indicating that the exporter consigns a
shipment to an int’l carrier for transportation to a specified foreign market.
23.ON BOARD BILL OF LADING – A bill of lading in which a carrier certifies that
goods have been placed on board a certain vessel.
24.OPEN ACCOUNT – A trade arrangement in which goods are shipped to a foreign
buyer without guarantee of payment.
25.OPEN INSURANCE POLICY – A marine insurance policy that applies to all
shipments made by an exporter over a period of time rather than to one shipment
only.
26.OPERATOR – A corporation, partnership, or person that operates a zone or subzone
under the terms of an agreement with the Grantee.
27.OPERATOR’S BOND – All zone operators must submit to Customs a bond to assure
compliance with Customs regulations.
28.ORDER BILL OF LADING – A negotiable bill of lading made out to the order of the
shipper.
29.PACKING LIST – A list showing the number and kinds of items being shipped, as
well as other information needed for transportation purposes.
30.PARCEL POST RECEIPT – The postal authorities’ signed acknowledgment of
delivery to receiver of a shipment made by parcel post.
31.PRIVATE EXPORT FUNDING CORPORATION (PEFCO) – Lends to foreign
buyers to finance exports from U.S.
32.PERILS OF THE SEA – A marine insurance term used to designate heavy weather,
stranding, lightning, collision, and seawater damage.
33.PHYTOSANITARY INSPECTION CERTIFICATE – A certificate, issued by the
U.S. Department of Agriculture to satisfy import regulations for foreign countries,
indicating that a U.S. shipment has been inspected and is free from harmful pests and
Edmundas Radavicius. INTERNATIONAL TRADE
| 115
plant diseases.
34.POLITICAL RISK – In export financing the risk of loss due to such causes as currency,
inconvertibility, government action preventing entry of goods, expropriation or
confiscation, war, etc.
35.PRIVILEGED FOREIGN (PF) – Foreign merchandise or non-tax paid domestic
merchandise upon which the duty and applicable taxes have been determined at the
time this status is approved.
36.PRO FORMA INVOICE – An invoice provided by a supplier prior to the shipment
of merchandise, informing the buyer of the kinds and quantities of goods to be sent,
their value, and important specifications.
37.PURCHASING AGENT – An agent who purchases goods in his or her own country
on behalf of foreign importers such as government agencies and large private
concerns.
38.QUOTA – The quantity of goods of a specific kind that a country permit to be
imported without restriction or imposition of additional DUTIES.
39.QUOTATION – An offer to sell goods at a stated price and under specified conditions.
40.REACTIVATION – A resumption of the activated status of an entire area that was
previously deactivated without any change in the operator or the area boundaries.
41.REGIONAL COMMISSIONER – The Regional Commissioner of Customs for the
Customs Region in which the zone is located.
42.REMITTING BANK – Bank that sends the draft to overseas bank for collection.
43.RESIDENT MEMBER – The official that has been delegated authority by the
Secretary of the Army to act on nondiscretionary zone matters.
44.RETAIL TRADE – Generally, sales or offers to sell goods or services to individuals
for personal use.
45.REVOCABLE LETTER OF CREDIT – A letter of credit that can be canceled or
altered by the drawee (buyer) after it has been issued by the drawee’s bank.
116 |
Edmundas Radavicius. INTERNATIONAL TRADE
46.SCHEDULE B – Refers to Schedule B, Statistical Classification of Domestic and
Foreign Commodities Exported from the United States.
47.SHIPPER’S EXPORT DECLARATION – A form required for all shipments by the
U.S. Treasury Department and prepared by a shipper, indicating the value, weight,
destination, and other basic information about an export shipment.
48.SHIP’S MANIFEST – An instrument in writing, signed by the captain of a ship that
lists the individual shipments constituting the ship’s cargo.
49.SIGHT DRAFT – A draft that is payable upon presentation to the drawee.
50.SPOT EXCHANGE – The purchase or sale of foreign exchange for immediate
delivery.
51.STANDARD INDUSTRIAL CLASSIFICATION (SIC) – A standard numerical code
system used by the U.S. Government to classify products and services.
52.STANDARD INTERNATIONAL TRADE CLASSIFICATION (SITC) – A standard
numerical code system developed by the U.N. to classify commodities used in
international trade.
53.STATE – Any State, the District of Columbia, and Puerto Rico.
54.STEAMSHIP CONFERENCE – A group of steamship operators that operate under
mutually agreed upon freight rates.
55.STRAIGHT BILL OF LADING – A nonnegotiable bill of lading in which the goods
are consigned directly to a named consignee.
56.SUBZONE – A special purpose zone established as part of a zone project for a limited
purpose, which cannot be accommodated within an existing zone.
57.TARE WEIGHT – The weight of a container and packing materials without the
weight of the goods it contains.
58.TENOR – Designation of a payment as being due at sight, a given number of days
after sight, or a given number of days after date.
59.THROUGH BILL OF LADING – A single bill of lading covering both the domestic
Edmundas Radavicius. INTERNATIONAL TRADE
| 117
and international carriage of an export shipment.
60.TIME DRAFT – A draft that matures either a certain number of days after acceptance
or a certain number of days after the date of the draft.
61.TRAMP STEAMER – A ship not operating on regular routes or schedules.
62.TRANSACTION STATEMENT – A document that delineates the terms and conditions
agreed upon between the importer and exporter.
63.TRANSFER – To take merchandise with zone status from a zone for consumption,
transportation, exportation, warehousing, cartage or lighterage, vessel supplies and
equipment, admission to another zone, and like purposes.
64.TRUST RECEIPT – Release of merchandise by a bank to a buyer in which the bank
retains title to the merchandise.
65.UNIQUE IDENTIFIER NUMBER (UIN) – This inventory method controls
merchandise in a zone by unique numbers and/or letters that identify merchandise
admitted to a zone.
66.USER – A person or firm using a zone for storage, handling or processing of
merchandise.
67.VALIDATED EXPORT LICENSE – A required document issued by the U.S.
Government authorizing the export of specific commodities.
68.VESSEL/AIRCRAFT SUPPLY – The supply of goods or equipment free of duties and
taxes under section 309 of the Tariff Act, to eligible vessels or aircraft for use while
actually engaged in foreign trade, or in transit to any U.S. possession.
69.WAREHOUSE RECEIPT – A receipt issued by a warehouse listing goods received
for storage.
70.WHARFAGE – A charge assessed by a pier or dock owner for handling incoming or
outgoing cargo.
71.WITHOUT RESERVE – A term indicating that a shipper’s agent or representative is
empowered to make definitive decisions and adjustments abroad without approval of
the group or individual represented.
118 |
Edmundas Radavicius. INTERNATIONAL TRADE
72.ZONE LOT NUMBER (ZLN) – A collection of merchandise maintained under an
inventory control method based on specific identification of merchandise admitted
to a zone by lot and lot number.
73.ZONE PROJECT – All of the zone and subzone sites under a single grantee, normally
in a single port of entry.
74.ZONE RESTRICTED (ZR) – Merchandise admitted to a zone for the sole purpose of
exportation or destruction.
75.ZONE SITE – The physical location of a zone or subzone.
76.ZONE STATUS – The status of merchandise admitted to a Foreign-Trade Zone,
i.e., domestic (D), non-privileged foreign (NPF), privileged foreign (PF), or zone
restricted (ZR) status.
Prior to January 1, 1995, when the World Trade Organization (WTO) was
established, only trade in goods was subject to multilateral rules. These rules were
codified in the General Agreement on Tariffs and Trade (GATT), which came into
force on January 1, 1948. Upon creation, the WTO subsumed GATT within itself and
added to it the General Agreement on Trade in Services (GATS) and the Agreement on
Trade Related Aspects of Intellectual Property Rights (TRIPs). These latter agreements
brought trade in services and intellectual property rights, respectively, within the ambit
of multilateral rules.1
Currently, the WTO has 137 members, accounting for more than 90 percent of
the world trade. More than three fourths of these members are developing or least
developed countries. The organization has four principal functions: administering trade
agreements, settling trade disputes, conducting trade policy reviews of its members, and
acting as a forum for trade negotiations. In addition, it provides technical assistance
to developing countries in the area of trade policy and also cooperates with other
multilateral agencies.1 Trade in Goods1
At the end of the Second World War, alongside the two international financial
Edmundas Radavicius. INTERNATIONAL TRADE
| 119
institutions—the International Monetary Fund (IMF) and International Bank for
Reconstruction and Development (World Bank)—the United States and United Kingdom
led an effort to create a permanent international institution governing world trade in
goods. This effort culminated in the signing of the Charter for the International Trade
Organization (ITO) in Havana in March 1948 by fifty-three countries. As it turned
out, however, the ITO was never ratified by the United States Congress and was, thus,
stillborn.
The discussions for the ITO had been conducted at four major meetings. At
the third of these meetings held in Geneva during April-November 1947, twenty-three
participating nations decided to sign the General Agreement on Tariffs and Trade to
undertake trade liberalization that seemed politically feasible at the time. As a part
of this agreement, they negotiated reductions in tariffs on some 50,000 items. Fearful
that the negotiated tariff reductions might unravel if they waited too long, the GATT
signatories agreed to implement the agreement on January 1, 1948.
GATT had many of the same provisions as the ITO. At the time the agreement
was signed, the expectation was that the ITO would eventually supersede it. But as the
prospects for the ratification of the ITO by the United States dimmed, de facto, GATT
became an international trade organization. It came to govern international trade in
goods between the signatory countries, which grew in number over time. It also became
the umbrella organization for multilateral trade negotiations.
The original GATT had three parts containing thirty-five articles in all. Part I
contains two articles, one on the most-favored-nation treatment and the other on tariff
concessions. Part II has twenty-one articles covering issues such as national treatment,
anti-dumping, quantitative restrictions, emergency safeguards, subsidies, state trading,
general exceptions, security exceptions and nullification or impairment. Part III has
twelve articles addressed to the formation of customs unions and free trade areas and
many procedural matters including withdrawal of concessions, modification of schedules
and accession of new members.
The only significant addition to the original GATT was Part IV entitled “Trade
and Development,” which was approved in 1965 and implemented in June 1966.
This addition came at the insistence of the developing country members. There are
three articles in this part, which happen to be long on promises but short on specific
120 |
Edmundas Radavicius. INTERNATIONAL TRADE
commitments. Not surprisingly, apart from sensitizing the contracting parties to the
importance of GATT for developing countries, this part has had minimal impact on the
actions taken by the signatory countries.
The Tokyo Round (1973-79) adopted the so-called Enabling Clause that
legalized partial trade preferences among developing countries, as also one-way partial
preferences by developed to developing countries. The latter provision legitimated the
Generalized System of Preferences (GSP) that had come to exist since at least 1971.
The Enabling Clause was never formally incorporated into GATT but its provisions
have been clearly influential in the creation of many partial PTAs and legitimating the
GSP.
The Tokyo Round was also responsible for the negotiation of several codes and
agreements, signed principally by developed countries. The codes related to subsidies
and countervailing measures, product standard, government procurement, customs
valuation, import-licensing procedures and anti-dumping. The agreements covered
civil aircraft, bovine meat and dairy products. Many of the codes later served as the
basis of parallel agreements in the Uruguay Round, signed by all WTO members.
The Uruguay Round (UR) (1986-94) brought about major changes in and
considerable consolidation of the rules governing trade in goods. The basic international
rules applicable to goods trade are now contained in what is referred to as GATT 1994,
which incorporates within it GATT 1947 as rectified, amended or modified prior to
the establishment of the WTO and six UR Understandings on the interpretation of
a subset of the GATT articles. These basic rules are supplemented by a number of
agreements on goods trade. These are referred to as Agreements on: Agriculture,
Sanitary and Phytosanitary (SPS) Measures, Textiles and Clothing, Technical Barriers
to Trade (TBT), Trade Related Investment Measures (TRIMs), Anti-dumping, Customs
Valuation, Pre-shipment Inspection, Rules of Origin, Import Licensing Procedures,
Subsidies and Countervailing Measures, and Safeguard.
In the following, I will describe the WTO regime in goods as implied by GATT
1994 and these UR Agreements. To appreciate these rules, the reader may find it useful
to bear three points in mind. First, the guiding philosophy of the GATT-WTO system
is to achieve a liberal trade regime. Therefore, the majority of the provisions we will
encounter relate to the lowering of the barriers to trade. Second, negotiators must carry
Edmundas Radavicius. INTERNATIONAL TRADE
| 121
with them domestic consumer and producer interests, which inevitably results in the
accommodation of certain protectionist measures. Finally, as an extension of the second
point, in the negotiations, a country views its own liberalization as a cost and that of
the partners as benefit. This “mercantilist” view of trade policy naturally introduces an
element of reciprocity in the negotiations.
The Most favored Nation Principle
Central to the global trading system in goods is the unconditional most favored
nation (MFN) principle enshrined in Article I of GATT 1994. According to this
provision, if country A grants a concession to country B as a part of a bargain, it must
automatically grant the same concession to all other WTO members even if the latter
offer no concession in return. Thus, a member country must treat all WTO members at
par with its most favored trading partner.
An immediate implication of this provision is that a country must charge the
same tariff rate on imports irrespective of its origin (leaving aside the possibility that
the imports may have come from a nonmember). If applied without exception, this
provision has the virtue that it ensures a single tariff rate on each product in a country.
The resulting tariff regime is not only transparent but also economically efficient from
the global standpoint. Being entirely nondiscriminatory, it also gives least reason for
political discord across trading partners.
Being a compromise among competing interests, the WTO agreements admit
a variety of violations of the MFN principle. Article I itself accommodates the trade
preferences that existed prior to April 10, 1947. But more extensive violations of
the MFN principle have come from preferential trade areas (PTAs) under three sets
of provisions (see below for more details). First, GATT Article XXIV permits the
formation of free trade areas (FTAs) and customs unions (CUs) whereby two or more
WTO members eliminate trade barriers among them but not on outside countries. Under
an FTA, such as the North American Free Trade Agreement (NAFTA), each member
retains its own external tariffs while under a CU, such as the European Community
(EC), the members adopt a common external tariff on each product. These arrangements
naturally introduce discrimination between union member and outside countries.
Second, the Enabling Clause, introduced in 1979, allows two or more developing
countries to exchange partial trade preferences with one another. In these cases, internal
122 |
Edmundas Radavicius. INTERNATIONAL TRADE
tariffs need not be eliminated entirely; nor is it required that substantially all products
be covered. The Enabling Clause also permits one-way preferences by developed to
developing countries. These preferences, as exemplified by GSP, may be partial and can
be granted on selected products.
Finally, in the past, the GATT contracting parties have granted waivers from the
application of Article I. The United States-Canada Automotive Products Agreement of
1965, which established a free trade area between the two countries in the automotive
sector, operated under such a waiver. During 1971 to 1981, GSP also operated under a
similar waiver.
Violations of the MFN principle also happen in the application of safeguard
measures (see below for more details). For instance, when anti-dumping duties are
imposed, they apply only to those firms or countries found guilty. This automatically
induces discrimination in trade policy. Any time that safeguard actions take the form of
quantitative restrictions, no matter how they are administered, discrimination is likely
to result. Voluntary export restraints, which limit imports from specific countries only,
are outright discriminatory.
Countries may also discriminate across trading partners by classifying imports
so as to place similar products coming from different partners into categories subject
to different tariff rates. But such discrimination can be challenged successfully in the
WTO at least so long as the products can be shown to have similar characteristics.
National Treatment
While Article I of GATT 1994 is designed to eliminate discrimination among
imports from different WTO members, Article III aims to eliminate discrimination
against imported goods vis-à-vis domestically produced goods once they cross the
border. It stipulates that once imports have entered the territory of a member country,
they must be treated no less favorably than similar domestically produced goods. Article
III explicitly states that products from other member countries should not be subject to
internal taxes or other charges in excess of those applicable to similar domestically
produced goods. At least equal treatment to imports must also be given with respect to all
laws, regulations and requirements affecting their internal sale, purchase, transportation,
distribution or use.
Also prohibited under the national treatment provision are any internal quantitative
Edmundas Radavicius. INTERNATIONAL TRADE
| 123
restrictions that discriminate against imports. For instance, producers cannot be required
that a minimum proportion of an input used in production be of domestic origin. Such
“domestic content” requirements have been a source of contention, especially when
imposed on foreign investors. The UR Agreement on TRIMs now explicitly recognizes
that the domestic content requirements violate Article III of GATT.
The national treatment provisions do not apply, however, to laws, regulations
or requirements governing the procurement of goods by government agencies for
governmental use. A code on government procurement was signed by a plurality of
the members in the Tokyo Round. While future negotiations may try to extend this
code, appropriately modified, to the entire WTO membership, at present, government
procurement is exempt from Article III.
In recent years, technical standards are fast becoming effective means of
discrimination in favor of domestic producers of manufactures. The standards can be
set in such a way as to make it costly for foreign producers to comply. Likewise, unduly
strict inspections of imports for health and safety reasons may raise the costs of imports
unnecessarily. The UR Agreements on TBTs and SPS measures have recently tried to
address some of these concerns. The Agreement on TBTs explicitly states that WTO
members shall “ensure that neither technical regulations, nor standards themselves nor
their application have the effect of creating unnecessary obstacles to international trade.”
The Agreement on SPS similarly requires that sanitary and phytosanitary measures
“should be applied only to the extent necessary to protect human, animal or plant life or
health and should not arbitrarily or unjustifiably discriminate between Members where
identical or similar conditions prevail.”
Tariffs
GATT shows a strong preference for tariffs over other instruments of protection.
Tariffs may be levied on a per-unit basis or on an ad valorem (according to value)
basis. Tariff concessions that countries give upon accession to the WTO or as a part
of negotiations are recorded as “bound” tariffs in their tariff schedules. Under Article
II, these schedules form an integral part of GATT. The schedules are drawn according
to the “positive list” approach, which means that no commitment exists for products
not included in the schedule. For the included products, countries are not to impose a
tariff on the WTO members higher than the commitment or “binding” indicated in the
124 |
Edmundas Radavicius. INTERNATIONAL TRADE
schedule.
Prior to the UR Agreement, developed countries had 78 percent of their tariff
lines of industrial products bound. The corresponding figure for developing countries
was merely 22 percent. As a result of the UR Agreement, these percentages have gone up
to 99 and 72 percent, respectively. Thus, under the UR Agreement, developing countries
have gone on to expanded their tariff bindings substantially. Even though these bindings
are often higher than the tariff rates actually applied, this is a significant development in
terms of the expanded embrace of the GATT discipline by developing countries.
GATT Article VIII requires that the charges relating to exports and imports other
than tariffs and export taxes (covered under Article III) should be limited to the cost
of services rendered. These charges should not be levied with the intention to provide
extra protection or generate revenues. Nevertheless, countries often introduce charges
that are not called tariffs but have the same effect as them. Examples include taxes
on foreign-exchange transactions, special import surcharges and other taxes affecting
imports. The UR Understanding on Article II imposes major constraints on the use of
these “para-tariffs.” It requires that, for each tariff line, national schedules record “other
duties or charges” levied in addition to the recorded tariff and bind them at the levels
prevailing on the date established in the Uruguay Round Protocol.
Customs Procedures
Valuation procedures at the border can also be used to increase the effective
duty on imports. Simply assigning a product a higher price than justified can increase
the incidence of tariff on it. GATT Article VII addresses this issue, requiring that the
assessment of the custom duty be based on the actual value of the merchandise or of like
merchandise. The provisions of Article VII are somewhat vague, however, especially
with respect to the definition of “actual value”. The UR Agreement on Customs Valuation
(formally the Agreement on Implementation of Article VII of GATT) attempts to
correct this deficiency by establishing uniform, transparent and fair valuation standards.
It requires that valuation be based on the transaction value of or invoice value of the
good. If the customs authorities doubt the transactions value, they should rely on the
value of identical or similar goods. The Agreement also clarifies how transportation,
handling and insurance costs are to be treated for the assessment of tariffs. Accordingly,
the members are free to base the valuation on the cost, insurance and freight (c.i.f), cost
Edmundas Radavicius. INTERNATIONAL TRADE
| 125
and freight or free-on-board (f.o.b.) basis.
In recent years, developing countries have been increasingly relying on preshipment inspections (PSI) to reduce the scope for under-invoicing or over-invoicing
of imports. They hire specialized PSI firms, which inspect the goods prior to being
shipped and provide information on their quantity and value. In effect, these inspections
substitute for inspections by domestic customs authorities that may not be able to perform
the function efficiently. For some time, exporters had objected to some of the practices
of the PSI firms. The UR Agreement on Pre-shipment Inspection responds to these
concerns and stipulates that PSI firms must carry out their activities in a transparent,
objective and nondiscriminatory manner. They must apply the standards agreed in
the buyer-seller agreement. If no standards are specified, the relevant international
standards are to be applied.
Quantitative Restrictions
Article XI of GATT 1994 prohibits quantitative restrictions as long-run measures
except when they are applied to agricultural or fisheries products in conjunction
with measures restricting the domestic output of similar products. Temporary export
restrictions or prohibitions are permitted to relieve critical shortages of foodstuffs or
other essential products (Article XI: 2a). Temporary import restrictions are permitted
to relieve short-run balance of payments difficulties (Article XII). If this is done, the
quota should not be administered on a selective basis, subjecting some countries to the
restriction but not others. Preference is for an overall quota. If country-by-country
allocations are nevertheless made, they should be either negotiated with major partners or
conform to the proportions in a previous representative year (Article XIII). Developing
countries are given special exemption from Article XI obligations on grounds of balance
of payments considerations and infant-industry protection (Article XVIII).
The provisions of Article XI notwithstanding, until recently, quantitative
restrictions have been employed extensively. Developing countries made liberal use
of Article XVIII exception granted on the balance of payments grounds. Developed
countries invoked the restrictions on domestic output as the basis for similar restrictions
on the imports of agricultural products. Imports of textiles and clothing into developed
countries, including the United States, European Union, Canada and Australia, were
regulated by the GATT sanctioned Multi-fiber Arrangement (MFA) which imposed
126 |
Edmundas Radavicius. INTERNATIONAL TRADE
country-specific voluntary export quotas. Voluntary export restrictions were also used
in auto and steel industries.
In recent years, there has been some capping of the quantitative restrictions,
however. With the adoption of flexible exchange rates in many cases and a general
trend towards trade liberalization, developing countries have increasingly phased out
quantitative restrictions. The UR Agreement on Agriculture has led to the replacement
of non-tariff barriers by tariffs to a large degree. The UR Agreement on Textiles and
Clothing is expected to phase out the MFA by the year 2005. And the UR Agreement
on Safeguards now prohibits the use of new voluntary export quotas and requires the
existing one to be phased out.
Subsidies
The WTO rules generally do not permit the use of subsidies, especially if they
lead to an expansion of a country’s exports or lower the prices of exports below those
prevailing at home. Article XVI of GATT 1994 contains general provisions against
subsidies that expand the exports of primary products or lower the export prices of
other products below those prevailing in the domestic market. Article VI provides
for countervailing duties to offset subsidies granted, directly or indirectly, on the
manufacture, production or export of any merchandise. To countervail, injury or threat
of injury to an established industry must be determined. Alternatively, the subsidy must
be shown to retard the establishment of an equivalent domestic industry.
