PRIDON C.A.

A tariff is either (1) a tax on imports or exports (an international trade tariff), or (2) a list of prices for such things as rail service, bus routes, and electrical usage (electrical tariff, etc.). Trade barriers are government-induced restrictions on international trade. Economists generally agree that trade barriers are detrimental and decrease overall economic efficiency, this can be explained by the theory of comparative advantage. In theory, free trade involves the removal of all such barriers, except perhaps those considered necessary for health or national security. In practice, however, even those countries promoting free trade heavily subsidize certain industries, such as agriculture and steel. Trade barriers are often criticized for the effect they have on the developing world. Because rich-country players call most of the shots and set trade policies, goods such as crops that developing countries are best at producing still face high barriers. Trade barriers such as taxes on food imports or subsidies for farmers in developed economies lead to overproduction and dumping on world markets, thus lowering prices and hurting poor-country farmers. Tariffs also tend to be anti-poor, with low rates for raw commodities and high rates for laborintensive processed goods. The Commitment to Development Index measures the effect that rich country trade policies actually have on the developing world. Another negative aspect of trade barriers is that it would cause a limited choice of products and would therefore force customers to pay higher prices and accept inferior quality Tariff barriers are duties imposed on goods which effectively create an obstacle to trade, although this is not necessarily the purpose of putting tariffs in place. Tariff barriers are also sometimes known as import restraints, because they limit the amount of goods which can be imported into a country. Many organizations which promote trade are concerned about bothtariff and non-tariff barriers to free trade, and a number of nations have agreed to radically reduce their trade barriers to promote the exchange of goods across their borders. A number of different types of duties can be levied when goods cross international boundaries. With an ad valorem duty, for example, the importer must pay a fee which is calculated as a percentage of the value of the goods being imported. Specific tariffs are set amounts which are levied on products which are imported, regardless of values, while environmental tariffs penalize nations with poor environmental records. For importers, tariff barriers can make it difficult to bring goods into a country. The importer may be forced to import less because the tariff barriers cannot be afforded otherwise, 1

and it may need to charge more for the goods to make importing worthwhile. Tariffs are designed to force importers to do this to level the field between domestic producers and importers, allowing costly domestic producers to compete with importers who may be able to bring in goods at lower cost. Protectionism, in which nations promote the interests of domestic producers by restricting importers, is common in many nations, but it is also frowned upon, primarily by nations which want to be able to export goods for trade in other countries. Organizations such as the World Trade Organization have promoted the lifting of tariff barriers to reduce the burden on importers. Non-tariff barriers such as import quotas are also targeted for elimination by organizations which promote free trade. Some tariff barriers are likely to always remain in place, even in nations which are very open to free trade. Changing the structure of tariffs, taxes, and related expenses is a continual project, and nations occasionally push back or lash out by radically altering their tariffs and otherbarriers to trade. Nations may also use trade barriers to make political statements which are designed to pressure other countries into modifying their behavior. For example, Country A might refuse to import beef from Country B until Country B can demonstrate that its meat supply is free of bovine spongiform encephalitis (BSE), also known as mad cow disease. One of the most important instruments of trade policy is customs duty. By introducing tariff a country can influence its volume and structure of foreign trade. By uploading differentiated goods with duty may change their relative prices, ie the structure of trade flows. A country can influence even the absolute volume of its trade abroad. The perception (increase) of duties, usually the international exchange of goods decreases. In an extreme case might find even a prohibitive level of duties so that trade disappear. Conversely, if tariffs are reduced, foreign trade increases. Negative duties, subsidies can raise foreign trade volume over the corresponding free trade. In mainstream quantities. Consumer surplus or consumers' surplus is the monetary gain obtained by consumers because they are able to purchase a product for a price that is less than the highest price that they would be willing to pay. 2 economics, economic surplus (also known as total

welfare or Marshallian surplus (named after Alfred Marshall) refers to two related

Producer surplus or producers' surplus is the amount that producers benefit by selling at a market price that is higher than the least that they would be willing to sell for.

