Transcript Protectionism and Free Trade File

INTERNATIONAL ECONOMICS
FREE TRADE &
PROTECTIONISM
Economics – A Course Companion.
Blink & Dorton, 2007. 252-266
What is free trade?
• Free trade is said to take place
between countries when there are
no barriers to trade put in place by
governments or international
organizations.
• Goods are able to move freely
between countries.
Key Questions - Trade
• If international trade is so good
for all the countries concerned,
why is it that countries do not
trade freely?
• Why do they often protect their
economies from imports?
What is Protectionism?
• Any measured designed to give
local producers of a good or
service an advantage over a
foreign competitor.
• The best examples of
protectionism are tariffs, quotas
and subsidies.
ARGUMENTS FOR PROTECTION
There are many arguments for protecting local
producers and industries. These include:
• Protecting Domestic Employment
• Protecting The Economy from Low-Cost Labour
• Protecting an infant (sunrise) Industry.
• To Avoid the Risks of Over-Specialization
• Strategic Reasons
• To Prevent Dumping
ARGUMENTS FOR PROTECTION
Protecting Domestic Employment
• At any given time in an economy, there will be
some industries that are in decline (sunset
industries) because they cannot compete with
foreign competition.
• If the industries are relatively large, this will lead
to high levels of structural unemployment and
governments often attempt to protect the
industries in order to avoid the unemployment.
• The negative externalities of a rapidly declining
major industry may so great, the government
feels obligated to provide some protection.
ARGUMENTS FOR PROTECTION
Protecting Domestic Employment
Counter Argument for Free Trade
• The industry will continue to decline and
protection will simply prolong the process.
• Although there will be short-run social costs, it
could be better to let the resources employed
in the industry more into another, expanding
area of the economy.
ARGUMENTS FOR PROTECTION
Protecting the Economy from low-cost labour
• It is often argued that the main
reason for declining domestic
industries is the low cost of labour in
exporting countries.
• The economy should be protected
from imports that are produced in
countries where the cost of labour is
very low.
ARGUMENTS FOR PROTECTION
Protecting the Economy from low-cost labour
US Clothing Industry Example
• There have been demands in the US to protect
the domestic clothing industry against cheap
imports from Asia, where wages are much
lower.
ARGUMENTS FOR PROTECTION
Protecting the Economy from low-cost labour
Manufacturing Industries
• While trade may create many benefits for an
economy as a whole, the cost in terms of job
looses may be concentrated in particular
industries.
• There is much greater job insecurity among
manufacturing workers in developed countries
who fear they will lose their jobs to workers in
emerging markets such as China & India.
• Workers and their trade unions may lobby
vigorously for protection against imported goods.
ARGUMENTS FOR PROTECTION
Protecting the Economy from low-cost labour
South Korea – Shipbuilding Industry
• In 1998, the hourly wage for shipbuilding in the
US was $19.19, but in South Korea it was $9.27.
• While cheaper labour is available in other Asian,
countries, South Korean workers were well
educated and could achieve high levels of
productivity.
• Not surprisingly, South Korea is now the largest
shipbuilder in the world.
• In 2004, South Korea produced 14,768 large
commercial ships, whereas, the US produced only
289.
ARGUMENTS FOR PROTECTION
Protecting the Economy from low-cost labour
Counter Argument for Free Trade
• If we protect the economy from low-cost
labour, it will mean that consumers pay higher
prices than they should.
• Production in a protected economy would
take place at an inefficient level.
• The country wishing to export would lose
trade and their economy would suffer.
Comparative Advantage Changes
Over Time
• It should be realized that comparative advantage
changes over time and that a country that has a
comparative advantage in the production of a good at
present may not have that in the future.
• For example, if it quite likely that the US did have a
comparative advantage in shipbuilding at one time.
• As relative factor costs change in different countries, it
is important that resources should move freely as
possible form industries where comparative advantage
is waning, into industries where it is growing.