The provisions on subsidies and countervailing in the original GATT did not
define precisely which subsidies could be subject to a countervailing action. As a result,
during 1970s and 1980s, there were several disputes in this area. The UR Agreement
on Subsides and Countervailing Measures has gone some ways towards alleviating this
problem with respect to industrial products while the UR Agreement on Agriculture
does the same for agricultural products.
To solve the problem of definition, Agreement on Subsides and Countervailing
Measures introduces the concept of a “specific” subsidy. A subsidy is specific if it is
available only to an enterprise or industry or group of enterprises or industries within
the jurisdiction of the authority granting the subsidy. In addition, subsidies that are
contingent on export performance or on the use of domestic over imported goods and
categorized as prohibited (see the next paragraph) are defined as “specific”. Only
Edmundas Radavicius. INTERNATIONAL TRADE
| 127
specific subsidies are subject to the disciplines set out in the agreement.
The agreement divides subsidies into three categories: prohibited, actionable
and non-actionable. Subsidies that are contingent on export performance or on the use
of domestic over imported goods are prohibited. These subsidies are subject to the
WTO dispute settlement procedures and, thus, can be challenged by the injured party
whether it happens to be the importing country or a third country whose export interests
in the importing country are adversely affected. If the subsidy is ruled as prohibited
by the dispute settlement body, it must be immediately withdrawn. If withdrawal does
not take place within the specified time period, the complainant is authorized to take
countermeasures.
The “actionable” subsidies are those that adversely affect the interests of other
WTO signatories. The adverse effects may include injury to domestic industry of another
signatory, nullification or impairment of benefits accruing directly or indirectly to other
signatories under GATT 1994 (in particular the benefits of bound tariff concessions), and
“serious prejudice” to the interests of another member. Serious prejudice is presumed
to exist if the sum of ad valorem subsidies to a product exceeds 5 per cent, an enterprise
receives reprieve from the government-held debt, or an enterprise or industry is given
subsidies to cover operating losses. Members affected adversely by actionable subsidies
may challenge them in the WTO Dispute Settlement Body. If the DSB rules in their
favor, the subsidizing member must withdraw the subsidy or remove the adverse effects.
If this is not done within the specified time period, the complainant may be authorized
to take countermeasures.
In the third and final category, we have subsidies that are termed non-actionable.
These subsidies can be either non-specific subsidies or specific subsidies for industrial
research and pre-competitive development activity, subsidies to disadvantaged regions
that are non-specific within the regions, or certain type of assistance for adapting existing
facilities to new environmental requirements imposed by law and/or regulations.
As an alternative to the dispute settlement remedy, consistent with GATT Article
VI, Agreement on Subsidies and Countervailing Duties allows domestic remedies via
the use of countervailing measures on subsidized imported goods. By its very nature,
this remedy is available only to the importing country and not to third countries whose
exports into the importing country may be adversely affected by the subsidy. To ensure
128 |
Edmundas Radavicius. INTERNATIONAL TRADE
that all interested parties can present information and arguments, the Agreement sets
out disciplines on the initiation of countervailing cases, investigations by national
authorities and rules of evidence. The agreement requires not only the establishment
of injury to the domestic industry but also a causal link between the subsidized imports
and the alleged injury. Countervailing investigations are not permitted in cases where
the amount of a subsidy is de minimis (the ad valorem subsidy is less than 1 percent)
or where the volume of subsidized imports or the injury is negligible. Investigations
must be concluded normally within one year and should in no case take longer than
18 months. All countervailing duties have to be terminated within 5 years of their
imposition unless the authorities determine that this would result in the continuation or
recurrence of subsidization and injury.
The Agreement gives some (very limited) leeway to developing countries in
the use of subsidies for economic development. For example, in the case of prohibited
subsidies, least developed countries and developing countries with per-capita incomes
below $1,000 are subject to remedies under more demanding procedures normally
applied to actionable subsidies. Countervailing investigation against a developing
country must be terminated if the overall subsidy is less than 2 percent or if the volume
of the subsidized imports represents less than 4 percent of the total imports.
Subsidies on agricultural products are governed largely by the Agreement on
Agriculture. To avoid repetition, the main provisions of this agreement are left for
chapter 3 which devoted exclusively to agriculture.
Anti-dumping
Though the WTO rules normally discourage protectionist policies, they do permit
and accommodate anti-dumping measures to provide temporary relief to domestic
industry against “dumping” by foreign firms. Many trade economists view antidumping as the most pernicious WTO-sanctioned instrument of protection available to
countries currently. The best explanation for its existence is that developed countries
have chosen not to give it up. Lately, however, developing countries have also become
frequent users of this instrument.
The WTO provisions on anti-dumping are contained in GATT Article VI and the
UR Agreement on Anti-dumping (formally, Agreement on Implementation of Article
VI). The latter builds on the Tokyo Round Anti-dumping Agreement, which had been
Edmundas Radavicius. INTERNATIONAL TRADE
| 129
signed by developed countries only. The UR Agreement revises the Tokyo Agreement
in some areas while adding precision in others.
In broad terms, two conditions must be fulfilled before anti-dumping duties
can be imposed: the existence of dumping must be established and dumping should be
determined to cause material injury to an established industry or retard the establishment
of a domestic industry. For the purpose of establishing dumping, GATT Article VI
defines dumping as the sale of a product of a country into another at less than “normal
value.” Sales at less than fair value can be said to have occurred if the exporter sells the
product in the importing country at a price below what he charges in his own domestic
market. If the price in the domestic market is not available, the export price may be
compared to the highest price charged for a like product by the exporter in a third
country or the cost of production in the exporting country after due allowance is made
for selling cost and profit.
The Agreement on Anti-dumping introduces specific provisions relating to the
methodology of establishing the existence of dumping and injury. For example, the
United States and European Community had for years compared the prices charged in
individual export transactions with the average home market price to establish dumping.
This practice biased the outcome in favor of a positive finding. The Agreement on Antidumping now requires that export prices be compared on either “average-to-average”
or “transaction-to-transaction” basis. As a result, the US has adopted the average-toaverage comparisons in majority of the cases.
The Agreement also restrains the methodology for calculating “constructed
value” which has been used in the United States as a measure of normal value that
is compared with the export price to establish the existence of dumping. In the past,
calculations of constructed value could be inflated by adding 10% of overhead cost
and 8% profit to direct costs of labor and material. This biased the system in favor of a
positive finding of dumping. The Agreement requires that overhead and profits be based
on actual data.
GATT Article VI offers minimal guidance with respect to the criteria to be satisfied
to establish injury to the domestic industry. The Agreement on Anti-dumping explicitly
stipulates that the determination of injury be based on positive evidence relating to the
volume of the dumped imports and their effect on prices and the impact on industry in
130 |
Edmundas Radavicius. INTERNATIONAL TRADE
the importing country. Regarding the volume of the dumped imports, the authorities
must consider whether there has been a significant increase in dumped imports, either
in absolute terms or relative to production or consumption. The effect of the dumped
imports on prices is to be judged by considering whether there has been a significant
price undercutting by the accused, or whether the dumped imports have significantly
depressed prices or prevented price increases, which otherwise would have occurred.
The examination of the impact of the dumped imports on the domestic industry
must include an evaluation of all relevant economic factors and indices having a bearing
on the state of the industry. These include actual and potential decline in sales, profits,
output, market share, productivity, return on investments, or utilization of capacity;
factors affecting domestic prices; the magnitude of the margin of dumping; actual and
potential negative effects on cash flow, inventories, employment, wages, and growth,
ability to raise capital or investments. The Agreement explicitly states that this list is not
exhaustive, nor can one or several of these factors necessarily give decisive guidance.
GATT Article VI requires an injury test for the “industry” but does not define
industry. As a result, in practice, in the past, when individual firms or trade associations
filed anti-dumping petitions, it was presumed that they were acting on behalf of an
“industry.” Under the Agreement, a determination must now be made through the test
is relatively lax. The test requires that the petition must be “supported” by producers
(a) accounting for 25% of total production of “like products” and (b) representing more
than 50% of the production of those firms expressing a position, pro or con, on the
petition.
In the United States, anti-dumping duties have traditionally stayed in force for
years. The Agreement introduces a sunset clause under which such duties are to be
generally terminated after five years. Unfortunately, the clause is weakened by the
provision that if the authorities determine that the expiration will lead to further dumping
and material injury, they can extend the measures beyond five years--apparently
indefinitely.
Finally, in the United States, a dumping margin in excess of .5% of the export
price has been sufficient for a positive finding of dumping. The Agreement raises this
margin to 2%. Moreover, if the volume of dumped imports from a country is less than
3% of total imports of like products, anti-dumping proceedings must be terminated.
Edmundas Radavicius. INTERNATIONAL TRADE
| 131
This restraint is weakened, however, by the additional provision that if dumped imports
from several countries together account for more than 7% of total imports, the 3% rule
does not apply.
Safeguards: Emergency Protection
GATT Article XIX provides an explicit “escape clause” remedy for an industry
that is subject to serious injury. If, due to unforeseen circumstances, the obligations
incurred by a country under GATT, including tariff concessions, lead to such a large
increase in the imports of a product as to cause or threaten serious injury to domestic
producers of like products, the country can suspend the obligations relating to the
product in whole or part and until such time as necessary to prevent or remedy the injury.
Since the obligations undertaken by a member may include the removal of quantitative
restrictions, Article XIX is consistent with quotas. The actions under Article XIX must
be implemented on a nondiscriminatory basis. The underlying objective of Article XIX
is to provide a “safety valve” to members so that they will be encouraged to undertake
liberalization commitments without the fear of serious dislocation of the domestic
industry.
In the past, under Article XIX, the country taking a safeguard action was required
to give trade concessions of equivalent value in other areas to the trading partners whose
export interests were adversely affected. If this was not done, the trading partners were
free to withdraw concessions of equal value from the country taking the safeguards action.
This feature made safeguard actions quite similar to the renegotiation of obligations
under Article XXVIII. The main difference was that safeguard actions were intended to
be temporary while Article XXVIII renegotiations were permanent. But since no formal
time limits were imposed on safeguard actions, in practice, even this difference meant
little. As I discuss below, the UR Agreement on Safeguards has altered some of the
provisions relating to the time limits on safeguard actions and compensation.
Formal safeguard measures have not been employed frequently due to the
availability of other instruments (for example, tariffs and quotas in developing countries
and anti-dumping and Article XXVIII renegotiations in developed countries). What
have been used are “gray area measures” such as the voluntary export restraint (VERs).
Under these measures, targeted countries agree to limit their exports of a product to
the country seeking import restriction to the agreed upon levels. Being targeted to
132 |
Edmundas Radavicius. INTERNATIONAL TRADE
specific countries, VERs are discriminatory. Exporting countries generally accepted the
restriction because the alternative could be worse (for example, anti-dumping). Under
VERs, they were at least able to capture the bulk of the quota rent through an increase
in the price received by their exporters.
The essential objective behind the UR Agreement on Safeguards was to encourage
member countries to make use of the conventional safeguards over anti-dumping and
VERs. To this end, it abolishes the use of VERs. It required the VERs in force at the
time of the establishment of the WTO to be phased out over a period of four years. For
future, the Agreement explicitly states that a WTO member state “shall not seek, take
or maintain any voluntary export restraints, orderly market arrangements, or any other
similar measures on the import side.” Unfortunately, since the only way to enforce this
provision is through a challenge by the “victim” in the WTO and the “victim” in this
case is the initiator, it is doubtful the VERs will disappear altogether. Indeed, recently,
the United States has been gone on to introduce new VERs on the imports of steel from
Brazil.
The Agreement on Safeguards also introduces an explicit time limit on the use
of formal safeguards. Accordingly, these are to be limited now to four years. If it is
determined, however, that protection is necessary and there is evidence that the industry
is adjusting rather than simply enjoying its protected status, the safeguards may be
extended for another four years.
As described above, GATT Article XIX originally provided for either
compensation to affected exporting countries or, if an agreement on compensation
could not be reached, suspension of offsetting concessions granted the nations imposing
safeguard measures. This feature made safeguards less attractive than anti-dumping
since the latter does not require no compensation or allow retaliation. Accordingly,
the Agreement on Safeguards eliminates the provision of retaliation for the first three
years provided the measure is taken in response to absolute increase in imports and in
accordance with other provisions laid out in the agreement.
Two special provisions for developing countries are worth noting. First, exports
of a developing country are exempt from safeguard actions so long as they constitute
less than 3% of the total imports of the product in question. The exemption does not
apply, however, if cumulated exports of such countries exceed 9% of the total imports.
Edmundas Radavicius. INTERNATIONAL TRADE
| 133
Second, developing countries can use safeguard measures for ten years. But because
they are not exempt from retaliation in the absence of compensation beyond the threeyear period, this provision does not help make safeguard actions more attractive than
anti-dumping measures.
Trade Related Investment Measures
The UR Agreement on Trade Related Investment Measures (TRIMs) explicitly
recognizes certain trade policy measures relating to investment as being inconsistent with
some of the GATT provisions. Despite inconsistency with the GATT obligations, member
countries have applied some of these measures in the past. They are to be now phased
out and their future use prohibited. The Agreement on TRIMs provides that no member
country should apply any TRIMs inconsistent with its GATT obligations with respect to
national treatment (Article III) and prohibition of quantitative restrictions (Article XI).
The agreement provides an illustrative list of TRIMs agreed to be inconsistent with these
obligations. The list includes “local content requirements,” which require particular
levels of local procurement by an enterprise and “trade balancing requirements,” which
restrict the volume or value of imports such an enterprise can purchase to an amount
related to the level of products it exports. The former violates Article III and the latter
Article XI of GATT.
The agreement required that developed countries eliminate all non-conforming
TRIMs within two years, developing countries within five years and least-developed
countries within seven years. It also provided for consideration, at a later date, of whether
it should be complemented with provisions on investment and competition policy more
broadly.
State Trading
GATT permits state trading enterprises to engage in export and import activity
under Article XVII. The original GATT did not define state trading enterprises, which
led to a very wide interpretation of the term. The UR Understanding on Article XVII
corrects this deficiency and defines state trading enterprises as “Governmental and
non-governmental enterprises, including marketing boards, which have been granted
exclusive rights or privileges, including statutory or constitutional powers, in the
exercise of which they influence through their purchases or sales the level or direction
134 |
Edmundas Radavicius. INTERNATIONAL TRADE
of imports and exports.” Note that this definition covers private enterprises as long as
they enjoy exclusive rights or privileges.
Article XVII requires that in their purchases and sales involving imports or
exports, state trading enterprises should adhere to the most favored nation principle. The
enterprises must carry out the purchases or sales according to commercial considerations
and afford the enterprises of other member countries adequate opportunity to compete.
These provisions do not apply to imports of products for use of governmental
consumption.
Article XVII also requires that, if requested by another member, a country
authorizing a state monopoly of a product, which is not the subject of a concession under
Article II, should provide information on the import mark up on the product during
a recent representative period. If this information is not available, the country should
provide the information on the price charged on the resale of the product. The mark-ups
may be negotiated by member countries on a reciprocal basis and bound in the manner
tariffs are negotiated and bound under Article II.
To promote transparency, the UR Understanding on Article XVII requires that all
state trading enterprises be notified to the WTO Council for Trade in Goods for review
by a Working Party. Any member that has a reason to believe that another member has
not met its notification obligations adequately may raise the matter with the member
concerned. If the matter is not satisfactorily resolved, the member may make a counter
notification to the Working Party.
In view of the fact that state trading is pervasive in centrally planned economies,
GATT/WTO members have often imposed special conditions in the accession
agreements with these countries. Poland and Romania, which acceded to GATT in 1967
and 1971, respectively, were subject to explicit requirements to expand their imports
from GATT members. They were also subject to special safeguard provisions, allowing
for discriminatory action against their imports. Hungary, which acceded in 1973, was
not subject to import requirements but did agree to the special safeguard provisions.
Most recently, China has also been subject to similar safeguard provisions by the United
States.
Preferential Trade Areas
The GATT provisions relating to preferential trade areas (PTAs) have been
Edmundas Radavicius. INTERNATIONAL TRADE
| 135
partially covered in the context of the exceptions to the MFN principle. These may be
considered here in greater detail. GATT Article XXIV accommodates free trade area
(FTAs) and customs unions (CUs). As already noted, FTAs free up trade among union
members, with each member retaining its own external tariff. CUs are FTAs with a
common external tariff for each product. Article XXIV requires three conditions to be
fulfilled by CUs and FTAs: (i) trade barriers on outside countries should not rise on
average, (ii) tariffs and other trade restrictions must be removed on ‘substantially all’
intra-regional trade within a ‘reasonable’ time period, and (iii) the arrangement must be
notified to GATT, which may decide to establish a working party to determine if these
conditions are satisfied.
In practice, the first two of these conditions have been rarely fulfilled. For instance,
the European Economic Community (EEC), which is regarded as the foremost example
of a customs union, did not incorporate agriculture into the arrangement for decades.
Yet, GATT never ruled that the arrangement was inconsistent with Article XXIV due to
the threat by the EEC members to withdraw from the multilateral agreement in case of
an adverse finding. Thus, political compromise has prevailed over rules.
The UR Understanding on the Interpretation of Article XXIV attempts to enhance
the effectiveness of the role of the Council for Goods in reviewing the arrangements to
be undertaken by its Committee on regional Trade Agreements (CRTA). But so far this
has not resulted in major success with no verdicts given on Article XXIV consistency on
any of the arrangements under review. The Understanding introduces a ten-year limit on
the transition period though allowance can be made under ‘exceptional circumstances’.
It also requires a customs union to compensate the nonmembers who are adversely
affected by one or more members raising their tariffs to conform to the common
external tariff of the union. The Understanding recognizes that in assessing the need
and magnitude of compensation, account may be taken of the reduction in tariff rates of
other members. In case of failure to compensate, nonmembers can retaliate through the
withdrawal of an equivalent concession.
PTAs among developing countries can be formed under the 1979 Enabling
Clause. Under this provision, partial tariff preferences are admissible. This means that
preferences among developing countries need not result in the formation of full FTA
or CU. Preferences that apply to only a subset of products or do not lead to zero tariffs
136 |
Edmundas Radavicius. INTERNATIONAL TRADE
among participating countries are permitted. Not surprisingly, the arrangements among
developing countries are almost always notified to the WTO under the Enabling Clause.
Non-application of the Agreement and Security and Environmental Exceptions
According to Article XXXV (Non-application of the Agreement), members are
allowed a one-time exception with respect to their GATT obligations vis-à-vis a new
member. GATT obligations do not apply between two members if they have not entered
into tariff negotiations with each other and either of the members does not consent to
the application at the time either becomes a member. What this means is that even
when two-thirds of the WTO membership confers the membership on a country, some
members and the new entrant may choose not to give the full GATT rights to each other.
This provision was behind the debate in the United States recently on on giving China
permanent MFN status to China.
Article XXI (Security Exception) allows certain exceptions on national security
grounds. Members cannot be asked to disclose information that will compromise their
security. Countries are allowed to take any actions on security grounds relating to
fissionable materials and traffic in arms, ammunition and implements of war. In time
of war or other emergency in international relations, they are also allowed to take any
actions necessary for security. These actions may include, for instance, the withdrawal
of the MFN status or national treatment from specific members.
Finally, Article XX (General Exceptions) lists a set circumstance under which
members can introduce measures that are otherwise contrary to their GATT obligations.
The most important of these are measures (a) necessary to protect public morals, (b)
necessary to protect human, animal or plant life or health, (c) relating to the importation
or exportation of gold and silver, (d) necessary to secure compliance with laws and
regulation that are not inconsistent with GATT, (e) relating to the products of prison labor,
(f) imposed for the protection of national treasures of artistic, historic or archeological
value, and (g) relating to the conservation of exhaustible natural resources if such
measures are introduced in conjunction with restrictions on domestic consumption or
production.
The preamble to Article XX imposes tough restrictions on the use of measures
aimed at achieving these objectives. It states that such measures are permitted provided
they “are not applied in a manner which would constitute a means of arbitrary or
Edmundas Radavicius. INTERNATIONAL TRADE
| 137
unjustifiable discrimination between countries where the same conditions prevail, or
disguised restriction on international trade.” The WTO Appellate Body has taken this
preamble very seriously in the disputes relating to some of the environmental measures
undertaken by the United States. In particular, in the much-publicized shrimp-turtle case,
the Appellate Body ruled that while the measures taken by the United States fit category
(b) above, they violated Article XX because they constituted arbitrary and unjustifiable
discrimination between countries where the same conditions prevailed. Given that
developed countries are likely to continue introducing environmental measures that
may have an adverse impact on the trading rights of developing countries, Article XX is
likely to play an important role in the forthcoming years.
Government Procurement
As previously noted, the national treatment provision (Article III) of GATT 1994
does not apply to government procurement. The status of the MFN principle would
appear to be more ambiguous. But in listing the subjects to which the MFN principle
is to apply, Article I refers to “all matters referred to in paragraphs 2 and 4 of Article
III.” Since paragraphs 2 and 4 of Article III do not apply to government procurement,
this reference in Article I has been interpreted to exclude the latter from the application
of the MFN principle. As Jackson (1997, p. 225) notes, practice under GATT confirms
this interpretation.
Thus, government procurement is essentially out of the net of GATT discipline.
Over the years, the increasing share of the government expenditure in the GDP led the
member countries to consider bringing government procurement into the multilateral
discipline. The result was the Tokyo Round Agreement on Government Procurement
by a small number of countries. This agreement was revised further under the Uruguay
Round. The revised version came into force on January 1, 1996.
Thought the revised agreement is far reaching, potentially covering entities
at central, sub-central and other levels of government and extending to services and
construction contract, only eleven WTO members have signed it. The list of nonsignatories includes many OECD countries. The agreement is nondiscriminatory only
among the signatories. This means that any concessions offered under the agreement by
one signatory to another do not extend to non-signatory WTO members.
The extent to which entities belonging to the central, sub-central and other levels
138 |
Edmundas Radavicius. INTERNATIONAL TRADE
are covered depends on the schedules negotiated between signatories. The agreement
applies to all contracts above SDR 130,000 and SDR 200,000 issued by listed central and
sub-central entities, respectively. The agreement also contains detailed rules regarding
the tendering procedures and seeks transparency.
The extension of the Agreement on Government Procurement to all WTO
members or the negotiation of a new agreement applicable on a multilateral basis
remains a subject on the WTO agenda. The issue is controversial but the pressures
for it from export lobbies, especially from the countries that signatories to the present
agreement, are likely to persist.
Trade in Services1
Until the Uruguay Round, trade in services was not subject to any multilateral
rules. A major accomplishment of the Uruguay Round was the creation of a framework
agreement which brings trade in services into the fold of the WTO. Services are traded
internationally in ways fundamentally different from goods. Moreover, barriers to them
are more complex than border barriers such as tariffs and quotas. For these reasons,
GATT rules could not be applied directly to trade in services and a new set of rules that
would facilitate trade liberalization in this area was needed. The General Agreement on
Trade in Services or GATS was a response to that need.
