Trade Barriers, their effects and role

of international organizations to
minimize such barriers
 3 sections
Section 1:

Muhammad Amad
Fahad Jan
Section 2:
Azam Zahid
Section 3:
Shahid Rafiq
Khanzada Muhammad Shakir
 Introduction

• Protectionism?
• Protectionism is the policy of protecting
domestic industries against foreign competition
by means of tariffs , subsidies, import quotas, or
other restrictions placed on the imports of foreign
competitors.

• This policy is closely related with anti-

globalization, and contrasts with free trade,
where government barriers to trade and
movement of capital are kept to a minimum.
 Types of Trade Barriers
• To encourage the development of the
domestic industry and protect existing
industry government may impose such
barriers to trade such as Tariffs, Quotas,
Boycotts, Monetary Barriers and other Market
Barriers.
• While such barriers may be imposed for
economic or political purposes they are
encouraged by local industry. Whether or not
the barriers are economically logical or not,
the fact is they exist. Types of barriers are as
follows:
 Tariff Barriers
• A tariff simply means a tax imposed by a government on
goods entering at its borders. Tariffs may be used as a
revenue generating tax or to discourage the importation of
goods, or for both reasons.
• In general, tariffs:
• Increase inflation, Government control and political
considerations in economic matters, the number of tariffs i.e.
if one country imposes them the other affected country
responds in the same manner.
• Weaken Supply and demand patterns and International
relations because they can cause trade wars between nations.
• Restrict Manufacturer’s supply sources, choices available to
consumers, competition.
Tariffs Cont’d
• Pasta war between USA and EU
• In a dispute with the European Union over pasta
export subsidies the United States ordered a 40
percent increase in tariffs on European Spaghetti
and fancy pasta. The EU retaliated against the US
walnuts and lemons. The pasta war raged on as
Europe increased tariffs on US Fertilizer, paper
products, and beef products. The US also replied in
the same manner. The war ended when Europeans
finally dropped pasta export subsidies.
• More recently US and EU have been battling a
similar trade war over tariffs on bananas. Most
recently less developed countries are increasingly
voicing complaints about American and European
tariffs on agricultural products.
 Non Tariff Barriers
• These Nontariff barriers include quality standards on
imported products, quotas, embargoes, boycotts,
antidumping penalties, monetary barriers etc.
• Quotas:
• A Quota is a specific unit or dollar limit applied to a
particular type of good.
• Critics say quotas often lead to corruption (bribes to
get a quota allocation), smuggling (a reaction against
a quota), and higher prices for consumers.
• In economics, quotas are thought to be less
economically efficient than tariffs which in turn are
less economically efficient than free trade
Quotas Cont’d
• Examples:
• There is a limit on imported television sets in Great
Britain, and there are German quotas on Japanese ball
bearings, Italian restrictions on Japanese motorcycles,
and US quotas on sugar and textiles, peanuts etc.
• When the Japanese first let foreign rice into their
country it was quota basis, but since 2000 the quotas
have been replaced by tariffs.
• Like tariffs quotas tend to increase prices. US quotas
on textiles are estimated to add 50 percent to the
wholesale price of clothing.
 Voluntary Export
Restraints
• Similar to quotas are the Voluntary Export
Restraints (VERs) or Orderly Market
Agreements (OMAs). Common in textiles,
clothing, steel, agriculture, and automobiles.
• A VER is called voluntary because the
exporting country sets the limits however it is
generally imposed under the threat of stiffer
quotas and tariffs being set by the importing
country if a VER is not established.
 VER Cont’
• Examples:
• Japan has a VER on automobiles to the United
States, that is Japan has agreed to export a
fixed number of automobiles annually.
• When televisions were still manufactured in the
United States, Japan signed an OMA limiting
Japanese color television exports to the United
States to 1.56 million units per year. However,
as a result of the OMA, Japanese companies
began investing in television manufacturing in
the United States and Mexico, and as a result
they regained the entire market share that had
been lost through the OMA, eventually
dominating the entire market.
Boycotts and Embargoes
• A government Boycott is an absolute
restriction against the purchase and
importation of certain goods from
other countries. While,
• An embargo is a refusal to sell to
specific country. An embargo is the
partial or complete prohibition of
commerce and trade with a particular
country, in order to isolate it.
Boycotts and Embargoes
Cont’d
• The United States uses boycotts and embargoes
against countries with which there is dispute. For
example, Cuba, N.Korea, Iran, and Iraq had or have
still sanctions imposed by the United States.
• Examples:
• Nestle products were boycotted by a group of
countries that considered the way Nestle promoted
the baby milk formula misleading to mothers and
harmful to their babies in less developed countries.
• The United States embargo against Cuba.
 References
• Philip, R. Cateora and John, L. Graham(2007),
International Marketing 13th edition, pp. 37-41.
Links:
• http://en.wikipedia.org/wiki/United_States_emb
argo_against_Cuba
• http://en.wikipedia.org/wiki/Embargo
• http://en.wikipedia.org/wiki/Import_quota
• http://en.wikipedia.org/wiki/Protectionism
• http://www.britannica.com/EBchecked/topic/47
9643/protectionism
TRADE BARRIERS CONT’D
• Monetary Barriers
A government can effectively regulate
its international trade position by various
forms of exchange-control restrictions.
1. Blocked Currency
Blocked currency is used as a political
weapon or as a response to difficult
balance-of-payments situations
TRADE BARRIERS CONT’D
2. The Differential Exchange Rate
The differential exchange rate is
a particularly ingenious method of
controlling imports.
Requires the importer to pay
varying amounts of domestic
currency for foreign exchange
TRADE BARRIERS CONT’D
3. Government Approval
Government approval to secure
foreign exchange is often used by
many countries experiencing
shortages of foreign exchange.
Importers who want to buy a
foreign good must apply for an
exchange permit.
TRADE BARRIERS CONT’D
4. Standards
Non tariff barriers of this category
include standards to protect health,
safety, and product quality.
TRADE BARRIERS CONT’D
5. Antidumping Penalties
Antidumping laws that have
emerged as a way of keeping
foreign goods out of a market.
Designed to prevent foreign
producer from using predatory
pricing
 References
• Philip, R. Cateora and John, L. Graham(2007), International Marketing 13th edition,
pp. 41-44.
Links:
• Norton, A., 2009. Israel has blocked currency transfers into Gaza [Online]
(Updated January 29 2009) http://bostonuniversity.blogspot.com/2009/01/israel-
has-blocked-currency-transfers.html

