website title
Students Zone - Answers to End of Chapter Questions
CHAPTER 3: THE PROTECTION OF TRADE
1 and 2 are dealt with in the website case study on Chinese Textiles.
3. Explain using examples, how restrictions on public procurement effectively block trade. Which companies gain and which lose? How could companies avoid such restrictions?
Answer
Restrictions on public procurement and effect on trade. Public procurement is government buying policies. Therefore any policy, which favours domestic producers, will, by its very nature, adversely affect foreign producers. The Cecchini report for example found that most EU government’s favoured domestic producers e.g. approx 98% of UK contracts went to UK producers and in Italy the figure was 100%. This lead to the EU imposing rules on how governments advertise such contracts. Those who gain are, obviously, local domestic producers who do not have to face such strong competition and those who lose are the more efficient foreign or non-local producers. Companies can get round this by moving or setting up branches in the locality eg across the EU (or franchising/licensing in the area).
4. The case study on beef hormones dispute between the United States and the European Union shows how health and safety legislation could possibly be used as a means of trade protectionism. Can you identify similar examples where legislation is apparently being used to protect consumers but could also be seen as really protecting producers from trade?
Answer
Health and safety – other examples – there are many but here are a few: Foreign skis banned from Japan as Japanese snow viewed as “different” from US and EU, therefore such skis were dangerous; US ban on cherry tomatoes from EU as could get stuck in the throat (why US throats and not EU is unclear); recent bans of UK meat due to foot and mouth outbreak (even though no evidence to say the disease is carried in meat).
5. In the Doha Development Agenda negotiations, one of the areas of dispute was cotton, or more specifically the way the United States protects its cotton producers. Show diagrammatically how the United States protects its producers and the effect of this on LDCs. (Also see companion website for case study).
Answer
Cotton – And extended case study on how US cotton subsidies affected LDCs can be found in Kevin Watkins speech on “Cultivating poverty: US cotton subsidies and Africa” to the WTO Public Symposium “Challenges ahead on the road to Cancun” 16-18 June 2003 which can be accessed via: http://www.oxfam.org/en/files/doc030619_cotton_WTOsympo
The details of the recent U turn by the US on such subsidies can be found on BBC news website http://news.bbc.co.uk/1/hi/world/americas/4672786.stm
– 2nd February 2006 – “US Congress scraps cotton subsidy”
The figure to show the effect of such subsidies for the US producers is shown in figure 3.3 page 69. The effect on other producers – the US subsidies make the US producers competitive when they otherwise would not be, so distorting competition in the US and the world markets and reducing demand for more efficient (lower cost) competitors. It also increases world supply (shifting out the world supply curve) and reducing price for all producers worldwide.
6. What is now happening about the Doha Development Round? Go to the WTO website – www.WTO.org - and see what progress (or not) has been made and what has been the impact on DC and LDC companies
At present, very little is happening with the Doha Round. Many are blaming the EU for the stalling of the negotiations due to their refusal to change agricultural policy without something in return.
7. A statement on the WTO website (accessed 1 May 2006) says
“Director-General Pascal Lamy told journalists on 24 April 2006 that “we may have missed the deadline but we are not in deadlock”. Earlier, in a statement at an informal meeting of heads of delegations, he said that “genuine and important progress has been made, but not fast enough to allow us to reach agreement on modalities by the end of the month”. He said that “from now on, the process to reach modalities will be continuous, Geneva-based, and focused on texts — and we should aim at finishing this work in a matter of weeks rather than months”.
Other End of Chapter Questions >>
- Chapter 1
- Chapter 2
- Chapter 4
- Chapter 5
- Chapter 6
- Chapter 7
- Chapter 8
- Chapter 9
- Chapter 10
- Chapter 11
- Chapter 12
