How does the U.S. Harmonized Tariff Schedule (HTSUS) categorize tariffs?
Ad Valorem Rate: A percentage of the value of the goods.
Specific Tariff Rate: A fixed amount of money per unit of goods.
Compound Tariff Rate: A combination of ad valorem and specific rates Commercial Policy, page 8.
1. What is the dutiable status of goods and how is it determined?
Definition: Dutiable status refers to the legal status of imported goods at the time of entry for compliance with tariff and customs laws.
Determination Factors:
Classification and coding of the article: Goods are classified using the Harmonized Commodity Description and Coding System developed by the World Customs Organization.
Customs value of the article: The dutiable value equals the transaction value or price actually paid for the goods plus additional costs.
Country of origin: Determined by the substantial transformation test or the country where the last substantial transformation occurred Commercial Policy, pages 4-6.
What are the general rules for interpreting tariffs?
Rule of Relative Specificity: If an article can be classified under more than one heading, the most specific description is used.
Classification by Essential Character: Goods are classified based on the materials and components that give them their essential character Commercial Policy, pages 12-14.
What is tariff engineering and how is it used?
Definition: Importers can modify their products to take advantage of lower tariff rates.
Examples: Bleaching sugar to lower its dutiable status, or adding and then removing molasses from sugar syrup after import Commercial Policy, page 16.
What are the rules of origin and how do they affect tariffs?
General Rule: The country of origin is where the article was wholly obtained.
Substantial Transformation Test: Determines origin by the last significant transformation that changes the name, character, or use of the article Commercial Policy, pages 18-20.
How have global tariff rates changed since World War II?
General Trend: Tariff rates have fallen globally, with high-income countries having very low rates except in sensitive industries like agriculture, textiles, and apparel.
Exceptions: Sensitive industries are more protected, with higher tariffs in middle and low-income countries Commercial Policy, pages 22-24.
What are the costs of protectionism?
Economic Impact: Economists favor open markets because they promote recovery, economies of scale, innovation, and competition.
Consumer Costs: The cost to consumers is greater than the net welfare loss to the nation. Protectionist measures are inefficient and costly Commercial Policy, pages 27-28.
Why do nations protect their industries?
Reasons: Revenue, job protection, infant industry arguments, national security, cultural protection, and retaliation against unfair practices.
Economic Validity: Some reasons are valid, but many are not economically justified Commercial Policy, pages 32-33.
What are the different forms of legal protection in the U.S.?
Antidumping Duties (ADD): Tariffs on imports sold below fair value.
Countervailing Duties (CVD): Tariffs to counteract foreign subsidies.
Escape Clause Relief: Temporary tariffs to relieve import surges.
Section 301: Actions against unfair trade practices Commercial Policy, pages 44-45.
What is the political context of protectionism in the U.S.?
Historical Context: Pressures towards protectionism never disappear due to new challenges, declining manufacturing, and post-Cold War dynamics.
Legal Procedures: The U.S. has specific legal procedures for obtaining protection against imports Commercial Policy, pages 43-44.
What are Technical Barriers to Trade (TBT) and their significance under the WTO?
Definition: TBT includes technical regulations, product standards, testing, and certifications.
Significance: The WTO Agreement on TBT aims to minimize these barriers while ensuring they are not used to discriminate against imports. Regulations must be non-discriminatory and based on scientific and technical information International Trade and Labor and Environmental Standards, pages 4-6.
How do income levels relate to environmental and labor standards?
Relationship: Higher income levels often correlate with improved environmental and labor standards. However, as economies grow, initial
environmental degradation can occur before improvements are made. For example, low-income countries may have higher infant mortality and lower access to safe drinking water, while high-income countries face issues like higher CO2 emissions International Trade and Labor and Environmental Standards, pages 10-12.
What are labor standards and what basic rights do they include?
Definition: Labor standards refer to the conditions under which employees work, including safety, pay, and working hours.
