M404 Final Exam
How is the WTO different from GATT?
-A permanent institution with its own secretariat -Commitments are full and permanent -Covers trade if goods, services, and issues related to intellectual property (IP) -Commitment of the entire membership -Settlement system is faster, more automatic swift to implement -GATT 1994 is the foundation of the merchandise trade system
How is GATT different from WTO
-A set of rules; multilateral agreements -Applied on a provisional basis -Rules applied to trade in goods -Rules selectively applied -Disputes slow to settle and settlements difficult to implement -System dependent on GATT 1947 until 1994
Trade barriers have been invented to:
-Allow domestic companies to charge higher prices -Protect and increase the number of jobs -Contribute to the domestic economy intended to protect domestic companies FALSE: Trade barriers result in a great selection of products in the domestic market
GATT:
-An international framework to establish ground rules for worldwide trade and promote reduction of trade barriers -Only multilateral agreements are permitted -Only tariffs may be used -Adhere to most favored nation (MFN) principle
Income-discretionary
-Consumer income that is ... earnings available after all current obligations (bills, payments, basic needs) are covered -Consumption level minus necessary consumption expenditures -Is uncommitted income that can be used as needed. The consumer has new decisions to make on how to spend this income.
WTO:
-Deals with the rules of trade between nations -GOAL: to ensure that trade flows smoothly and predictably (as possible) -Born out of the GATT, following 7 year of trade negotiations (Uruguay Rounds) -Works to resolve trade disputes -Always under scrutiny and protest
Purpose of Country of Origin Labeling
-Establish tariff rates -Collect data for trade statistics
Balance of trade
-Is the difference between the value of a country's exports and imports for a given period -Economists use the BOT to measure the strength of a country's economy -Also known as trade balance or international trade balance
Income-disposable
-Take-home pay; the amount available to an individual or family to support the level of consumption, savings, and investment at a particular time -Gross income minus income taxes & other taxes
What is the purpose of dumping?
-Temporary strategy for market share -Form of inventory control -Result of government production to provide domestic jobs
RESULT OF MFA:
-Textile and apparel imports were increasing -Search for new low-labor cost countries with NO bilateral agreement and NO quota restriction
Engel's law
-The proportion of income spent on food decreases as income increases -This law does not suggest that money spent on food falls with increase in income but instead that the percentage of income spent on food rises slower than the percentage increase in income -When income is lower, total expenditure is lower, but a larger proportion of income is required to have enough food
Free trade
-The unrestricted exchange of goods and services among nations -Relies on market forces to determine the volume and variety of imports
Newly developing/emerging country
-These countries tend to manufacture a limited assortment of basic apparel goods, with little to no textile production -GDP per capita is significantly lower than world average -Just beginning to be engaged in industrial development, likely to involve apparel production; some sources use the term "least developed country"
Developing country
-These countries tend to manufacture a wide range of textile and apparel products, many of which are exported -GDP per capita is in the middle (average)
Developed country
-These countries tend to produce technology-intensive textile and apparel goods -GDP per capita is significantly higher than the world average -In developed countries levels of consumption depend on levels of income
Holfsted's cultural dimensions
1.Power Distance 2.Individualism 3.Masculinity 4.Uncertainty Avoidance 5.Long Term Orientation 6.Indulgence
Design patent
A form of intellectual property protection that allows an inventor or designer to protect the original shape or surface ornamentation of a useful manufactured article
Harmonized commodity description and coding system
A global classification system used to describe and measure trade
Customs services:
A government agency responsible for monitoring exported and imported goods, assessing, and collecting duties, and protecting the country's borders against illegal entry
Patent
A government license that gives the holder exclusive rights to a process, design, or new invention for a designated period of time
Holfsted's cultural dimensions-Masculinity
A high score (Masculine) on this dimension indicates that the society will be driven by competition, achievement and success, with success being defined by the winner / best in field - a value system that starts in school and continues throughout organizational life.