GATS is divided into six Parts, which together contain 29 Articles, with the
last article containing eight sectorial annexes. Part I (Article I) deals with the scope of
the agreement and definition of services in terms of various modes of supply, Part II
(Articles II-XV) describes a set of general obligations and disciplines that apply to all
services, Part III (Articles XVI-XVIII) relates to Specific commitments on the national
treatment and market access applying to a subset of service sectors listed in a member’s
Schedule on a sector-by-sector and country-by-country basis, Part IV (Articles XIXXXI) commits members to progressive liberalization through periodic negotiations,
Part V (Articles XXII-XVI) lays down the institutional provisions covering such matters
as consultation between members, dispute settlement and the Council for Trade in
Services, and Part VI (XXVII-XXIX) contains final provisions regarding circumstances
under which a member can deny benefits of GATS, some definitions, and annexes. The
sectoral Annexes explain how GATS is to be implemented in the specific sectors. In the
Edmundas Radavicius. INTERNATIONAL TRADE
| 139
following, I provide a more detailed discussion of the main provisions.
Scope and Definition
GATS Article I begins by establishing the scope of the agreement. The agreement
applies to measures taken by central, state or local governments and authorities and by
nongovernmental bodies in the exercise of powers delegated by central, state or local
governmental authorities. It excludes services supplied in the exercise of governmental
authority.
The definition of trade in services is given in terms of four modes of delivery.
First, there is electronic commerce that involves arms-length supply of services and
comes closest to the mode used for the delivery of goods. But it is distinguished from the
latter in that at least at the current state of knowledge, it does not permit the inspection
of “wares” at the border and hence cannot be subject to tariff duties. Second, some
services require the movement of the buyer to the location of the seller. Tourism is the
most important example of this mode of delivery. Third, we have services that require
commercial presence of the provider. Most financial services fall into this category.
Finally, there are services that require the movement of the provider or “natural person”
to the location of the buyer. These services include, for example, construction and
consulting services.
The MFN Provision
Like GATT, GATS adopts the MFN treatment as a key provision (Article II)
with the qualification that at the time the agreement came into force (January 1, 1995),
signatories could schedule a one-time exemption from it. The exemption was to be
claimed by country and by sector. In principle, these exemptions can last up to ten
years and but may be negotiated away sooner. Over 60 GATS members took the MFN
exemption at the time of the signing of the UR Agreement.
In the spirit of Article XXIV in GATT, Article V in GATS allows exemption
from MFN if two or more countries want to enter into a preferential arrangement
liberalizing trade in services with one another without extending this liberalization to
other Members. The exemption applies only if the arrangement has a substantial sectoral
coverage and eliminates substantially all discrimination among participants in the sense
of Article XVII (see below). Developing countries are given more flexibility in forming
140 |
Edmundas Radavicius. INTERNATIONAL TRADE
preferential trade arrangements, especially with respect to the coverage of measures that
discriminate against partner countries.
Market Access, National treatment and the Schedule of Specific Commitments
Each country gives market access (Article XVI) under GATS through a schedule
that lists the sectors in which it commits to giving concessions to other members. No
market access commitment is presumed to exist in a sector not listed in the schedule.
Six types of restrictive actions are prohibited unless otherwise specified in the schedule.
These are: (i) limitations on the number of service suppliers, (ii) limitations on the total
number of service transactions or assets, (iii) limitations on the total number of service
operations or total quantity of service output, (iv) limitations on the total number of
natural persons that may be employed in a particular service sector or by a service
supplier, (v) measures which restrict or require specific types of legal entity joint
venture, and (vi) limitations on the participation of foreign capital in terms of maximum
percentage limit of foreign shareholding or the total value of investment.
In GATT, national treatment on internal taxation and regulation is a general
obligation. But in GATS, being an important instrument of liberalization, it is a specific
commitment (Article XVII). National treatment applies only to those services included
in the schedule of the member and even then it can be subject to specific conditions. For
instance, it may subject the imported services to a higher tax than identical domestically
supplied services.
The process of scheduling sector-specific commitments (Article XX) is a hybrid
between negative- and positive-list approaches. A Member must first identify in its
schedule the sectors in which it wishes to make commitments. Following the positivelist approach, the country makes commitments with respect to the listed sectors only. But
following the negative-list approach, it is presumed that complete access and national
treatment are granted except to the extent that explicit qualifications and limitations are
listed.
The schedule has a horizontal and a vertical section. The former is a general
section applying to all sectors listed in the vertical section. The latter spells out
qualifications applying to specific sectors. In the horizontal section and for each specific
sector in the vertical section, qualifications to commitments must be listed separately for
each mode of delivery and with respect to market access and national treatment. Given
Edmundas Radavicius. INTERNATIONAL TRADE
| 141
four modes of supply, this leads to eight entries in the horizontal section and for each
specific sector in the vertical section.
The following chart, taken from Low (1997), illustrates the structure of the GATS
schedule. As just noted, the horizontal section, designed to avoid repetition, contains
market access and national treatment limitations that apply to all scheduled sectors.
When the entry in the market access or national treatment column for a given mode of
delivery says “none,” it implies a complete absence of limitations and conditions. On
the other hand, if the entry says “unbound,” no commitment under the particular mode
of delivery has been made.
Preferential Trade Areas
As noted previously, GATS Article V allows members to liberalize preferentially
in services. The requirements imposed on such liberalization are similar to those in the
GATT Article XXIV relating to preferential trading in goods. The main difference is
that no distinction is made in GATS between FTAs and CUs. This is perhaps because of
the conceptual difficulties in making such a distinction in view of the fact that trade in
services is normally not subject to border barriers.
Member countries can form PTAs in services provided (a) they have a substantial
sectoral coverage and (b) they eliminate substantially all discrimination in the sense of
providing national treatment (as defined by Article XVII). The first of these conditions
is to be met in terms of the number of sectors, volume of trade affected and modes of
supply. In order to meet this condition, the agreement should not provide for a priori
exclusion of any mode of supply. The second condition is to be met by removing
the existing measures that discriminate against union partners and prohibiting any
new discriminatory measures except those relating to short-run balance of payments
difficulties (Article XII) general exceptions relating to public morals, human, animal or
plant life or health, and so on (Article XIV) and security exceptions (Article XIV bis).
In arrangements that include developing countries, Article V provides some
flexibility, especially with respect to condition (b) above. In evaluating whether or not
this condition is satisfied, the overall as well as sector specific level of development in
the country concerned may be taken into account. This provision is clearly different
from the GATT Article XXIV which makes no concessions for developing countries
forming FTAs or CUs with developed countries. Where arrangements between two
142 |
Edmundas Radavicius. INTERNATIONAL TRADE
or more developing countries are concerned, this provision opens the possibility of a
partial exchange of preferences as under the Enabling Clause for PTAs in goods.
There are three additional conditions that PTAs in services must satisfy. First,
the arrangements must not result in increased barriers to trade with extra-union WTO
members. Second, a service supplier of any other WTO member that is a juridical person
constituted under the laws of a PTA member must be entitled to treatment granted
under the PTA agreement, provided it engages in substantive business operations in the
territories of the PTA members.
Table 4. Trade Commitments1
Services
Activity
Mode of Supply
Limitation on Market
Access
Limitation on National Treatment
Part I: Horizontal Commitments
All Sectors 1. Cross-border
2. Consumption abroad
3. Commercial presence
4. Movement of natural persons
None
None
None
None
None
Unbound except intracorporate transfers of
executives for initial four
years; extension subject
to economic needs test
Part II: Sector-specific Commitments
Accounting 1. Cross-border
None
Services
2. Consumption None
abroad
3. Commercial Only natural persons may
presence
be registered as auditors
Subsidies for research
and development
Unbound except under
market access column
None
None
At least one equity
partner in a firm
must be a permanent
resident
4. Movement of Unbound except as
Unbound except under
natural persons provided in the horizontal market access column
section
Edmundas Radavicius. INTERNATIONAL TRADE
| 143
Electronic 1. Cross-border
Data
2. Consumption Interchange
abroad
3. Commercial presence
4. Movement of natural persons
None
None
None
None
None
None
Unbound except as
Unbound except
provided in the horizontal as provided in the
section
horizontal section
This condition is weakened in PTAs that have only developing countries as
members. In such arrangements, more favorable treatment may be granted to juridical
persons owned or controlled by natural persons of the parties to the agreement.
Finally, member countries forming a PTA should promptly notify the agreement, its
enlargement or significant modification to the Council for Trade in Services.
Mutual Recognition of Qualifications
Under Article VII, a member may give recognition to the experience obtained,
requirements met or licenses or certificates granted in another member. Such recognition
may be accorded autonomously, through a mutual recognition agreement or an agreement
to harmonize the standards.
While recognition and harmonization of standards are likely to have liberalizing
effect on trade in services, they may also effectively result in discrimination against
member countries whose standards are not recognized. To seek a balance between these
two opposing effects, Article VII makes an effort to ensure that adequate opportunity
is given to other countries to have their standards recognized as well. Thus, a member
signing an agreement with another member is asked to give adequate opportunity to
other members to negotiate their accession to the agreement or negotiate comparable
one. A member that accords the recognition autonomously is asked to give adequate
opportunity to any other member to demonstrate that education, experience, license, or
certification obtained or requirements met in its territory should be recognized as well.
Members are not to accord recognition in a manner that constitutes a means of
discrimination between countries or disguised restriction on trade in services. Whenever
appropriate, the members should accord recognition on multilaterally agreed criteria.
In appropriate cases, members are to cooperate with relevant inter-governmental and
144 |
Edmundas Radavicius. INTERNATIONAL TRADE
non-governmental organizations towards the establishment and adoption of common
international standards for recognition.
Transparency, Domestic Regulation and the Status of Monopolies and Exclusive
Service Suppliers
To ensure smooth flow of trade, Article III introduces some transparency
requirements, Article VI addresses domestic regulatory issues and Article VIII deals
with sectors or sub-sectors characterized by monopolies and exclusive service suppliers.
Article III requires all members to publish all relevant measures of general application
affecting trade in services. They are also to notify the Council for Trade in Services all
new or modified laws, regulations, and administrative guidelines affecting scheduled
commitments at least once a year. Each member is also required to establish inquiry
points to provide specific information to other members on laws, regulations or
administrative guidelines which affect trade in services covered by GATS.
Article VI requires that in sectors where a member has made specific commitments,
all measures of general application affecting trade in services be administered in a
reasonable, objective and impartial manner. The legal system permitting, members
are also required to maintain or institute judicial, arbitral or administrative tribunals
or procedures which provide for prompt review of and remedies for administrative
decisions affecting trade in services. Where authorization is required for the supply of
a service on which a specific commitment has been made, the relevant authority must
make its decision within a reasonable time.
Article VIII (implicitly) permits monopolies and exclusive suppliers in service
industries but requires that they not be allowed to abuse their market power so as to
violate the MFN obligations or to nullify any specific commitments of the country.
When the monopoly supplier competes in the supply of a service outside of his monopoly
rights and which is subject to the member’s specific commitments, he is not to abuse
his monopoly power. For instance, a monopoly operator in telecommunications sector
in a member country is not to operate in a way that nullifies the member’s specific
commitments with respect to the provision of Internet services.
Article IX relates to business practices of suppliers who do not fall under Article
VIII. It states that upon request from another member, a member will enter consultation
with a view to eliminating business practices that restrain competition and thereby
Edmundas Radavicius. INTERNATIONAL TRADE
| 145
restrain trade in services. The obligations imposed by this provision are not onerous,
however. The member is asked to “accord full and sympathetic consideration” to the
request and “supply publicly available non-confidential information relevant to the
matter in question.”
Restrictions to Safeguard the Balance of Payments
Like GATT, GATS (Article XII) permits temporary suspension of
liberalization commitments for the balance of payments reasons. The measures must
be nondiscriminatory, consistent with the Articles of Agreement of the International
Monetary Fund, no more restrictive than necessary and should not cause undue
damage to the commercial interests of other members. In determining the incidence
of restrictions, members are permitted to give priority to sectors more essential to their
economic or development interests but restrictions are not to be adopted for the purpose
of protecting a particular service sector.
Article XI requires that except under the circumstances necessitating Article XII
actions, members are not to restrict international transfers and payments for current
transactions relating to their specific commitments.
General and Security Exceptions
Like GATT, GATS (Articles XIV and XIV bis) allows exceptions to the agreement
on specific grounds. In the spirit of GATT Article XX, GATS Article XIV, members are
allowed to take the measures necessary to protect public morals or maintain public order,
to protect human, animal or plant life or health, and to secure compliance with laws and
regulation that are not inconsistent with GATS. In addition, members are allowed to
depart from national treatment provided this is aimed at ensuring equitable collection
of direct taxes. Departures from the MFN treatment to accommodate differences among
signatories arising from existing double taxation agreements are also permitted. Article
XIV bis allows several exceptions on security grounds.
Issues for Future Negotiations: Emergency Safeguards, Subsidies and
Government Procurement
Articles X, XIII and XV deal with emergency safeguards, government
procurement and subsidies, respectively. No agreement could be reached in these areas
and GATS simply left the issues to future negotiations. Article XIII explicitly excludes
146 |
Edmundas Radavicius. INTERNATIONAL TRADE
services purchased by government for governmental (rather than commercial) purposes
from being subject to the MFN, national treatment and market access provisions of
GATS.
Developing-Country-Specific Provisions
Though there are some special provisions for developing countries in GATS,
they are weaker than those in GATT. For example, there is no provision for one-way,
preferential market access by developed to developing countries comparable to the GSP
under GATT. As already described, partial preferences by developing countries to each
other are permitted. Also in PTAs with developed countries under Article V, they can
participate with less than full preferences.
Article IV, which may be viewed as the GATS equivalent of Part IV of GATT,
offers some general statements about increasing the participation of developing
countries but commits members to very little. It entreats all members to undertake
specific commitments beneficial to developing countries. Among measures that might
be adopted are liberalization of market access in sectors and supply modes of interest
to developing countries and better access to technology, distribution channels, and
information networks. The article calls on developed country members, and to the extent
possible developing country members, to establish contact points within two years to
facilitate the access of developing country members’ service suppliers to information
related to their respective markets.
Article XIX on market access also carries a general statement allowing
“appropriate flexibility for individual developing country members for opening fewer
sectors, liberalizing fewer types of transactions,” and so on. But since actual liberalization
is a matter of negotiation, it is doubtful that this provision is of any practical value.
The provision in the Annex on Telecommunications that a developing country member
may place reasonable conditions on access to public telecommunications networks is
similarly of dubious value.
Other Provisions
The remaining articles may be summarized as follows:
- Article XIX establishes a continuing program of future negotiations. The first
of these negotiations was to begin by January 1, 2000 but has failed to be launched due
Edmundas Radavicius. INTERNATIONAL TRADE
| 147
to the failure of the Seattle conference.
- Article XXI sets out procedures for the withdrawal or modification of
commitments in the schedules.
- Articles XXII and XXIII contain dispute settlement provisions. Article XXII
provides for consultations at the bilateral level as well as through the Council for Trade in
Services or the Dispute Settlement Body. Article XXIII establishes the right of members
to use the WTO Dispute Settlement mechanism.
- Article XXIV establishes the Council for Trade in Services, Article XXV
deals with technical cooperation and Article XXVI concerns the relationship with other
international organizations.
- Part VI has three articles, XXVII to XXIX. Article XVII states that a country
can deny the benefits of the agreement to a service if it originates in the territory of a
nonmember. Article XXVIII defines several terms used in the agreement. For instance,
“supply” is defined to include production, distribution, marketing, sale, and delivery
of the service. A juridical person is considered “owned” by a member if more than
50 percent of the equity is owned by persons of the member. Article XXIX makes the
annexes a part of the agreement.
Annexes
Article XXIX consists of eight annexes that are integral part of GATS. These
relate to the MFN exemptions, movement of natural persons, telecommunications,
financial services, air transport services and maritime services. The sectoral annexes
spell out in greater detail provisions specific to the sectors under consideration. For
instance, the annex on financial services (largely banking and insurance) lays down
the right of parties to take prudential measures for the protection of investors, deposit
holders and policyholders, and to ensure the integrity and stability of the financial
system. Similarly, the annex on telecommunications relates to measures that affect
access to and use of public telecommunications services and networks. It requires that
such access be provided to another party on reasonable and non-discriminatory terms,
to permit the supply of a service included in the member’s schedule. The annex on airtransport services excludes from GATS traffic rights (principally bilateral air-service
agreements conferring landing rights) and directly related activities.
148 |
Edmundas Radavicius. INTERNATIONAL TRADE
Intellectual Property Rights
In addition to trade in goods and services, WTO rules cover intellectual property
(IP) rights. The inclusion of this subject into the WTO was and remains a source of
considerable controversy. The relationship between intellectual property rights and trade
is at best indirect. Moreover, whereas trade liberalization is beneficial to the country
undertaking liberalization as well as its trading partners, the extension of IP protection to
poor countries redistributes income from the rich to poor countries without necessarily
increasing the world welfare. We will return to this controversy later. Presently, let us
look at the main provisions of the Agreement on Trade Related Aspects of Intellectual
Property Rights (TRIPs) which governs the WTO regime on IP protection.
The Agreement on TRIPs has wide ranging provisions as it covers the entire
gamut of issues related to the protection of intellectual property. These include patents,
copyrights, trademark and geographical indications, layout designs of integrated
circuits, industrial designs, and protection of undisclosed information (trade secrets).
The agreement incorporates the provisions of the four previous IPR agreements: the
Paris Convention covering inventions, trade names, trademarks, industrial designs and
appellation of source; Berne Convention on copyrights, Rome Convention on sound
recordings and the Washington Treaty on layout design of integrated circuits. The
agreement specifies the standards defining key issues of protection in each area and
includes commitments on national enforcement procedures. The agreement binds the
contracting parties to a dispute settlement mechanism, administered by the WTO.
The agreement has six parts which contain 73 articles.
General Obligations and Basic Principles
Part I has eight articles that set out general obligations of members. The key
obligations relate to the national status and most favored nation treatment by each
member to other members. According to Article 3, each member must treat the nationals
of other member countries no less favorably than its own on all IP matters including
standards, enforcement and acquisition. According to Article 4, members must not treat
the nationals of another member country less favorably than those of another country.
IP Standards
Part II is divided into eight sections which are, in turn, divided into 32 articles.
Edmundas Radavicius. INTERNATIONAL TRADE
| 149
This part contains the standards of intellectual property right in different areas in
succession. Provisions on copyright in Section 1 protect the rights of authors of books,
music and films. Members are required to comply with the substantive provision for the
Berne Convention on the Protection of Literary and Artistic Works in its latest version
(Paris 1971). The agreement provides that computer programs be protected as literary
works under the Berne Convention and lays down criteria for the protection of data
bases by copyright. The agreement also requires that authors of computer programs and
producers of sound recordings be given the exclusive right to authorize or prohibit the
commercial rental of their works to the public. A similar exclusive right applies to films.
Section 5 of Part II covers patents. In this area, members must comply with
the substantive provisions of the 1967 Paris Convention on the Protection of Industrial
Property. In addition, the agreement requires that 20-year patent protection be available
for all inventions, whether of products or processes, in almost all fields of technology
including pharmaceuticals. Plant varieties are to be protected either by patents or by a
specific system such as the breeder’s rights provided in the International Convention
for the Protection of New Varieties of Plants of 1978. Furthermore, rights conferred
in respect of processes must extend to the products directly obtained from the process.
Section 6 of Part II deals with the protection of layout designs of integrated
circuits and goes beyond the Washington Treaty (1989) by adding further provisions.
Accordingly, protection to layout designs of integrated circuits is to be provided for at
least ten years, the rights extend to articles containing the chip, an “innocent infringer,”
though free from liability, must pay a suitable royalty on the use or sale of stock in hand
and ordered before learning of the infringement, and compulsory licensing and use by
the government can be permitted only under a number of strict conditions.
On trademarks and service marks, covered in Section 2 of Part II, the agreement
provides the first full set of key standards that include the definition of signs that must
be eligible for protection. It requires that protection be granted for a minimal period
of seven years and should be renewable indefinitely. In the area of geographical
indications (Section 3), the agreement lays down that members should prevent the
use of any indication that misleads the consumer as to the origin of goods. Industrial
designs (Section 4) are protected under the agreement for a period of ten years. Owners
of protected designs would be able to prevent the manufacture, sale, or importation of
150 |
Edmundas Radavicius. INTERNATIONAL TRADE
articles bearing or embodying a design that is a copy of the protected design. Finally,
trade secrets and expertise (Section 7) that have a commercial value must be protected
against breach of confidence and other acts contrary to honest commercial practices.
Enforcement
Part III of the agreement deals with the important issue of enforcement of
TRIPs. The broad objective of the enforcement provisions is to ensure effective
national enforcement of IP laws without the procedure becoming abusive. The primary
responsibility for initiating action for enforcement falls on the private right holders, not
the country. The country can be challenged by WTO only if it can be shown that it has
failed to fulfill its obligations under the TRIPs agreement.
Dispute Settlement and Transition Arrangements
Part IV, containing just one article (Article 62), recognizes that the acquisition
and maintenance of IP rights may require reasonable compliance with procedures
and formalities. Part V deals with dispute prevention and settlement. Members are
required to satisfy certain transparency requirements and the strengthened WTO dispute
settlement procedures apply to the TRIPs agreement. Part VI describes the transitional
arrangements. Accordingly, national treatment and the MFN provision were to come
into force in all countries beginning 1 January 1996. Developed countries were also to
implement the rest of the agreement by that date. Developing and transition economies
were given until January 1, 2000 to implement the rest of the agreement with additional
leeway as follows: (i) Any member not providing product patent in certain areas at
the time of the signing of the agreement, could delay the introduction of product
patent in those areas until January 1, 2005. This meant countries such as India, which
provided only process patent in the area of pharmaceuticals, got until January 1, 2005
to introduce product patent in this area. (ii) Least developed countries were given until
January 1, 2006 to implement all provisions other than Articles 3, 4 and 5. Part VII of
the agreement describes the institutional arrangements including the delegation of the
charge of monitoring of the agreement to the Council on TRIPs.
QUESTIONS/DISCUSSION
1. Prepare a presentation with your opinion to the topics below. Please back up
Edmundas Radavicius. INTERNATIONAL TRADE
| 151
your opinion with the research on the internet and available data.
a.Is it reasonable for Lithuania and other Baltic state to become a member
ot the WTO organization?
b.What are main advantages and disadvantages of the WTO organization
in comparison to other similar organizations?
2. Workshop: (Divide students into groups consisting of 3-5 people.)
a.Step1: 30 minute discussion about WTO organization within group.
(Outcome: each group must to have a well formed benefits and roadblocks
of this organization)
b.Step2: “Court Play” – each group ir acting either as an advocate or a
prosecutor. Student has an active debates where they try to point out the
arguments.
c.Step3: Moderator makes a well formed outcome.
3.Active open discussion within process of explanation.
REFERENCES
The context of this part has been adapted from the following product(s):
1.Arvind Panagariya (2005). Core WTO Agreements: Trade in Goods and
Services and Intellectual Property.
2.Adlung, R. & Roy, M. (2005). Turning Hills into Mountains? Current
Commitments under the GATS and Prospects for Change. Staff Working Paper ERSD2005-01, Economic Research and Statistics Division, World Trade Organization,
Geneva.
3.IMF (2014). World Economic Outlook: Recovery Strengthens and Remains
Uneven.
FURTHER READING
1.WTO Analytical Index: Guide to WTO Law and Practice. 1st ed. Geneva:
WTO Publications; Lanham, Md: Bernan, 2003. Two volumes.
2.The EU, the WTO, and the NAFTA: Towards a Common Law of International
Trade? Ed. J.H.H. Weiler. Oxford; New York: Oxford University Press, 2000.
152 |
Edmundas Radavicius. INTERNATIONAL TRADE
Intellectual Property Rights in the WTO and Developing Countries. Jayashree Watal.
