Chapter 6 TRADE BARRIERS & REGULATION By Madelynn Esquivias, Hang Cui, & Leila Salarpour.

Chapter 6

TRADE BARRIERS & REGULATIONBy Madelynn Esquivias, Hang Cui, & Leila Salarpour

Agenda

The Evolution of Trade3 Phases of Globalization

Protected TradePurpose

Customs ServicesTariffs & DutiesTrade Barriers

Trade AgreementsImplementation of Trade

BarriersQuick QuizLast Insight

The Evolution of Trade

ObjectiveExplore the evolution of the textile

and apparel trade (Kunz, 2011).

Discussion Question:

Looking at the three phases of globalization, what to do you think it means in terms of each globalization phase shrinking the world? How has each globalization phase shrunk the world?

Globalization 1.0 | Globalization of Countries

Great Britain | Dominant

Global Power(19th Century)

1801-1900

Golden Area | International Commerce

Civil War | Four Year War

1861-1865

Revolutionary War | American

War of Independence

1775-1783

Invention | Steamship, Railroad,

Telegraph, Telephone

Transatlantic Cable |

Connected 1866

Theory of Comparative Advantage|

David Ricardo1817

1400-18651866-1914 1915-1945 1946-1989 1990-2000 2001-2009 2010...

United States |

Dominant Power (20th

Century)1901-2000

Size Large

Size Medium

Globalization 2.0 | Globalization of Companies

1400-18651866-1914 1915-1945 1946-1989 1990-2000 2001-2009 2010...

World Bank | Est. 1944

World War I1914-1918

Keynesian Economics |

Solution to the Great

Depression1930s

Cold War |U.S. &

U.S.S.R.1941-1991

Development | Electronic

Communication & the Internet

1980-2000

The Great Depression 1929-1930s

World War II1939-1945

International Monetary Fund

(IMF) | 1945

GATT |Est. 1947Eff. 1948

Multifiber Arrangement (MFA) | 1974-

2004

Fall of

Berlin Wall |1989

Conversion | CWS → GS

Integration | GATT → WTOMFA → ATC

Invention | Computers, Satellites,

Microcomputers, fiber optics

United States |

Dominant Power (20th

Century)1901-2000

Size Medium

Size Small

Globalization 3.0 | Globalization of Individuals

1400-18651866-1914 1915-1945 1946-1989 1990-2000 2001-2009 2010...

Regionalization of Trade

Grew

Corporate Social

Responsibility (CSR)

Economic Downturn

Challenged World Market

Innovation Developing

SSC

Big Corporations| Domination of

Global Commerce

Outsourcing | White Collar

Jobs

Creativity & Innovation on Environmental Responsibility

Coalition to link public policy &

Corporate Responsibility

Size Small

Size Tiny

Discussion Question| The Evolution of Trade

Looking at the three phases of globalization, what to do you think it means in terms of each globalization phase shrinking the world? How has each globalization phase shrunk the world?

Protected Trade

ObjectiveExamine how trade barriers protect

trade (Kunz, 2011).

Discussion Question:

In terms of protected trades, what are the possible reasons the export and import policies of a nation may be different?

Purpose of Protected Trade

1. domestic market

2. make competition fairer

Trade Barriers

● All the domestic companies to charge higher prices, grow and increase the number of jobs offered, and make a greater contribution to the domestic economy

● some types of trade barriers are also used as an important source of government revenue.

Customs ServiceResponsibilities

monitor imports and exports

assess and collect duties

report imports and exports against quota

protect the country’s borders against illegal entry

To figure out the what, when and who of trading, a detailed accounting system is needed to record systematically the passage of products, and recording the amounts of specific types of products is a great challenge.

HS: Harmonized Commodity Description and Coding System

Monitor imports and exports

Harmonized Commodity Description and Coding System

Global classification system used to describe most trade in goods

WCO(World Customs Organization)-language of international trade.

Tariffs and Duties

Tariffs ●trade protection ●tariff schedule establishing the taxes that are collected as duties●imported or exported goods.

Nominal Tariffs ●rate●in each country’s tariff schedule●determine duty ●paid for specified products●2 forms: specific and ad valorem.

1. specific ● fixed amount money per physical unit of product ● easy to apply and administer, like standardized goods● provide a degree of protection that varies inversely with changes in

import prices.

1. ad valorem tariffs are like a sales tax● are a fixed percentage of the value of product● can be applied to products with a wide range of product variation● maintain a constant degree of protection, even when prices vary.

duty due=physical units of goods x specific duty rate$200=10,000ducks x $0.02 each

duty due=total value of the product x ad valorem duty rate$36,125=($340x1,250pcs of luggage)x 8.5%

total duty due=specific duty+ad valorem duty rate

Free Trade Zones

●trade agreements between countries that are designed to reduce trade barriers and facilitate trade.●A port or other site within a nation designated for duty-free entry of selected for manufacturing. ●Often established within individual nations that are just entering into competitive participation in global market.

Foreign trade zone

●a free trade zone that allows manufacturing for export. ●located in a single country, and goods move between countries with special treatment (including no duty assessed )●QIZ-qualified industrial zone, involves more than one nation,like Egypt, where manufacturing can take place.

Nontariff Trade Barriers

exchange rates●determine the ration at which one currency can be traded for another ●strong dollar and weak dollar

Quotas●restrict quantities of good that can be imported or exported but are most often applied to imports. ●often administered by a government that issues import licenses up to the quantity of imports that will be allowed.

Voluntary Export Restraints●gentlemen’s agreements to restrict trade, because the agreements are not formalized into international law.

Discussion Question| Protected Trade

In terms of protected trades, what are the possible reasons the export and import policies of a nation may be different?

Trade Agreements

ObjectiveIdentify major international trade

agreements and their intrinsic trade barriers, relevant to textiles and

apparel (Kunz, 2011).

Discussion Question:

What was Multifiber Arrangement (MFA) tend to do and why was it expired in 2005?

in the United States Implementation of Tariffs

1.The main goal of Tariff:

Was raise money to pay the federal budget.

2. Multifiber Arrangement (MFA):

The agreement imposed quotas on the amount that developing countries could export in the form of yarn, fabric and clothing to developed countries

Trade Agreements Cont.

1.General Agreement on Tariffs and Trade (GATT) (1947 to 1994):

GATT provided an international framework that established the ground rules for world wide trade to reduced trade barriers

2. World Trade Organization (WTO) (1994-Present):

WTO deals with the rules of Trade between nations at a global level.

Discussion Question| Trade Agreements

What was MFA intended to do and why was it expired in 2005?

Quick Quiz

QuizQ.1Who developed the Theory of Comparative Advantage?

Q.2 What is the purpose of protected trade?

Q.3What is the main goal of Tariff?

A.1 David Ricardo

A.2 Stronger domestic market (compete less with foreign companies in domestic market) &

make competition fairer (in international markets).

A.3 Raise money to pay the federal budget.

Given the commonality of global trade and travel, do you think the United States should take up using the metric system, like the rest of world? What might be the major barriers to the changeover to metric?

End

ReferencesKunz, G., & Garner, M. (2011). Trade Barriers and Regulations. In Going Global: The Textile and Apparel Industry (Second ed., pp. 171-194). New York: Fairchild Books.

Investopedia. (2015). Mixed Economic System. Retrieved fromhttp://www.investopedia.com/terms/m/mixed-economic-system.aspChanda, N. (April 7, 2004). Globalization has shrunk the world to size tiny. Yale Global Online. Retrieved from http://yaleglobal.yale.edu/content/globalization-30-has-shrunk-world-size-tiny