Flavius Sichitiu The effective rate of protection measures how much protection a tariff or other trade policy provides domestic producers. It represents the change in value that firms in an industry add to the production process when trade policy changes. The change in value that firms in an industry provide depends on the change in prices when trade policies change.

Effective rates of protection often differ from tariff rates because tariffs affect sectors other than the protected sector, causing indirect effects on the prices and value added for the protected sector. The effective rate of protection is used to estimate the protection really afforded to

domestic producers at each stage of production, i.e., how much extra they can charge and still be competitive with imported goods. If the total value of the tariffs on importable inputs exceeds that on the output, the effective rate of protection is negative, i.e., the industry is discriminated against in comparison with the imported product. For example, suppose that automobiles sell in world markets for $8,000, and they are made from factors of production worth $6,000. The value added of the production process is $8,000-$6,000=2000

Suppose that a country puts a 25% tariff on imported autos so that domestic auto assembly firms can now charge up to $10,000 instead of $8,000. Auto assembly will occur in the domestic country if the value added is at least $10,000-$6,000=4000. The effective rate of protection for domestic auto assembly firms is the change in value added: ($4,000 - $2,000)/$2,000 = 1=100% In this case, the effective rate of protection is greater than the tariff rate. The Stolper-Samuelson Theorem Assumptions: One country produces two goods (wheat and cloth) with two factors of production (capital and labor); neither good is an input into the production of the other; competition prevails; factor supplies are given; both factors are fully employed; both factors are mobile between sectors (but not between countries); one good (wheat) is capital-intensive and the other (cloth) is labor-intensive); opening trade raises the relative price of the export good. The Stolper-Samuelson Theorem postulates that moving from no trade to free trade raises the returns to the factor used intensively in the rising-price industry, and lowers the

returns to the factor used intensively in the falling-price industry, regardless of which goods the sellers of the two factors prefer to consume. Suppose that one sector produces exports (capital-intensive, cars) and the other produces goods that compete with imports (labour-intensive, cloth). What would be the effect of a tariff or some other change which raises the relative price of cloth? The sector producing cloth expands, as imports are discouraged; because there is full or close to full employment, the export sector - cars becomes smaller; demand for labour rises as cloth production is labour-intensive, thus lowering demand for capital. This results in the wage-earners gaining, and the capital-owners loosing. Non-tariff trade barriers Non-tariff barriers to trade (NTBs) are trade barriers that restrict imports but are not in the usual form of a tariff. Some common examples of NTB's are anti-dumping measures and countervailing duties, which, although called non-tariff barriers, have the effect of tariffs once they are enacted. Non-tariff barriers to trade include import quotas, special licenses, unreasonable standards for the quality of goods, bureaucratic delays at customs, export restrictions, limiting the activities of state trading, export subsidies, sanitary measures, buy national policies, overvalued currency etc. Import Quotas put a legal limit on the amount that can be imported, creating shortages which cause prices to rise. A quota benefits domestic producers in the same way a tariff does, but the additional money expended on foreign goods goes to the foreign producers, not the domestic government. The aim of the Import quota is to promote domestic supply of a certain good. It is a direct administrative form of government regulation of foreign trade. Its effects are: on the consumer: higher prices. limited selection of goods; these 2 lead to lower consumption.

on the companies: costs increase as imported the prices become higher. Import quotas are redistributive from consumer to producer

