INCOME DISTRIBUTION AND TRADE
POLICY.
INTERNATIONAL NEGOTIATIONS AND
TRADE POLICY
Subject: International Economics
Dominika Droppová
Sabína Gašparová
INCOME DISTRIBUTION AND TRADE POLICY

What is the trade policy aboute?
-
Reality vs Asset

Review:
-
Electoral Competition
-
Collective Action
-
Modeling the Political Process
-
Who Gets Protected ?
ELECTORAL COMPETITION

Assumption
-
Two competing parties.
Policy can be described along a single dimension (tariff
rate).
Voters differ in the policies they prefer.

For example:
-
One country:
-
- export - skill-intensive goods
- import - labor-intensive goods
-
Voters:
voters with high skill levels will favor low tariff rates
voters with low skills will be better off if the country
imposes a high tariff
COLLECTIVE ACTION

The problem of collective action:
The group as a whole has bigger interest to press for
favorable policies than individuals.
This problem can best be overcome when a group is small and
organized.
Explain why policies that not only seem to produce more costs
than benefits but that also seem to hurt far more voters than
they help can nonetheless be adopted.
MODELING THE POLITICAL
PROCESS


While politicians may win elections partly because
they advocate popular policies, a successful campaign
also requires money...
Politicians will not ignore overall welfare, but they
will be willing to trade off some reduction in the
welfare of voters in return for a larger campaign fund.
As a result, well-organized groups—that is, groups
that are able to overcome.
WHO GETS PROTECTED ?

Many developing countries traditionally have
protected a wide range of manufacturing, in a policy
known as import-substituting industrialization.
Much protectionism is concentrated in just two
sectors:
- agriculture,
- clothing.

INTERNATIONAL NEGOTIATIONS AND
TRADE POLICY
From the mid-1930s until about 1980, the United
States and other advanced countries removed tariffs
and some other barriers to trade.
 The great postwar liberalization of trade was
achieved through international negotiation.
 It means that governments agreed to engage in
mutual tariff reduction
reduced protection for each country’s importcompeting industries
to reduced protection by other countries against that
country’s export industries.

THE ADVANTAGES OF NEGOTIATION
Two reasons why it is easier to lower tariffs as part of
a mutual agreement than to do so as a unilateral
policy:
- mutual agreement helps mobilize support for
freer trade,
- negotiated agreements on trade can help avoid trade
wars.

For example:
Two countries (Japan, United States) ilustrated
examples on mutual agreement and trade wars.
THIS SITUATION IS KNOWN AS A
PRISONER’S DILEMMA.
INTERNATIONAL TRADE AGREEMENTS:
A BRIEF HISTORY

Multilateral negotiations began soon after the
end of World War II.
There are two the most important organizations:
- General Agreement on Tariffs and Trade
(GATT),
- World Trade Organization (WTO).
Create GATT-WTO approach (system):
- the principal ratchet in the system is the process
of binding.


Trade round process - large group of countries get
together to negotiate a set of tariff reductions and other
measures to liberalize trade
There are 8 trade rounds:
- the first five trade rounds under the GATT took the
form of “parallel” bilateral negotiations
- the sixth multilateral trade agreement, known as
the Kennedy Round
- the seventh multilateral trade agreement, known as
the Tokyo Round

- the last of which the Uruguay Round (results of the
Uruguay Round are not that easy to summarize. The
most important results make two groups: trade
liberalization and administrative reforms).
TRADE LIBERALIZATION
Liberalize trade in:
- agriculture
- cloting


World trade in agricultural and textiles products has
been highly distorted.
ADMINISTRATIVE REFORMS





How different is the WTO from the GATT?
The GATT’s neglect of trade in services became an
increasingly glaring omission, because modern
economies have increasingly focused on the
production of services rather than physical goods.
The WTO agreement includes rules on trade in
services (the General Agreement on Trade in
Services, or GATS)
The most important new aspect of the WTO, however,
is generally acknowledged to be its “dispute
settlement” procedure.
The WTO contains a much more formal and effective
procedure
THE DOHA DISAPPOINTMENT

It´s the ninth major round of world trade negotiations

preferential trading agreements

free trade area

customs union

trade creation vs trade diversion
Thank you for attention