INT’L TRADE LAW FREE TRADE PRO & CON Prof David K. Linnan USC LAW # 665 Unit Three

INT’L TRADE LAWINT’L TRADE LAWFREE TRADE PRO FREE TRADE PRO

& CON& CONProf David K. Linnan

USC LAW # 665

Unit Three

PLAYERS ITRADE THEORY & PRACTICE

Today we look at mostly economists’ underlying theories, but problems portray real differences in approach of:

1. Countries & country groupings in negotiations (e.g., mostly public sector perspective in G-20 & Brazil)

2. Private sector operational perspective in dealing with individual sectors & products outside negotiations (e.g., mostly private sector in Bangkok Mango)

PLAYERS IITRADE THEORY & PRACTICE (CONT’D)

Today’s readings included a short history of GATT/WTO 1947-1994, but ignores both voluntary liberalization models (e.g., APEC) and regional free trade area models (e.g., AFTA, NAFTA, Singapore-US FTA)

1. WHO ARE MORE SIGNIFICANT ACTORS & WHY (INTERGOVERNMENTAL OR MULTILATERAL VS PRIVATE SECTOR/VOLUNTARY)?

2. WHAT ARE INT’L STANDARDS THESE DAYS & WHO SETS THEM?

3. ANY EVIDENCE IN THE VARIOUS ECONOMISTS’ THEORIES?

TRADE THEORYTRADE THEORY & POLICY (ECON)

Idea of three ultimate drivers behind variety of theories & models:

1. Comparative advantage (factor endowments)

2. Economies of scale (inter & intra industry plus monopolistic competition,

specialization)

3. Market structures

CONSIDER LAW FIRM/LEGAL SERVICES MARKET AS DEMONSTRATION

APPLIED THEORYLINKS TO DEVELOPMENT POLICY

1. Link to ideas about econ growth & industrialization as development strategy too

(open economies as encouraging growth, but why?)

2. Concept of changing economic advice over time (1950s-60s infant industries, 1970s-1997 export oriented development (MNC production platform oriented), 1998-date export oriented plus concepts like Thailand (general arguments about

countries)

3. Put aside financial sector & nat’l accounts issues plus balance of payments for

moment

MERCHANTILISMMERCHANTILISM OLD & NEW

National Accounts

Current & Capital Accounts

Currencies

COMP ADVANTAGEComparative Advantage (Ricardo)

Goods

Heckscher-Olin-Samuelson Model

Factor Endowments & Specialization

Exporting-Importing Factors of Production as Part of Trade

NEW TRADE THEORYRecent Monopolistic Competition Models

(Krugman)

Returns to Scale

Trade Policy

Inter-firm versus Intra-firm Trade & Supply Chain Organization

BENIESEfficiency Modeling

Static Versus Dynamic

Concept of Consumer Welfare & Problem Benefits are Broadly Dispersed but Costs Concentrated

COSTS OF ECONINTERMEDIATE GOODS PROBLEM AND EXPORTS

Concept that intermediate goods, if higher cost, are incorporated into final goods raising their price

Problem in that case with protectionism to preserve markets is that if tariffs are levied to preserve local market for intermediate good, destroys export market for higher cost final good in export competition with product incorporating lower cost intermediate product

ARGUMENTS ABOUT TOTAL FACTOR PRODUCTIVITY & WHERE GROWTH COMES FROM PLUS WASHINGTON CONSENSUS

JURISPRUDENTIALJurisprudential argument for free trade

is essentially that any subsidy such as a tariff leads to a redistribution of wealth (consumers to producers) which violates liberal precepts

EFFICIENCYEFFICIENCY IDEALS BEHIND FREE TRADE

But issues whether assumptions such as displaced labor can be reintegrated in another job (47 year-old textile worker with 9th grade ed, what to do when mill closes?)

Parallel problem of community wide effects if heavy reliance on closing employer (tax base, high local unemployment, etc.)

Problem of externalities not priced in market (e.g., lower environmental reg costs in Mexico combined with wind from South may put pollution into US)

MODELING?CHALLENGES TO COMPARATIVE

ADVANTAGE

Most are based on claims that market efficiency claims misleading

Labor adjustment (unwilling to move, difficult to retrain, etc.)

Externalities mean mispricing and so misallocation (environment, etc.)

EXPERIENCECHALLENGES TO COMPARATIVE

ADVANTAGE CONT’D

Infant industry arguments-- short term protection for longer term viability (but some very old “infants”)

Transitional or adjustment protection (idea behind “temporary” adjustment such as currency mispricing, but temporary protection can become quite permanent)

NEWER POLICYCHALLENGES TO COMPARATIVE

ADVANTAGE CONT’D

Fair trade and reciprocity arguments

Strategic trade policy as other side of new trade theory monopolistic competition ideas

NON-EFFICIENCY ICHALLENGES TO COMPARATIVE

ADVANTAGE CONT’D

Sustainable development and community control ideas (ideals where efficiency isn’t everything)

NON-EFICIENCY IICHALLENGES TO COMPARATIVE

ADVANTAGE CONT’D

Economic Nationalism (whom you buy from matters)

Sovereignty & National Security Concerns (preserving control & capacity)

NEXT WEEKStudy course website at

http://www.lfip.org/laws665f06

Next week assignment is unit 4 at

http://www.lfip.org/laws665f06/cm665f06.htm

Sign up for intlenviro listserv at

http://www.lfip.org/laws665f06/admin.htm

BE READY TO DISCUSS IMPORT PROHIBITIONS: THE NIGERIAN EXPERIENCE PROBLEM