ARGUMENTS FOR PROTECTION
Protecting the Economy from low-cost labour
Counter Argument:
Government supports workers who lose jobs:
• There is some responsibility on governments
to help those workers who have lost their jobs
due to increasing competition, from low cost
foreign labor.
• These supply side policies could include
additional education and training so
retrenched workers can enter new industries.
ARGUMENTS FOR PROTECTION
Protecting an Infant (sunrise) industry
• Many governments argue that an industry that is
just developing may not have the economies of
scale advantages that larger industries in other
countries may enjoy.
• The domestic industry will not be competitive
against foreign imports until it can gain teh cost
advantages of economies of scale.
• Because of this, it is argued that industry needs
to be protected against imports, until it achieves
size where it is able to compete on an equal
footing.
ARGUMENTS FOR PROTECTION
Protecting an Infant (sunrise) industry
Counter Argument for Free Trade
• Most developed countries have highly efficient
capital markets (well as least before the GFC!)
which allows them access to large amounts of
financial capital, even more so since the advent
of globalization. Due to this fact, it can be
argued that there is no basis for the idea that
industries in developed countries will set up in a
relatively small way. They could be able to
benefit from economies of scale with relatively
short period of time.
ARGUMENTS FOR PROTECTION
Protecting an Infant (sunrise) industry
Counter Argument Example
• The Saudi Arabian government has been
diversifying into petrochemical production in
recent years.
• It has undertaken a number of projects in
partnership with large multinationals such as
Chevron, BP and Exxon Mobil.
• The plants constructed have been among some of
the largest in the world, gaining almost
immediately from economies of scale.
ARGUMENTS FOR PROTECTION
Protecting an Infant (sunrise) industry
• It is likely that developing countries without
access to sophisticated capital markets, can
use the infant industry argument to justify
protectionist policies.
• However, whether have the international
political power to able to impose protectionist
policies, without complaints and action from
developed countries is debatable.
ARGUMENTS FOR PROTECTION
To avoid the risks of over-specialization
• Governments may want to limit overspecialization, if it means the country could
become over-dependent on the export sales of
one or two products.
• Any change in the world markets for these
products might have serious consequences for
the country’s economy.
• For example, changes in technology could
severely reduce the demand for a commodity, as
the development of quartz crystal watches did for
the Swiss wristwatch industry, harming the
economy.
ARGUMENTS FOR PROTECTION
To avoid the risks of over-specialization
• The introduction of new products or changes
in the patterns of demand and supply can
have serious effects on the economies of
developing countries which tend to over
specialize in the production of primary
products without choice.
• For example, the over-supply of coffee on the
world market, caused a fall in price, and had
severe impact on countries like Ethiopia.
ARGUMENTS FOR PROTECTION
To avoid the risks of over-specialization
Counter Argument for Free Trade
• There are no real arguments against this view.
• It does not promote protectionism, it simply
points out the problems that countries may
face if they specialize to a great extent.
ARGUMENTS FOR PROTECTION
Strategic Reasons
• It is sometimes argued that certain industries
need to be protected in case they are needed
at times of war, for example: agriculture, steel
and power generation.
• Steel is needed for many defence items such
as planes and tanks. The steel industry would
argue that it must be protected in order to
stay competitive.
ARGUMENTS FOR PROTECTION
Strategic Reasons
Counter Argument for Free Trade
• To certain extent, this argument may be a
valid one, although it is often overstated.
• In many cases, it is unlikely that countries will
go to war, if they do, it also unlikely that they
will be cut off from all supplies.
• Most probably this argument is being used as
an excuse for protectionism.
ARGUMENTS FOR PROTECTION
To Prevent Dumping
What is dumping?
• Dumping is the selling by a country of large quantities
of a commodity, at a price lower than its production
cost, in another country.
• For example, the EU may have a surplus of butter and
sell this at a very low cost to a small developing
country.
• Where countries can prove that their industries have
been severely damaged by dumping, their
governments are allowed under international trade
rules to impose anti-dumping measures to reduce the
damage.