• Mankiw, N. Gregory., 2008. Smart Taxes: An Open Invitation to Join the Pigou
Club[Online] (Updated September 14 2009)
http://en.wikipedia.org/wiki/Protectionism#Arguments_for_protectionism
 
• Lubin, D., 2006. Protectionism (Economics) [Online] (Updated March 22 2007)
http://www.britannica.com/EBchecked/topic/479643/protectionism
 PROTECTIONISM
• Protectionism refers to policies or
doctrines which protect businesses
and workers within a country by
restricting or regulating trade with
foreign nations.
 ARGUMENTS IN FAVOR OF
PROTECTIONISM
• Protect jobs
• Protect infant industry
• Reduce reliance on imports
• Encourage investments in domestic
industry
• Reduce BoP problems
• Promote exports
PROTECTIONISM (contd)
• In Favor of Protectionism
They raise the price of imported
articles, making them more
expensive and therefore less
attractive than domestic products.
It can also serve as a means of
developing and also improving self-
sufficiency.
• Protection of an infant industry.
E.g., Japanese AC is more expensive than
Pakistani brands.

• Protection of the home market.

E.g., Europe imports only 10% of the Japanese
cars, as compared to its home market.

• National Defense.
E.g., America does not provide Pakistan F22 or
Cruise missile technology to maintain its defense
superiority.
PROTECTIONISM (contd)
• Against Protectionism
It destroys the jobs created in an
economy where there is free trade.
It can make difficulties for
countries who want to specialize in
the production of goods and services.
• Resource Conservation.
The natural resources are depleting globally.

• Decrease in FDI
Barriers repel FDI, because no one would invest
in a strict and uncertain environment. They would
rather go somewhere else to invest.