Copyright:
A legal right gained by an author, composer, playwright, publisher, or distributor to exclusive publication, production, sale, or distribution of a literary, musical, dramatic, or artistic work
Most favored nation (MFN):
A principle that each country must treat all nations the same in terms of trade restrictions and policies, and no country should have preferential trade arrangements
Non-tariff trade barriers:
A quota, quality standards, other regulations or conditions that restrict the flow of goods and services between countries, not including taxes
Item 807/807A:
A ruling that allowed garments cut in the United States to be exported and assembled in Caribbean countries and then imported with tariff based only on value added
Voluntary export restraint (VER):
A self-imposed limit on the amount of product that one country can export to another country, also known as export tariff restraint agreement
Countervailing duty:
A specific tax that increases the price of goods to a competitive level; used against illegal trade activities such as subsidies or dumping -example of a non-tariff trade barrier
Ad valorem tariff:
A tax set as a fixed percentage of the value of an imported product Works with a wide range of product variation Constant degree of protection when import prices vary
Tariff barriers
A tax that is collected on imported or exported goods, usually based on a tariff schedule
Trademark:
A word, phrase, logo, or other graphic symbol used to distinguish one firm's products or services from those of other firms
Bilateral Trade Agreement
An exchange agreement between two nations or trading groups that gives each party favored trade status pertaining to certain goods obtained from the signatories. The agreement sets purchase guarantees, removes tariffs and other trade barriers.
Counterfeit:
An imitation of an original that illegally carries the original trademark. The operations are both sophisticated and diverse, keeping ahead of fashion and consumer trends. -An imitation of what is genuine, with the intent to defraud the customer
Knockoff
An imitation of the original using lower cost materials and production methods, and sold through legitimate retailers at a much lower price than the original
Multifiber arrangement(MFA)
An international trade agreement that allowed textile and apparel trade to be regulated through quotas established in bilateral agreements between nations -Was created for industrialized nations to protect domestic industries from low cost competition
Cut-make-trim (CMT) factory:
Apparel contractors that commonly provide, apparel assembly as their primary service
Direct way to make a product:
By building capital and combining people with raw material
6 Characteristics of Industrialization:
Characteristic #1: growth , under protection (protection of industry) Characteristic #2: Increase in production due to demand (technology is developed) (capital is used to invest in technology to more efficiently meet demand>> protection speed) Characteristic #3:Preservation of employment (labor response to adoption of technology) Characteristic #4: Migration from rural to urban Characteristic #5: Employment of women outside the home Characteristic #6: Labor reform
Vertical integration:
Combining firms that perform different stages of the manufacturing and/or retailing of similar and/or compatible types of products
income-total/gross
Consumer income that is ... earnings before taxes Total income = personal income
Intellectual property (IP)
Copyrights, trademarks, patents, trade secrets, and semiconductor chips; inventions or other discoveries that have been registered with government authorities for the sale and use by their owner
Theory of comparative advantage
David Ricardo founded the theory of comparative advantage, outlined in the 1817 book, On the Principles of Political Economy and Taxation, the theory showed how nations benefit from free trade
Exchange rate
Determine the ratio at which one currency can be traded for another
Other non-tariff trade barriers
Dumping Countervailing duties embargo
Most common non-tariff barriers which affect textiles and apparel are:
Exchange rates Import quotas Price support programs Government subsidies Voluntary export restraints (VER)
World Bank (WB)
First called, the International Bank of Reconstruction & Development (IBRD) -Provided funds for re-building the war devastated countries Today: -Specialized agency of the United Nations -Facilitate productive investment -Encourage foreign trade -Reduce international debt -Long term financial assistance
Specific tariff:
Fixed amount of tax per physical unit of imported product
Trade
Give up an abundance for something that you have less of -Exchange of goods, services, or both; can be domestic, international, or global
Export
Good shipped to another country for imports in exchange for money, other goods, or jobs
Import
Goods available for domestic consumption or materials available for domestic production because of exports or other countries
