|
Committee: World Trade Organization Topic B : The use of protectionist trade policies to simulate domestic industries. Director: Areli Lilian Barrios Esparza Moderator: Carmina Alicia Villarreal Milchorena
About the committee: The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. Their goal is to help producers of goods and services, exporters, and importers conduct their business.
Protectionism… Protectionism is a policy which "protects" businesses and workers within a country by restricting or regulating trade with foreign nations, they do so by implementing tariffs and quotes on the merchandise. The tariffs are basically taxes on the imported goods, these will increase the cost to importers as well as the price of the goods in local markets; since the price due to the taxes may result way to high, the population will buy local products instead of imported ones.
The controversy… It may seem that protectionism is all bad; it pulls a restrain on other countries in order to obtain benefit. But looking it from another point of view you may be able to understand why some people favor protectionism and not free trade. While you’re in Mexico where do you buy gasoline? PEMEX, can you name some where else? No! This is one example of protectionism. The government does not allow any other company other than PEMEX to sell oil in order to “protect” their reserves, preventing some other nation to take over. The supporters of protectionist laws claim that keeping out foreign goods and merchandise will lead to saving jobs, giving ailing domestic industries a chance to finally recover and/or prosper.
Due to protectionism there could be a serious deterioration of global commerce and the damage would include slower growth around the world and anti-globalization. It would be impossible to restructure the large global industries such as the auto and steel. Going back to the petroleum, who decides the price of petroleum? the government. If the price of the oil goes down, the gasoline price raises to make up for the loss and if the international oil goes up, again, they raise the price because international gas is also expensive, and Mexico imports a lot of gas. Conclusion: no matter what the gasoline price tends to keep rising and since there is only PEMEX Mexicans don’t really have another choice. This is probably the largest disadvantages of protectionism: SHORTAGE OF CHOICES. Protectionism is frequently criticized of harming the people its supposed to be helping.
Mexican government has a 300% tax over Chinese imported products with the idea in mind that the population wont buy Chinese merchandise and instead buy local products… stimulating the Mexican economy.
Terms to know:
Globalization It refers to the process in which international economies, cultures and societies integrate thanks to a worldwide network of exchange. The economic globalization is made up by the trade, foreign direct investment, capital flows, migration and the spread of technology.
Free trade Free trade is another type of trade policy contrary of Protectionism that allows traders to act and transact without interference from government. One of the greatest international economic debates of all time has been the issue of free trade versus protectionism. People that favor free trade believe in opening the global market, with as few restrictions on trade as possible!
Embargoes An embargo is when a nation prohibits commerce and trade with a certain country, in order to isolate it and be able to put its government into a difficult internal economic situation, given that the effects of the embargo are often able to make its economy suffer.
United States embargo against Cuba This is a commercial, economic, and financial embargo partially imposed on Cuba in October of 1960… In 1962 it strengthened and almost reached a total embargo in February.
The embargo was officially codified into law in 1992. The main purpose and goal of this restriction was maintaining sanction on the Castro regime as long as he would continue to move forward and turn the government democratic and until he had a better respect for human rights… “Cuban Democracy Act”. In 1999 though, the U.S. President Bill Clinton was able to modify the trade embargo, he authorized the sale of certain United States products to Cuba. The embargo continues in effect.
The World Trade Organization regulates protectionist practices as well as other actions in order to create a balance between all nations. The WTO deals with a regulation of trade between participating countries, it provides nations with advice and a way of treating negotiations and elaborating trade agreements. The WTO has created a desirable balance of protectionism. Recently, WTO Director General Pascal Lamy mentioned on March 2, 2009 that protectionist measures taken by one government would bring a domino effect of unwanted consequences to other countries.
FREE TRADE vs. PROTECTIONISM
Protectionism is defended by three major reasons; High tariffs and subsidies save jobs in domestic industries; This argument reasons that if a domestic industry, for example steel, is forced to compete against a foreign country that produces steel more cheaply and good quality, such as Brazil, then that domestic industry will have to lay off hundreds or thousands of workers in order to stay competitive. People who depend on this industry will end up in poverty If the domestic industry were to collapse completely, the nation would end up depending on foreign goods. Keeping out foreign goods will supposedly save jobs, giving ailing domestic industries a chance to recover and prosper, and reduce the trade deficits.