• Capital Accumulation
Money would only be accumulated in the hands
of the rich/industrialists.
 References
• Philip R. Cateora and John L. Graham(2007),
International Marketing 13th edition, pp. 37.

Links:
• http://www.infoplease.com/cig/economics/barrie
• http://www.econlib.org/library/Topics/HighSchoo
• http://news.bbc.co.uk/2/hi/business/533208.stm
 General Agreement on Tariffs
and Trade
• The General Agreement on Tariffs and Trade (GATT) was
first signed in 1947 and lasted till 1994

• The aim was to provide an international Forum.

• GAAT is the Outcome of ITO.

• On 1 January, 1948 the agreement was signed by 23

countries

• The rules of the GATT are set out in the form of a

contract. Creating rights and Obligation
General Agreement on Tariffs and
31
trade
 History of GAAT
• The Bretton Woods Conference had introduced
the idea for an organization to regulate trade

• GATT's main objective was the reduction of

barriers to international trade.

• The GATT was a treaty, not an organization

• The functions of the GATT were taken over by

the World Trade Organization

General Agreement on Tariffs and

32
trade
 History……
• The history of the GATT can be divided into
three phases mainly.

• The first phase, from 1947 until the Torquay

(England) Round

• A second phase, encompassing three rounds,

from 1959 to 1979

• The third phase, consisting only of

the Uruguay Round from 1986 to 1994

General Agreement on Tariffs and

33
trade
 8 Rounds of GAAT
Name Start Duration Countries Subjects Achievements
covered

Geneva April 1947 7 months 23 Tariffs Signing of GATT, 45,000 tariff

concessions affecting $10
billion of trade
Annecy April 1949 5 months 13 Tariffs Countries exchanged some
5,000 tariff concessions

Torquay September 8 months 38 Tariffs Countries exchanged some

1950 8,700 tariff concessions,
cutting the 1948 tariff levels by
25%
Geneva IIJanuary 1956 5 months 26 Tariffs $2.5 billion in tariff reductions

General Agreement on Tariffs and

34
trade
 Conti………
Dillon September 11 months 26 Tariffs Tariff concessions worth $4.9
1960 billion of world trade
Kennedy May 1964 37 months 62 Tariffs, Anti-dumping Tariff concessions worth $40 billion
of world trade
Tokyo September 74 months 102 Tariffs, non-tariff measures, Tariff reductions worth more than
1973 "framework" agreements $300 billion dollars achieved

Uruguay September 87 months 123 Tariffs, non-tariff measures, creation of WTO, and extended the
1986 rules, services, intellectual range of trade negotiations,
property, dispute settlement, reductions in tariffs ( 40%) and
textiles, agriculture, WTO agricultural subsidies, allow full
access for textiles & clothing ,
extension of intellectual property
rights.

Doha November ? 141 Tariffs, non-tariff measures, The round is not yet concluded.
agriculture, labor standards,
2001 environment, competition,
investment, transparency, patents
etc
General Agreement on Tariffs and
35
trade
 Effects of GAAT
static effects: the shifting of resources from
inefficient to efficient firms as trade barriers fall
-trade creation: production shifts from less
efficient domestic producers to more
efficient regional producers
-trade diversion: trade shifts from more
efficient external sources to less efficient
suppliers within the bloc following the
imposition of common external barriers
dynamic effects: the gains from overall market
growth, the expansion of production, the
realization of greater economies of scale and
scope, and the increasingly competitive nature
of the market
General Agreement on Tariffs and
36
trade
 RESEARCH FINDINGS
• Michal Tomz June 14, 2004, Stanford University.

• GAAT also gave rights and obligation to three other

types of non formal member countries. E.g. Colonies,
Overseas territories and Independent states

• Netherlands, France, US and UK signed on behalf of

there Colonies, States and overseas territories.

• Our analysis show that GAAT substantially increased

trade, as fewer countries remains out of the treaty.