• However, it is very difficult to prove whether or not a
foreign industry is guilty of dumping.
ARGUMENTS FOR PROTECTION
To Prevent Dumping
Counter Argument For Free Trade
• A government that subsidizes a domestic industry
may actually support dumping.
• For example, developing countries argue that
when the EU exports subsidized sugar, it is
actually a came of dumping because the price
doesn’t reflect that actual cost of the EU sugar
producers. Therefore if dumping does occur, it is
more likely that there will be a need for talks
between governments, rather than any form of
protection.
ARGUMENTS FOR PROTECTION
To Prevent Dumping
Counter Argument For Free Trade
• There is always a danger that protectionism
will invite retaliatory actions by foreign
governments and this reduces the benefits
that can be gained by all consumers and
producers in all countries.
ARGUMENTS FOR PROTECTION
To Protect Product Standards
• A country might which to impose safety, health or
environmental standards on goods being
imported into its domestic market in order to
ensure that the imports match the standards of
domestic producers.
• This is a valid argument, as long as the concern
themselves are valid.
• For example, the EU has previously banned the
importing of American Beef, because it have been
treated with hormones.
ARGUMENTS FOR PROTECTION
To Protect Product Standards
Counter Argument for Free Trade
• Many of the reasons given for bans when
standards are not reached are considered to be
simply subtle means of protection.
• Where there is a dispute over product standards,
a response by the exporting country might be use
retaliatory policies.
• In the EU-US Beef dispute, the US retaliated
against the EU in May 1999 by imposing trade
sanctions of $117 million worth of imports from
Europe.
ARGUMENTS FOR PROTECTION
To raise government revenue
• In many developing countries it is difficult to
collect taxes and so governments impose
import taxes (tariffs) on products in order to
raise revenue.
• The International Monetary Fund (IMF)
estimated that, on average, import duties
accounted for approximately 15% of total
government revenue for the developing
countries in 2002.
ARGUMENTS FOR PROTECTION
To raise government revenue
Counter Argument for Free Trade
• This is not so much an argument for
protectionism, but more a means of raising
revenue.
• In effect, the import duties are actually a tax
on consumers in the country who are buying
the imports.
ARGUMENTS FOR PROTECTION
To correct a balance of payments deficit
• Governments sometimes impose protectionist
measures to attempt to reduce import
expenditure and thus improve a current
account deficit.
• A current account deficit occurs when a
country is spending more on its imports of
goods and services, than it is earning for its
exports of goods and services.
ARGUMENTS FOR PROTECTION
To correct a balance of payments deficit
Counter Argument for Free Trade
• This will only work in the short run.
• It does not actually address the actual
problem, because it does not rectify the actual
causes of deficit.
• Also, if countries do this, then it is likely that
other countries will retaliate with protectionist
measures of their own.
ARGUMENTS AGAINST
PROTECTIONISM
• All the counter arguments previously covered
are great arguments for free trade.
• The arguments against protection are really
related to the reasons why countries trade, as
previously studied.
ARGUMENTS AGAINST
PROTECTIONISM
Prices
• Protection may raise prices to
consumers and producers of the
imports they buy.
Choice
• Protection would lead to less choice
for consumers.
ARGUMENTS AGAINST
PROTECTIONISM
Competition
• Competition would diminish if foreign firms
are kept out of a country, and so domestic
firms may become inefficient without the
incentive to minimize costs.
• Innovation may also be reduced for the same
reason.
ARGUMENTS AGAINST
PROTECTIONISM
Comparative Advantage
• Protectionism distorts comparative advantage
leading to the inefficient use of the world’s
resources.
• Specialization is reduced and this would
reduce the potential level of world’s output.
ARGUMENTS AGAINST
PROTECTIONISM
Economic Growth
• For all reasons listed previously, protection
may hinder economic growth.
