1. What is free trade? Who benefits from it?

Fair trade, sometimes called managed trade, suggests that the national government should actively intervene to ensure that domestic firms’ exports receive an equitable share of foreign markets and that imports are controlled to minimize losses of domestic jobs and market share in specific industries. Some fair traders also argue that the government should ensure a “level playing field” on which foreign and domestic firms can compete on equal terms.

For producer, fair trade is unique in offering four important benefits:

uf0b7 A Fairtrade premium

uf0b7 Partnership

uf0b7 Empowerment of farmers and workers

uf0b7 Stable prices

Who benefits:

Consumers: Shoppers can buy products in line with their values and principles. They can choose from an ever-growing range of great products. By buying into Fairtrade consumers support producers who are struggling to improve their lives

Traders/companies: Since its launch in 2002 the FAIRTRADE Mark has become the most widely, recognized social and development label in the world. Fairtrade offers companies a credible way to ensure that their trade has a positive impact for the people at the end of the chain.

Environment: Fairtrade rewards and encourages farming and production practices that are environmentally sustainable. Producers are also encouraged to strive toward organic certification.

2. What is the infant industry argument?

Alexander Hamilton, the first U.S. Secretary of the Treasury, articulated the infant industry argument in 1791. He feared that the young nation’s manufacturers would not survive because of fierce competition from more mature European firms. Thus, he fought to impose tariffs on numerous imported goods to protect certain U.S. firms from foreign competitionuntil they could fully establish themselves. His philosophy has been adopted by countries worldwide. Governmental nurturing of domestic industries that will ultimately have a comparative advantage can be a powerful economic development strategy. However, determining which industries deserve infant-industry protection is often done on a political rather than an economic basis. Moreover, once an industry is granted protection, it may be reluctant to give it up. In fact, many infant industries end up being protected well into their old age.

3. What are the different types of tariffs?

A tariff is a tax placed on a good that is traded internationally. Some tariffs are levied on goods as they leave the country (an export tariff) or as they pass through one country bound for another (a transit tariff). Most, however, are collected on imported goods (an import tariff).

•Three forms of import tariffs exist:

1.An ad valorem tariff is assessed as a percentage of the market value of the imported good.

2.A specific tariff is assessed as a specific dollar amount per unit of weight or other standard measure.

3.A compound tariff has both an ad valorem component and a specific component.

4. Why is it useful for an importer to seek out an advance tariff classification from the U.S. Customs Service?

The tariff code is complex, and an importer’s expected profit margin on a transaction can shrink or disappear if a customs official subjects the imported good to a higher tariff rate than the importer expected. To reduce this risk, U.S. importers can request an advance tariff classification on prospective importations by writing the U.S. Customs Service. Importers who ignore this advice often find themselves embroiled in costly litigation.

5. Why might a country adopt a VER?

A country also may impose quantitative barriers to trade in the form of numerical limits on the amount of a good it will export. A voluntary export restraint (VER) is a promise by a country to limit its exports of a good to another country to a prespecified amount or percentage of the affected market. Often this is done to resolve or avoid trade conflicts with an otherwise friendly trade partner.

6. What is an FTZ?

A foreign trade zone (FTZ): is a geographic area where imported or exported goods receive preferential tariff treatment. Governments all over the globe use FTZs to spur regional economic development. An FTZ may be as small as a warehouse or a factory site, or as large as an entire city. Through utilization of an FTZ, a firm typically can reduce, delay, or sometimes totally eliminate customs duties. 45 FTZs are used by governments worldwide to spur regional economic development. For example, a firm can import a component into an FTZ, process it further, and then export the processed good abroad and avoid paying customs duties on the value of the imported component.

1. What is free trade? Who benefits from it? 2. What is the infant industry argument? 3. What are the different types of tariffs? 4. Why is it useful for an importer to seek out an advance tariff classification from the U.S. Customs Service? 5. Why might a country adopt a VER? 6. What is an FTZ?

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