Basic Rights (according to the International Labor Office):
Prohibition of forced labor.
Freedom of association.
Right to organize and bargain collectively.
Elimination of child labor exploitation.
Nondiscrimination in employment International Trade and Labor and Environmental Standards, page 19.
What are the potential problems with using trade sanctions to enforce labor standards?
Problems:
Lack of Effectiveness: Small countries lack leverage to enforce changes through trade barriers.
Protectionism: High-income countries might use labor standards to limit competition.
Disagreements over Standards: There is no global consensus on specific labor standards.
Potential for Trade Wars: Sanctions may violate WTO rules, leading to retaliations International Trade and Labor and Environmental Standards, pages 21-25.
What are the differences between transboundary and nontransboundary environmental problems?
Transboundary Problems: Cross borders, such as greenhouse gas emissions affecting global climate.
Nontransboundary Problems: Confined within a single country, like pesticide contamination in local fields International Trade and Labor and Environmental Standards, page 32.
What are the arguments for and against using trade measures to enforce environmental standards?
For:
Prevents a race to the bottom.
Avoids shifting pollution to countries with lower standards.
Encourages countries to adopt higher standards.
Against:
May lead to protectionism.
Effectiveness is limited.
Can cause trade wars.
Disagreements over specific standards International Trade and Labor and Environmental Standards, pages 33-36.
How do transboundary environmental problems impact international trade?
Impact: Pollution from one country can spill over to another, causing environmental and economic damage. Examples include acid rain and global warming. Solutions often require international cooperation, such as tariffs on polluting industries or global negotiations International Trade and Labor and Environmental Standards, page 37.
What are some alternatives to using trade measures for enforcing labor and environmental standards?
Alternatives:
Labeling: Certifies products made under environmentally or labor-friendly conditions.
Home Country Standards: Firms abroad must meet home country standards.
International Negotiations: Using organizations like the ILO to enhance compliance and create international agreements International Trade and Labor and Environmental Standards, pages 40-44.
What is the role of labeling in enforcing labor and environmental standards?
Role: Labels indicate compliance with certain standards, helping consumers make informed choices and encouraging companies to adopt higher standards.
Challenges: Ensuring accuracy and preventing resistance from countries/industries International Trade and Labor and Environmental Standards, pages 42-43.
How do international negotiations help in addressing global climate change?
Method: Countries negotiate targets for reducing greenhouse gas emissions. Agreements like the Kyoto Protocol and the Paris Agreement set benchmarks for nations to achieve.
Implementation: Carbon taxes and other measures to internalize environmental costs and encourage reduction in greenhouse gas emissions International Trade and Labor and Environmental Standards, pages 45-46.
What are the main components of a country's international transactions?
Current Account: Records goods and services into and out of the country.
Financial Account: Records the flow of financial capital to and from the country.
Capital Account: Records specialized, relatively small capital flows like debt forgiveness and migrants' assets Trade and the Balance of Payments, International Financial Crisis, page 3.
What is the trade balance and how is it measured?
Definition: The difference between exports and imports of goods and services.
Trade Deficit: Occurs when imports exceed exports (e.g., U.S. had a trade deficit of $621 billion in 2018).
Trade Surplus: Occurs when exports exceed imports (e.g., U.S. had a large trade surplus in services) Trade and the Balance of Payments, International Financial Crisis, page 4.
What constitutes the current account balance?
Components:
Goods and Services: Value of exports minus imports.
Investment Income: Income from investments abroad minus income paid to foreign investments.
Unilateral Transfers: Foreign aid or other transfers received minus those given to foreigners Trade and the Balance of Payments, International Financial Crisis, page 5.
How do the financial and capital accounts differ from the current account?
Financial Account: Includes net changes in assets abroad, foreign-based assets in the country, and financial derivatives.
Capital Account: Includes transfers of specific types of capital such as debt forgiveness and migrants' personal assets Trade and the Balance of Payments, International Financial Crisis, page 10.