FREE TRADE EXAMPLE
This graph shows a situation where free
trade is taking place in a country where
wheat is both produced domestically and
locally. If there was no foreign trade, then
domestic farmers would produce 0Qe tons
of wheat at a price of Pe per ton. If we now
assume the market is open and foreign trade
takes place, then the situation changes.
Consumers find they can import wheat at
the world price. If they are prepared to pay
the world price, they can import as much
wheat as they like. This means the supply
curve faced by importers S (World) is
perfectly elastic. S (World) must be below
Pe or there would be not point in trading.
With free trade, the price of wheat in the country will be S (World). At this price,
domestic farmers will only be prepared to supply 0Q1 tons of wheat. However, the
demand for wheat will be 0Q2 and so the excess demand is satisfied by imported wheat.
Foreign producers will supply Q1 to Q2 tons of wheat. Thus domestic consumers get to
consume QeQ 2 more wheat at a lower price.
Tariffs
• A tariff is a tax that is charged on imported
goods.
• As we know from microeconomics, any tax
placed upon a good shifts the supply curve
upwards by the amount of the tax
• In the case of a tariff, it will shift the world
supply curve upwards, since it is placed on the
foreign producers of the good and not the
domestic producers.
THE EFFECT OF A TARIFF ON
IMPORTED WHEAT
Before the tariff, 0Q2 tons of wheat
were being consumed at a price of pw.
Domestic production was 0Q1 and
imports were Q1Q2. When the tariff is
imposed S (World) shifts up by the
amount of tariff to S (World) + tariff
and so the market price rises to Pw + T.
Total quantity demanded falls from
0Q2 to 0Q4 because the price has
risen. Domestic producers increase
production to 0Q3 and so their
revenue increases from g to g + a + b +
c + h. Foreigner producers supply the
rest, which is now Q3 to Q4. They
receive Pw + T, but they have to pay
the tariff to the government. Thus
their revenue falls from h+i+j+k to only
i+j. The government now receives
tariff revenue of d+e.
Tariffs & Prices
Wheat Example
• The importers must pay a higher price for the
imported good.
• In the case of wheat, the price will be passed
on to millers and eventually to cereal
companies or bakeries that buy the refined
wheat.
Tariffs & Prices
Car Industry Example
• If the government introduced a tariff on car
component parts, then this would raise the
cost to car-makers and eventually lead
consumers to have to pay higher prices for
their cars.
• If the car maker is an exporter, then the higher
cost of imported components could reduces
its international competitiveness.
Tariffs & Anti-Dumping Measures
• Tariffs are the most common type of antidumping measure.
• If a country has able to prove that dumping
has taken place, then it can place a tariff on
the imported goods to raise their prices and
eliminate the cost advantages of the dumped
imports.
DEAD WEIGHT LOSS OF WELFARE: Explanation 1
Q4Q2 tons of wheat are no longer demanded. Consumers keep the
amount of money k, that they would have spent on the wheat.
As a consequence there is a loss of consumer surplus equivalent to f,
because the wheat is not purchased. This is known as a dead-weight
loss of welfare, because of the loss of consumer surplus.
DEAD WEIGHT LOSS OF WELFARE: Explanation 2
After the tariff, Q1Q3 tons of wheat are now produced by relatively inefficient
domestic farmers, as opposed to more efficient foreign farmers. The foreign
farmers would produce this quantity for minimum reserve of h, whereas the
domestic farmers need a minimum revenue of h+c. Thus c represents the
inefficiency of the domestic producers and a loss of world efficiency, since more of
the world resources are being used to produce the wheat than are necessary. This
is another dead weight loss of welfare.
Subsidies
• A Subsidy is an amount of money paid by the
government to a firm, per unit of output.
• In the case of protectionist policies, the
government is giving a subsidy to domestic
producers to make them more competitive.
