Chapter 6 TRADE BARRIERS & REGULATION By Madelynn Esquivias, Hang Cui, & Leila Salarpour

Agenda The Evolution of Trade 3 Phases of Globalization Protected Trade Purpose Customs Services Tariffs & Duties Trade Barriers Trade Agreements Implementation of Trade Barriers Quick Quiz Last Insight

The Evolution of Trade

Objective Explore the evolution of the textile and apparel trade (Kunz, 2011). Discussion Question: Looking at the three phases of globalization, what to do you think it means in terms of each globalization phase shrinking the world? How has each globalization phase shrunk the world?

Globalization 1.0 | Globalization of Countries Great Britain | Dominant Global Power (19th Century) Golden Area | International Commerce Civil War | Four Year War Revolutionary War | American War of Independence Invention | Steamship, Railroad, Telegraph, Telephone Transatlantic Cable | Connected 1866 Theory of Comparative Advantage| David Ricardo United States | Dominant Power (20th Century) Size Large Size Medium

Globalization 2.0 | Globalization of Companies World Bank | Est World War I Keynesian Economics | Solution to the Great Depression 1930s Cold War | U.S. & U.S.S.R Development | Electronic Communication & the Internet The Great Depression s World War II International Monetary Fund (IMF) | 1945 GATT | Est Eff Multifiber Arrangement (MFA) | Fall of Berlin Wall | 1989 Conversion | CWS → GS Integration | GATT → WTO MFA → ATC Invention | Computers, Satellites, Microcomputers, fiber optics United States | Dominant Power (20th Century) Size Medium Size Small

Globalization 3.0 | Globalization of Individuals Regionalizati on of Trade Grew Corporate Social Responsibility (CSR) Economic Downturn Challenged World Market Innovation Developing SSC Big Corporations| Domination of Global Commerce Outsourcing | White Collar Jobs Creativity & Innovation on Environmental Responsibility Coalition to link public policy & Corporate Responsibility Size Small Size Tiny

Discussion Question| The Evolution of Trade Looking at the three phases of globalization, what to do you think it means in terms of each globalization phase shrinking the world? How has each globalization phase shrunk the world?

Protected Trade

Objective Examine how trade barriers protect trade (Kunz, 2011). Discussion Question: In terms of protected trades, what are the possible reasons the export and import policies of a nation may be different?

Purpose of Protected Trade 1.domestic market 2.make competition fairer Trade Barriers ● All the domestic companies to charge higher prices, grow and increase the number of jobs offered, and make a greater contribution to the domestic economy ● some types of trade barriers are also used as an important source of government revenue.

Customs Service Responsibilities monitor imports and exports assess and collect duties report imports and exports against quota protect the country’s borders against illegal entry To figure out the what, when and who of trading, a detailed accounting system is needed to record systematically the passage of products, and recording the amounts of specific types of products is a great challenge. HS: Harmonized Commodity Description and Coding System Monitor imports and exports

Harmonized Commodity Description and Coding System Global classification system used to describe most trade in goods WCO(World Customs Organization)- language of international trade.

Tariffs and Duties Tariffs ●trade protection ●tariff schedule establishing the taxes that are collected as duties ●imported or exported goods. Nominal Tariffs ●rate ●in each country’s tariff schedule ●determine duty ●paid for specified products ●2 forms: specific and ad valorem.

1. specific ●fixed amount money per physical unit of product ●easy to apply and administer, like standardized goods ●provide a degree of protection that varies inversely with changes in import prices. 1. ad valorem tariffs are like a sales tax ●are a fixed percentage of the value of product ●can be applied to products with a wide range of product variation ●maintain a constant degree of protection, even when prices vary.

duty due=physical units of goods x specific duty rate $200=10,000ducks x $0.02 each duty due=total value of the product x ad valorem duty rate $36,125=($340x1,250pcs of luggage)x 8.5% total duty due=specific duty+ad valorem duty rate

Free Trade Zones ●trade agreements between countries that are designed to reduce trade barriers and facilitate trade. ●A port or other site within a nation designated for duty-free entry of selected for manufacturing. ●Often established within individual nations that are just entering into competitive participation in global market. Foreign trade zone ●a free trade zone that allows manufacturing for export. ●located in a single country, and goods move between countries with special treatment (including no duty assessed ) ●QIZ-qualified industrial zone, involves more than one nation,like Egypt, where manufacturing can take place.

Nontariff Trade Barriers exchange rates ●determine the ration at which one currency can be traded for another ●strong dollar and weak dollar Quotas ●restrict quantities of good that can be imported or exported but are most often applied to imports. ●often administered by a government that issues import licenses up to the quantity of imports that will be allowed. Voluntary Export Restraints ●gentlemen’s agreements to restrict trade, because the agreements are not formalized into international law.

Discussion Question| Protected Trade In terms of protected trades, what are the possible reasons the export and import policies of a nation may be different?

Trade Agreements

Objective Identify major international trade agreements and their intrinsic trade barriers, relevant to textiles and apparel (Kunz, 2011). Discussion Question: What was Multifiber Arrangement (MFA) tend to do and why was it expired in 2005?

in the United States Implementation of Tariffs 1.The main goal of Tariff: Was raise money to pay the federal budget. 2. Multifiber Arrangement (MFA): The agreement imposed quotas on the amount that developing countries could export in the form of yarn, fabric and clothing to developed countries

Trade Agreements Cont. 1.General Agreement on Tariffs and Trade (GATT) (1947 to 1994): GATT provided an international framework that established the ground rules for world wide trade to reduced trade barriers 2. World Trade Organization (WTO) (1994-Present): WTO deals with the rules of Trade between nations at a global level.

Discussion Question| Trade Agreements What was MFA intended to do and why was it expired in 2005?

Quick Quiz

Quiz Q.1Who developed the Theory of Comparative Advantage? Q.2 What is the purpose of protected trade? Q.3What is the main goal of Tariff? A.1 David Ricardo A.2 Stronger domestic market (compete less with foreign companies in domestic market) & make competition fairer (in international markets). A.3 Raise money to pay the federal budget.

Given the commonality of global trade and travel, do you think the United States should take up using the metric system, like the rest of world? What might be the major barriers to the changeover to metric?

End References Kunz, G., & Garner, M. (2011). Trade Barriers and Regulations. In Going Global: The Textile and Apparel Industry (Second ed., pp ). New York: Fairchild Books. Investopedia. (2015). Mixed Economic System. Retrieved from Chanda, N. (April 7, 2004). Globalization has shrunk the world to size tiny. Yale Global Online. Retrieved from size-tiny