Badiaa Mahfoud

MBAC 600

Week 7
 International Trade

1. Antitrust:

The increasing importance of global markets means that nations face an increasing
prospect that their economies will be harmed by anti-competitive conduct seen in
some countries. This prompted the enacting of laws and regulations to enforce
antitrust activities.

However, US companies now find themselves unable to compete with foreign-

produced products. Federal regulations enacted over 50 years ago to protect the
US consumer and labor force impede the ability of US companies to compete in
today's global market. The Sherman Act as defined below has the greatest impact
on international transactions:

”Section 1 of the Sherman Act, 15 U.S.C. 1, sets forth the basic antitrust
prohibition against contracts, combinations, and conspiracies "in restraint of trade
or commerce among the several States or with foreign nations." Section 2 of the
Act, 15 U.S.C. 2, prohibits monopolization, attempts to monopolize, and
conspiracies to monopolize "any part of trade or commerce among the several
States or with foreign nations.”

2. National Trade Estimate Report on Foreign Trade Barriers:

Japan established some import policies to control the flow of US products into its
market.
Japan imposes a number of trade barriers such as establishing a Tariff Rate Quota
on its rice imports. It imposes a Beef safeguard by which, the tariff increases from
38.5 to 50 percent. The safeguard goes into effect once beef imports experience an
increase of 17% or more from the previous Japanese fiscal year.
On fish products, Japan established different import quotas based on the fish
species. On some other US exported products such as citrus, dairy and processed
food, Japan maintains high tariffs (between 32 and 40 percent).
The country has also imposed tariffs on wood products, called tariff escalation.

Japan also enforces some standards, testing, labeling and certification that limit
trade in farm, forest and industrial products.

There are also investment barriers. Japan is known for its conservative attitude
toward outside investors, thus discouraging foreign investments and M&As.

3. Trade restriction enforcement:

The US government enforces trade restrictions by way of section 301 of the Trade
Act of 1974. Section 301 grants the US the authority to enforce trade agreements,
resolve trade disputes, and carry out trade sanctions.
4. World Bank:

a. The World Bank has been helping Malaysia by providing grants and low-interest
loans for development projects. The World Bank granted the country $244 million
to develop the education sector, $60 million to improve the social sector, namely
rural development and health clinics, $100 million for technical assistance, and
$300 million to help boost the economy.

b. The World Bank committed to lend $20 billion.

Functions of Non Governmental Organizations:

NGOs are organizations that are not part of a government and are usually non-
profit organizations that gain at least a portion of their funding from private
sources. The key function of a NGO is to promote the political and social goals of its
members. For instance, a NGO works to improve the state of the natural
environment and the welfare of the disadvantaged and encourages the observance
of human rights.

Foreign aid, economic development and international trade:

Foreign aid promotes economic development and international trade to the extent
that the aid money is used to promote economic growth and development. The
other factor to consider here is the level of economic and trade freedom practiced
in those countries at the receiving end of the aid. The following text has been
extracted from http://www.cato.org/pubs/handbook/hb108/hb108-66.pdf:

“It has become abundantly clear that as long as the conditions for economic
growth do not exist in developing countries, no amount of foreign aid will be able
to produce economic growth.”
“A similar outcome is evident in the Middle East, which receives about one-third of
U.S. economic aid, most of which is received by the governments of Egypt and
Israel. It should not be surprising, then, that the region is notable for its low levels
of economic freedom and almost complete lack of economic reform. In 1996 the
Institute for Advanced Strategic and Political Studies, an Israeli think tank,
complained: ‘‘Almost one seventh of the GDP comes to Israel as charity. This has
proven to be economically disastrous. It prevents reform, causes inflation, fosters
waste, ruins our competitiveness and efficiency, and increases the future tax
burden on our children who will have to repay the part of the aid that comes as
loans.””

5. The International Monetary Fund:

a. The International Monetary Fund (IMF) was set up in 1945 as a specialized agency
of the United Nations to help promote the health of the world economy by
administering a system of fixed exchange rates. Its headquarters are in
Washington, D.C. but the organization is governed by it is 184 member countries.

The IMF's functions include promoting the balanced expansion of world trade, the
stability of exchange rates and the orderly correction of a country's external
payments problems. This is done in three main ways; monitoring, lending and
technical assistance.

Monitoring involves analyzing economic and financial developments, both in

member countries and at the global level, and is often accompanied by specific
policy advice. IMF lending is exclusively to member countries with difficulties
 meeting payments to the rest of the world, known as balance of payment
problems.
Another way in which the IMF promotes the health of the world economy is through
technical assistance to the governments and central banks of its member countries.
There are some similarities between the World Bank and the IMF, but unlike the
World Bank, the IMF does not lend money for specific projects.

b. SDR stands for Special Drawing Right. A SDR is an artificial currency unit based
upon several national currencies. The Special Drawing Right serves as the official
monetary unit of several international organizations including the International
Monetary Fund, and acts as a supplemental reserve for national banking systems.
For members of the IMF, the Special Drawing Rights can be used to settle trade
balances between countries and to repay the IMF. An IMF member country has to
supply its own currency to another member country in exchange for SDRs, unless
that country already holds a certain specified amount of SDRs.

c. Since the debt crisis of the 1980's, the IMF has assumed the role of bailing out
countries during financial crises with emergency loan packages tied to certain
conditions, often referred to as SAPs or structural adjustment policies.
In May 2005 the IMF approved a new $10 billion loan to Turkey which included 29
new financial and structural conditions, including the generation of a sizeable
primary fiscal surplus, privatization of $1.5 billion worth of state-owned assets
within eight months, placing strict controls on public sector hiring, undertaking a
review of civil service wages, and adopting new pension and social security reform
legislation.

6. US trade with Japan:

a. The top five exported products to Japan are (in thousands of dollars):
o Transportation equipment: 1,010,473
o Computer and electronic products: 811,664
o Chemicals: 572,610
o Machinery: 408,393
o Agricultural products: 380,122

The top five imported products are (in thousands of dollars):

o Transportation equipment: 4,618,484
o Computer and electronic products: 2,315,485
o Machinery: 2,027,449
o Electrical equipment: 2,027,449
o Miscellaneous manufactured commodities: 2,027,449

b. In August 2005 (in millions of dollars):

o The total imports from Japan were: 11,552.2
o The total exports to Japan were: 4,962.6
o The deficit was: -6,589.6

c. Based on the figures above which were obtained for August 2005, the imported
products that have inflated the trade deficit with Japan were:
i. Transportation equipment,
ii. Computer and electronic products,
iii. Machinery,
 iv. Electrical equipment, and
v. Miscellaneous manufactured commodities.

The Import/Export as a percentage of the GDP: Historical data:

Deadweight Loss:

A deadweight loss is the net loss in social welfare that occurs when the benefit
generated by an action differs from the foregone opportunity cost. It is usually defined
as an inefficient situation which combines lost consumers’ surplus and lost producers’
surplus.
If we look at a market diagram, the triangle formed by the demand curve above,
supply curve below, the quantity to the left is the area of deadweight loss. When the
demand price equals the supply price, this triangle of the deadweight loss disappears.

This event can be caused by government actions such as taxes and price controls, or
from market failures such as externalities and market control.