1.5 Protection vs. Integration

Protectionism: The protection objective is to keep alive domestic production and to increase import prices. For this purpose, it uses different instruments:

Tariffs: taxes on imported goods to protect the domestic industry. An external tariff is a ‘tax’ on foreign products introduced in the domestic market. The effect is that its price is higher and it its more difficult to compete with domestic products.Quotas on imports: is a limitation of the quantity of foreign products to be imported, regardless of the price. Quotas limit imports and increase domestic prices. The limited quantity is an obstacle for foreign products when international prices have decreased.Non-tariff barriers: are administrative regulations for the discrimination of foreign products and the benefit of domestic products.

There are many arguments supporting protection policies because1Less efficient domestic production can compete with imports. 2.Increase of domestic production.3,Protection of a specific sector and workers. 4.Protection of an ‘infant industry’.5.Protection of a strategic sector.6.Possible (and desirable) positive effect: trade creation

Integration: The economic inte gration, following the free-trade theories, has different effects-

Static effects:a) Trade creation: there is a replacement of domestic, more expensive supplier by other cheaper coming from outside.b) Trade diversion: replacement of a cheaper supplier by other (s) more expensive belonging to the new customs union; it may imply an access to less efficient sources of supplying, also a direct consequence of the customs union.Dynamic effects:a) Improvement of economic efficiency caused by more competition.b) Economies of scale made easier by the market’s enlargement which favors specialization, reduce unit costs and has indirect effects on the rest of companies.c) Investment increase, a) internal, to adapt to new competition requirements, and b) external, attracted by the new business opportunities.d) Stimulus for technological development for the application of technical improvements which involve a greater competitiveness and make cooperation in R + D possible.e) The improvement of real terms of trade by countries belonging to the Union or Agreement, depending on the significance of the partner countries in the corresponding international markets.

1.6. Three types of Trade Relations:1) Separate Markets2) Free trade area: an area in which members remove trade barriers among themselves but keep their separate national barriers against trade with the outside world.3) Customs Union: a group of countries forming a single customs territory in which (a) tariffs and other barriers are eliminated on substantially all the trade between the constituent countries for products originating in these countries, and (b) there is a common external trade policy (common external tariff) that applies to non-members. Equivalent to a Free Trade Area plus a common external tariff.

2. MAIN CHARACTERISTICS OF INTERNATIONAL TRADE 1.Progressive opening of international economy since the second half of the 20 th Century2.Transactions concentration around developed countries and recently around some emerging industrialized exporting economies (BRICS), mainly in Asia.3.Africa, South America and Central America lose influence in international trade.4.Increasing manufactures trade (decreasing raw materials trade)5.Increasing service trade6.Advanced economies specialized in manufacturing production and trade.7.Emerging and developing economies specialized in raw materials trade.8.South and Central America: specialized in agricultural industry trade.9.Middle East, CIE (Commonwealth of Independent States) and Africa: mining industry .

3. THE WORLD TRADE ORGANIZATION: The World Trade Organization deals with rules of trade between nations at a global or near-global level. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.It’s an organization for liberalizing trade. It’s a forum for governments to negotiate trade agreements. It’s a place for them to settle trade disputes. It operates a system of trade rules.

The World Trade Organization came into being in 1995. One of the youngest of the international organizations, the WTO is the successor to the FATT established in the wake of the Second World War

The WTO: Functions: –Administering WTO trade agreements-Forum for trade negotiations-Handling trade disputes-Monitoring national trade policies-Technical assistance and training for developing countries-Cooperation with other international organizations

The WTO: Trade Negotiations:The WTO agreements covers goods, services and intellectual property. They spell out the principles of liberalization and the permitted exceptions. They include individual countries’ commitments to lower customs tariffs and other trade barriers, and to open and keep open services markets. They set procedures for settling disputes. These agreements are not static; they are negotiated from time to time and new agreements can be added to the package. Many are now being negotiated under the Doha Development Agenda, launched by WTO trade ministers in Doha, Qatar, in November 2001.

The WTO: The Dispute Settlement Understanding:The WTO’s procedure for resolving trade quarrels under the Dispute Settlement Understanding is vital for enforcing the rules and therefore for ensuring that trade flows smoothly.

Countries bring disputes to the WTO if they think their rights under the agreements are being infringed.

Judgments by specially appointed independent experts are based on interpretations of the agreements and individual countries’ commitments.