Boston: Kluwer Academic Publishers, 2001.
3.International Economic Law. Andreas F. Lowenfeld. International Economic
Law Series. Oxford; New York: Oxford University Press, 2002.
4.International Trade Practice. 2d ed. Kaye and Dunn. Eagan, MN: Thomson/
West, 2004.
5.Regional Trade Agreements and the WTO Legal System. Ed. Lorand Bartels
and Federico Ortino. Oxford; New York: Oxford University Press, 2006.
6.The Regulation of International Trade. 3d ed. Michael J. Trebilcock and Robert
Howse. London; New York: Routledge, 2005
7.Trade Related Aspects of Intellectual Property Rights: A Commentary on
the TRIPS Agreement. Carlos Maria Correa. Oxford Commentaries on GATT/WTO
Agreements. New York: Oxford University Press, 2006.
8.The World Trade Organization: Law, Practice, and Policy. Mitsuo Matsushita,
Thomas J. Schoenbaum and Petros C. Mavroidis. Oxford International Law Library.
Oxford; New York: Oxford University Press, 2003.
9.World Trade Report. Geneva: WTO, 2003-. The main WTO research publication
on global trade policy.
10. WTO: Institutions and Dispute Settlement. Ed. Rudiger Wolfrum, PeterTobias Stoll and Karen Kaiser. Max Planck Commentaries on World Trade Law; 2. The
Hague: Martinus Nijhoff International, 2006.
Edmundas Radavicius. INTERNATIONAL TRADE
| 153
Part 6: Ot her international trade org ani zations
Objective outline:
1. Introduce to the students to NAFTA, GATT and other international trade organizations.
2. Discuss the necessity and purpose of these organizations.
Chapter Six Glossary
1. ACCEPTANCE – Any agreement to purchase goods under specified terms. An
agreement to purchase goods at a stated price and under stated terms.
2. AD VALOREM – According to value
3. ADVANCE AGAINST DOCUMENTS – A loan made on the security of the documents
covering the shipment.
4. ADVISING BANK – A bank, operating in the exporter’s country, which handles
LETTERS OF CREDIT for a foreign bank by notifying the exporter that the credit
has been opened in his or her favor.
5. ADVISORY CAPACITY – A term indicating that shipper’s agent or representative is
not empowered to make definitive decisions or adjustments without approval of the
group or individual represented.
6. AIR WAYBILL – A BILL OF LADING that covers both domestic and international
flights transporting goods to a specified destination.
7. ALONGSIDE – A phrase referring to the side of a ship. Goods to be delivered
“alongside” are to be placed on the dock or barge within reach of the transport ship’s
tackle so that they can be loaded aboard the ship.
8. ALTERATION – A change in the boundaries of an activated zone or subzone.
9. ALTERNATIVE INVENTORY CONTROL SYSTEM (AICS) – A former system of
inventory control, manual or automated, based on records maintained by a zone
grantee, operator or individual zone user.
154 |
Edmundas Radavicius. INTERNATIONAL TRADE
10.APPLICANT – A corporation applying for the right to establish, operate and maintain
a foreign-trade zone.
11.ARBITRAGE – The process of buying FOREIGN EXCHANGE, stocks, bonds and
other commodities in one market and immediately selling them in another market at
higher prices.
12.ASIAN DOLLARS – U.S. dollars deposited in Asia and the Pacific Basin.
13.ATTRIBUTIVE BASIS – Method of accounting for merchandise where direct
identification of the goods with the shipment as admitted to the zone has been lost.
14.AUDIT-INSPECTION PROCEDURES – Provide the framework for Customs to
reduce on-site supervision of zones and for zone operators/users to increase zone
operating flexibility through the method of supervising zones.
15.BALANCE OF TRADE – The difference between a country’s total imports and
exports.
16.BARTER – Trade in which merchandise is exchanged directly for other merchandise
without use of money.
17.BENEFICIARY – The person in whose favor a LETTER OF CREDIT is issued or a
DRAFT is drawn.
18.BILL OF LADING – A document that establishes the terms of a contract between a
shipper and a transportation company under which freight is to be moved between
specified points for a specified charge.
19.BONDED WAREHOUSE – A warehouse authorized by CUSTOMS authorities
for storage of goods on which payment of DUTIES is deferred until the goods are
removed.
20.BOOKING – An arrangement with a steamship company for the acceptance and
carriage of freight.
21.CARNET – A customs document permitting the holder to carry or send merchandise
temporarily into certain foreign countries without paying duties or posting bonds.
22.CASH AGAINST DOCUMENTS (C.A.D.) – Payments for goods in which a
Edmundas Radavicius. INTERNATIONAL TRADE
| 155
commission house or other intermediary transfers title documents to the buyer upon
payment in cash.
23.CASH IN ADVANCED (C.I.A.) – Payment for goods in which the price is paid in full
before shipment is made.
24.CASH WITH ORDER (C.W.O.) – Payment for goods in which the buyer pays when
ordering and in which the transaction is binding on both parties.
25.CERTIFICATE OF INSPECTION – A document certifying that merchandise was in
good condition immediately prior to its shipment.
26.CERTIFICATE OF MANUFACTURE – A statement in which a producer of goods
certifies that manufacture has been completed and that the goods are now at the
disposal of the buyer.
27.CERTIFICATE OF ORIGIN – A document, certifying the country of origin of
specified goods.
28.COST AND FREIGHT (C & F) – A pricing term indicating that the cost of the goods
and freight charges are included in the quoted price.
29.CHARTER PARTY – Written contract between the owner of a vessel and a “charterer”
who rents use of the vessel or a part of its freight space.
30.COST AND INSURANCE (C & I) – A pricing term indicating that the cost of the
product and insurance are included in the quoted price.
31.COST, INSURANCE, FREIGHT – A pricing term indicating that the cost of the
goods, insurance, and freight are included in the quoted price.
32.CLEAN BILL OF LADING – A receipt for goods issued by a carrier that indicates that
the goods were received in “apparent good order and condition”, without damages or
other irregularities.
33.CLEAN DRAFT – A draft to which no documents have been attached.
34.COLLECTION PAPERS – All documents submitted to a buyer for the purpose of
receiving payment for a shipment.
156 |
Edmundas Radavicius. INTERNATIONAL TRADE
35.COMMERCIAL ATTACHÉ – The commerce expert on the diplomatic staff of his/her
country’s embassy or large consulate.
36.COMMERCIAL INVOICE – An itemized list of goods shipped, usually among an
exporter’s COLLECTION PAPERS.
37.COMMON CARRIER – An individual, partnership, or corporation that transports
persons or goods for compensation.
38.CONFIRMED LETTER OF CREDIT – A letter of credit, issued by a foreign bank,
whose validity has been confirmed by a U.S. bank.
39.CONSIGNMENT – Delivery of merchandise from an exporter (consignor) to an agent
(consignee) under agreement that the agent sell the merchandise for the account of
the exporter.
40.CONSTRUCTIVE TRANSFER – A legal fiction which permits acceptance of a
Customs entry for merchandise in a zone before its physical transfer to the Customs
territory.
41.CONSULAR INVOICE – A document, required by some foreign countries, describing
a shipment of goods and showing information such as the consignor, consignee, and
value of the shipment.
42.CONVERTIBLE CURRENCY – A currency that can be bought and sold for other
currencies at will.
43.CORPORATION, PRIVATE – Any corporation which is organized for the purpose of
establishing, operating and maintaining a foreign-trade zone and which is chartered
under a special act of the State within which it is to operate such a zone.
44.CORPORATION, PUBLIC – A State, political subdivision thereof, a municipality, a
public agency of a State, political subdivision thereof, or municipality, or a corporate
municipal instrumentality of one or more States.
45.CORRESPONDENT BANK – A bank that, in its own country, handles the business
of a foreign bank.
46.COUNTERTRADE – The sale of goods or services that are paid in whole or in part
Edmundas Radavicius. INTERNATIONAL TRADE
| 157
by the transfer of goods or services from a foreign country.
47.CREDIT RISK INSURANCE – Insurance designed to cover risks of nonpayment for
delivered goods.
48.CUSTOMS – The authorities designated to collect duties levied by a country on
imports and exports.
49.CUSTOMS TERRITORY – Territory of the U.S. in which the general tariff laws of
the U.S. apply.
50.CUSTOMHOUSE BROKER – An individual or firm licensed to enter and clear goods
through Customs.
51.DATE DRAFT – A draft that matures in a specified number of days after the date it is
issued, without regard to the date of ACCEPTANCE.
52.DEACTIVIZATION – Voluntary discontinuation of the activation of an entire zone or
subzone by the grantee or operator.
53.DEFAULT – An act or omission that will result in a claim for duties, taxes, charges
or liquidated damages under the FTZ Operator’s Bond
54.DEFERRED PAYMENT CREDIT – Type of LETTER OF CREDIT providing for
payment sometime after presentation of shipping documents by exporter.
55.DESTINATION CONTROL STATEMENT – Any of various statements that the
U.S. Government requires to be displayed on export shipments and that specify the
destinations for which export of the shipment has been authorized.
56.DEVALUATION – The official lowering of the value of one country’s currency in
terms of one or more foreign currencies.
57.DISCREPANCY - LETTER OF CREDIT – When documents presented do not
conform to the letter of credit.
58.DISPATCH – An amount paid by a vessel’s operator to a charterer if loading or
unloading is completed in less time than stipulated in the charter party.
59.DISTRIBUTOR – A foreign agent who sells for a supplier directly and maintains an
158 |
Edmundas Radavicius. INTERNATIONAL TRADE
inventory of the supplier’s products.
60.DISTRICT DIRECTOR – The district director of customs in whose district the zone
is located.
61.DISTRICT ENGINEER – The engineer of the Department of the Army in whose
district the zone is located.
62.DOCK RECEIPT – A receipt issued by an ocean carrier to acknowledge receipt of a
shipment at the carrier’s dock or warehouse facilities.
63.DOCUMENTARY AGAINST ACCEPTANCE (D/A) – Instructions given by a shipper
to a bank indicating that documents transferring title to goods should be delivered to
the buyer only upon the buyer’s acceptance of the attached draft.
64.DRAFT – An unconditional order in writing from one person (the drawer) to another
(the drawee), directing the drawee to pay a specified amount to a named drawer at a
fixed or determinable future date.
65.DRAWBACK – Articles manufactured or produced in the United States with the use
of imported components or raw materials and later exported are entitled to a refund
of up to 99% of the duty charged on the imported components.
66.DRAWEE – The individual or firm on whom a draft is drawn and who owes the
stated amount.
67.DRAWER – The individual or firm that issues or signs a draft and thus stands to
receive payment of the stated amount from the drawee.
68.DUMPING – Exporting/Importing merchandise into a country below the costs
incurred in production and shipment.
69.DUTY – A tax imposed on imports by the customs authority of a country.
70.EURODOLLARS – U.S. dollars placed on deposit in banks outside the United States;
usually in Europe.
71.EXCHANGE PERMIT – A government permit sometimes required by the importer’s
government to enable the importer to convert his or her own country’s currency into
foreign currency with which to pay a seller in another country.
Edmundas Radavicius. INTERNATIONAL TRADE
| 159
72.EXCHANGE RATE – The price of one currency in terms of another, i.e., the number
of units of one currency that may be exchanged for one unit of another currency.
73.EXHIBITION – The showing of merchandise within a zone, usually to prospective
buyers.
74.EXIMBANK – The Export-Import Bank of the United States.
75.EXPORT BROKER – An individual or firm that brings together buyers and sellers for
a fee but does not take part in actual sales.
76.EXPORT COMMISSION HOUSE – An organization which, for a commission, acts
as a purchasing agent for a foreign buyer.
77.EXPORT LICENSE – A government document that permits the “Licensee” to engage
in the export of designated goods to certain destinations.
78.EXPORT MANAGEMENT COMPANY – A private firm that serves as the export
department for several manufacturers, soliciting and transacting export business on
behalf of its clients in return for a commission, salary, or retainer plus commission.
79.EXPORT TRADING COMPANY – A firm similar or identical to an export management
company.
80.FIRST IN-FIRST OUT (FIFO) – An accounting method based on an assumption
regarding the flow of goods that older stock is disposed of first, in accordance with
good merchandising policy.
81.FORCE MAJEURE – The title of a standard clause in marine contracts exempting
the parties for nonfulfillment of their obligations as a result of conditions beyond
their control, such as earthquakes, floods, or war.
82.FOREIGN EXCHANGE – The currency or credit instruments of a foreign country.
83.FOREIGN FIRST (FOFI) – An accounting method based on an assumption regarding
the flow of goods that foreign status merchandise is disposed of first.
84.FOREIGN SALES AGENT – An individual or firm that serves as the foreign
representative of a domestic supplier and seeks sales abroad for the supplier.
160 |
Edmundas Radavicius. INTERNATIONAL TRADE
85.FOREIGN-TRADE ZONE/FREE TRADE ZONE – A port designated by the
government of a country for duty-free entry of any non-prohibited goods.
Merchandise may be stored, displayed, or used for manufacturing, etc., within the
zone and reexported without duties being paid.
86.FOREIGN-TRADE ZONES ACT – The Foreign-Trade Zones Act of June 18, 1934,
(48 Stat. 998-1003; 19 U.S.C. 81a-81u) as amended.
87.FOREIGN-TRADE ZONES BOARD – The Board which is established to carry out
the provisions of the Foreign-Trade Zones Act.
88.FOUL BILL OF LADING – A receipt of goods issued by a carrier with an indication
that the goods were damaged when received.
89.FREE ALONGSIDE (F.A.S.) – A pricing term indicating that the quoted price
includes the cost of delivering the goods alongside a designated vessel.
90.FREE IN (F.I.) – A pricing term indicating that the charter of a vessel is responsible
for the cost of loading and unloading goods from the vessel.
91.FREE PORT – An area such as a port city into which merchandise may be legally
moved without payment of duties.
92.FREIGHT FORWARDER – An independent business which handles export
shipments for compensation.
93.GATT/GENERAL AGREEMENT ON TARIFFS AND TRADE – A multilateral treaty
intended to help reduce trade barriers between the signatory countries and to promote
trade through tariff concessions.
94.GENERAL EXPORT LICENSE – Any various export licenses covering export
commodities for which VALIDATED EXPORT LICENSES are not required.
95.GRANTEE – A corporation to which the privilege of establishing, operating, and
maintaining a foreign-trade zone has been granted by the Foreign-Trade Zones
Board.
96.GROSS WEIGHT – The full weight of a shipment, including goods and packaging.
97.IMPORT LICENSE – A document required and issued by some national governments
Edmundas Radavicius. INTERNATIONAL TRADE
| 161
authorizing the importation of goods into their individual countries.
98.INLAND BILL OF LADING – A bill of lading used in transporting goods overland to
the exporter’s international carrier.
99.IRREVOCABLE LETTER OF CREDIT – A letter of credit in which the specified
payment is guaranteed by the bank if all terms and conditions are met by the drawee.
100.LETTER OF CREDIT (L/C) – A document, issued by a bank per instructions by
a buyer of goods, authorizing the seller to draw a specified sum of money under
specified terms, usually the receipt by the bank of certain documents within a given
time.
101.LICENSING – A business arrangement in which the manufacturer of a product
grants permission to some other group or individual to manufacture that product in
return for specified royalties.
102.MANIPULATION – Processing wherein merchandise is packed, unpacked,
repacked, cleaned, sorted, graded or otherwise changed in condition but not
manufactured.
103.MANUFACTURE – Generally, the production of articles for use from raw or
prepared materials by substantially transforming such materials into new forms.
104.MARINE INSURANCE – Insurance that compensates the owners of goods
transported overseas in the event of loss that cannot be legally recovered from the
carrier.
105.MARKING – Letters, numbers, and other symbols on cargo packages to facilitate
identification.
106.MERCHANDISE – Includes goods, wares, and chattels of every description except
Prohibited Merchandise, building materials, production equipment and supplies for
use in operation of a zone.
107.MERCHANDISE, DOMESTIC – Merchandise which has been produced in the U.S.
and not exported therefrom.
108.MERCHANDISE, FOREIGN – Imported Merchandise which has not been properly
162 |
Edmundas Radavicius. INTERNATIONAL TRADE
released from Customs custody into the Customs territory of the U.S.
109.MERCHANDISE, FUNGIBLE – Merchandise which for commercial purposes is
identical and interchangeable in all situations.
110.MERCHANDISE, MIXED STATUS – Foreign Merchandise which has been
combined with Domestic Merchandise in the zone.
111.MERCHANDISE/OPERATIONS, PROHIBITED – Merchandise, the importation
of which is prohibited by law on grounds of public policy or morals, or excluded by
order of the Foreign-Trade Zones Board..
112.MERCHANDISE/OPERATIONS, RESTRICTED – Merchandise which may not be
authorized for delivery from Customs custody without a special permit, or a waiver
thereof by an agency of the U.S. Government.
113.NONPRIVILEGED FOREIGN (NPF) – Foreign Merchandise or non-tax-paid
domestic merchandise upon which the duty and applicable taxes will be determined
at the time of entry from the zone for consumption.
114.OCEAN BILL OF LADING – A bill of lading indicating that the exporter consigns
a shipment to an int’l carrier for transportation to a specified foreign market.
115. ON BOARD BILL OF LADING – A bill of lading in which a carrier certifies that
goods have been placed on board a certain vessel.
116. OPEN ACCOUNT – A trade arrangement in which goods are shipped to a foreign
buyer without guarantee of payment.
117. OPEN INSURANCE POLICY – A marine insurance policy that applies to all
shipments made by an exporter over a period of time rather than to one shipment
only.
118. OPERATOR – A corporation, partnership, or person that operates a zone or subzone
under the terms of an agreement with the Grantee.
119.OPERATOR’S BOND – All zone operators must submit to Customs a bond to
assure compliance with Customs regulations.
120.ORDER BILL OF LADING – A negotiable bill of lading made out to the order of
Edmundas Radavicius. INTERNATIONAL TRADE
| 163
the shipper.
121.PACKING LIST – A list showing the number and kinds of items being shipped, as
well as other information needed for transportation purposes.
122.PARCEL POST RECEIPT – The postal authorities’ signed acknowledgment of
delivery to receiver of a shipment made by parcel post.
123.PRIVATE EXPORT FUNDING CORPORATION (PEFCO) – Lends to foreign
buyers to finance exports from U.S.
124.PERILS OF THE SEA – A marine insurance term used to designate heavy weather,
stranding, lightning, collision, and seawater damage.
125.PHYTOSANITARY INSPECTION CERTIFICATE – A certificate, issued by the
U.S. Department of Agriculture to satisfy import regulations for foreign countries,
indicating that a U.S. shipment has been inspected and is free from harmful pests and
plant diseases.
126.POLITICAL RISK – In export financing the risk of loss due to such causes
as currency, inconvertibility, government action preventing entry of goods,
expropriation or confiscation, war, etc.
127.PRIVILEGED FOREIGN (PF) – Foreign merchandise or non-tax paid domestic
merchandise upon which the duty and applicable taxes have been determined at the
time this status is approved.
128.PRO FORMA INVOICE – An invoice provided by a supplier prior to the shipment
of merchandise, informing the buyer of the kinds and quantities of goods to be sent,
their value, and important specifications.
129.PURCHASING AGENT – An agent who purchases goods in his or her own country
on behalf of foreign importers such as government agencies and large private
concerns.
130.QUOTA – The quantity of goods of a specific kind that a country permit to be
imported without restriction or imposition of additional DUTIES.
131.QUOTATION – An offer to sell goods at a stated price and under specified
164 |
Edmundas Radavicius. INTERNATIONAL TRADE
conditions.
132.REACTIVATION – A resumption of the activated status of an entire area that was
previously deactivated without any change in the operator or the area boundaries.
133.REGIONAL COMMISSIONER – The Regional Commissioner of Customs for the
Customs Region in which the zone is located.
134.REMITTING BANK – Bank that sends the draft to overseas bank for collection.
135.RESIDENT MEMBER – The official that has been delegated authority by the
Secretary of the Army to act on nondiscretionary zone matters.
136.RETAIL TRADE – Generally, sales or offers to sell goods or services to individuals
for personal use.
137.REVOCABLE LETTER OF CREDIT – A letter of credit that can be canceled or
altered by the drawee (buyer) after it has been issued by the drawee’s bank.
138.SCHEDULE B – Refers to Schedule B, Statistical Classification of Domestic and
Foreign Commodities Exported from the United States.
139.SHIPPER’S EXPORT DECLARATION – A form required for all shipments by the
U.S. Treasury Department and prepared by a shipper, indicating the value, weight,
destination, and other basic information about an export shipment.
140.SHIP’S MANIFEST – An instrument in writing, signed by the captain of a ship that
lists the individual shipments constituting the ship’s cargo.
141.SIGHT DRAFT – A draft that is payable upon presentation to the drawee.
142.SPOT EXCHANGE – The purchase or sale of foreign exchange for immediate
delivery.
143.STANDARD INDUSTRIAL CLASSIFICATION (SIC) – A standard numerical code
system used by the U.S. Government to classify products and services.
144.STANDARD INTERNATIONAL TRADE CLASSIFICATION (SITC) – A standard
numerical code system developed by the U.N. to classify commodities used in
international trade.
Edmundas Radavicius. INTERNATIONAL TRADE
| 165
145.STATE – Any State, the District of Columbia, and Puerto Rico.
146.STEAMSHIP CONFERENCE – A group of steamship operators that operate under
mutually agreed upon freight rates.
147.STRAIGHT BILL OF LADING – A nonnegotiable bill of lading in which the goods
are consigned directly to a named consignee.
148.SUBZONE – A special purpose zone established as part of a zone project for a
limited purpose, which cannot be accommodated within an existing zone.
149.TARE WEIGHT – The weight of a container and packing materials without the
weight of the goods it contains.
150.TENOR – Designation of a payment as being due at sight, a given number of days
after sight, or a given number of days after date.
151.THROUGH BILL OF LADING – A single bill of lading covering both the domestic
and international carriage of an export shipment.
152.TIME DRAFT – A draft that matures either a certain number of days after acceptance
or a certain number of days after the date of the draft.
153.TRAMP STEAMER – A ship not operating on regular routes or schedules.
154.TRANSACTION STATEMENT – A document that delineates the terms and
conditions agreed upon between the importer and exporter.
155.TRANSFER – To take merchandise with zone status from a zone for consumption,
transportation, exportation, warehousing, cartage or lighterage, vessel supplies and
equipment, admission to another zone, and like purposes.
156.TRUST RECEIPT – Release of merchandise by a bank to a buyer in which the bank
retains title to the merchandise.
157.UNIQUE IDENTIFIER NUMBER (UIN) – This inventory method controls
merchandise in a zone by unique numbers and/or letters that identify merchandise
admitted to a zone.
158.USER – A person or firm using a zone for storage, handling or processing of
166 |
Edmundas Radavicius. INTERNATIONAL TRADE
merchandise.
159.VALIDATED EXPORT LICENSE – A required document issued by the U.S.
Government authorizing the export of specific commodities.
160.VESSEL/AIRCRAFT SUPPLY – The supply of goods or equipment free of duties
and taxes under section 309 of the Tariff Act, to eligible vessels or aircraft for use
while actually engaged in foreign trade, or in transit to any U.S. possession.
161.WAREHOUSE RECEIPT – A receipt issued by a warehouse listing goods received
for storage.