What is the significance of the national income and product accounts (NIPA)?
GDP (Gross Domestic Product): Value of all final goods and services produced within a country’s borders in a period.
GNP (Gross National Product): Value of all final goods and services produced by a country’s labor, capital, and resources, both domestically and abroad.
GNP Calculation: GNP = GDP + foreign investment income received - investment income paid to foreigners + net unilateral transfers Trade and the Balance of Payments, International Financial Crisis, pages 19-20.
What causes unsustainable international debt and what are its implications?
Causes:
Sudden drop in commodity prices.
Natural disasters.
Corruption.
Foreign lending behavior.
Implications: Countries with current account deficits must finance them through financial capital inflows, which increase external debt and generate debt service obligations Trade and the Balance of Payments, International Financial Crisis, pages 21-22.
What are the types of financial crises and their characteristics?
Banking Crisis: Occurs when the banking system cannot perform its main functions and needs assistance.
Currency Crisis: Involves a sudden large depreciation in the exchange rate.
Debt Crisis: Can be private or public, external or internal, and usually involves restructuring rather than complete repudiation Trade and the Balance of Payments, International Financial Crisis, pages 26-29.
What are crisis vulnerabilities and triggers?
Vulnerabilities: Economic conditions that make a country susceptible to crises, such as unsustainable government deficits, large private debt levels, and overvalued currencies.
Triggers: Events that initiate a crisis, often unpredictable and influenced by the country’s vulnerabilities Trade and the Balance of Payments, International Financial Crisis, pages 30-32.
How does contagion affect financial crises?
Definition: The spread of financial crises from one country to others.
Sources: Direct linkages, "wake up calls," and shared economic fundamentals Trade and the Balance of Payments, International Financial Crisis, page 33.
What were the key features of the Asian Crisis of 1997-1998?
Vulnerabilities: Large current account deficits, overvalued exchange rates, and weak banking oversight.
Triggers: Falling values of the Chinese yuan and Japanese yen, falling computer chip prices, and loss of confidence in the Thai baht.
Contagion: Spread rapidly to other Asian economies.
Consequences: Currency collapses, increased bankruptcies, and economic downturns Trade and the Balance of Payments, International Financial Crisis, pages 34-36.
What are the primary reasons for holding foreign exchange?
Trade and investment, interest rate arbitrage, and speculation.
Who are the main participants in the foreign exchange market?
Retail customers, commercial banks, foreign exchange brokers, and central banks.
What is exchange rate risk and how can businesses protect against it?
Risk due to currency fluctuations; businesses can hedge using forward contracts.
What are the main factors affecting exchange rate determination in the long run, medium run, and short run?
Long run: purchasing power parity; Medium run: business cycle; Short run: interest parity and speculation.
Describe the difference between nominal and real exchange rates.
Nominal exchange rate is the market price of a currency, while the real exchange rate is adjusted for price differences between countries.
What are the advantages and disadvantages of a single currency area?
Advantages: reduced transaction costs, price stability. Disadvantages: loss of independent monetary policy.
What are exchange rates and how are they determined?
Exchange Rate: The price of a currency stated in terms of a second currency (e.g., U.S. dollars per Mexican peso).
Determination: Exchange rates are reported in newspapers and websites, typically using the ratio most above 1 (e.g., pesos per dollar, dollars per euro) Exchange Rates and Exchange Rate Systems, page 6.
What are appreciation and depreciation in currency value?
Appreciation: A currency becomes more valuable; foreign currency costs less.
Depreciation: A currency becomes less valuable; foreign currency costs more Exchange Rates and Exchange Rate Systems, page 8.
What are the reasons for holding foreign currencies?
Trade and Investment: Importers, exporters, investors, and travelers transact in foreign currencies.
Interest Rate Arbitrage: Financial arbitrageurs borrow where interest rates are low and lend where rates are high.
Speculation: Buying and selling currencies anticipating value changes Exchange Rates and Exchange Rate Systems, page 12.
