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Saturday, May 12, 2012


Free trade makes a great deal of sense theoretically because it increases efficiency and economic welfare for all involved nations and their citizens. South Koreas trade barriers, however, do not represent an isolated case. In practice, free trade is woefully ignored by virtually all countries. Despite the advantages, nations are inclined to discourage free trade.

Why do nations impede free trade when the inhibition is irrational? One reason why governments interfere with free marketing is to protect local industries, often at the expense of local consumers as well as consumers worldwide. Regulations are created to keep out or hamper the entry of foreignmade products. Arguments for the protection of local industries usually take one of the following forms: (1) keeping money at home, (2) reducing unemployment, (3) equalizing cost and price, (4) enhancing national security, and (5) protecting infant industry.

Trade unions and protectionists often argue that international trade will lead to an outflow of money, making foreigners richer and local people poorer. This argument is based on the fallacy of regarding money as the sole indicator of wealth. Other assets, even products, may also be indicators of wealth. For instance, it does not make sense to say that a man is poor just because he does not have much cash on hand when he owns many valuable assets such as land and jewelry. In addition, this protectionist argument assumes that foreigners receive money without having to give something of value in return. Whether local consumers buy locally made or foreign products, they will have to have money to pay for such products. In either case, they receive something of value for their money.

The purposes are: Keeping money at home, Reducing unemployment, protect of local industries, Equalizing cost and price, Enhancing national security, and Protecting infant industry.

So, these countries making marketing barriers and different types of TARIFFS, DUTIES, Combined rates, and Taxes. As there are many other requirements such as Product requirements, Products testing, documents, origin of products, Product specifications, and different types of Quotas.

WORLD TRADE ORGANIZATION (WTO) Virtually all nations seek to pursue their best interests in international trade. The result is that sooner or later international trade and marketing can be disrupted. To prevent or at least alleviate any problems, there is a world organization in Geneva known as the WTO (with General Agreement on Tariffs and Trade (GATT) as its predecessor).Created in January 1948, the objective of GATT is to achieve a broad, multilateral, and free worldwide system of trading. For example, its code requires international bidding on major projects. GATT provides the forum for tariff negotiations and the elimination of trade discrimination.The four basic principles of GATT are

1 Member countries will consult each other concerning trade problems.2 The agreement provides a framework for negotiation and embodies results of negotiations in a legal instrument.3 Countries should protect domestic industries only through tariffs, when needed and if permitted. There should be no other restrictive devices such as quotas prohibiting imports.4 Trade should be conducted on a nondiscriminatory basis.

Generalized system of preferences (GSP) Although the benefits derived from the creation of the WTO are rarely disputed, less developed countries do not necessarily embrace GATT because those countries believe that the benefits are not evenly distributed. Tariff reduction generally favors manufactured goods rather than primary goods. Less developed countries rely mainly on exports of primary products, which are then converted by advanced nations into manufactured products for export back to less developed countries. As a result, a less developed countrys exports will usually be lower in value than its imports, thus exacerbating the countrys poverty status.

In response to less developed countries needs, the United Nations Conference on Trade and Development (UNCTAD) was created as a permanent organ of the UN General Assembly. Efforts by the UNCTAD led to the establishment of the New International Economic Order (NIEO) program. This program seeks to assist less developed countries through the stabilization of prices of primary products, the expansion of less developed countries manufacturing capabilities, and the acquisition by less developed countries of advanced technology.

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