162.WHARFAGE – A charge assessed by a pier or dock owner for handling incoming or
outgoing cargo.
163.WITHOUT RESERVE – A term indicating that a shipper’s agent or representative
is empowered to make definitive decisions and adjustments abroad without approval
of the group or individual represented.
World regions and trade organizations1
In the table below you will find the list of main world organizations. Typically
the organization encapsulates the bodies acting within certain region or industry.
Table 5. Organization encapsulates the bodies acting within certain region or
industry1
Organization
Abbreviations
Organization
Member Countries
AGOA
African Growth
and Opportunity
Act
Angola, Benin, Botswana, Burkina Faso,
Burundi, Cameroon, Cape Verde, Chad,
Comoros, Republic of Congo, Democratic
Republic of Congo, Djibouti, Ethiopia,
Gabon, The Gambia, Ghana, Guniea, GuineaBissau, Kenya, Lesotho, Liberia, Madagascar,
Malawi, Mali, Mauritius, Mozambique,
Namibia, Niger, Nigeria, Rwanda, Sao Tome
and Principe, Senegal, Seychelles, Sierra
Edmundas Radavicius. INTERNATIONAL TRADE
| 167
Leone, South Africa, Swaziland, Tanzania,
Togo, Uganda, Zambia
APEC
Asia Pacific
Economic
Cooperation
Australia, Brunei Darussalam, Canada,
Chile, People's Republic of China, Hong
Kong, Indonesia, Japan, Republic of Korea,
Malaysia, Mexico, New Zealand, Papua
New Guinea, Peru, Philippines, Russian
Federation, Singapore, Taiwan, Thailand,
United States, Vietnam
ASEAN
Association of Brunei Darussalam, Burma
South East Asian (Myanmar),Cambodia, Indonesia, Laos,
Nations
Malaysia, Philippines, Singapore, Thailand,
Vietnam
CAFTA-DR
Central America- Costa Rica, Dominican Republic, El
Dominican
Salvador, Guatemala, Honduras, Nicaragua,
Republic Free
United States
Trade Agreement
CAN
CARICOM
Andean
Community
Bolivia, Colombia, Ecuador, Peru
Caribbean
Antigua and Barbuda, Bahamas, Barbados,
Community and Belize, Dominica, Grenada, Guyana, Haiti,
Common Market Jamaica, Montserrat, St. Kitts and Nevis,
St. Lucia, St. Vincent and the Grenadines,
Suriname, Trinidad and Tobago
CEMAC
Economic
and Monetary
Community of
Central Africa
Cameroon, Central African Republic, Chad,
Republic of Congo, Equatorial Guinea,
Gabon
CIS
Commonwealth
of Independent
States
Armenia, Azerbaijan, Belarus, Georgia,
Kazakhstan, Kyrgyz Republic, Moldova,
Russian Federation, Tajikistan, Turkmenistan,
Ukraine, Uzbekistan
168 |
Edmundas Radavicius. INTERNATIONAL TRADE
COMESA
ECO
EFTA
Common Market Burundi, Comoros, Democratic Republic of
for Eastern and Congo, Djibouti, Egypt, Eritrea, Ethiopia,
Southern Africa Kenya, Libya, Madagascar, Malawi,
Mauritius, Rwanda, Seychelles, Sudan,
Swaziland, Uganda, Zambia, Zimbabwe
Economic
Cooperation
Organization
Afghanistan, Azerbaijan, Iran, Kazakhstan,
Kyrgyz Republic, Pakistan, Tajikistan,
Turkey, Turkmenistan, Uzbekistan
European Free Iceland, Liechtenstein, Norway, Switzerland
Trade Association
EU-25
European
Union - 25
Austria, Belgium, Cyprus, Czech Republic,
Denmark, Estonia, Finland, France, Germany,
Greece, Hungary, Ireland, Italy, Latvia,
Lithuania, Luxembourg, Malta, Netherlands,
Poland, Portugal, Slovakia, Slovenia, Spain,
Sweden, United Kingdom
EU-27
European
Union - 27
Austria, Belgium, Bulgaria, Cyprus, Czech
Republic, Denmark, Estonia, Finland, France,
Germany, Greece, Hungary, Ireland, Italy,
Latvia, Lithuania, Luxembourg, Malta,
Netherlands, Poland, Portugal, Romania,
Slovakia, Slovenia, Spain, Sweden, United
Kingdom
FTAA
Free Trade Area
of the Americas
Antigua and Barbuda, Argentina, Bahamas,
Barbados, Belize, Bolivia, Brazil, Canada,
Chile, Colombia, Costa Rica, Dominica,
Dominican Republic, Ecuador, El Salvador,
Grenada, Guatemala, Guyana, Haiti,
Honduras, Jamaica, Mexico, Nicaragua,
Panama, Paraguay, Peru, Saint Kitts and
Nevis, Saint Lucia, Saint Vincent and the
Grenadines, Suriname, Trinidad and Tobago,
United States, Uruguay, Venezuela
GCC
Gulf Cooperation Bahrain, Kuwait, Oman, Qatar, Saudi Arabia,
Council
United Arab Emirates
Edmundas Radavicius. INTERNATIONAL TRADE
| 169
GSTP
MERCOSUR
Global System
of Trade
Preferences
among
Developing
Countries
Algeria, Argentina, Bangladesh, Benin,
Bolivia, Brazil, Cameroon, Chile, Colombia,
Cuba, Democratic People's Republic of
Korea, Ecuador, Egypt, Ghana, Guinea,
Guyana, India, Indonesia, Islamic Republic
of Iran, Iraq, Libya, Malaysia, Mexico,
Morocco, Mozambique, Burma (Myanmar),
Nicaragua, Nigeria, Pakistan, Paraguay, Peru,
Philippines, Republic of Korea, Singapore,
Sri Lanka, Sudan, Thailand, Trinidad
and Tobago, Tunisia, United Republic of
Tanzania, Uruguay, Venezuela, Vietnam,
Zimbabwe
Southern
Argentina, Brazil, Paraguay, Uruguay
Common Market
NAFTA
North American
Free Trade
Agreement
Canada, Mexico, United States
OPEC
Organization of
the Petroleum
Exporting
Countries
Algeria, Angola, Ecuador, Iran, Iraq, Kuwait,
Libya, Nigeria, Qatar, Saudi Arabia, United
Arab Emirates, Venezuela
SAARC
South Asian
Association for
Regional
Cooperation
Bangladesh, Bhutan, India, Maldives, Nepal,
Pakistan, Sri Lanka
SACU
South African
Customs Union
Botswana, Lesotho, Namibia, South Africa,
Swaziland
SADC
South African
Development
Community
170 |
Edmundas Radavicius. INTERNATIONAL TRADE
Angola, Botswana, Democratic Republic
of Congo, Lesotho, Madagascar, Malawi,
Mauritius, Mozambique, Namibia,
Seychelles, South Africa, Swaziland,
Tanzania, Zambia, Zimbabwe
UEMOA/
WAEMU
West African
Economic and
Monetary Union
Benin, Burkina Faso, Côte d'Ivoire, Guinea
Bissau, Mali, Niger, Senegal, Togo
AGOA
The African Growth and Opportunity Act, or AGOA (Title I, Trade and
Development Act of 2000; P.L. 106–200) is a legislation that has been approved by the
U.S. Congress in May 2000. The purpose of this legislation is to assist the economies of
sub-Saharan Africa and to improve economic relations between the United States and
the region.
APEC
Asia-Pacific Economic Cooperation (APEC) is a forum for 21 Pacific Rim
member economies that seeks to promote free trade and economic cooperation
throughout the Asia-Pacific region. It was established in 1989 in response to the growing
interdependence of Asia-Pacific economies and the advent of regional trade blocs in
other parts of the world; to fears that highly industrialized Japan (a member of G8)
would come to dominate economic activity in the Asia-Pacific region; and to establish
new markets for agricultural products and raw materials beyond Europe (where demand
had been declining). APEC works to raise living standards and education levels through
sustainable economic growth and to foster a sense of community and an appreciation
of shared interests among Asia-Pacific countries. APEC includes newly industrialized
economies, although the agenda of free trade was a sensitive issue for the developing
NIEs at the time APEC founded, and aims to enable ASEAN economies to explore
new export market opportunities for natural resources such as natural gas, as well as
to seek regional economic integration (industrial integration) by means of foreign
direct investment. Members account for approximately 40% of the world’s population,
approximately 54% of the world’s gross domestic product and about 44% of world
trade. For APEC Economic Trends Analysis in 2012, see.
An annual APEC Economic Leaders’ Meeting is attended by the heads of
government of all APEC members except Taiwan (which is represented by a ministerialEdmundas Radavicius. INTERNATIONAL TRADE
| 171
level official under the name Chinese Taipei as economic leader). The location of
the meeting rotates annually among the member economies, and a famous tradition,
followed for most (but not all) summits, involves the attending leaders dressing in a
national costume of the host country.
ASEAN The Association of Southeast Asian Nations (ASEAN /ˈɑːsi.ɑːn/ ah-seeahn,[6] /ˈɑːzi.ɑːn/ ah-zee-ahn) is a political and economic Organisation of ten countries
located in Southeast Asia, which was formed on 8 August 1967 by Indonesia, Malaysia,
the Philippines, Singapore and Thailand. Since then, membership has expanded to
include Brunei, Burma (Myanmar), Cambodia, Laos, and Vietnam. Its aims include
accelerating economic growth, social progress, and sociocultural evolution among its
members, protection of regional peace and stability, and opportunities for member
countries to discuss differences peacefully.
ASEAN covers a land area of 4.46 million km², which is 3% of the total land
area of Earth, and has a population of approximately 600 million people, which is 8.8%
of the world’s population. The sea area of ASEAN is about three times larger than its
land counterpart. In 2012, its combined nominal GDP had grown to more than US$ 2.3
trillion. If ASEAN were a single entity, it would rank as the eighth largest economy in
the world.
CAFTA-DR
On August 5, 2004, the United States signed the Dominican Republic-Central
America-United States Free Trade Agreement (CAFTA-DR) with five Central American
countries (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua) and the
Dominican Republic. The CAFTA-DR is the first free trade agreement between the
United States and a group of smaller developing economies. This agreement is creating
new economic opportunities by eliminating tariffs, opening markets, reducing barriers
to services, and promoting transparency. It is facilitating trade and investment among
the seven countries and furthering regional integration.
Central America and the Dominican Republic represent the third largest U.S.
export market in Latin America, behind Mexico and Brazil. U.S. exports to the CAFTADR countries were valued at $19.5 billion in 2009. Combined total two-way trade in
2009 between the United States and Central America and the Dominican Republic was
172 |
Edmundas Radavicius. INTERNATIONAL TRADE
$37.9 billion.
The agreement entered into force for the United States and El Salvador,
Guatemala, Honduras, and Nicaragua during 2006, for the Dominican Republic on
March 1, 2007, and for Costa Rica on January 1, 2009. With the addition of Costa Rica,
the CAFTA-DR is in force for all seven countries that signed the agreement.
On August 15, 2008, the CAFTA-DR Parties implemented important changes to
the agreement’s textiles provisions, including changing the rules of origin to ensure that
pocket fabric in apparel is sourced from the United States or another CAFTA-DR Party.
The Parties also implemented a reciprocal textile input sourcing rule with Mexico. Under
this rule, Mexico will provide duty-free treatment on certain apparel goods produced in
a Central American country or the Dominican Republic with U.S. input, and the United
States will provide reciprocal duty-free treatment under the CAFTA-DR on certain
apparel goods produced in a Central American country or the Dominican Republic with
Mexican input. These changes will further strengthen and integrate regional textile and
apparel manufacturing and create new economic opportunities in the United States and
the region.
CAFTA/DR Trade Facts
CAFTA/DR countries combined would currently be our 12th largest goods
trading partner with $38.8 billion in total (two way) goods trade during 2009. (Note:
CAFTA/DR countries would have been the 8th largest if EU countries were grouped
together as one entity, as well as NAFTA countries). Exports totaled $20.0 billion;
Imports totaled $18.8 billion; The U.S. goods trade surplus with CAFTA/DR was $1.2
billion in 2009
Exports
U.S. goods exports to CAFTA/DR countries in 2009 were $20.0 billion, down
21.3% ($5.4 billion) from 2008, but up 145% from 1994 (year before Uruguay Round).
CAFTA/DR countries combined would have been the United States’ 14th largest
goods export market in 2009. (Note: CAFTA/DR countries would have been the 9th
largest if EU countries were grouped together as one entity, as well as NAFTA countries)
The U.S. export markets in CAFTA/DR for 2009 were: Dominican Republic
($5.3 billion), Costa Rica ($4.7 billion), Guatemala ($3.9 billion), Honduras ($3.4
Edmundas Radavicius. INTERNATIONAL TRADE
| 173
billion), El Salvador ($2.0 billion), and Nicaragua ($715 million).
The top export categories (2-digit HS) in 2009 were: Mineral Fuel ($2.9 billion),
Electrical Machinery ($2.6 billion), Machinery ($1.7 billion), Special Other (low value
and charity shipments) ($1.4 billion), and Cereals (corn, wheat, and rice) ($1.2 billion).
U.S. exports of agricultural products to CAFTA/DR countries totaled $3.0
billion in 2009, as a group it would be the 6th largest U.S. Ag export market. Leading
categories include: coarse grains ($580 million), wheat ($397 million), soybean meal
($382 million), and rice ($223 million).
Imports
U.S. goods imports from CAFTA/DR countries totaled $18.8 billion in 2009,
down 2.7 ($526 million) from 2008, but up 138% from 1994 (year before Uruguay
Round).
CAFTA/DR countries combined would have been the United States’19th largest
goods import supplier in 2009. (Note: CAFTA/DR countries would have been the 14th
largest if EC countries were grouped together as one entity, as well as NAFTA countries)
The U.S. import suppliers from CAFTA/DR for 2009 were: Costa Rica ($5.6
billion), Dominican Republic ($3.3 billion), Honduras ($3.3 billion), Guatemala ($3.1
billion), El Salvador ($1.8 billion), and Nicaragua ($1.6 billion).
The five largest import categories in 2009 were: Knit Apparel ($4.8 billion),
Machinery ($2.6 billion), Edible Fruit and Nuts (bananas and plantains) ($1.5 billion),
Woven Apparel ($1.4 billion), and Optic and Medical Instruments ($1.3 billion).
U.S. imports of agricultural products from CAFTA/DR countries totaled $3.6
billion in 2009, as a group it would be the 3rd largest supplier of Ag imports. Leading
categories include: bananas and plantains ($831 million), coffee (unroasted) ($762
million) other fresh fruit ($630 million), raw beet and cane sugar ($231 million),
processed fruit and vegetables ($183 million), and fresh vegetables ($180 million).
Balance of Merchandise Trade
The U.S. goods trade surplus with CAFTA/DR was $1.2 billion in 2009, a 80.7%
decrease ($4.9 billion) over 2008.
Investment
Reported U.S. foreign direct investment (FDI) in CAFTA/DR countries (stock)
174 |
Edmundas Radavicius. INTERNATIONAL TRADE
was $8.5 billion in 2008 (latest data available), up 39.4% from 2007.
There is no information on the distribution of U.S. FDI in CAFTA/DR countries.
CAFTA/DR consists of Costa Rica, Dominican Republic, El Salvador,
Guatemala, Honduras, and Nicaragua.
CAN
Community of countries that join voluntarily in order to achieve a comprehensive,
balanced and autonomous development through Andean, South American and Latin
American integration. countries that integrate - Bolivia, Colombia, Ecuador and Peru,
we are united by the same past, varied geography, a great cultural and natural diversity
as well as common goals and objectives. Four countries are very cultural, ethnic and
linguistic diversity and have very rich folkloric and artistic events that unite us even
more.
The Andean Community is made up of organs and institutions that are articulated
in the Andean Integration System, better known as the UPS. Makes this system CAN
work almost as does a State. That is, each of these entities has its role and specific
functions, for example, the Andean Presidential Council, made up of the Presidents
of Bolivia, Colombia, Ecuador and Peru, is in charge of the political leadership of the
CAN; the Andean Council of Foreign Ministers formulates foreign policy in the Andean
countries on issues related to integration and, if necessary, coordinate joint positions in
international forums and negotiations; the Commission , composed of plenipotentiaries
or delegates with full powers, are responsible for formulating, implementing and
evaluating the integration policy on trade and investment and generate rules that
are binding on all 4 countries. has a CAN General Secretariat that administers and
coordinates the integration process and the Andean Court of Justice is the entity that
controls the legality of the actions of all organs and institutions and settles disputes
between countries, between countries and citizens or between citizens when agreements
are breached . undertaken in the framework of the Andean Community, the Andean
Parliament , made up of 20 MPs elected by popular vote for each Member Country
-5-, is the body that represents the People; i.e. the Andean citizens in general. Here
are deliberated Andean integration and policy actions to strengthen the integration
are proposed. Similarly, of the UPS are the advisory bodies of civil society, such as
Edmundas Radavicius. INTERNATIONAL TRADE
| 175
indigenous peoples, Workers and Employers. The Universidad Andina Simón Bolívar,
with several locations in the region, is the educational institution. And, the financial
institutions are the Andean Development Corporation and the Latin American Reserve
Fund.
The Integral Integration is the new and current paradigm of Andean integration. Is
a response to the current international context, characterized by the existence of various
development models, opening to a multipolar world, and the dynamism of new actors,
issues and organizational logics. In 2007, at the Presidential Summit of Tarija, the Heads
of State of the Andean countries expressed their conviction of the need to “develop
and deepen the process of integration of the Andean Community, taking into account
more effectively, visions and approaches of Member Countries, in order to achieve unity
service diversity of our people live well and in harmony with nature. “This, expressed
their desire to “forge a more balanced comprehensive integration between social,
cultural, economic, environmental and commercial aspects“.
CARICOM
Established in 1973, the Caribbean Community (CARICOM) is an organization
of 15 Caribbean nations and dependencies. CARICOM’s main purposes are to promote
economic integration and cooperation among its members, to ensure that the benefits
of integration are equitably shared, and to coordinate foreign policy. Its major activities
involve coordinating economic policies and development planning; devising and
instituting special projects for the less-developed countries within its jurisdiction;
operating as a regional single market for many of its members (Caricom Single
Market); and handling regional trade disputes. The secretariat headquarters is based in
Georgetown, Guyana.
Since the establishment of the Caribbean Community (CARICOM) by the mainly
English-speaking parts of the Caribbean region, CARICOM has become multilingual in
practice with the addition of Dutch speaking-Suriname on 4 July 1995 and French- (and
Haitian Kreyòl-) speaking Haiti on 2 July 2002. Furthermore, it was suggested that
Spanish should also become a working language. In July 2012, CARICOM announced
that they were considering making French and Dutch official languages.
In 2001, the heads of government signed a Revised Treaty of Chaguaramas thus
176 |
Edmundas Radavicius. INTERNATIONAL TRADE
clearing the way for the transformation of the idea for a Common Market aspect of
CARICOM into instead a Caribbean (CARICOM) Single Market and Economy. Part of
the revised treaty among member states includes the establishment and implementation
of the Caribbean Court of Justice. Since 2013 the CARICOM-bloc along with the
Dominican Republic is tied to the European Commission via an Economic Partnership
Agreements known as CARIFORUM signed in 2008. The treaty grants all members of
the European Union and CARIFORUM equal rights in terms of trade and investment.
Within the agreement under Article 234, the European Court of Justice also carries
dispute resolution mechanisms between CARIFORUM and the European Union states.
CEMAC
The Central African Economic and Monetary Community (CEMAC) is made
up of six States: Gabon, Cameroon, the Central African Republic (CAR), Chad, the
Republic of the Congo and Equatorial Guinea. With a total population of about 37
million, it covers a total surface of around 3 million km2. Together with the larger
Economic Community of Central African States (ECCAS) and the mainly inactive
Economic Community of Great Lake Countries (CEPGL), CEMAC presents one of the
Central African regional Communities established to promote cooperation and exchange
among its members.
CIS
Commonwealth of Independent States (CIS; Russian: Содружество
Независимых Государств, СНГ, tr. Sodruzhestvo Nezavisimykh Gosudarstv, SNG)
(also called the Russian Commonwealth) is a regional organization whose participating
countries are former Soviet Republics, formed during the breakup of the Soviet Union.
The CIS is a loose association of states. Although the CIS has few supranational
powers, it is aimed at being more than a purely symbolic organization, nominally
possessing coordinating powers in the realm of trade, finance, lawmaking, and security.
It has also promoted cooperation on cross-border crime prevention. Some of the
members of the CIS have established the Eurasian Economic Community with the aim
of creating a fully-fledged common market.
Edmundas Radavicius. INTERNATIONAL TRADE
| 177
COMESA
The Common Market for Eastern and Southern Africa is a free trade area with
nineteen member states stretching from Libya to Swaziland. COMESA was formed
in December 1994, replacing a Preferential Trade Area which had existed since 1981.
Nine of the member states formed a free trade area in 2000 (Djibouti, Egypt, Kenya,
Madagascar, Malawi, Mauritius, Sudan, Zambia and Zimbabwe), with Rwanda and
Burundi joining the FTA in 2004, the Comoros and Libya in 2006, and Seychelles in
2009.
COMESA is one of the pillars of the African Economic Community. In 2008,
COMESA agreed to an expanded free-trade zone including members of two other
African trade blocs, the East African Community (EAC) and the Southern Africa
Development Community (SADC). Comesa is also considering a common visa scheme
to boost tourism.
ECO
The Economic Cooperation Organization (ECO) is an intergovernmental
organization involving seven Asian and three Eurasian nations, part of the Southcentral Asian Union. It provides a platform to discuss ways to improve development
and promote trade, and investment opportunities. The ECO is an ad hoc organization
under the United Nations Charter (Chap. VIII). The common objective is to establish a
single market for goods and services, much like the European Union. ECO’s secretariat
and cultural department are located in Tehran, its economic bureau is in Turkey and its
scientific bureau is situated in Pakistan. The organization’s population is 416,046,863
and the area is 8,620,697 km². The organization was founded by Turkey, Iran and
Pakistan. ECO’s Charter was signed on 15 March 1995 in Islamabad, Pakistan.
EFTA
The European Free Trade Association (EFTA) is a free trade organization
between four European countries that operates in parallel with – and is linked to – the
European Union (EU). The EFTA was established on 3 May 1960 as a trade blocalternative for European states who were either unable or unwilling to join the then178 |
Edmundas Radavicius. INTERNATIONAL TRADE
European Economic Community (EEC) which has now become the EU. The Stockholm
Convention, establishing the EFTA, was signed on 4 January 1960 in the Swedish
capital by seven countries (known as the “outer seven”).
Today’s EFTA members are Iceland, Liechtenstein, Norway, and Switzerland,
of which the latter two were founding members. The initial Stockholm Convention
was superseded by the Vaduz Convention, which enabled greater liberalisation of trade
among the member states.
EFTA states have jointly concluded free trade agreements with a number of
other countries. The EFTA countries are part of the European Union’s internal market;
Iceland, Liechtenstein and Norway through the Agreement on a European Economic
Area (EEA) and Switzerland through a set of bilateral agreements. This development
prompted the EFTA states to modernize their Convention to ensure that it will continue
to provide a successful framework for the expansion and liberalization of trade among
themselves and with the rest of the world.