Trade Surplus
High Exports Positive trade balance; value of exports exceeds the value of imports
Trade Deficit
High Imports Negative trade balance; value of imports exceeds the value of exports
Undocumented immigrants(UIs) :
Individuals from foreign countries without legal identification papers
Multilateral trade agreement
Involves more than two countries
Standard of living
Is the level of consumption desired for, plus -Working conditions -Freedom of movement and association -Safety and security -Political and environmental atmosphere
Human development index (HDI):
Is the summary measure of average achievement in key dimensions of human development. 3 dimensions and 4 indicators Dimensions: -Long and healthy life -Knowledge -A decent standard of living Indicators: -Life expectancy at birth -Expected years of schooling -Mean years of schooling -GNI per capita (PPP$)
Bretton woods conference:
July 1944 New Hampshire Key Points: -All 43 WW-II allies were involved -Established new global monetary system, using the U.S dollar as the global currency
Specific Tariff Example
Ladies' Leather Sandals: $5.00 per pair Cost per pair ($50) + $5 = $55 landed duty paid
Ad valorem tariff Example
Ladies' Leather Sandals: 20% per pair Cost per pair ($50) * 1.2 = $60 (landed duty paid
Indirect way to make a product: (roundabout way)
Make the product by making something else and then trading that something else for the product.
Gross Domestic Product (GDP)
Market value of the output of products and services produced within a country in a year
Trade barriers
Means of regulating or restricting trade; examples include state trading, tariffs, quotas, and limits on foreign investment
Purchasing power parity
Measure that allows comparison of well being countries, as indicated by GDP, determined by adjusting GDP of a country by the buying power of its currency using Consumer Price Index -Quantity and quality of goods and services that can be acquired with a specified amount of currency at a given time and place; the value of money in terms of what it can buy
Quota
Method used to restrict quantities of certain types of goods that can be imported or exported; limit on the quantity of products allowed to enter or exit a country -These and countervailing duties can be applied by governments to counteract the dumping of products from other countries
Consumption expenditure
Money used to support the level of consumption during a specified period -As income goes up→ consumption expenditure goes up -Obtaining, using, and servicing goods by an individual or a family; can also include the disposal stage
The Multifiber arrangement benefited this group the most:
Multinational firms able to source from multiple production sites
Holfsted's cultural dimensions-Indulgence
One challenge that confronts humanity, now and in the past, is the degree to which small children are socialized. Without socialization we do not become "human". This dimension is defined as the extent to which people try to control their desires and impulses, based on the way they were raised. Relatively weak control is called "Indulgence" and relatively strong control is called "Restraint". Cultures can, therefore, be described as Indulgent or Restrained.
Sourcing
Process of finding, evaluating, and partnering with a vendor to secure services, materials, production, or finished goods, or a combinations of these at a specified cost, quality, and service level, for delivery within an identified time frame
Globalization
Process whereby the world's people, their firms, and their countries become increasingly interconnected in all facets of their lives
Level of consumption
Quantity and quality of goods and services that are used by an individual or group during a given period of time
Dumping:
Selling a product in another country at less than the domestic sales price, or less than the product costs to produce -an example of a non-tariff trade barrier
Illegal transshipment:
Shipping goods through a port or country to facilitate the change of country of origin or to avoid quota limitations or import duties, or both, in the destination country - occurs when goods are shipped to another country and relabeled to identify that nation as a country of origin to avoid tariffs
Duty
Tax payment on imported or exported goods, usually based on a tariff schedule
Holfsted's cultural dimensions-Uncertainty Avoidance
The dimension Uncertainty Avoidance has to do with the way that a society deals with the fact that the future can never be known: should we try to control the future or just let it happen? This ambiguity brings with it anxiety and different cultures have learnt to deal with this anxiety in different ways. The extent to which the members of a culture feel threatened by ambiguous or unknown situations and have created beliefs and institutions that try to avoid these is reflected in the score on Uncertainty Avoidance.