General Agreement on Tariffs and

37
trade
 References
 
• Rose, Andrew K. “Do We Really Know That the WTO Increases Trade?” American Economic Review 94, no. 1 (March
2004a): 98-114.
• Bagwell, Kyle and Robert W. Staiger. “An Economic Theory of GATT.” American Economic Review 89, no. 1 (March
1999): 214-48.
• Bagwell, Kyle and Robert W. Staiger. “Economic Theory and the Interpretation of GATT/WTO.” American Economist
46, no. 2 (Fall 2002): 3-19.
• Robert C. Feenstra. Advanced International Trade: Theory And Evidence. Princeton, NJ: Princeton University Press,
2004.
• GATT. The Activities of GATT 1960/61. Geneva: General Agreement on Tariffs and Trade, April 1961.
• Irwin, Douglas A., “The GATT in Historical Perspective.” American Economic Review 85, no. 2 (May 1995): 323-328.
• Maggi, Giovanni. “The Role of Multilateral Institutions in International Trade Cooperation.” American Economic Review
89, no. 1 (March 1999): 190-214.
Links
• http://www.google.com.pk/search?hl=en&q=general+agreement+on+tariffs+and+trade&btnG=Search&meta=&aq=0&oq=General+
• http://www.slideworld.org/slidesearch.aspx?q=General+Agreement+on+Trade+and+Tarrifs&cx=006439031743921743230:go7ver
• http://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Trade
• http://www.ciesin.org/TG/PI/TRADE/gatt.html
• http://www.britannica.com/EBssschecked/topic/228333/General-Agreement-on-Tariffs-and-Trade

 
WORLD TRADE ORGANISATION
40
 World Trade Organization
(WTO)
• Creation of WTO on 1st of January, 1995 HQ in
Geneva, Switzerland. Presently having 150
member countries, of which around 100 are
developing countries.
• The WTO deals with the rules of trade b/w
member countries.
• WTO agreements set the legal ground rules for
international commerce for member countries.
• Its top level decision making body is Ministerial
conference headed by Director General, and the
body meets at least once every two years.

41
 WTO….

It is a place,

it’s a negotiating forum,

It’s a set of rules,

And it helps to settle disputes.

42
 Domestic support
 The support of domestic prices, or subsidize
production in some other way refers to
encourage over-production. This squeezes out
imports or leads to export subsidies and low-
priced dumping on world markets.

Developed countries agreed to reduce

domestic support by 20% over six years.
Developing countries agreed to make 13%
cuts over 10 years. LDC’s do not need to make
any cuts. 43
 Export subsidies: limits
on spending and
quantities
• The agreement requires WTO members to cut both
the amount of money they spend on export
subsidies and the quantities of exports that
receive.

• Developed countries agreed to cut the value of

export subsidies by 36% over the six years and
24% over 10 years for developing countries.
Developed countries also agreed to reduce the
quantities of subsidized exports by 21% over the
six years and 14% over 10 years for developing
countries. LDC’s do not need to make any cuts.
44
 LDC’s and those
depending on food
imports
• WTO members have to reduce their
subsidized exports but some importing
(poorest countries) depend on supplies of
cheap, subsidized food from the major
industrialized nations.

• A special ministerial decision sets out

objectives, for the provision of food aid
and also refers to the possibility of
assistance from IMF and World Bank to
finance foods for the import countries.
45
 Services growth
through WTO
• GATS is the first setup of multilateral rules
governing international trade in services represent
the fastest growing sector of the global economy
accounts for 60% of global Output, 30% of global
employment and nearly 20% of global trade.
• GATS has three elements:
1- cross-border supply” {services supplied from
one country to another (e.g. international telephone
calls)}.
2- “consumption abroad” {consumers or firms
making use of a service in another country (e.g.
tourism)}.
3- “commercial presence” {foreign company
setting up subsidiaries or branches in other
countries (e.g. foreign banks)}. 46
 Textiles: back in the
mainstream
• Textiles are one of the hardest-fought issues in
the WTO but now the system of import quotas
that has dominated in trade is being phased out.

• A Textiles Monitoring Body (TMB) supervises

the agreement’s implementation. It consists of a
chairman and 10 members, If member countries
remain unresolved with the disputes on textile,
then the disputes can be brought to the WTO’s
regular Dispute Settlement Body.