FTAA
The Free Trade Area of the Americas (FTAA) (Spanish: Área de Libre Comercio
de América [ALCA], French: Zone de libre-échange de Amérique [ZLÉA], Portuguese:
Área de Livre Comércio das Américas [ALCA], Dutch: Vrijhandelszone van Amerika)
was a proposed agreement to eliminate or reduce the trade barriers among all countries
in the Americas excluding Cuba. In the latest round of negotiations, trade ministers from
34 countries met in Miami, United States, in November 2003 to discuss the proposal.
The proposed agreement was an extension of the North American Free Trade Agreement
(NAFTA) between Canada, Mexico, and the United States. Opposing the proposal were
Cuba, Venezuela, Bolivia, Ecuador, Dominica, and Nicaragua (all of which entered the
Bolivarian Alternative for the Americas in response), and Mercosur member states.
Discussions have faltered over similar points as the Doha Development Round of World
Trade Organization (WTO) talks; developed nations seek expanded trade in services
and increased intellectual property rights, while less developed nations seek an end to
agricultural subsidies and free trade in agricultural goods. Similar to the WTO talks,
Brazil has taken a leadership role among the less developed nations, while the United
States has taken a similar role for the developed nations.
Edmundas Radavicius. INTERNATIONAL TRADE
| 179
Free Trade Area of the Americas began with the Summit of the Americas in
Miami on December 11, 1994, but the FTAA came to public attention during the Quebec
City Summit of the Americas, held in Canada in 2001, a meeting targeted by massive
anti-corporatization and anti-globalization protests. The Miami negotiations in 2003
met similar protests, though perhaps not as large. The last summit was held at Mar del
Plata, Argentina, in November 2005, but no agreement on FTAA was reached. Of the
34 countries present at the negotiations, 26 pledged to meet again in 2006 to resume
negotiations, but no such meeting took place.
In previous negotiations, the United States has pushed for a single comprehensive
agreement to reduce trade barriers for goods, while increasing intellectual property
protection. Specific intellectual property protections could include Digital Millennium
Copyright Act-style copyright protections, similar to the U.S.-Australia Free Trade
Agreement. Another protection would likely restrict the re-importation or crossimportation of pharmaceuticals, similar to the proposed agreement between the United
States and Canada.
Brazil has proposed a measured, three-track approach that calls for a series of
bilateral agreements to reduce specific tariffs on goods, and a hemispheric pact on rules
of origin and dispute resolution processes. Brazil seeks to omit the more controversial
issues from the agreement, leaving them to the WTO.
The location of the FTAA Secretariat was to have been determined in 2005. The
contending cities are: Atlanta, Chicago, Galveston, Houston, San Juan, and Miami in the
United States; Cancún and Puebla in Mexico; Panama City, Panama; and Port of Spain,
Trinidad and Tobago. The U.S. city of Colorado Springs also submitted its candidacy
in the early days but subsequently withdrew. Miami, Panama City and Puebla served
successively as interim secretariat headquarters during the negotiation process.
The failure of the Mar del Plata summit to set out a comprehensive agenda to keep
FTAA alive has meant that there is little chance for a comprehensive trade agreement in
the foreseeable future.
GCC
The Cooperation Council for the Arab States of the Gulf (Arabic: ‫نواعتلا سلجم‬
‫)ةيبرعلا جيلخلا لودل‬, originally (and still) known as the Gulf Cooperation Council
180 |
Edmundas Radavicius. INTERNATIONAL TRADE
(GCC, ‫)يجيلخلا نواعتلا سلجم‬, is a political and economic union of Arab states
bordering the Persian Gulf, namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and
the United Arab Emirates.
Amidst the Bahraini uprising, Saudi Arabia and the UAE sent ground troops to
Bahrain in order to quell Bahraini protests.[3] Kuwait and Oman refrained from sending
troops. In December 2011, Saudi Arabia proposed that the GCC deepen their integration
to form a confederation. Objections have been raised against the proposal by the other
countries. There have been discussions regarding the future membership of Jordan,
Morocco, and Yemen.
GSTP
The Global System of Trade Preferences among Developing Countries (GSTP)
is a preferential trade agreement signed on 13 April 1988 with the aim of increasing
trade between developing countries in the framework of the United Nations Conference
on Trade and Development. Its entry into force was on 19 April 1989 and its notification
to the WTO on 25 September 1989.
MERCOSUR
Mercosur or Mercosul (Spanish: Mercado Común del Sur, Portuguese: Mercado
Comum do Sul, Guarani: Ñemby Ñemuha, English: Southern Common Market) is an
economic and political agreement among Argentina, Brazil, Paraguay, Uruguay, and
Venezuela; with Bolivia becoming an acceding member on 7 December 2012 to be
ratified by member state legislatures.
Its purpose is to promote free trade and the fluid movement of goods, people,
and currency. The official languages are Spanish, Portuguese and Guaraní. It has
been updated, amended, and changed many times since. It is now a full customs
union. Mercosur and the Andean Community of Nations are customs unions that are
components of a continuing process of South American integration connected to the
Union of South American Nations.
Bolivia, Chile, Colombia, Ecuador, Guyana, Peru and Suriname currently have
associate member status.
Edmundas Radavicius. INTERNATIONAL TRADE
| 181
NAFTA
The North American Free Trade Agreement (NAFTA; French: Accord de libreéchange nord-américain, ALÉNA; Spanish: Tratado de Libre Comercio de América del
Norte, TLCAN) is an agreement signed by Canada, Mexico, and the United States,
creating a trilateral rules-based trade bloc in North America. The agreement came into
force on January 1, 1994. It superseded the Canada–United States Free Trade Agreement
between the U.S. and Canada.
NAFTA has two supplements: the North American Agreement on Environmental
Cooperation (NAAEC) and the North American Agreement on Labor Cooperation
(NAALC).
In terms of combined purchasing power parity GDP of its members, as of 2007
the trade bloc is the largest in the world and second largest by nominal GDP comparison.
OPEC
OPEC (/ˈoʊpɛk/ oh-pek) (Organization of the Petroleum Exporting Countries) is
an oil cartel whose mission is to coordinate the policies of the oil-producing countries.
The goal is to secure a steady income to the member states and to secure supply of oil
to consumers.
OPEC is an intergovernmental organization that was created at the Baghdad
Conference on 10–14 September 1960, by Iraq, Kuwait, Iran, Saudi Arabia and Venezuela.
Later it was joined by nine more governments: Libya, United Arab Emirates, Qatar,
Indonesia, Algeria, Nigeria, Ecuador, Angola, and Gabon. OPEC was headquartered in
Geneva, Switzerland before moving to Vienna, Austria, on September 1, 1965.
OPEC was formed at a time when the international oil market was largely
dominated by multinational companies, the ‘seven sisters’. OPEC’s ‘Policy Statement’
states that there is a right of all countries to exercise sovereignty over their natural
resources. Because OPEC is an organization of countries (not oil companies), individual
members have sovereign immunity for their actions, meaning that OPEC is not regarded
as being subject to competition law in the normal way.
In the 1970s, OPEC began to gain influence and steeply raised oil prices during
the 1973 oil crisis in response to US aid to Israel during the Yom Kippur War.[6] It lasted
182 |
Edmundas Radavicius. INTERNATIONAL TRADE
until March 1974.[7] OPEC added to its goals the selling of oil for socio-economic
growth of the poorer member nations, and membership grew to 13 by 1975. A few
member countries became centrally planned economies.
In the 1980s, the price of oil was allowed to rise before the adverse effects of
higher prices caused demand and price to fall. The OPEC nations, which depended on
revenue from oil sales, experienced severe economic hardship from the lower demand
for oil and consequently cut production in order to boost the price of oil. During this
time, environmental issues began to emerge on the international energy agenda. Lower
demand for oil saw the price of oil fall back to 1986 levels by 1998–99.
In the 2000s, a combination of factors pushed up oil prices even as supply
remained high. Prices rose to then record-high levels in mid-2008 before falling in
response to the 2007 financial crisis. OPEC’s summits in Caracas and Riyadh in 2000
and 2007 had guiding themes of stable energy markets, sustainable oil production, and
environmental sustainability.
SAARC
The South Asian Association for Regional Cooperation (SAARC) is an economic
and geopolitical cooperation among eight member nations that are primarily located in
South Asia continent. Its secretariat is headquartered in Kathmandu, Nepal.
The idea of regional political and economic cooperation in South Asia was first
coined in 1980 and the first summit held in Dhaka on 8 December in 1985 led to its
official establishment by the governments of Bangladesh, Bhutan, India, Maldives,
Nepal, Pakistan, and Sri Lanka. In the intervening years, its successors have grown
in size by the accession of new member states. Afghanistan was the first to have been
accessed in the physical enlargement of the SAARC in 2007.
The SAARC policies aim to promote welfare economics, collective self-reliance
among the countries of South Asia, and to accelerate socio-cultural development in
the region. The SAARC has developed a role in external relations around the world.
Permanent diplomatic relations have been established with the EU, the UN (as an
observer), and other multilateral entities. On annual scheduled basis, the official meetings
of leaders of each nation are held; meetings of foreign secretaries, twice annually. The
18th SAARC Summit would be held at Kathmandu, Nepal in November 2014.
Edmundas Radavicius. INTERNATIONAL TRADE
| 183
SACU
The Southern African Customs Union (SACU) is a customs union among five
countries of Southern Africa: Botswana, Lesotho, Namibia, South Africa and Swaziland.
SADC
The Southern African Development Community (SADC) is an intergovernmental organization headquartered in Gaborone, Botswana. Its goal is to further
socio-economic cooperation and integration as well as political and security cooperation
among 15 southern African states. It complements the role of the African Union.
UEMOA/WAEMU
The Economic Community of West African States (ECOWAS; French:
Communauté économique des États de l’Afrique de l’Ouest, CEDEAO) is a regional
group of fifteen West African countries. Founded on 28 May 1975, with the signing of
the Treaty of Lagos, its mission is to promote economic integration across the region.
Considered one of the pillars of the African Economic Community, the
organization was founded in order to achieve “collective self-sufficiency” for its member
states by creating a single large trading bloc through an economic and trading union. It
also serves as a peacekeeping force in the region. The organization operates officially in
three co-equal languages – French, English, and Portuguese.
The ECOWAS consists of two institutions to implement policies—the ECOWAS
Commission and the ECOWAS Bank for Investment and Development, formerly known
as the Fund for Cooperation until it was renamed in 2001.
A few members of the organization have come and gone over the years. In 1976
Cape Verde joined ECOWAS, and in December 2000 Mauritania withdrew, having
announced its intention to do so in December 1999.
The West African Economic and Monetary Union (also known as UEMOA from
its name in French, Union économique et monétaire ouest-africaine) is an organization
of eight West African states. It was established to promote economic integration among
countries that share the CFA franc as a common currency. UEMOA was created by
a Treaty signed at Dakar, Senegal, on 10 January 1994, by the heads of state and
184 |
Edmundas Radavicius. INTERNATIONAL TRADE
governments of Benin, Burkina Faso, Côte d’Ivoire, Mali, Niger, Senegal, and Togo.
On 2 May 1997, Guinea-Bissau, a former Portuguese colony, became the organization’s
eighth (and only non-Francophone) member state.
UEMOA is a customs union and currency union between the members of
ECOWAS. Its objectives include the following:
- Greater economic competitiveness, through open markets, in addition to the
rationalization and harmonization of the legal environment
- The convergence of macro-economic policies and indicators
- The creation of a common market
- The coordination of sectorial policies
- The harmonization of fiscal policies
Among its achievements, the UEMOA has successfully implemented macroeconomic convergence criteria and an effective surveillance mechanism. It has adopted
a customs union and common external tariff and has combined indirect taxation
regulations, in addition to initiating regional structural and sectorial policies. A
September 2002 IMF survey cited the UEMOA as “the furthest along the path toward
integration” of all the regional groupings in Africa.
ECOWAS and UEMOA have developed a common plan of action on trade
liberalization and macroeconomic policy convergence. The organizations have also
agreed on common rules of origin to enhance trade, and ECOWAS has agreed to adopt
UEMOA’s customs declaration forms and compensation mechanisms.
DISCUSSION
In this case it is strongly recommended to include students in the defining process
itself. Therefore a practical curriculums should be integrated into the flow of theory
aspects introduction, mainly in the forms of:
- Reflection;
- Discussion;
- Feedback;
- Role-play…
Or any other relevant activities which, by lecturer seems appropriate to the level
of the class.
Edmundas Radavicius. INTERNATIONAL TRADE
| 185
As this tool has a lot of facts and figures, which might be collected on easily
accessible information channels, such as databases, internet or library, it is strongly
recommended as a practical exercise, that students acting solely or in pairs or small
groups will prepare a homework research and make a presentation, which could be
followed by a live discussion.
REFERENCES
The context of this part has been adapted from the following product:
1.World regions and trade organizations. Available at:
http://www.trade.gov/mas/ian/referenceinfo/tg_ian_001874.asp
FURTHER READING
1.Encyclopedia of Associations. -- Farmington Hills, MI : Gale Research, c1999.
A guide to 23,000 national international organizations, including : trade, business, and
commercial entities.
2. Encyclopedia of Associations : International Organizations. -- Farmington
Hills, MI : Gale Research, c1999. A guide to more than 20,500 international nonprofit
membership organizations including multinational and bi-national groups.
3.Gale Encyclopedia of Business and Professional Associations / Editor Michael
B. Huellmantel. -- Detroit, MI : Gale Research Inc., c1999. A guide to more than 8,000
business, professional, trade and related organizations.
4. National Trade and Professional Associations. Columbia Books, Inc. -Washington, D.C.: Columbia Books, Inc., 1999. Directory lists over 7,600 trade
associations, professional societies, labor unions, and similar national groups.
186 |
Edmundas Radavicius. INTERNATIONAL TRADE
Part 7: Com parative advanta ge
Objective outline:
1. Explain to the students the nature of the comparative advantage.
2. Introduce students to the comparative advantage theory.
3. Exercise comparative advantage theory in order to establish application skills.
Chapter Seven Glossary
1. MANIPULATION – Processing wherein merchandise is packed, unpacked, repacked,
cleaned, sorted, graded or otherwise changed in condition but not manufactured.
2. MANUFACTURE – Generally, the production of articles for use from raw or prepared
materials by substantially transforming such materials into new forms.
3. MARINE INSURANCE – Insurance that compensates the owners of goods transported
overseas in the event of loss that cannot be legally recovered from the carrier.
4. MARKING – Letters, numbers, and other symbols on cargo packages to facilitate
identification.
5. MERCHANDISE/OPERATIONS, RESTRICTED – Merchandise which may not be
authorized for delivery from Customs custody without a special permit, or a waiver
thereof by an agency of the U.S. Government.
6. NONPRIVILEGED FOREIGN (NPF) – Foreign Merchandise or non-tax-paid domestic merchandise upon which the duty and applicable taxes will be determined at the
time of entry from the zone for consumption.
7. POLITICAL RISK – In export financing the risk of loss due to such causes as currency, inconvertibility, government action preventing entry of goods, expropriation
or confiscation, war, etc.
8. PRIVILEGED FOREIGN (PF) – Foreign merchandise or non-tax paid domestic merchandise upon which the duty and applicable taxes have been determined at the time
this status is approved.
Edmundas Radavicius. INTERNATIONAL TRADE
| 187
9. PRO FORMA INVOICE – An invoice provided by a supplier prior to the shipment
of merchandise, informing the buyer of the kinds and quantities of goods to be sent,
their value, and important specifications.
10. PURCHASING AGENT – An agent who purchases goods in his or her own country
on behalf of foreign importers such as government agencies and large private concerns.
11. REVOCABLE LETTER OF CREDIT – A letter of credit that can be canceled or altered by the drawee (buyer) after it has been issued by the drawee’s bank.
12. SCHEDULE B – Refers to Schedule B, Statistical Classification of Domestic and
Foreign Commodities Exported from the United States.
13. SHIPPER’S EXPORT DECLARATION – A form required for all shipments by the
U.S. Treasury Department and prepared by a shipper, indicating the value, weight,
destination, and other basic information about an export shipment.
14. SHIP’S MANIFEST – An instrument in writing, signed by the captain of a ship that
lists the individual shipments constituting the ship’s cargo.
15. STANDARD INTERNATIONAL TRADE CLASSIFICATION (SITC) – A standard
numerical code system developed by the U.N. to classify commodities used in international trade.
16. STATE – Any State, the District of Columbia, and Puerto Rico.
17. STEAMSHIP CONFERENCE – A group of steamship operators that operate under
18. TIME DRAFT – A draft that matures either a certain number of days after acceptance
or a certain number of days after the date of the draft.
19. TRAMP STEAMER – A ship not operating on regular routes or schedules.
20. TRANSACTION STATEMENT – A document that delineates the terms and conditions agreed upon between the importer and exporter.
21. TRANSFER – To take merchandise with zone status from a zone for consumption,
transportation, exportation, warehousing, cartage or lighterage, vessel supplies and
equipment, admission to another zone, and like purposes.
188 |
Edmundas Radavicius. INTERNATIONAL TRADE
22. TRUST RECEIPT – Release of merchandise by a bank to a buyer in which the bank
retains title to the merchandise.
23. UNIQUE IDENTIFIER NUMBER (UIN) – This inventory method controls merchandise in a zone by unique numbers and/or letters that identify merchandise admitted to a zone.
24. USER – A person or firm using a zone for storage, handling or processing of merchandise.
In economics, comparative advantage refers to the ability of a party to produce a
particular good or service at a lower marginal and opportunity cost over another. Even
if one country is more efficient in the production of all goods (absolute advantage in all
goods) than the other, both countries will still gain by trading with each other, as long as
they have different relative efficiencies.1
For example, if, using machinery, a worker in one country can produce both
shoes and shirts at 6 per hour, and a worker in a country with less machinery can produce either 2 shoes or 4 shirts in an hour, each country can gain from trade because their
internal trade-offs between shoes and shirts are different. The less-efficient country has
a comparative advantage in shirts, so it finds it more efficient to produce shirts and trade
them to the more-efficient country for shoes. Without trade, its opportunity cost per shoe
was 2 shirts; by trading, its cost per shoe can reduce to as low as 1 shirt depending on
how much trade occurs (since the more-efficient country has a 1:1 trade-off). The moreefficient country has a comparative advantage in shoes, so it can gain in efficiency by
moving some workers from shirt-production to shoe-production and trading some shoes
for shirts. Without trade, its cost to make a shirt was 1 shoe; by trading, its cost per shirt
can go as low as 1/2 shoe depending on how much trade occurs.2
Origins of the theory
The idea of comparative advantage was first mentioned in Adam Smith’s Book
the Wealth of Nations: “If a foreign country can supply us with a commodity cheaper
than we ourselves can make it, better buy it of them with some part of the produce of
our own industry, employed in a way in which we have some advantage.” But the law
Edmundas Radavicius. INTERNATIONAL TRADE
| 189
of comparative advantages has been formulated by David Ricardo who investigated
in detail advantages and alternative or relative opportunity in his 1817 book On the
Principles of Political Economy and Taxation in an example involving England and
Portugal. In Portugal it is possible to produce both wine and cloth with less labor than
it would take to produce the same quantities in England. However the relative costs of
producing those two goods are different in the two countries. In England it is very hard
to produce wine, and only moderately difficult to produce cloth. In Portugal both are
easy to produce. Therefore while it is cheaper to produce cloth in Portugal than England, it is cheaper still for Portugal to produce excess wine, and trade that for English
cloth. Conversely England benefits from this trade because its cost for producing cloth
has not changed but it can now get wine at a lower price, closer to the cost of cloth. The
conclusion drawn is that each country can gain by specializing in the good where it has
comparative advantage, and trading that good for the other.3
Modern theories
Classical comparative advantage theory was extended in two directions: Ricardian theory (Gottfried Haberler’s work reformulating the ideas based on the principles of
opportunity cost) and Heckscher–Ohlin–Samuelson theory (HOS theory). In both theories, the comparative advantage concept is formulated for 2 country, 2 commodity case.
It can easily be extended to the 2 country, many commodity case or many country, 2
commodity case. But in the case with many countries (more than 3 countries) and many
commodities (more than 3 commodities), the notion of comparative advantage loses its
facile features and requires totally different formulation. In these general cases, HOS
theory totally depends on Arrow-Debreu type general equilibrium theory but gives little
information other than general contents. Ricardian theory was formulated in Jones’ 1961
paper, but it was limited to the case where there are no traded intermediate goods. In
view of growing outsourcing and global procuring, it is necessary to extend the theory to
the case with traded intermediate goods. This was done in Shiozawa’s 2007 paper. Until
now, this is the unique general theory which accounts for traded input goods.4
190 |
Edmundas Radavicius. INTERNATIONAL TRADE
Effect of trade costs4
Trade costs, particularly transportation, reduce and may eliminate the benefits
from trade, including comparative advantage. Paul Krugman gives the following example.
Table 6. Using Ricardo’s classic example4
Unit labor costs
Cloth
Wine
100
110
Britain
90
80
Portugal
In the absence of transportation costs, it is efficient for Britain to produce cloth
and for Portugal to produce wine as, assuming that these trade at equal price (1 unit of
cloth for 1 unit of wine), Britain can then obtain wine at a cost of 100 labor units by producing cloth and trading, rather than 110 units by producing the wine itself, and Portugal
can obtain cloth at a cost of 80 units by trade rather than 90 by production.
However, in the presence of trade costs of 15 units of labor to import a good (alternatively a mix of export labor costs and import labor costs, such as 5 units to export
and 10 units to import), it then costs Britain 115 units of labor to obtain wine by trade
– 100 units for producing the cloth, 15 units for importing the wine, which is more expensive than producing the wine locally, and likewise for Portugal. Thus, if trade costs
exceed the production advantage, it is not advantageous to trade.
Krugman proceeds to argue more speculatively that changes in the cost of trade
(particularly transportation) relative to the cost of production may be a factor in changes
in global patterns of trade; if trade costs decrease, such as with the advent of steampowered shipping, trade should be expected to increase, as more comparative advantages in production can be realized. Conversely, if trade costs increase or if production
costs decrease faster than trade costs (such as via electrification of factories), then trade
should be expected to decrease as trade costs become a more significant barrier.
Effects on the economy5;6
Conditions that maximize comparative advantage do not automatically resolve
Edmundas Radavicius. INTERNATIONAL TRADE
| 191
trade deficits. In fact, many real world examples where comparative advantage is attainable may require a trade deficit. For example, the amount of goods produced can be
maximized, yet it may involve a net transfer of wealth from one country to the other,
often because economic agents have widely different rates of saving.
As the markets change over time, the ratio of goods produced by one country versus another variously changes while maintaining the benefits of comparative advantage.
This can cause national currencies to accumulate into bank deposits in foreign countries
where a separate currency is used.
Macroeconomic monetary policy is often adapted to address the depletion of a
nation’s currency from domestic hands by the issuance of more money, leading to a wide
range of historical successes and failures.
Considerations
Development economics7
The theory of comparative advantage, and the corollary that nations should specialize, is criticized on pragmatic grounds within the import substitution industrialization theory of development economics, on empirical grounds by the Singer–Prebisch
thesis which states that terms of trade between primary producers and manufactured
goods deteriorate over time, and on theoretical grounds of infant industry and Keynesian economics. In older economic terms, comparative advantage has been opposed by
mercantilism and economic nationalism. These argue instead that while a country may
initially be comparatively disadvantaged in a given industry (such as Japanese cars in
the 1950s), countries should shelter and invest in industries until they become globally
competitive. Further, they argue that comparative advantage, as stated, is a static theory
– it does not account for the possibility of advantage changing through investment or
economic development, and thus does not provide guidance for long-term economic
development.
