7. Government Policy and International Trade

free trade

The absence of barriers to the free flow of goods and services between countries.

General Agreement on Tariffs and Trade (GATT

International treaty that committed signatories to lowering barriers to the free flow of goods across national borders and led to the WTO.

import tariff

A tax levied on imports of goods or services.

specific tariff

A tariff levied as a fixed charge for each unit of good imported.

ad valorem tariff

A tariff levied as a proportion of the value of an imported good.

export tariff

A tax placed on the export of a good.

export ban

A policy that partially or entirely restricts the export of a good.

subsidy

Government financial assistance to a domestic producer

import quota

A direct restriction on the quantity of a good that can be imported into a country.

tariff rate quota

Lower tariff rates applied to imports within the quota than those over the quota

voluntary export restraint (VER)

A quota on trade imposed from the exporting country’s side, instead of the importer’s; usually imposed at the request of the importing country’s government.

quota rent

Extra profit producers make when supply is artificially limited by an import quota.

local content requirement (LCR)

A requirement that some specific fraction of a good be produced domestically.

administrative trade policies

Administrative policies, typically adopted by government bureaucracies, that can be used to restrict imports or boost exports.

dumping

Selling goods in a foreign market for less than their cost of production or below their “fair” market value.

antidumping policies

Designed to punish foreign firms that engage in dumping and thus protect domestic producers from unfair foreign competition.

countervailing duties

Antidumping duties.

infant industry argument

New industries in developing countries must be temporarily protected from international competition to help them reach a position where they can compete on world markets with the firms of developed nations.

strategic trade policy

Government policy aimed at improving the competitive position of a domestic industry and/or domestic firm in the world market.

Smoot–Hawley Act

Enacted in 1930 by the U.S. Congress, this act erected a wall of tariff barriers against imports into the United States.

bilateral or multilateral trade agreements

Reciprocal trade agreements between two or more partners.