The statements just said are in favor of protectionism so let’s turn things around…
Take the first reason for example, what about those who work in factories that produce things made of steel? Lets say a factory that produces hubcaps (rims of tires) has been buying Brazilian steel very cheaply in order to make it rims available at a low price. They won’t be able to compete with other producers and will be forced to lay of workers. Increased production; Free trade enables the countries to specialize in the production of those commodities in which it had a comparative advantage. Benefits to consumers, consumers benefit in the domestic economy as they can now obtain a greater variety of goods and services. In protectionism there are limits choices. Economic growth, the countries involved in free trade experience raised living standards, increased real incomes and higher rates of economic growth.
Views on Protectionism:
United States The current US president, Barack Obama seems to favor protectionism; he says that he believes that China is manipulating its currency; countries like China cannot continue to get a free pass for under-mining free trade principles. Most habitants would like to see more protectionism, and keeping in mind how many countries are reliant on the United States the country can’t eliminate protectionism.
Germany International trade is hanging by a thread because of the damage produced by the current economical crisis and might encounter a new wave of protectionism. As the German economy is one of the biggest beneficiaries of globalization, this development brings serious risks for industries in Germany. Exports of vehicles, machinery and chemical products are in danger. But due to the countries view of the problem, it is free trade and not protectionism that will lead the way out of the economical crisis.
Argentina Years ago Argentina's economy crashed, leaving the country into depths of poverty and unemployment comparable to those of the Great Depression in the United States. While it took more than a decade and a world war for the United States to recover, Argentina is already on the rebound. Ex President Nestor Kirchner adopted protectionist measures such as quotas and tariffs on imports to revitalize local industries. Even products from Brazil, Argentina's neighbor and Mercosur (MERCADO COMUN DEL SUR) trade-bloc partner, are taxed. While conventional wisdom suggests protectionism makes local industries lazy and uncompetitive, Argentina now exports more than ever before.
Brazil Brazilian President Luiz Inácio Lula da Silva, said that a rising wave of protectionism by rich nations threatens the world's emerging economies, vowed to the U.S. to adopt a free-trade deal with Colombia even though it could hurt some of his own country's exports to the U.S. He warned that the global financial crisis threatens to pinch off growth that was reducing poverty in poor nations, and called for financial aid and other measures to prevent the further spread of crisis effects. "We can't accept the idea that for the irresponsibility of bankers, and the irresponsibility of a few leaders, who didn't regulate, that the rest of the world ends up stuck with the bill, and above all its poorest," he said. Brazil is an unlikely to have a more open trade. Expensive import tariffs make many goods, from computers to automobiles, too expensive for the average Brazilian.
India Major forces around the world have supported Indian Finance Minister Pranab Mukherjee’s view that protectionism is a real threat to the global economy. “Emerging markets need to guard against tendencies in some developed countries to extend protectionism beyond trade to financial markets and investment” Mukherjee said to the press.
China The Chinese Premier Wen Jiabao said that curbing trade protectionism holds the key to fighting the current global financial crisis and economic downturn. “Trade Protectionism, which seemingly protects a country’s economy, would only slow the process of world economic recovery, and would actually hurt everyone”. The Chinese Premier mentioned when meeting Pascal Lamy, director-general of the World Trade Organization (WTO).
Canada U.S. President Barack Obama's economic stimulus bill, or at least in the version approved by the House of Representatives, it says that steel used in public projects under the $819-billion must be made in the United States, an idea likely to cause trade disputes and block sales by Canadian mills, (Canadian steel plants produced almost 16 million tones of steel in 2007, employing about 32,000 people and, by one estimate, supporting 140,000 indirect jobs).
Questions for the delegate:
*What form of trade policy does your country manage? *Why does it have that policy and not any other? *If your country has Protectionism… what nations does it apply on? *What is your country’s view on protectionism? Why do you favor it?/ Why not? *What measures should the World Trade Organization take concerning Protectionism? *Has or country ever been held against an embargo or set an embargo against another nation?
Bibliography http://online.wsj.com/article/SB123673753221191161.html http://en.wikipedia.org/wiki/Embargo http://en.wikipedia.org/wiki/Free_trade http://en.wikipedia.org/wiki/Globalization http://www.washingtonpost.com/wp-dyn/content/article/2006/04/27/AR2006042701375.html http://www.globalenvision.org/library/15/1211 http://www.wowessays.com/dbase/ab5/lvt151.shtml
|