Copyright Example:
The famous "G" on luggage, handbags, shoes, and more that denotes the GUCCI brand is copyrighted intellectual property of fabric design
Holfsted's cultural dimensions-Individualism
The fundamental issue addressed by this dimension is the degree of interdependence a society maintains among its members. It has to do with whether people´s self-image is defined in terms of "I" or "We". In Individualist societies people are supposed to look after themselves and their direct family only. In Collectivist societies people belong to 'in groups' that take care of them in exchange for loyalty.
Country of origin
The location where an article was wholly obtained, when more than one country is involved, the location where the last substantial transformation was carried out; the location where there is a change in the product designation number, according to the Harmonized Commodity Code and Designation System (HS)
Lobbying
The process of influencing the formation of legislation or the administration of rules, regulations, and policies
Embargo:
The prohibition of the entry of goods into a specified country(defined political area); trade stops until issues can be negotiated
Quota Example
The rungs on the ladder of any bulldozer sold in Germany must be 12 inches apart, but U.S. manufacturers generally make the rungs 15 inches apart
Protectionism
The use of trade barriers to minimize imports in order to protect the domestic industry
Holfsted's cultural dimensions-Power Distance
This dimension deals with the fact that all individuals in societies are not equal - it expresses the attitude of the culture towards these inequalities amongst us. Power Distance is defined as the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally.
Holfsted's cultural dimensions-Long Term Orientation
This dimension describes how every society has to maintain some links with its own past while dealing with the challenges of the present and future, and societies prioritize these two existential goals differently. Normative societies. which score low on this dimension, for example, prefer to maintain time-honored traditions and norms while viewing societal change with suspicion. Those with a culture which scores high, on the other hand, take a more pragmatic approach: they encourage thrift and efforts in modern education as a way to prepare for the future.
International monetary fund (IMF):
To promote international monetary cooperation
Legal transshipment:
To transfer or be transferred from one conveyance to another in order to continue the shipment -Perfectly legal when goods are moved into another country to continue passage onto the final destination -goods not modified in the third country
The Trans-Pacific Partnership (TPP) is
a new, high-standard trade agreement that levels the playing field for American workers and American businesses, supporting more Made-in-America exports and higher-paying American jobs.
Regressive Tax
a tax that takes a greater percentage of income from those who earn less, than from those with a higher income
SME: (Square Meter Equivalent
also referred to as "M2"): A notional, common unit of quantity, constant across categories and time. Conversion Factors are used to convert units of quantity into SME.
The new United States-Mexico-Canada Agreement (USMCA)
is a mutually beneficial win for North American workers, farmers, ranchers, and businesses. When finalized and implemented, the agreement will create more balanced, reciprocal trade that supports high-paying jobs for Americans and grows the North American economy
Forced technology transfer (FTT)
is a practice in which a domestic government forces foreign businesses to share their tech in exchange for market access
misclassification of goods
is also a common issue as it involves declaring a good under a lower duty category than its real duty category. Last, is the failure to pay in full or in part customs duties.
The North American Free Trade Agreement (NAFTA)
is an agreement among the United States, Canada and Mexico designed to remove tariff barriers between the three countries.
Heckscher-ohlin theory
is an economic theory that proposes that countries export what they can most efficiently and plentifully produce. ... The model emphasizes the export of goods requiring factors of production that a country has in abundance
What is TPL? (Tariff Preference Level):
means the special provisions set out in Annex 300-B, Appendix 6, Part B, of the NAFTA, that provides for the application of a customs duty at a preferential rate to non-originating goods up to a specified quantity.
What does Dave refer the comparative advantage theory as:
the "roundabout way to wealth"
Quality standard example
the new textile firm asks its government to provide financial assistance to make it possible to sell its products overseas at a lower price that will compete well in other countries