Voluntary export restraints is a government imposed limit on the quantity of goods that can be exported out of another country during a specified period of time. This is typically done to prevent the imposition of trade tariffs. Despite being heavily used in the second part of the 20 th century, there are a number of inconveniences regarding voluntary export restraints: shutting out one country (most are bilateral) only leaves a gap for another to come in with the same export; limiting the quantity of the export of a certain product only leads to the exporting country delivering a more expensive and more complex product to maximise gains Japan; it is highly discriminatory/arbitrary, making it very harmful to trade. A cartel is a formal (explicit) "agreement" among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production. Cartel members may agree on such matters as price fixing, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, and the division of profits or combination of these. The aim of such collusion (also called the cartel agreement) is to increase individual members' profits by reducing competition. One can distinguish private cartels from public cartels. In the public cartel a government is involved to enforce the cartel agreement, and the government's sovereignty shields such cartels from legal actions. Inversely, private cartels are subject to legal liability under the antitrust laws now found in nearly every nation of the world. Furthermore, the purpose of private cartels is to benefit only those individuals who constitute it, public cartels, in theory, work to pass on benefits to the populace as a whole. Murray Rothbard considered the federal reserve as a public cartel of private banks. Game theory suggests that cartels are inherently unstable, as the behaviour of members of a cartel is an example of a prisoner's dilemma. Each member of a cartel would be able to make more profit by breaking the agreement (producing a greater quantity or selling at a lower price than that agreed) than it could make by abiding by it. However, if all members break the agreement, all will be worse off. The incentive to cheat explains why cartels are generally difficult to sustain in the long run.

Farid Malikzade

Dumping Dumping is the export of a commodity at below cost or at least the sale of a commodity at a lower price abroad than domestically. Dumping is classified as persistent, predatory, and sporadic. Persistent dumping or international price discrimination, is the continuous tendency of a domestic monopolist to maximize total profits by selling the commodity at a higher price in the domestic market than internationally. Predatory dumping is the temporary sale of a commodity at below cost or at a lower price abroad in order to drive foreign producers out of business, after which prices are raised to take advantage of the newly acquired monopoly power abroad. Sporadic dumping is the occasional sale of a commodity at below cost or at a lower price abroad than domestically in order to unload and unforeseen and temporary surplus of the commodity without having to reduce domestic prices.

Under the World Trade Organization (WTO) Agreement, dumping is condemned but is not prohibited. In the United States, domestic firms can file an antidumping petition under the regulations determined by the United States Department of Commerce. European Union antidumping is under the purview of the European Council. Export Subsidies Export Subsidies are direct payments or the granting of tax relief and subsidized loans to the nations exporters, or potential exporters, and/or low interest loans to foreign buyers so as to stimulate the nations exports. As such, export subsidies can be regarded as a form of dumping. Though export subsidies are illegal by international agreement, many nations provide them in disguised and not-so-disguised forms. Most countries have income support programs for their nation's farmers. These are often motivated by national security or self-sufficiency considerations. Farmers' incomes are maintained by restricting domestic supply, raising domestic demand, or a combination of the two. Protectionism Protectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, administrative barriers, exchange rate manipulation and employment-based immigration restrictions. This is done to allow "fair competition" between imports and goods and services produced domestically. This policy contrasts with free trade, where government barriers to trade are kept to a minimum. In recent years, it has become closely aligned with anti-globalization. The term is mostly used in the context of economics, where protectionism refers to policies or doctrines which protect businesses and workers within a country by restricting or regulating trade with foreign nations. Fallacious and Questionable Arguments for Protectionism One fallacious argument is that trade restrictions are needed to protect domestic labor against cheap foreign labor. The reason this argument is fallacious is that even if domestic wages are

higher than wages abroad, domestic labor costs can still be lower if the productivity of labor is sufficiently higher domestically than abroad. Another fallacious argument for protectionism is the scientific tariff. This is the tariff rate that would make the price of imports equal to domestic prices and allow domestic producers to meet foreign competition. Infant-industry Argument a nation may have a potential comparative advantage in a commodity, but because of lack of know-how and the initial small level of output, the industry will not be set up or, if already started, cannot compete successfully with more established foreign firms. Strategic Trade Policy a nation can create a comparative advantage (through temporary trade protection, subsidies, tax benefits, and cooperative government-industry programs) in such fields as semiconductors, computers, telecommunications and other industries that are deemed crucial to future growth in the nation. Common Agricultural Policy The Common Agricultural Policy is the agricultural policy of the European Union. Its main objectives are to ensure a fair standard of living for farmers and to provide a stable and safe food supply at affordable prices for consumers. Latest proposals, for the CAP after 2012, have 3 priorities:

viable food production sustainable management of natural resources balanced development of rural areas throughout the EU

The CAP's budget is spent in 3 different ways:

Income support for farmers who receive direct payments, provided they live up to strict standards for food safety, environmental protection and animal health and

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welfare. These payments are fully financed by the EU, and account for 70% of the CAP budget.