Much has been written since Ricardo as commerce has evolved and cross-border
trade has become more complicated. Today trade policy tends to focus more on “competitive advantage” as opposed to “comparative advantage”. One of the most in-depth
research undertakings on “competitive advantage” was conducted in the 1980s as part
192 |
Edmundas Radavicius. INTERNATIONAL TRADE
of the Reagan administration’s Project Socrates to establish the foundation for a technology-based competitive strategy development system that could be used for guiding
international trade policy.
Free mobility of capital in a globalized world7
Ricardo explicitly bases his argument on an assumed immobility of capital: “...
if capital freely flowed towards those countries where it could be most profitably employed, there could be no difference in the rate of profit, and no other difference in the
real or labor price of commodities, than the additional quantity of labor required to
convey them to the various markets where they were to be sold.”
He explains why, from his point of view (anno 1817), this is a reasonable assumption: “Experience, however, shows, that the fancied or real insecurity of capital,
when not under the immediate control of its owner, together with the natural disinclination which every man has to quit the country of his birth and connections, and entrust
himself with all his habits fixed, to a strange government and new laws, checks the
emigration of capital.”
Some scholars, notably Herman Daly, an American ecological economist and
professor at the School of Public Policy of the University of Maryland, have voiced
concern over the applicability of Ricardo’s theory of comparative advantage in light
of a perceived increase in the mobility of capital: “International trade (governed by
comparative advantage) becomes, with the introduction of free capital mobility, interregional trade (governed by absolute advantage).”
Adam Smith developed the principle of absolute advantage. The economist Paul
Craig Roberts argues that the comparative advantage principles developed by David
Ricardo are undermined where the factors of production are internationally mobile.
Limitations to the theory may exist if there is a single kind of utility. Yet the human
need for food and shelter already indicates that multiple utilities are present in human
desire. The moment the model expands from one good to multiple goods, the absolute
may turn to a comparative advantage. The opportunity cost of a forgone tax base may
outweigh perceived gains, especially where the presence of artificial currency pegs and
manipulations distort trade.
Edmundas Radavicius. INTERNATIONAL TRADE
| 193
QUESTIONS/DISCUSSION
1.Workshop: Analysis the comparative advantage of Lithuania.
a. Step 1: Divide students into groups.
b. Step 2: Assign task to make a research about Lithuania based on
comparative advantage model.
c. Step 3: Students has to make presentations of their homework.
d. Step 4: Have a discussion with reflection of the collected information.
2. In this case it is strongly recommended to include students in the defining
process itself. Therefore a practical curriculums should be integrated into the flow of
theory aspects introduction, mainly in the forms of:
a. Reflection;
b. Discussion;
c. Feedback;
d. Role-play…
Or any other relevant activities which, by lecturer seems appropriate to the level
of the class.
REFERENCES
The context of this part has been adapted from the following product:
1. Maneschi, Andrea (1998). Comparative Advantage in International Trade: A
Historical Perspective. Cheltenham: Elgar. p. 1.
2.e-Study Guide for: Economics by Campbell McConnell, ISBN 9780073375694
3. Smith, Adam (1776). An Inquiry into the Nature and Causes of the Wealth of
Nations (1904 ed.). London: Library of Economics and Liberty. Retrieved 2014-08-16.
4.Wood, John Cunningham (1991). David Ricardo: Critical Assessments. Taylor
& Francis. p. 312.
5. MacDougall, G. D. A. (1951). “British and American exports: A study
suggested by the theory of comparative costs. Part I.”. The Economic Journal. 61(244).
pp. 697–724.
6. MacDougall, G. D. A. (1952). “British and American exports: A study
suggested by the theory of comparative costs. Part II.”. The Economic Journal. 62(247).
194 |
Edmundas Radavicius. INTERNATIONAL TRADE
pp. 487–521.
7.Ricardo (1817). On the Principles of Political Economy and Taxation. London,
Chapter 7
FURTHER READING
1. Alexander, Sidney. 1952. “The Effects of Devaluation on a Trade Balance,”
IMF Staff Papers, (April), pp. 359-373. See absorption approach (page 3).
2.Anderson, James E. and J. Peter Neary. 1996. “A New Approach to Evaluating
Trade Policy,” Review of Economic Studies 63, (January), pp. 107-125. See trade
restrictiveness index (page 277).
3. Antweiler, Werner and Daniel Trefler. 2002. “Increasing Returns and All
That: A View from Trade,” American Economic Review 92, (March), pp. 93-119. See
intramediate trade (page 151).
4.Armington, Paul S. 1969. “A Theory of Demand for Products Distinguished
by Place of Production,” IMF Staff Papers 16, (March), pp. 159-178. See Armington
assumption (page 12).
Edmundas Radavicius. INTERNATIONAL TRADE
| 195
Part 8: T rade and exchange rates
Objective outline:
1. Introduce students with definition of the exchange rate.
2. Define the exchange rate impact to an international trade.
3. Identify the exchange rate management tools and methodology.
Chapter Eight Glossary
1. ACCEPTANCE – Any agreement to purchase goods under specified terms. An
agreement to purchase goods at a stated price and under stated terms.
2. AD VALOREM – According to value
3. ADVANCE AGAINST DOCUMENTS – A loan made on the security of the documents
covering the shipment.
4. ADVISING BANK – A bank, operating in the exporter’s country, which handles
LETTERS OF CREDIT for a foreign bank by notifying the exporter that the credit
has been opened in his or her favor.
5. ADVISORY CAPACITY – A term indicating that shipper’s agent or representative is
not empowered to make definitive decisions or adjustments without approval of the
group or individual represented.
6. AIR WAYBILL – A BILL OF LADING that covers both domestic and international
flights transporting goods to a specified destination.
7. ALONGSIDE – A phrase referring to the side of a ship. Goods to be delivered
“alongside” are to be placed on the dock or barge within reach of the transport ship’s
tackle so that they can be loaded aboard the ship.
8. ALTERATION – A change in the boundaries of an activated zone or subzone.
9. ALTERNATIVE INVENTORY CONTROL SYSTEM (AICS) – A former system of
inventory control, manual or automated, based on records maintained by a zone
grantee, operator or individual zone user.
196 |
Edmundas Radavicius. INTERNATIONAL TRADE
10.APPLICANT – A corporation applying for the right to establish, operate and maintain
a foreign-trade zone.
11.ARBITRAGE – The process of buying FOREIGN EXCHANGE, stocks, bonds and
other commodities in one market and immediately selling them in another market at
higher prices.
12.ASIAN DOLLARS – U.S. dollars deposited in Asia and the Pacific Basin.
13.ATTRIBUTIVE BASIS – Method of accounting for merchandise where direct
identification of the goods with the shipment as admitted to the zone has been lost.
14.AUDIT-INSPECTION PROCEDURES – Provide the framework for Customs to
reduce on-site supervision of zones and for zone operators/users to increase zone
operating flexibility through the method of supervising zones.
15.BALANCE OF TRADE – The difference between a country’s total imports and
exports.
16.BARTER – Trade in which merchandise is exchanged directly for other merchandise
without use of money.
17.BENEFICIARY – The person in whose favor a LETTER OF CREDIT is issued or a
DRAFT is drawn.
18.BILL OF LADING – A document that establishes the terms of a contract between a
shipper and a transportation company under which freight is to be moved between
specified points for a specified charge.
19.BONDED WAREHOUSE – A warehouse authorized by CUSTOMS authorities
for storage of goods on which payment of DUTIES is deferred until the goods are
removed.
20.BOOKING – An arrangement with a steamship company for the acceptance and
carriage of freight.
21.CARNET – A customs document permitting the holder to carry or send merchandise
temporarily into certain foreign countries without paying duties or posting bonds.
22.CASH AGAINST DOCUMENTS (C.A.D.) – Payments for goods in which a
Edmundas Radavicius. INTERNATIONAL TRADE
| 197
commission house or other intermediary transfers title documents to the buyer upon
payment in cash.
23.CASH IN ADVANCED (C.I.A.) – Payment for goods in which the price is paid in full
before shipment is made.
24.CASH WITH ORDER (C.W.O.) – Payment for goods in which the buyer pays when
ordering and in which the transaction is binding on both parties.
25.CERTIFICATE OF INSPECTION – A document certifying that merchandise was in
good condition immediately prior to its shipment.
26.CERTIFICATE OF MANUFACTURE – A statement in which a producer of goods
certifies that manufacture has been completed and that the goods are now at the
disposal of the buyer.
27.CERTIFICATE OF ORIGIN – A document, certifying the country of origin of
specified goods.
28.COST AND FREIGHT (C & F) – A pricing term indicating that the cost of the goods
and freight charges are included in the quoted price.
29.CHARTER PARTY – Written contract between the owner of a vessel and a “charterer”
who rents use of the vessel or a part of its freight space.
30.COST AND INSURANCE (C & I) – A pricing term indicating that the cost of the
product and insurance are included in the quoted price.
31.COST, INSURANCE, FREIGHT – A pricing term indicating that the cost of the
goods, insurance, and freight are included in the quoted price.
32.CLEAN BILL OF LADING – A receipt for goods issued by a carrier that indicates that
the goods were received in “apparent good order and condition”, without damages or
other irregularities.
33.CLEAN DRAFT – A draft to which no documents have been attached.
34.COLLECTION PAPERS – All documents submitted to a buyer for the purpose of
receiving payment for a shipment.
198 |
Edmundas Radavicius. INTERNATIONAL TRADE
35.COMMERCIAL ATTACHÉ – The commerce expert on the diplomatic staff of his/her
country’s embassy or large consulate.
36.COMMERCIAL INVOICE – An itemized list of goods shipped, usually among an
exporter’s COLLECTION PAPERS.
37.COMMON CARRIER – An individual, partnership, or corporation that transports
persons or goods for compensation.
38.CONFIRMED LETTER OF CREDIT – A letter of credit, issued by a foreign bank,
whose validity has been confirmed by a U.S. bank.
39.CONSIGNMENT – Delivery of merchandise from an exporter (consignor) to an agent
(consignee) under agreement that the agent sell the merchandise for the account of
the exporter.
40.CONSTRUCTIVE TRANSFER – A legal fiction which permits acceptance of a
Customs entry for merchandise in a zone before its physical transfer to the Customs
territory.
41.CONSULAR INVOICE – A document, required by some foreign countries, describing
a shipment of goods and showing information such as the consignor, consignee, and
value of the shipment.
42.CONVERTIBLE CURRENCY – A currency that can be bought and sold for other
currencies at will.
43.CORPORATION, PRIVATE – Any corporation which is organized for the purpose of
establishing, operating and maintaining a foreign-trade zone and which is chartered
under a special act of the State within which it is to operate such a zone.
44.CORPORATION, PUBLIC – A State, political subdivision thereof, a municipality, a
public agency of a State, political subdivision thereof, or municipality, or a corporate
municipal instrumentality of one or more States.
45.CORRESPONDENT BANK – A bank that, in its own country, handles the business
of a foreign bank.
46.COUNTERTRADE – The sale of goods or services that are paid in whole or in part
Edmundas Radavicius. INTERNATIONAL TRADE
| 199
by the transfer of goods or services from a foreign country.
47.CREDIT RISK INSURANCE – Insurance designed to cover risks of nonpayment for
delivered goods.
48.CUSTOMS – The authorities designated to collect duties levied by a country on
imports and exports.
49.CUSTOMS TERRITORY – Territory of the U.S. in which the general tariff laws of
the U.S. apply.
50.CUSTOMHOUSE BROKER – An individual or firm licensed to enter and clear goods
through Customs.
51.DATE DRAFT – A draft that matures in a specified number of days after the date it is
issued, without regard to the date of ACCEPTANCE.
52.DEACTIVIZATION – Voluntary discontinuation of the activation of an entire zone or
subzone by the grantee or operator.
53.DEFAULT – An act or omission that will result in a claim for duties, taxes, charges
or liquidated damages under the FTZ Operator’s Bond
54.DEFERRED PAYMENT CREDIT – Type of LETTER OF CREDIT providing for
payment sometime after presentation of shipping documents by exporter.
55.DESTINATION CONTROL STATEMENT – Any of various statements that the
U.S. Government requires to be displayed on export shipments and that specify the
destinations for which export of the shipment has been authorized.
56.DEVALUATION – The official lowering of the value of one country’s currency in
terms of one or more foreign currencies.
57.DISCREPANCY - LETTER OF CREDIT – When documents presented do not
conform to the letter of credit.
58.DISPATCH – An amount paid by a vessel’s operator to a charterer if loading or
unloading is completed in less time than stipulated in the charter party.
59.DISTRIBUTOR – A foreign agent who sells for a supplier directly and maintains an
200 |
Edmundas Radavicius. INTERNATIONAL TRADE
inventory of the supplier’s products.
60.DISTRICT DIRECTOR – The district director of customs in whose district the zone
is located.
61.DISTRICT ENGINEER – The engineer of the Department of the Army in whose
district the zone is located.
62.DOCK RECEIPT – A receipt issued by an ocean carrier to acknowledge receipt of a
shipment at the carrier’s dock or warehouse facilities.
63.DOCUMENTARY AGAINST ACCEPTANCE (D/A) – Instructions given by a shipper
to a bank indicating that documents transferring title to goods should be delivered to
the buyer only upon the buyer’s acceptance of the attached draft.
64.DRAFT – An unconditional order in writing from one person (the drawer) to another
(the drawee), directing the drawee to pay a specified amount to a named drawer at a
fixed or determinable future date.
65.DRAWBACK – Articles manufactured or produced in the United States with the use
of imported components or raw materials and later exported are entitled to a refund
of up to 99% of the duty charged on the imported components.
66.DRAWEE – The individual or firm on whom a draft is drawn and who owes the
stated amount.
67.DRAWER – The individual or firm that issues or signs a draft and thus stands to
receive payment of the stated amount from the drawee.
68.DUMPING – Exporting/Importing merchandise into a country below the costs
incurred in production and shipment.
69.DUTY – A tax imposed on imports by the customs authority of a country.
70.EURODOLLARS – U.S. dollars placed on deposit in banks outside the United States;
usually in Europe.
71.EXCHANGE PERMIT – A government permit sometimes required by the importer’s
government to enable the importer to convert his or her own country’s currency into
foreign currency with which to pay a seller in another country.
Edmundas Radavicius. INTERNATIONAL TRADE
| 201
72.EXCHANGE RATE – The price of one currency in terms of another, i.e., the number
of units of one currency that may be exchanged for one unit of another currency.
73.EXHIBITION – The showing of merchandise within a zone, usually to prospective
buyers.
74.EXIMBANK – The Export-Import Bank of the United States.
75.EXPORT BROKER – An individual or firm that brings together buyers and sellers for
a fee but does not take part in actual sales.
76.EXPORT COMMISSION HOUSE – An organization which, for a commission, acts
as a purchasing agent for a foreign buyer.
77.EXPORT LICENSE – A government document that permits the “Licensee” to engage
in the export of designated goods to certain destinations.
78.EXPORT MANAGEMENT COMPANY – A private firm that serves as the export
department for several manufacturers, soliciting and transacting export business on
behalf of its clients in return for a commission, salary, or retainer plus commission.
79.EXPORT TRADING COMPANY – A firm similar or identical to an export management
company.
80.FIRST IN-FIRST OUT (FIFO) – An accounting method based on an assumption
regarding the flow of goods that older stock is disposed of first, in accordance with
good merchandising policy.
81.FORCE MAJEURE – The title of a standard clause in marine contracts exempting
the parties for nonfulfillment of their obligations as a result of conditions beyond
their control, such as earthquakes, floods, or war.
82.FOREIGN EXCHANGE – The currency or credit instruments of a foreign country.
83.FOREIGN FIRST (FOFI) – An accounting method based on an assumption regarding
the flow of goods that foreign status merchandise is disposed of first.
84.FOREIGN SALES AGENT – An individual or firm that serves as the foreign
representative of a domestic supplier and seeks sales abroad for the supplier.
202 |
Edmundas Radavicius. INTERNATIONAL TRADE
85.FOREIGN-TRADE ZONE/FREE TRADE ZONE – A port designated by the
government of a country for duty-free entry of any non-prohibited goods.
Merchandise may be stored, displayed, or used for manufacturing, etc., within the
zone and reexported without duties being paid.
86.FOREIGN-TRADE ZONES ACT – The Foreign-Trade Zones Act of June 18, 1934,
(48 Stat. 998-1003; 19 U.S.C. 81a-81u) as amended.
87.FOREIGN-TRADE ZONES BOARD – The Board which is established to carry out
the provisions of the Foreign-Trade Zones Act.
88.FOUL BILL OF LADING – A receipt of goods issued by a carrier with an indication
that the goods were damaged when received.
89.FREE ALONGSIDE (F.A.S.) – A pricing term indicating that the quoted price
includes the cost of delivering the goods alongside a designated vessel.
90.FREE IN (F.I.) – A pricing term indicating that the charter of a vessel is responsible
for the cost of loading and unloading goods from the vessel.
91.FREE PORT – An area such as a port city into which merchandise may be legally
moved without payment of duties.
92.FREIGHT FORWARDER – An independent business which handles export
shipments for compensation.
93.GATT/GENERAL AGREEMENT ON TARIFFS AND TRADE – A multilateral treaty
intended to help reduce trade barriers between the signatory countries and to promote
trade through tariff concessions.
94.GENERAL EXPORT LICENSE – Any various export licenses covering export
commodities for which VALIDATED EXPORT LICENSES are not required.
95.GRANTEE – A corporation to which the privilege of establishing, operating, and
maintaining a foreign-trade zone has been granted by the Foreign-Trade Zones
Board.
96.GROSS WEIGHT – The full weight of a shipment, including goods and packaging.
97.IMPORT LICENSE – A document required and issued by some national governments
Edmundas Radavicius. INTERNATIONAL TRADE
| 203
authorizing the importation of goods into their individual countries.
98.INLAND BILL OF LADING – A bill of lading used in transporting goods overland
to the exporter’s international carrier.
99.IRREVOCABLE LETTER OF CREDIT – A letter of credit in which the specified
payment is guaranteed by the bank if all terms and conditions are met by the drawee.
100. LETTER OF CREDIT (L/C) – A document, issued by a bank per instructions by
a buyer of goods, authorizing the seller to draw a specified sum of money under
specified terms, usually the receipt by the bank of certain documents within a given
time.
101. LICENSING – A business arrangement in which the manufacturer of a product
grants permission to some other group or individual to manufacture that product in
return for specified royalties.
102. MANIPULATION – Processing wherein merchandise is packed, unpacked, repacked,
cleaned, sorted, graded or otherwise changed in condition but not manufactured.
103. MANUFACTURE – Generally, the production of articles for use from raw or
prepared materials by substantially transforming such materials into new forms.
104. MARINE INSURANCE – Insurance that compensates the owners of goods
transported overseas in the event of loss that cannot be legally recovered from the
carrier.
105. MARKING – Letters, numbers, and other symbols on cargo packages to facilitate
identification.
106. MERCHANDISE – Includes goods, wares, and chattels of every description except
Prohibited Merchandise, building materials, production equipment and supplies for
use in operation of a zone.
107. MERCHANDISE, DOMESTIC – Merchandise which has been produced in the U.S.
and not exported therefrom.
108. MERCHANDISE, FOREIGN – Imported Merchandise which has not been properly
released from Customs custody into the Customs territory of the U.S.
204 |
Edmundas Radavicius. INTERNATIONAL TRADE
109. MERCHANDISE, FUNGIBLE – Merchandise which for commercial purposes is
identical and interchangeable in all situations.
110. MERCHANDISE, MIXED STATUS – Foreign Merchandise which has been
combined with Domestic Merchandise in the zone.
111. MERCHANDISE/OPERATIONS, PROHIBITED – Merchandise, the importation
of which is prohibited by law on grounds of public policy or morals, or excluded by
order of the Foreign-Trade Zones Board..
112. MERCHANDISE/OPERATIONS, RESTRICTED – Merchandise which may not be
authorized for delivery from Customs custody without a special permit, or a waiver
thereof by an agency of the U.S. Government.
113. NONPRIVILEGED FOREIGN (NPF) – Foreign Merchandise or non-tax-paid
domestic merchandise upon which the duty and applicable taxes will be determined
at the time of entry from the zone for consumption.
114. OCEAN BILL OF LADING – A bill of lading indicating that the exporter consigns
a shipment to an int’l carrier for transportation to a specified foreign market.
115. ON BOARD BILL OF LADING – A bill of lading in which a carrier certifies that
goods have been placed on board a certain vessel.
116. OPEN ACCOUNT – A trade arrangement in which goods are shipped to a foreign
buyer without guarantee of payment.
117. OPEN INSURANCE POLICY – A marine insurance policy that applies to all
shipments made by an exporter over a period of time rather than to one shipment
only.
118. OPERATOR – A corporation, partnership, or person that operates a zone or subzone
under the terms of an agreement with the Grantee.
119. OPERATOR’S BOND – All zone operators must submit to Customs a bond to
assure compliance with Customs regulations.
120. ORDER BILL OF LADING – A negotiable bill of lading made out to the order of
the shipper.
Edmundas Radavicius. INTERNATIONAL TRADE
| 205
121. PACKING LIST – A list showing the number and kinds of items being shipped, as
well as other information needed for transportation purposes.
122. PARCEL POST RECEIPT – The postal authorities’ signed acknowledgment of
delivery to receiver of a shipment made by parcel post.
123. PRIVATE EXPORT FUNDING CORPORATION (PEFCO) – Lends to foreign
buyers to finance exports from U.S.
124. PERILS OF THE SEA – A marine insurance term used to designate heavy weather,
stranding, lightning, collision, and seawater damage.
125. PHYTOSANITARY INSPECTION CERTIFICATE – A certificate, issued by the
U.S. Department of Agriculture to satisfy import regulations for foreign countries,
indicating that a U.S. shipment has been inspected and is free from harmful pests
and plant diseases.
126. POLITICAL RISK – In export financing the risk of loss due to such causes as
currency, inconvertibility, government action preventing entry of goods, expropriation
or confiscation, war, etc.
127. PRIVILEGED FOREIGN (PF) – Foreign merchandise or non-tax paid domestic
merchandise upon which the duty and applicable taxes have been determined at the
time this status is approved.
128. PRO FORMA INVOICE – An invoice provided by a supplier prior to the shipment
of merchandise, informing the buyer of the kinds and quantities of goods to be sent,
their value, and important specifications.
129. PURCHASING AGENT – An agent who purchases goods in his or her own country
on behalf of foreign importers such as government agencies and large private
concerns.
130. QUOTA – The quantity of goods of a specific kind that a country permit to be
imported without restriction or imposition of additional DUTIES.
131. QUOTATION – An offer to sell goods at a stated price and under specified
conditions.
206 |
Edmundas Radavicius. INTERNATIONAL TRADE
132. REACTIVATION – A resumption of the activated status of an entire area that was
previously deactivated without any change in the operator or the area boundaries.
133. REGIONAL COMMISSIONER – The Regional Commissioner of Customs for the
Customs Region in which the zone is located.
