Page 346 - DECO503_INTERNATIONAL_TRADE_AND_FINANCE_ENGLISH

International Trade and Finance

Notes is really ironical, the developed countries have the cheek to ask the developing countries in the face
of these facts to pay for the sins of the developed world.
There is no end to the innovative machinations which the developed countries initiate to force the
developing countries into submission to their proposals. The temporary withdrawal of the social
clause should not be seen as a victory of the developing countries, it is quite possible that USA may
revive it. The question that need to be posed as a counterpoint is : Should developing countries, on
the basis of human considerations, impose countervailing duties on US goods till such time that the
Blacks in America are assured equality of treatment ? Are not labour standards with reference to
Blacks important, if the linking of social concerns to trade policy, is pushed to its logical conclusions.
Thus, there is a need for vigilance and combined resistance by Third World countries so that the
enlarged scope of GATT is not used to their disadvantage.
Self-Assessment
1. Choose the correct options:
(i) Which of the following is NOT an argument to support free trade?
(a) Free trade limits the influence of special-interest groups.
(b) Free trade allows firms to exploit economies of scale.
(c) Free trade is always welfare-improving because those who gain can compensate those
who lose.
(d) Free trade leads to efficient allocation of resources.
(ii) What is the essence of the "terms-of-trade" argument against free trade?
(a) A large country can improve its terms-of-trade by subsidizing exports, and the optimal
export subsidy is positive.
(b) Terms-of-trade is an important policy tool that is not available if the government commits
to free trade.
(c) A large country can improve its terms-of-trade by imposing tariffs, and the optimal
tariff is positive.
(d) A small country cannot affect its terms-of-trade, so it might as well impose tariffs to raise
government revenues.
(iii) What particular market failure does the "market failure argument" against free trade
refer to?
(a) Any market failure that occurs in the tradable sector.
(b) Environmental externalities.
(c) Knowledge and technology spill-overs.
(d) Unemployment.
(iv) The "theory of the second best" states that:
(a) Free trade is only the "second best" policy, after the optimal tariff.
(b) Free trade is only desirable if everything else works properly.
(c) There is always an alternative solution if the first best is not feasible.
(d) Trade intervention is the best policy for dealing with domestic market imperfections.
(v) What is the main reason explaining why agriculture enjoys protective tariffs in the U.S.?
(a) Low wages in the agriculture sector would fall even further in the absence of protection.
(b) The "infant industry" argument.
(c) Unfair competition from European agriculture.
(d) Producers (who gain) are well organized, while consumers (who lose) are not.
(e) Environmental and health concerns force the government to restrict non-compliant
imports.

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