• The effect of this policy will be to shift
domestic supply curve downwards by the
amount of the subsidy
SUBSIDY ON
DOMESTIC
WHEAT
PRODUCTION
Before the subsidy, 0Q2 tons of wheat were being consumed at a price of Pw. Domestic
production was 0Q1 and imports Q1Q2. When the subsidy is granted, S (Domestic)
shifts downwards by the amount of the subsidy to S (Domestic) + subsidy. The market
prices stays at Pw and so demand remains at 0Q2 However, domestic producers
increase production to 0Q3 because they are now receiving Pw + subsidy per unit they
produce. This means that their revenue increases from a to a+b+e+f+g. Foreign
producers now supply the rest which is now Q3 to Q2. Thus their revenue falls from
b+c+d to only c+d. The government pays the subsidy which is shown by the area e+f+g
in total.
SUBSIDY ON
DOMESTIC
WHEAT
PRODUCTION
Dead-weight
loss of welfare
As with a tariff, Q1Q3 tons of wheat are produced by relatively inefficient domestic
farmers, as opposed to more efficient foreign farmers. The foreign farmers would
produce this quantity for a minimum revenue of b, whereas the domestic producers need
minimum revenues of b+g. Thus g represents the inefficiency of domestic producers and
misallocation of the world’s resources since more of the world’s resources are being used
to produce the wheat than are necessary. This another dead weight loss of welfare.
There is No Loss of Consumer Surplus
with Tariffs and Subsidies
• There is no loss of consumer surplus because
the price of wheat does not change.
• However, consumers are indirectly affected as
governments will use tax revenue to fund the
subsidies.
• This may mean higher tax payments and also
involves an opportunity costs in terms of
reduced government spending on other
things.
Quotas
• A quota is a physical limit on the numbers or
values of goods that can be imported into a
country.
• For example, the EU imposes import quotas
on Chinese garlic and mushrooms.
• The imposition of a quota has peculiar effect
on the free trade diagram.
QUOTAS
S (Domestic)
S (Domestic
+ Quota
S (World)
Before the quota is imposed 0Q2 of
wheat is purchased at price of pw.
Domestic supply is 0Q1 and imports are
Q1Q2. Let us now assume that the
government imposes a quota of Q1-Q3
tons of wheat. Domestic producers
supply 0Q1 at a price of Pw and the
importers produce their quota of Q1-Q3.
However, once this has happened there
is an excess of demand of Q3-Q2 at the
price of Pw and so price begins to rise.
As the price rises, importers are not
allowed to supply more wheat, because
they have filled their quota.
Domestic producers begin to enter the market, attracted by the higher price of wheat. The
domestic supply curve has, in effect, shifted to the right, above Pw. Eventually the price
settles at price settles at Pquota, where demand now equals supply again and the total
quantity of wheat demanded falls to Q4. Domestic producers now supply 0Q1 and Q3-Q4
tons of wheat at a price of PQuota. Their revenue rises from a to a + c + d + f +i + j. Foreign
producers now supply their quota of Q1Q3 and also receive a price of Pquota. Thus their
income changes from b+c+d+e to b+g+h.
QUOTAS –
DEAD-WEIGHT LOSS OF WELFARE
S (Domestic)
S (Domestic
+ Quota
S (World)
Q4Q2 tons of wheat are now
demanded. Consumers keep the
amount e they would have spent on
the wheat, but there is a loss of
consumer surplus equivalent to k,
because the wheat is not now
purchased. This is a dead-weight
loss of welfare, because of the loss
of consumer surplus
After the quota, Q3Q4, tons of wheat are now produced by relatively inefficient
domestic farmers, as opposed to more efficient foreign farmers. The foreign
farmers would produce the quantity for a minimum revenue of c+d whereas the
domestic producers need a minimum revenue of c+d+j. Thus j represents the
inefficiency of the domestic producer and a loss of world efficiency, since more of
the world’s resources are being used to produce the wheat than are necessary.
This is another dead-weight loss of welfare.
Voluntary Export Restraints (VERs)
• Voluntary export restraints are agreements
between exporting and importing countries in
which the exporting country agrees to limit the
quantity of exports of specific good below a
certain level.
• This is usually to avoid the imposition of legal
restrictions by the importing country.
