Trade Liberalization

Topics: International trade, Free trade, World Trade Organization Pages: 9 (3013 words) Published: March 22, 2011
MBA program
Business Economics
Assignment 1
Trade Liberalization
Prepared by : Rawda Sayed Mohamed Hassan
Supervised by: Dr/ Khaled Hanafy

Table of Contents

Definition of trade liberalization3
Liberalization VS Protectionism3-4
When & How started5-7
Main functions of WTO 6
Principles of trade6-7
Gains from trade liberalization8-9
Effect of trade liberalization on developing countries10
Effect of trade liberalization on Egypt10-11

1) Definition of Trade Liberalization:

It refers to the removal or reduction of trade practices that prevent free flow of goods & services between one nation & another. This includes tariff & non tariff barriers such as (duties, export subsidies, surcharges, licensing regulations, quotas, & arbitrary standards)

2) Liberalization VS Protectionism(Restriction):

Protectionism is the economic policy of restraining trade between nations, through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to discourage imports, and prevent foreign commodities take-over of domestic markets and companies. This policy is closely aligned with anti-globalization, and contrasts with trade Liberalization, where government barriers to trade and movement of capital are kept to a minimum. I other protectionism refers to policies or doctrines which protect businesses and workers within a country by restricting or regulating trade with foreign nations

Historically, protectionism was associated with economic theories such as mercantilism (that encourage import substitution. During that time, Adam Smith famously warned against the 'interested sophistry' of industry, seeking to gain advantage at the cost of the consumers.

Most modern economists agree that protectionism is harmful in that its costs outweigh the benefits, and that it impedes economic growth. A variety of policies can be used to achieve protectionist goals. These include: 1. Tariffs: Typically, tariffs (or taxes) are imposed on imported goods. Tariff rates usually vary according to the type of goods imported. Import tariffs will increase the cost to importers, and increase the price of imported goods in the local markets, thus lowering the quantity of goods imported. Tariffs may also be imposed on exports, and in an economy with floating exchange rates, export tariffs have similar effects as import tariffs. However, since export tariffs are often perceived as 'hurting' local industries, while import tariffs are perceived as 'helping' local industries, export tariffs are seldom implemented. 2. Import quotas: To reduce the quantity and therefore increase the market price of imported goods. The economic effect of an import quota is similar to that of a tariff, except that the tax revenue gain from a tariff will instead be distributed to those who receive import licenses. Economists often suggest that import licenses be auctioned to the highest bidder, or that import quotas be replaced by an equivalent tariff. 3. Administrative Barriers: Countries are sometimes accused of using their various administrative rules (eg. regarding food safety, environmental standards, electrical safety, etc.) as a way to introduce barriers to imports. 4. Anti-dumping legislation Supporters of anti-dumping laws argue that they prevent "dumping" of cheaper foreign goods that would cause local firms to close down. However, in practice, anti-dumping laws are usually used to impose trade tariffs on foreign exporters. 5. Direct Subsidies: Government subsidies (in the form of lump-sum payments or cheap loans) are sometimes given to local firms that cannot compete well against foreign imports. These subsidies are purported to "protect" local jobs, and to help local firms adjust to the world markets. 6. Export Subsidies: Export subsidies are often used by governments to increase exports. Export subsidies are the...
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