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Just Desserts In the end, the countries using the WTO to protect their own industries may only hurt themselves if it causes their own industries to become more inefficient without true international competition.According to economic theory, a lack of competition takes away the incentives to invest in new technology, keep costs under control and continually improve production because the domestic company will simply be able to inflate prices to just under the tariff-set price of foreign goods. Wiley Online Library requires cookies for authentication and use of other site features; therefore, cookies must be enabled to browse the site.
More worrisome is a push by developed nations to have labor effects – job loss, reduced hours or wages – added to the list of reasons for justified tariffs.
(For everything you need to know - from the different types of tariffs to their effects on the local economy - check out The War on Tariffs A tariffs is a general tax levied upon all purchasers of a particular product and it can have negative side effects.
This means that no two nations can have sweetheart trade pacts without granting the same terms to every other nation, or at least every other nation in the WTO.
However, some critics argue that in practice, the WTO has become a way to force politics into trade causing long-term problems.
However, the resulting high price of foreign goods allows domestic makers to raise their prices as well.
As a result, a tariff may also work as a wealth transfer tax that uses public money to support a domestic industry that is producing an uncompetitive product.Rather than making complicated and heavily politicized agreements between nations on what they can and can't protect, free market thinking suggests that trade should be left to companies to work out on a deal-by-deal basis.They believe if the WTO were really designed to encourage trade, it would force member nations to drop all protective measures and allow true free trade, rather than facilitating tariff negotiations.The WTO rules allow a nation to protect certain industries if the removal of tariffs would have undesirable side effects, which include the loss of vital domestic industries.Food production is one of the most common, but steel production, auto production and many others can be added at the discretion of the nation.While the WTO can boast that the number of international tariffs has fallen since its inception, many reductions have been balanced by the introduction of these "stealth tariffs".(Everyone's talking about globalization, but what is it and why do some oppose it?This view has its points, as the most economically powerful nations seem to set the WTO agenda and were the first to pass anti-dumping acts to protect favored domestic industries while also opposing similar actions by less powerful nations.(To examine this further, check out Unloved, Unneeded, Unwanted Free market proponents attack the WTO on the grounds that it's an unnecessary entity.The proceeds from the tariff end up in government coffers.This raises revenue and may protect domestic industries from foreign competition.