• The agreement may be reached at either industry
or government level.
• For example, China has agreed to limit its export
of textiles to South Africa.
Administrative Barriers
• When goods are being imported, there are
usually administrative processes that have to be
undertaken.
• This may known as a “red tape”.
• If these processes are lengthy and complicated,
then they can act as a restriction to imports.
• For example, making importers go through
complicated paperwork, before they can get their
goods into the country will slow down imports.
Administrative Barriers
• If the paperwork requires a large amount of
legal work, then it will slow the process down
even more and raise the cost to the importer.
• Sometimes countries may designate certain
ports of entry that are difficult to reach and
also more expensive.
• This may cause border delays and again raise
costs.
Health, Safety, &
Environmental Standards
• This is where various restrictions are placed upon the
types of goods that can be sold in the domestic market
or on the methods used in the manufacture of certain
goods.
• These regulations will apply to imports and may restrict
their entry.
• While it is important that countries are able to
guarantee the health and safety of their population, it
important that government are legitimately keeping
out unsafe imports, rather than simply protecting their
own country’s workers.
Health, Safety, &
Environmental Standards
Challenges for Developing Countries
• While the maintenance of product standards is
extremely important, developing country
exporters may find it is difficult or prohibitively
expensive to carry out the necessary certification
to prove that they meet the international
standards.
• The costs involved in certification may make if
difficult for such countries to successfully exploit
their comparative advantage.
Embargos
• In effect, an embargo is an extreme quota.
• It is complete ban on imports and is usually
put in place as form of political punishment.
• For example, the US has a trade embargo on
all products from Cuba.
• Complete embargoes are rare.
Economic Sanctions
• Countries may put in place a set of economic
sanctions against an offending country.
• Unlike an embargo, these limit the exports or
imports of one or a few key products and are
also used as a form of political punishment or
to achieve a desired political objective.
Nationalistic Campaigns
• Governments will sometimes run marketing
campaigns to encourage people to buy domestic
goods instead of foreign ones in order to
generate more demand for domestic goods and
preserve domestic jobs.
• Such campaigns have happened in countries,
such as the UK, Australia and the US.
• This may be described as “moral suasion” where
the government links consumption of imported
goods to the creation of unemployment.
THE WORLD TRADE ORGANIZATION
(WTO)
• The WTO is an international organization that
sets the rules for global trading and resolves
disputes between its member countries.
• The WTO was established on 1st January 1995.
• It has 149 members.
• It replaced the General Agreement on Tariffs
and Trade (GATT) which has been set up after
WWII.
THE WORLD TRADE ORGANIZATION
(WTO)
• The WTO along with is predecessor the GATT,
is largely credited with average decline in
world tariffs of 40% to 4% for manufactured
goods.
THE WORLD TRADE ORGANIZATION
(WTO)
Most Favoured Nation Status (MFN)
• All WTO members are required to grant “most
favoured nation” status to one another.
• This usually means that trade concessions
granted by a WTO country to another country
must be granted to all WTO members.
• MFN status is one of the most important
principles of the WTO.
Aims of the WTO
• The WTO aims to increase international trade
by lowering trade barriers and providing a
forum for negotiation.
Functions of the WTO
• Administer WTO trade agreements
• To be a forum for trade negotiations.
• To handle trade disputes among member
countries.
• To monitor national trade policies
• To provide technical assistance and training for
developing countries.
• To cooperate with other international
organizations.
WTO Negotiating Rounds
• The WTO operates through a system of trade
negotiations or rounds.
• The first rounds held under GATT addressed
mainly the reduction of tariffs, but late
negotiations included other areas such as antidumping legislation and non-tariff issues.
The DOHA Round of
Trade Negotiations
• The current round of trade negotiations is
called the Doha Round after the site of the
meeting where negotiations were started in
November 2001.
• The program called the Doha Development
Agenda, covers a range of trade issues
Doha Development Agenda
The Doha Development Agenda covers:
• agricultural tariffs.
• non-agricultural tariffs.