134. REMITTING BANK – Bank that sends the draft to overseas bank for collection.
135. RESIDENT MEMBER – The official that has been delegated authority by the
Secretary of the Army to act on nondiscretionary zone matters.
136. RETAIL TRADE – Generally, sales or offers to sell goods or services to individuals
for personal use.
137. REVOCABLE LETTER OF CREDIT – A letter of credit that can be canceled or
altered by the drawee (buyer) after it has been issued by the drawee’s bank.
138. SCHEDULE B – Refers to Schedule B, Statistical Classification of Domestic and
Foreign Commodities Exported from the United States.
139. SHIPPER’S EXPORT DECLARATION – A form required for all shipments by the
U.S. Treasury Department and prepared by a shipper, indicating the value, weight,
destination, and other basic information about an export shipment.
140. SHIP’S MANIFEST – An instrument in writing, signed by the captain of a ship that
lists the individual shipments constituting the ship’s cargo.
141. SIGHT DRAFT – A draft that is payable upon presentation to the drawee.
142. SPOT EXCHANGE – The purchase or sale of foreign exchange for immediate
delivery.
143. STANDARD INDUSTRIAL CLASSIFICATION (SIC) – A standard numerical code
system used by the U.S. Government to classify products and services.
144. STANDARD INTERNATIONAL TRADE CLASSIFICATION (SITC) – A standard
numerical code system developed by the U.N. to classify commodities used in
international trade.
145. STATE – Any State, the District of Columbia, and Puerto Rico.
Edmundas Radavicius. INTERNATIONAL TRADE
| 207
146. STEAMSHIP CONFERENCE – A group of steamship operators that operate under
mutually agreed upon freight rates.
147. STRAIGHT BILL OF LADING – A nonnegotiable bill of lading in which the goods
are consigned directly to a named consignee.
148. SUBZONE – A special purpose zone established as part of a zone project for a
limited purpose, which cannot be accommodated within an existing zone.
149. TARE WEIGHT – The weight of a container and packing materials without the
weight of the goods it contains.
150. TENOR – Designation of a payment as being due at sight, a given number of days
after sight, or a given number of days after date.
151. THROUGH BILL OF LADING – A single bill of lading covering both the domestic
and international carriage of an export shipment.
152. TIME DRAFT – A draft that matures either a certain number of days after acceptance
or a certain number of days after the date of the draft.
153. TRAMP STEAMER – A ship not operating on regular routes or schedules.
154. TRANSACTION STATEMENT – A document that delineates the terms and
conditions agreed upon between the importer and exporter.
155. TRANSFER – To take merchandise with zone status from a zone for consumption,
transportation, exportation, warehousing, cartage or lighterage, vessel supplies and
equipment, admission to another zone, and like purposes.
156. TRUST RECEIPT – Release of merchandise by a bank to a buyer in which the bank
retains title to the merchandise.
157. UNIQUE IDENTIFIER NUMBER (UIN) – This inventory method controls
merchandise in a zone by unique numbers and/or letters that identify merchandise
admitted to a zone.
158. USER – A person or firm using a zone for storage, handling or processing of
merchandise.
208 |
Edmundas Radavicius. INTERNATIONAL TRADE
159. VALIDATED EXPORT LICENSE – A required document issued by the U.S.
Government authorizing the export of specific commodities.
160. VESSEL/AIRCRAFT SUPPLY – The supply of goods or equipment free of duties
and taxes under section 309 of the Tariff Act, to eligible vessels or aircraft for use
while actually engaged in foreign trade, or in transit to any U.S. possession.
161. WAREHOUSE RECEIPT – A receipt issued by a warehouse listing goods received
for storage.
162. WHARFAGE – A charge assessed by a pier or dock owner for handling incoming
or outgoing cargo.
163. WITHOUT RESERVE – A term indicating that a shipper’s agent or representative
is empowered to make definitive decisions and adjustments abroad without approval
of the group or individual represented.
164. ZONE LOT NUMBER (ZLN) – A collection of merchandise maintained under an
inventory control method based on specific identification of merchandise admitted
to a zone by lot and lot number.
165. ZONE PROJECT – All of the zone and subzone sites under a single grantee,
normally in a single port of entry.
166. ZONE RESTRICTED (ZR) – Merchandise admitted to a zone for the sole purpose
of exportation or destruction.
167. ZONE SITE – The physical location of a zone or subzone.
168. ZONE STATUS – The status of merchandise admitted to a Foreign-Trade Zone,
i.e., domestic (D), non-privileged foreign (NPF), privileged foreign (PF), or zone
restricted (ZR) status.
In finance, an exchange rate (also known as a foreign-exchange rate, forex
rate, FX rate or Agio) between two currencies is the rate at which one currency will
be exchanged for another. It is also regarded as the value of one country’s currency in
terms of another currency. For example, an interbank exchange rate of 91 Japanese yen
(JPY, ¥) to the United States dollar (US$) means that ¥91 will be exchanged for each
Edmundas Radavicius. INTERNATIONAL TRADE
| 209
US$1 or that US$1 will be exchanged for each ¥91. Exchange rates are determined in
the foreign exchange market, which is open to a wide range of different types of buyers
and sellers where currency trading is continuous: 24 hours a day except weekends, i.e.
trading from 20:15 GMT on Sunday until 22:00 GMT Friday. The spot exchange rate
refers to the current exchange rate. The forward exchange rate refers to an exchange rate
that is quoted and traded today but for delivery and payment on a specific future date.1
Retail exchange market2
People may need to exchange currencies in a number of situations. For example,
people intending to travel to another country may buy foreign currency in a bank in their
home country, where they may buy foreign currency cash, traveler’s cheques or a travelcard. From a local money changer they can only buy foreign cash. At the destination,
the traveler can buy local currency at the airport, either from a dealer or through an
ATM. They can also buy local currency at their hotel, a local money changer, through
an ATM, or at a bank branch. When they purchase goods in a store and they do not have
local currency, they can use a credit card, which will convert to the purchaser’s home
currency at its prevailing exchange rate. If they have traveler’s cheques or a travel card
in the local currency, no currency exchange is necessary. Then, if a traveler has any
foreign currency left over on their return home, they may want to sell it, which they may
do at their local bank or money changer. The exchange rate as well as fees and charges
can vary significantly on each of these transactions, and the exchange rate can vary from
one day to the next.
There are variations in the quoted buying and selling rates for a currency between
foreign exchange dealers and forms of exchange, and these variations can be significant.
For example, consumer exchange rates used by Visa and MasterCard offer the most
favorable exchange rates available, according to a Currency Exchange Study conducted
by CardHub.com. This studied consumer banks in the U.S., and Travelex, showed that
the credit card networks save travelers about 8% relative to banks and roughly 15%
relative to airport companies.
210 |
Edmundas Radavicius. INTERNATIONAL TRADE
Quotations3
A currency pair is the quotation of the relative value of a currency unit against
the unit of another currency in the foreign exchange market. The quotation EUR/USD
1.3533 means that 1 Euro is able to buy 1.3533 US dollar. In other words, this is the
price of a unit of Euro in US dollar. Here, EUR is called the “Fixed currency”, while
USD is called the “Variable currency”.
There is a market convention that determines which is the fixed currency and
which is the variable currency. In most parts of the world, the order is: EUR – GBP –
AUD – NZD – USD – others. Accordingly, a conversion from EUR to AUD, EUR is the
fixed currency, AUD is the variable currency and the exchange rate indicates how many
Australian dollars would be paid or received for 1 Euro. Cyprus and Malta which were
quoted as the base to the USD and others were recently removed from this list when they
joined the Eurozone.
In some areas of Europe and in the non-professional market in the UK, EUR
and GBP are reversed so that GBP is quoted as the base currency to the euro. In order
to determine which the base currency is where both currencies are not listed (i.e. both
are “other”), market convention is to use the base currency which gives an exchange
rate greater than 1.000. This avoids rounding issues and exchange rates being quoted to
more than four decimal places. There are some exceptions to this rule, for example, the
Japanese often quote their currency as the base to other currencies.
Quotes using a country’s home currency as the price currency (for example, EUR
0.735342 = USD 1.00 in the Eurozone) are known as direct quotation or price quotation
(from that country’s perspective) and are used by most countries.
Quotes using a country’s home currency as the unit currency (for example,
USD 1.35991 = EUR 1.00 in the Eurozone) are known as indirect quotation or quantity
quotation and are used in British newspapers and are also common in Australia, New
Zealand and the Eurozone.
Using direct quotation, if the home currency is strengthening (that is, appreciating,
or becoming more valuable) then the exchange rate number decreases. Conversely, if
the foreign currency is strengthening, the exchange rate number increases and the home
currency is depreciating.
Market convention from the early 1980s to 2006 was that most currency pairs
Edmundas Radavicius. INTERNATIONAL TRADE
| 211
were quoted to four decimal places for spot transactions and up to six decimal places
for forward outrights or swaps. (The fourth decimal place is usually referred to as a
“pip”). An exception to this was exchange rates with a value of less than 1.000 which
were usually quoted to five or six decimal places. Although there is not any fixed rule,
exchange rates with a value greater than around 20 were usually quoted to three decimal
places and currencies with a value greater than 80 were quoted to two decimal places. In
2005, Barclays Capital broke with convention by offering spot exchange rates with five
or six decimal places on their electronic dealing platform. The contraction of spreads
(the difference between the bid and offer rates) arguably necessitated finer pricing and
gave the banks the ability to try and win transaction on multibank trading platforms
where all banks may otherwise have been quoting the same price. A number of other
banks have now followed this system.
Fluctuations in exchange rates4
A market-based exchange rate will change whenever the values of either of
the two component currencies change. A currency will tend to become more valuable
whenever demand for it is greater than the available supply. It will become less valuable
whenever demand is less than available supply (this does not mean people no longer
want money, it just means they prefer holding their wealth in some other form, possibly
another currency).
Increased demand for a currency can be due to either an increased transaction
demand for money or an increased speculative demand for money. The transaction
demand is highly correlated to a country’s level of business activity, gross domestic
product (GDP), and employment levels. The more people that are unemployed, the less
the public as a whole will spend on goods and services. Central banks typically have
little difficulty adjusting the available money supply to accommodate changes in the
demand for money due to business transactions.
Speculative demand is much harder for central banks to accommodate, which
they influence by adjusting interest rates. A speculator may buy a currency if the return
(that is the interest rate) is high enough. In general, the higher a country’s interest rates,
the greater will be the demand for that currency. It has been argued that such speculation
can undermine real economic growth, in particular since large currency speculators
212 |
Edmundas Radavicius. INTERNATIONAL TRADE
may deliberately create downward pressure on a currency by shorting in order to force
that central bank to buy their own currency to keep it stable. (When that happens, the
speculator can buy the currency back after it depreciates, close out their position, and
thereby take a profit.)
For carrier companies shipping goods from one nation to another, exchange rates
can often impact them severely. Therefore, most carriers have a CAF charge to account
for these fluctuations.
Bilateral vs. effective exchange rate5
Example of GNP-weighted nominal exchange rate history of a basket of 6
important currencies (US Dollar, Euro, Japanese Yen, Chinese Renminbi, Swiss Franks,
Pound Sterling
Bilateral exchange rate involves a currency pair, while an effective exchange rate
is a weighted average of a basket of foreign currencies, and it can be viewed as an overall
measure of the country’s external competitiveness. A nominal effective exchange rate
(NEER) is weighted with the inverse of the asymptotic trade weights. A real effective
exchange rate (REER) adjusts NEER by appropriate foreign price level and deflates by
the home country price level. Compared to NEER, a GDP weighted effective exchange
rate might be more appropriate considering the global investment phenomenon.
Manipulation of exchange rates6
A country may gain an advantage in international trade if it controls the market
for its currency to keep its value low, typically by the national central bank engaging in
open market operations. The People’s Republic of China has been acting this way over
a long period of time.
Other nations, including Iceland, Japan, Brazil, and so on also devalue their
currencies in the hopes of reducing the cost of exports and thus bolstering their
economies. A lower exchange rate lowers the price of a country’s goods for consumers
in other countries, but raises the price of imported goods and services, for consumers in
the low value currency country.
In general, a country that exported goods and services will prefer a lower value
Edmundas Radavicius. INTERNATIONAL TRADE
| 213
on their currencies. While a country that imported goods and services will prefer a
higher value on their currencies.
QUESTIONS/DISCUSSION
1. Research on the fluctuation of the exchange rate of the Lithuanian currency
through past 5 years.
a. Identify the fluctuation towards Euro, USD and other currencies.
b. Research the reasons and correlating factors in the global market.
c. Make an assumptions and develop hypothesis.
2.Discuss the developed assumptions and hypothesis.
3. In this case it is strongly recommended to include students in the defining
process itself. Therefore a practical curriculums should be integrated into the flow of
theory aspects introduction, mainly in the forms of:
- Reflection;
- Discussion;
- Feedback;
- Roleplay…
Or any other relevant activities which, by lecturer seems appropriate to the level
of the class.
4.As this tool has a lot of facts and figures, which might be collected on easily
accessible information channels, such as databases, internet or library, it is strongly
recommended as a practical exercise, that students acting solely or in pairs or small
groups will prepare a homework research and make a presentation, which could be
followed by a live discussion.
REFERENCES
The context of this part has been adapted from the following product:
1. O’Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles in
action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 458. ISBN
0-13-063085-3.
2. Peters, Will. “Find the Best British Pound to Euro Exchange Rate”. Pound
214 |
Edmundas Radavicius. INTERNATIONAL TRADE
Sterling Live. Retrieved 21 March 2015.
3. Mouhamed Abdulla, Ph.D. “Understanding Pip Movement in FOREX
Trading” (PDF). Report, Mar. 2014.
4. “Currency Adjustment Factor - CAF”. Academic Dictionaries and
Encyclopedias.
5. Erlat, Guzin and Arslaner, Ferhat. “Measuring Annual Real Exchange Rate
Series for Turkey”. Yapi Kredi Economic Review, Volume 2, Issue 8, December 1997,
pp. 35-61.
6. “More Countries Adopt China’s Tactics on Currency” article by David E.
Sanger and Michael Wines in The New York Times October 3, 2010, accessed October
4, 2014
FURTHER READING
1. O’Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles in
action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 458. ISBN
0-13-063085-3.
2.The Economist – Guide to the Financial Markets,
3.Understanding foreign exchange: exchange rates
4. Mouhamed Abdulla. “Understanding Pip Movement in FOREX Trading”.
Report, Mar. 2014.
5.“Exchange Rate fluctuation”
6. “Currency Adjustment Factor - CAF”. Academic Dictionaries and
Encyclopedias.
7.“Currency Adjustment Factor”. Global Forwarding.
8.The Microstructure Approach to Exchange Rates, Richard Lyons, MIT Press
9. “China denies currency undervalued” article on BBC News on Sunday, 14
March 2010
10. “More Countries Adopt China’s Tactics on Currency” article by David E.
Sanger and Michael Wines in The New York Times October 3, 2010, accessed October
4, 2010
Edmundas Radavicius. INTERNATIONAL TRADE
| 215
LITERATURE
Part 1
1.“Trade - Define Trade at Dictionary.com”. Dictionary.com.
2.Kusum Mundra (October 18, 2010). “Immigrant Networks and U.S. Bilateral
Trade: The Role of Immigrant Income”. Papers.ssrn. Retrieved 2011-09-01. Mundra,
Kusum, Immigrant Networks and U.S. Bilateral Trade: The Role of Immigrant Income.
IZA Discussion Paper No. 5237. Available at SSRN: http://ssrn.com/abstract=1693334
... This paper finds that the immigrant network effect on trade flows is weakened by the
increasing level of immigrant assimilation.
3. “Absolute and comparative advantage” (pdf). International encyclopedia of
the social sciences, 2nd editioN. Pp. 1–2. Retrieved 2015-05-04.
4. Marrewijk, Charles van (2007-01-18). “Absolute advantage”. Department
of Economics, Erasmus University Rotterdam: world economy. Princeton University
Press. Retrieved 2009-05-03.
5.“The Theory of Comparative Advantage: Overview”. Flat World Knowledge.
Retrieved23 February 2015.
6.Dixit, Avinash; Norman, Victor (1980). Theory of International Trade: A Dual,
General Equilibrium Approach. Cambridge: Cambridge University Press. P. 2.
7. Blaug, Mark (1992). The methodology of economics, or, How economists
explain. Cambridge University Press. P. 286. ISBN 0-521-43678-8.
8. Shiozawa, Y. (2007). “A New Construction of Ricardian Trade Theory: A
Many-country, Many-commodity with Intermediate Goods and Choice of Techniques”.
Evolutionary and Institutional Economics Review 3 (2): 141–187. Doi:10.14441/
eier.3.141
9.Deardorff, Alan (1998). “Determinants of Bilateral Trade: Does Gravity Work
in a Neoclassical World?” (PDF). The Regionalization of the World Economy.
10. “An Essay on Trade and Transformation”, Staffan Burenstam Linder,
Stockholm: Almqvist & Wicksell, 1961.
216 |
Edmundas Radavicius. INTERNATIONAL TRADE
Part 2
1. Al-Rodhan, R.F. Nayef and Gérard Stoudmann. (2006). Definitions of
Globalization: A Comprehensive Overview and a Proposed Definition.
2.Albrow, Martin and Elizabeth King (eds.) (1990). Globalization, Knowledge
and Society London: Sage. ISBN 978-0803983243 p. 8. “...all those processes by which
the peoples of the world are incorporated into a single world society.”
3. “Globalization”. Online Etymology Dictionary. Retrieved 7 July 2015.
4.Joshi, Rakesh Mohan, (2009) International Business, Oxford University Press,
New Delhi and New York ISBN 0-19-568909-7.
5. Cassis, Youssef (2006). Capitals of Capital: A History of International
Financial Centres, 1780-2005. Cambridge, UK: Cambridge University Press. ISBN
978-0-511-33522-8.
6. Cassis, Youssef (2006). Capitals of Capital: A History of International
Financial Centres, 1780-2005. Cambridge, UK: Cambridge University Press. ISBN
978-0-511-33522-8.
7.“Austerity measure”. Financial Times Lexicon. Retrieved 1 March 2013.
8. Traynor, Ian; Katie Allen (11 June 2010). “Austerity Europe: who faces the
cuts”. London: Guardian News. Retrieved 29 September 2014
9.Wesbury, Brian S.; Robert Stein (26 July 2010). “Government Austerity: The
Good, Bad And Ugly”. Forbes. Retrieved 29 September 2014.
10. Hundreds of bosses flee UK over 50% tax, The Times, 13 December 2009
11. Vujakovic, Petra (2010). “How to Measure Globalization? A New
Globalization Index (NGI)”. Atlantic Economic Journal 38 (2): 237. doi:10.1007/
s11293-010-9217-3
Part 3
1. Patric, L. and Lattimore, R. “International trade”. Corrigenda to OECD
publications may be found on line at: www.oecd.org/publishing/corrigenda. © OECD
2009
2. Baron, J. and S. Kemp, 2004. ‘Support for trade restrictions, attitudes, and
understanding of comparative advantage.’ Journal of Economic Psychology. 25(5), pp.
Edmundas Radavicius. INTERNATIONAL TRADE
| 217
565-80.
3.Juliet Kaarbo, Jeffrey S. Lantis, and Ryan K. Beasley. “The Analysis of Foreign
Policy in Comparative Perspective”. 2012 by CQ Press, a division of SAGE.
4. Ryan K Beasley, Juliet Kaarbo. Foreign policy in Comparative Perspective:
Domestic and International Influences on State Behavior. 2012 by SAGE Publications,
ISBN-13: 978-1608716968
5. Ibp Usa. Lithuania Investment and Trade Laws and Regulations Handbook
(World Law Business Library). 2009 by World Law Business Library; ISBN-13: 9781433076213. Book may be found on line at: http://www.e-bookdownload.net/search/
lithuania-investment-and-trade-laws-and-regulations-handbook
6. Vijeikis. J., Mačys, G. Trade policy in lithuania: past experience and
benchmarks for the future. Department of Business Economics, Mykolas Romeris
University, Intellectual economics 2010, No. 1(7), p. 76–86. file:///C:/Users/New/
Downloads/Macys-Vijeikis%20(1).pdf
Part 4
1.World Trade Organization, information may be found on line at: https://www.
wto.org/english/tratop_e/tbt_e/tbt_info_e.htm; https://www.wto.org/
2. Guidelines on International Regulatory Obligations and Cooperation,
information may be found on line at: http://www.tbs-sct.gc.ca/rtrap-parfa/iroc-cori/
iroc-cori-eng.pdf
Part 5
1. Arvind Panagariya (2005). Core WTO Agreements: Trade in Goods and
Services and Intellectual Property.
2. Adlung, R. & Roy, M. (2005). Turning Hills into Mountains? Current
Commitments under the GATS and Prospects for Change. Staff Working Paper ERSD2005-01, Economic Research and Statistics Division, World Trade Organization,
Geneva.
3. IMF (2014). World Economic Outlook: Recovery Strengthens and Remains
Uneven.
218 |
Edmundas Radavicius. INTERNATIONAL TRADE
Part 6
1.World regions and trade organizations. Available at:
http://www.trade.gov/mas/ian/referenceinfo/tg_ian_001874.asp
Part 7
1. Maneschi, Andrea (1998). Comparative Advantage in International Trade: A
Historical Perspective. Cheltenham: Elgar. p. 1.
2.e-Study Guide for: Economics by Campbell McConnell, ISBN 9780073375694
3. Smith, Adam (1776). An Inquiry into the Nature and Causes of the Wealth of
Nations (1904 ed.). London: Library of Economics and Liberty. Retrieved 2014-08-16.
4.Wood, John Cunningham (1991). David Ricardo: Critical Assessments. Taylor
& Francis. p. 312.
5. MacDougall, G. D. A. (1951). “British and American exports: A study
suggested by the theory of comparative costs. Part I.”. The Economic Journal. 61(244).
pp. 697–724.
6. MacDougall, G. D. A. (1952). “British and American exports: A study
suggested by the theory of comparative costs. Part II.”. The Economic Journal. 62(247).
pp. 487–521.
7.Ricardo (1817). On the Principles of Political Economy and Taxation. London,
Chapter 7
Part 8
1. O’Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles in
action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 458. ISBN
0-13-063085-3.
2. Peters, Will. “Find the Best British Pound to Euro Exchange Rate”. Pound
Sterling Live. Retrieved 21 March 2015.
3. Mouhamed Abdulla, Ph.D. “Understanding Pip Movement in FOREX
Trading” (PDF).Report, Mar. 2014.
4. “Currency Adjustment Factor - CAF”. Academic Dictionaries and
Encyclopedias.
Edmundas Radavicius. INTERNATIONAL TRADE
| 219
5. Erlat, Guzin and Arslaner, Ferhat. “Measuring Annual Real Exchange Rate
Series for Turkey”. Yapi Kredi Economic Review, Volume 2, Issue 8, December 1997,
pp. 35-61.
6. “More Countries Adopt China’s Tactics on Currency” article by David E.
Sanger and Michael Wines in The New York Times October 3, 2010, accessed October
4, 2014
2 20 |
Edmundas Radavicius. INTERNATIONAL TRADE
Edmundas Radavicius
INTERNATIONAL TRADE
Course Handbook
ISBN 978-9955-648-57-4
Order no. 150716893
S. Jokuzys Publishing-Printing House. 2015
Nemuno str. 139, LT-93262 Klaipeda
www.spaustuve.lt