47
 Technical regulations and
standards
• Technical regulations and industrial standards
are important, but they vary from country to
country. Having too many different standards
makes life difficult for producers and
exporters.
• Standards can become obstacles to trade.
• Technical Barriers to Trade Agreement
(TBT) tries to ensure that regulations,
standards, testing and certification procedures
do not create unnecessary obstacles.

48
 Impact of WTO on Pakistan
• In Pakistan, almost every second businessman
appears to be suffering from an unknown fear of the
World Trade Organization. The smaller the trader,
the greater the fear and vice versa.
• WTO dictates the governments on issues such as
food safety, subsidies, health care etc.
• The WTO is essentially designed to protect the vital
interests of the core capitalist states, such as the
US, EU and Japan and not developing economies like
Pakistan.

49
• WTO---unbalanced agreement, favors rich
countries, triad corporations & not small,
comparatively poor ones.

• All sectors comes under WTO, but makes

constraints on Pakistan to reduce subsidies on
agricultural products especially.

• IMF and World Bank also having constraints on

Pakistan by giving loans in energy sector.

• Developed countries like US, EU & Japan are

providing domestic support to their Agriculture
sector while asking developing countries to
eliminate subsides. The USA, in fact has recently
increased its agriculture subsides.
50
 Trade creation by WTO:
• Resources of building the global economy,
• Heartland labor capital network,
• Make your city a fair trade zone,
• Common agreement on investment & society,
• Universal declaration of human rights related to
trade activities,
• International forum on globalization (think tank
for investigation of performance of WTO,
• Fair trade campaign (benefits 800,000 farmers),
• Ecuador uses WTO rules to make medicines more
accessible.
• African nations in EU trade deal -- The five
countries that make up the East African
Community have agreed a plan that will gradually
open their markets to the European Union (EU).
51
 Trade diversion:
• From Melbourne to Paraguay: a struggle to
Deglobalized world,
• Global agreement against WTO by violating
human rights,
• US, EU, Japan refuses to cut down their
subsidies given to their farmers,
• Poorest nations hit hardest by WTO agenda,
• Civil society calls on rich countries to stop
imposing duties on poor countries,
• Leave the poor poorer and un impressed,
• Fair trade for none,
• Free trade threatens small countries farmers,
etc…. 52
 References:

•Sam, Phan Van and Thu, Vo Thanh “Managing the Challenges of WTO Participation”, Case
Study 45, Preparation by Vietnams Banking Sector for WTO Accession, (2003).
•Tsogtbaatar, Damedin “Managing the Challenges of WTO Participation”, CASE STUDY 29,
Mongolia’s WTO Accession: Expectations and Realities of WTO Membership, (2003).
•The General Council “Established Working Parties To Examine, Respectively, The
Membership Applications Of Afghanistan And Iraq”. WTO news: News Items, (13 December
2004).
•Azeem, Syed Book-“Multi National Corporations”, Vol 5, pp. 164-179, 225-260, (2007).
•Azeem, Syed Book- “WTO and Globalization”, Vol 3, pp. 17-35, (2003).
•Das, Bhagrait Lal Book- “What is WTO”, (1998).
•Lanoszka, Anna. "Trade Liberalization, the WTO, and the Environment: Developing
Countries and the Issues of Trade and Development" Paper presented at the annual meeting
of the International Studies Association, Le Centre Sheraton Hotel, Montreal, Quebec, Canada,
Mar 17, 2004 <Not Available>. 2009-05-26.
 links
• http://www.profesores.ucv.cl/mberthelo
n/Hoekman%202002.pdf
• http://aic.ucdavis.edu/oa/Smith.pdf
• http://www.globalexchange.org/campaig
ns/wto/update.html
• http://www.wto-pakistan.org
• http://uk.reuters.com/article/idUKN0614
109220100106
• http://www.wto.org/english/thewto_e/ac
c_e/acc_e.htm
 links
• http://www.sindhpnd.gov.pk/aboutus/pd
f/wto.pdf
• http://www.3dthree.org/pdf_3D/Guide-
075Ch1.pdf
• http://www.meti.go.jp/english/report/do
wnloadfiles/2004WTO/Overviewe.pdf
• http://www.allacademic.com/meta/p_ml
a_apa_research_citation/0/7/3/3/7/p733
75_index.html