• trade and environment issues.
• anti-dumping issues.
• subsidies
• competition policy
• transparency in government procurement
• Intellectual property.
Outcomes from the DOHA Round
• Negotiations have been very contentious and
no agreement has been reached.
• There were meetings in Cancun in 2003 and in
Hong Kong in 2005.
• In July 2006, Doha round negotiations broke
down and were ultimately suspended as a
result of the inability to come to agreement
on fundamental issues.
Agricultural Subsides at DOHA Round
• The EU and the US are being urged to reduce
their agricultural subsidies to improve market
access for developing country exports.
Is the WTO a success or failure?
• This is a very difficult, it not impossible,
question to answer.
• There are many different views on the subject.
• Perhaps it is best to state the claims of the
WTO and the arguments of their critics
The Benefits of the WTO
according to the WTO
• The system helps to promote peace in the
world. The more that countries trade freely,
the less likely that they are to be in conflict.
• Disputes are now handled constructively and
there is a forum for this to take place.
• Rules make like easier for everyone.
• Small countries have an equal say and gain
form “collective bargaining” with larger
countries.
The Benefits of the WTO
according to the WTO
• Freer trade cuts the cost of living for the
majority of consumers.
• Freer trade provides more choices of products
and better quality products.
• Trade raises incomes and stimulates economic
growth.
• The system encourages good government.
Criticism of the WTO
Arguments against the WTO
Unequal Power
• The WTO supposedly operates on a consensus
basis, with equal decision-making power for all.
• In reality, many important decisions get made in
informal negotiations between small groups of
the wealthier nations.
• Thus many of the WTO’s developing country
members are often excluded from decision
making processes.
Criticism of the WTO
Arguments against the WTO
Undemocratic
• Many developing countries cannot afford to
participate in all negotiations or even to have
a permanent representative at the WTO.
• This means that their interests are not
represented.
Criticism of the WTO
Arguments against the WTO
Privatisation Agenda
• The WTO’s General Agreement on Trade and
Services, includes a long list of services that
should be privatised.
• These include childcare, care for the aged,
sewage, garbage disposal, park maintenance and
postal services.
• It is argued that those least able to pay for vital
services like low paid workers and poor
communities will suffer from privatisation.
Criticism of the WTO
Arguments against the WTO
Free Trade Increases Inequality
• It is argued that free trade does not make life
better for ordinary people, but only leads to
rich people and rich nations becoming better
off.
Criticism of the WTO
Arguments against the WTO
Bias towards Rich Countries
• Rich countries are being allowed to maintain
high import duties and quotas in certain
products, such as textiles, stopping imports
from developing countries.
• The existence of highly protected agriculture
in developed countries, while developing
countries are being pressured to open up their
markets.
Criticism of the WTO
Arguments against the WTO
Bias towards MNCs
• Intellectual property rights, banning
developing countries from incorporating
technology that originates from MNCs in
developed countries. This especially applies
to pharmaceuticals.
Criticism of the WTO
Arguments against the WTO
Health, Safety & Environmental Concerns
• It is claimed that in the quest for free trade,
issues of health, safety at work and
environmental protection are to often ignored.
• Animal rights lobbyists also argued that in an
attempt to liberalize trade, the WTO rules
contribute to the abuses of animal rights (eg: fur
trade) or even towards the extinction of
endangered species (eg: dolphins killed in the
process of tuna fishing)
For & Against the WTO
Conduct appropriate research to answer the
following:
“Evaluate the extent to which the WTO
has been successful in improving the
economic situation in developing
countries”.
EXAMINATION QUESTIONS
Short Response Questions (10 marks each)
1. Using a diagram, explain the likely
effects of a tariff on imported
bicycles?
2. Using a diagram, explain the likely
effects of a quota on imported
shoes?
EXAMINATION QUESTIONS
Essay Question
1a. Explain the benefits of
international free trade
(10 marks)
1b. Evaluate the arguments used by
governments when they erect
barriers to free trade.