Rural development measures to help farmers modernize their farms and become more competitive while protecting the environment, and to keep rural communities thriving. These payments are part financed by the member countries, and account for some 20% of the CAP's budget.

Market support for example when bad weather destabilizes markets. These payments account for less than 10% of the CAP budget.

For more information:

http://ec.europa.eu/agriculture/cap-overview/2012_en.pdf

Catalin Mihai BEHERCI

What is economic integration?

Economic integration is a commercial policy that eliminates tariff and non-tariff trade barriers among a group of states.

The different forms (stages) of economic integration are the followings:

1. Preferential trade arrangements - they provide lower barriers on trade for the A very good example of a preferential trade arrangement is represented by the participating states in comparison with nonmember states. British Commonwealth Preference Scheme, which was established in 1932 by the United Kingdom with members of the British Empire. 2. Free trade area - is a form of economic integration which reduces or removes tariff

and non-tariff barriers to trade between member states, but also each state retains personal barriers to trade with nonmembers. The European Free Trade Association (EFTA) is a good example of a free trade area. It was formed in 1960 by the United Kingdom, Austria, Denmark, Norway, Portugal, Sweden, Switzerland and Finland as an associate member in 1961.

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The North American Free Trade Agreement (NAFTA) is another example of a free

trade area. 3. Customs union - is a trade agreement that requires members to eliminate trade

barriers with each other and takes economic integration a step further by establishing identical barriers to trade against nonmembers (free trade area + a common set of tariffs to the rest of the world); it does not allow free movement of labor and capital among member states. The European Economic Community (EEC) as an example here. It was formed in 1957 by West Germany, France, Italy, Belgium, Holland and Luxembourg. 4. Common market - is a form of economic integration which includes all the aspects of

a customs union, but takes economic integration further by granting free movement of goods and services, labor and capital. In 1993, the European Union moved closer to full common-market status by implementing the Single European Act, which consists of provisions to remove some or all tariff and nontariff barriers to trade in goods and services, labor and capital. 5. Economic union - it represents the most complete and advanced type of economic In 1944, Belgium, the Netherlands and Luxembourg formed Benelux, which is part of

integration which harmonizes and unifies taxation, fiscal and monetary policies. the European Union from 1951.

Trade Creation and Trade Diversion (Jacob Veiner, 1950)

Trade creation refers to the increase in economic welfare from joining a free trade area, such as a customs union. In this sense, trade creation will occur when higher-cost imports of a member state are replaced by lower-cost imports from another member state. It increases the welfare of a state. A trade-creating customs union is a union that leads to trade creation only and increases the welfare of both member and nonmember nations. Trade diversion occurs when consumption shifts from lower-cost imports outside a customs union to higher-cost imports from a union member. Also, trade diversion shifts production from more efficient producers outside the customs union to less efficient producers inside the union. It decreases the welfare of a state.

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In this sense, a trade-diverting customs union will lead to both trade creation and trade diversion and can increase or reduce the welfare of member states (it can also reduce the welfare of the nonmember states).

Static Welfare Effects of a Customs Union

1. 2. 3. Administration savings from the elimination of customs officers and border patrols. A trade-diverting customs union is likely to improve the collective terms of trade Any customs union is likely to have much more bargaining power than all of its This is a benefit and does not depend if the customs union is trade-creating or trade-diverting. of the customs union. For a trade-creating customs union, the opposite is true. member states, such as the European Union.

Dynamic Benefits of a Customs Union

1. 2. 3. 4. labor. Increased competition - producers must become more efficient to meet the Economies of scale - refers to the cost advantages that resulted from the market Stimulus to investment in order to have an advantage of the enlarged market and to Better use of economic resources - resulted from the free movement of capital and competition of other producers inside a customs union. expansion. meet the increased competition.

Radu Alexandru Cristian

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5.

NAFTA,

EU,

MERCOSUR,

ASEAN

Definitions and their roles.

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