Who are the participants in foreign exchange markets?
Retail Customers: Firms and individuals for transactions, travel, portfolio adjustments, and speculation.
Commercial Banks: Hold currencies as part of services for their customers; largest market participants.
Foreign Exchange Brokers: Middlemen between banks and foreign exchange buyers/sellers.
Central Banks: Hold foreign exchange reserves and supply domestic banks Exchange Rates and Exchange Rate Systems, page 13.
What is exchange rate risk and how can it be managed?
Risk: Currency fluctuations impacting future payments or receipts in foreign currency.
Management: Businesses can buy contracts to buy or sell foreign currency at future dates at agreed prices (forward market) Exchange Rates and Exchange Rate Systems, page 14.
How are exchange rates determined in the short, medium, and long run?
Short Run: Influenced by interest rates and speculation.
Medium Run: Affected by the business cycle, such as changes in exports and imports due to economic growth.
Long Run: Determined by purchasing power parity (PPP), ensuring that the same quantity of goods can be bought in either currency when converted Exchange Rates and Exchange Rate Systems, pages 23-27.
What is the real exchange rate and how is it calculated?
Definition: The nominal exchange rate adjusted for price differences at home and abroad.
What are the types of exchange rate systems?
Flexible Exchange Rates: Currency value changes relative to other currencies, often influenced by supply and demand.
Fixed Exchange Rates: Currency value is pegged to another currency or a basket of currencies, limiting monetary policy flexibility.
Managed Float: Some government intervention to control the currency, less than with pegged systems Exchange Rates and Exchange Rate Systems, pages 34-35.
What are the benefits and costs of a single currency area?
Benefits:
Reduced transaction costs in currency conversions.
Elimination of price fluctuations due to exchange rate changes.
Increased political trust and credibility.
Costs:
Loss of independent monetary policies.
Need for fiscal union to transfer resources from well-performing to struggling regions Exchange Rates and Exchange Rate Systems, pages 42-43.
What is aggregate demand and supply in an open economy?
Aggregate Supply (AS): The total output of all final goods and services.
Aggregate Demand (AD): The total expenditure on final goods and services by households, businesses, government, and foreigners.
AS Curve: Shows the output businesses would produce at different price levels.
AD Curve: Shows the amount purchased at different price levels An Introduction to Open Economy Macroeconomics, pages 5-7.
How do fiscal and monetary policies impact the economy?
Fiscal Policies: Involve taxation and government spending.
Expansionary Fiscal Policy: Increase in government spending or tax cuts to boost overall spending.
Contractionary Fiscal Policy: Decrease in government spending or tax increases to reduce overall spending.
Monetary Policies: Involve changes in interest rates and the money supply.
Expansionary Monetary Policy: Decrease in interest rates by increasing the money supply.
Contractionary Monetary Policy: Increase in interest rates by decreasing the money supply An Introduction to Open Economy Macroeconomics, pages 14-15.
What was the role of fiscal and monetary policy during the Great Depression?
Economic Context: The Great Depression included two recessions (1929-1933 and 1937-1938).
Government Response: Initially, governments did not see it as their responsibility to stabilize the economy and feared increasing government spending due to potential budget deficits.
Monetary Policy: Limited by the gold standard, which the UK left in 1931 and the US in 1933, leading to recovery and economic growth An Introduction to Open Economy Macroeconomics, pages 17-19.
How do fiscal and monetary policies affect the current account balance?
Monetary Policy: Works through interest rate changes. Contractionary monetary policy raises interest rates and causes currency appreciation, leading to more expensive exports and cheaper imports, moving the current account towards deficit. Expansionary policy has the opposite effect.
Fiscal Policy: Impacts the exchange rate through changes in income. Expansionary fiscal policy raises incomes, increasing demand for money and interest rates, causing currency appreciation and a shift towards current account deficit An Introduction to Open Economy Macroeconomics, pages 20-23.
