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