What are expenditure switching and expenditure reducing policies?
Expenditure Switching Policies: Aim to shift spending from foreign to domestic goods and services, typically through currency depreciation or temporary trade barriers.
Expenditure Reducing Policies: Aim to reduce overall spending in the economy through contractionary monetary and fiscal policies An Introduction to Open Economy Macroeconomics, pages 24-25.
What is the J-curve effect in relation to exchange rates and current account deficits?
J-Curve Effect: Depicts the initial deterioration followed by an improvement in the current account balance after a currency depreciation. Importers cannot immediately switch to domestic suppliers, and foreign goods don't suddenly become more expensive, causing a lag in adjustment An Introduction to Open Economy Macroeconomics, page 25.
How does macroeconomic policy coordination work in developed countries?
Coordination Goal: Sought to achieve simultaneous increases in fiscal or monetary expansion to avoid a disproportionate burden on one country.
Challenges: Lack of an international organization to arrange coordination and differing interests among countries An Introduction to Open Economy Macroeconomics, page 27.
1. What are the general characteristics of success in the export-oriented East Asian economies?
Macroeconomic Stability: These countries maintained stable macroeconomic environments.
Less Inequality and Investment in People: Growth was often accompanied by falling inequality, land reforms, free public education, basic healthcare, and investments in rural infrastructure.
Export Promotion: These economies actively promoted exports through various incentives and policies Export-Oriented Growth in East Asia and China, India, pages 9-13.
How did the institutional environment support economic growth?
Strong Institutions: Countries had secure property rights, enforced contracts, clear regulations, and competent bureaucracies.
Fiscal Discipline: Strong fiscal policies supported growth.
Business-Government Relations: Deliberation councils helped coordinate investment decisions and discourage rent-seeking behaviors Export-Oriented Growth in East Asia and China, India, pages 17-18.
How open were the East Asian economies to trade?
Openness to Imports: Despite targeting certain industries for protection, these economies were relatively open to imports compared to other regions like Latin America.
Trade Data: High growth Asian economies showed significant import and export activity, indicating their openness to trade Export-Oriented Growth in East Asia and China, India, pages 28-30.
What was the role of industrial policies in East Asian success?
Targeting Specific Industries: Governments actively promoted certain industries through trade policies, directed credit, subsidies, and infrastructure development.
Debate on Effectiveness: Opinions vary on the success of these policies; some argue they were crucial, while others believe growth would have occurred regardless Export-Oriented Growth in East Asia and China, India, pages 23-27.
What is total factor productivity (TFP) and why is it important for understanding growth?
Definition: TFP measures the efficiency with which labor and capital are used together in production.
Importance: TFP helps distinguish between growth due to increased inputs (labor and capital) and growth due to improved efficiency and technological progress Export-Oriented Growth in East Asia and China, India, pages 36-37.
How did manufactured exports contribute to economic growth?
Economic Links: Manufactured exports are linked to economies of scale, competitive effects, export revenues for capital equipment, and inward FDI bringing new technologies.
High Growth Rates: East Asian countries experienced high growth rates in the export of manufactured goods, contributing to their overall economic growth Export-Oriented Growth in East Asia and China, India, pages 31-33.
What are some considerations for other regions adopting export promotion strategies?
Absorption Capacity: Industrial economies must be able to absorb the quantity of exports.
Political Repercussions: There may be political backlash as manufacturing sectors shrink in high-income countries.
WTO Limitations: The Uruguay Round of the WTO limits some export promotion policies Export-Oriented Growth in East Asia and China, India, page 33.
What is the current state of trade blocs in Asia?
Growth of Trade Agreements: Many new trade agreements have been established since the 1990s, particularly after the Asian Crisis of 1997-1998.
ASEAN: Initially a security and military cooperation agreement, ASEAN added a free trade area in 1992, promoting regional economic integration Export-Oriented Growth in East Asia and China, India, page 34.
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