International Trade for Grade 2008I. General IntroductionThere are 15 units in this book, but we’ll mainly focus on the first 7 units this term. That is, we’ll discuss good s trade; trade in services, trade policy, international cooperation, FDI, trade and environment, marketing.In each unit, there are one main reading passage and one additional passage. We’ll focus on the former, leaving the latter for your own choice after class, but the teacher will have some questions to them. As for the content, you may find the purpose of the text is to train students’ ability in listening, speaking, reading, writing and translation related to international trade.II. Performance evaluationClass attendance (10%) + Class performance (10%) + Assignment (10%) + final examination (70%)Class-hour arrangementFour hours will be spent on each unit, with 2-3 hours on text explanation, 1-2 hours on exercises.Recommended books张素芳. International Trade Theory and Practice. 对外经济贸易大学出版社，2004彭福永.国际贸易，上海财经大学出版社，2004Caves,Frankel,Jones. World Trade and Payments, 2002Krugman and Obstfelt. International Economics. Addison Wesley, 2003Unit 1 International TradeObjectiveIn this unit, students will learn:Why international trade takes placeWhich good should a country produce and tradeWhat is the trade patternAnalysis of the trade patternSpecializationEconomies of scaledemandKey pointsWhat is the difference between international trade and world trade, domestic trade, foreign trade, overseas trade, Does international trade bring benefits to those who participate in it? Explain it. Who benefits more, large country or small country?What are the reasons for international trade?different factor endowmentsnatural resources: copper in Peru and Zaire, diamonds in South Africa, oil in the middle East, coffee in Brazil and Colombia;Some countries rich in technology and technical know-how (humancapital), eg. Japan, SwitzerlandSome rich in capital: Japan, Saudi Arabia, etc.A country has some items, but not enough of it to meet its needs, e.g. china for rice and oilEconomic reasons: economic gains/returns/benefits (comparative advantage)For innovation or for meeting various tastes, e.g. U.S. purchase of cars from Japan and Germany and SwedenTo achieve economies of scale: with specialization,/division of labor, machine production and world market, efficidency can be increased.To sharpen a country’s competitive skillsTo transfer some risks, e.g. stocks and bonds can be available internationallyFor political reasons, e.g. in 1991, U. S. imposed a trade embargo against Iraq; after World War II, U.S.-Japan trade, U.S.-Korea trade, Sino-USSR tradeWhat is the difference between absolute advantage and comparative advantage?Absolute advantage: A country has its absolute advantage if the absolute labor required per unit is less than that of its trading partner. Or when one country can produce a good with fewer resources than another country itis said to have an absolute advantage in that good. (P2)E.g. Labor required and absolute adv. In England and Portugal Country cloth wineEngland 1 hr 4 hrsPortugal 2 hrs 3 hrsComparative advantage: A country has a comparative advantage in some good X if the opportunity cost of production is lower than in another country. ( or Para. 4 on P3, Example, see the table on P2 )What about the trade pattern between them?Which country produces wheat and cloth respectively? And why? relative cost, relative priceopportunity cost: The cost of something in terms of opportunity foregone. The opportunity cost to a country of producing a unit more of a good, such as for export or to replace an import, is the quantity of some other good that could have been produced instead. E.g. roses for computers, pursuit of further education for a job, lawyer vs typewriter, etc.division of labor ---specialization---economies of scale---mass production---greater efficiency---more product and services---less cost---more benefit to both consmers and producers; capital-intensive products, labor-intensive products and technology-intensive products demand:1) the act of offering to buy a product; 2) the quantity offered to buy; 3) the quantities offered to buy at various prices; the demand curvegreater demand---more imports---more competition at home---more invetment in R&D---more new tech---less monopoly and oligopoly—more products availabe to consumersdemand for exports—stimulate growth in the exporting country, esp.when these exports have a high income elasticiy of demand (the more income, the greater demand)GNP (the total value of new goods and services produced in a given year by a country’s domestica lly owned factors of production, regardless of where. Cf. GDP (the total value of new goods and services produced in a given year within the borders of a country., regardless of by whom. ) Assignmentdefine and translate the important trade terms like opportunity cost, comparative advantage, absolute advantage, GNP, etc.Do Ex. I, II, III (2), IV, V and Additional reading.Case analysisThis case is based on the classical trade model of David Ricardo and Adam Smith. The Netherlands and Belgium are the only countries and chocolate and furniture are the only two goods that are being produced and consumed.Amount of labor necessary for producing one unit of the goodsQuestions:According to Adam Smith, which country has an absolute advantage in the production of chocolate and furniture respectively? Explain.b. According to David Ricardo, which country has a comparative advantage in the production of chocolate and which country has a comparative advantage in the production of furniture? Explain.c. What does this imply for the trade flows between Belgium and the Netherlands?需交出Ex III. （2）and case analysisUnit 2 Trade in ServicesI. ObjectivesIn this unit the students will learnThe role of ServicesThe definition of servicesThe four models of servicesThe obstacles to servicesThe Achievements in terms of GATS in the Uruguay RoundII. Key contentThe role of services (para1-3)About 60-70% of GDP in OECD countries，20% of world trade and 50% of annual flow of FDI. First negotiated in the Uruguay Round, now considered as involving the international movement of factors of production, products and cousumers.What is trade in services? (Para. 4-5)It is also called invisible trade, trade in intangible goods. Trade in services is defined as the supply of a services through any of four modes of supply: cross-border, consumption abroad, commercial presence in the consuming country, and presence of natural persons. It broadly consists of commercial services, investment services and govenrmetn services. International trade mainly focus on commercial services. For more details see Para. 1 and 2 on P 17. U.S.A is the biggest exporter and importer of in world trade in commercial services.The barriers to trade in services (Para. 6-10)Residency requirements, commercial presence requirements, cultural barriers, juridical forms, foreign equity ownership, the regulations,immigration law, international difference in the recognition of diplomas, langugage difference, transaction costs, quantitative restrictions, qualitative restrictions, government procurements, etc.The Achievements in terms of GATS in the Uruguay Round (Para. 11-24) In the Eighth GATT Round of multilateral negotiations, the liberalization of trade in services was formally placed on the multilateral negotiating agenda for the first time.One of the 3 pillars of WTO, the other two: GATT, TRIPSThree elements: a framework of general rules and discipline, national schedules of initial commitments, and annexesPredictable and stable forms of liberalization.MFN (most-favored-nation treatment): Any tariff concession granted to another party by one party must be applied to a third party in the treaty agreement. Or see Para 6 on P19.Transparancy: The requirement that governments disclose to the public and other governments the rules, regulations, and practices they follow in their domestic trade systems. Or see Para. 7 on P19Economic integration: regional economic integration like EU and NAFTA. It evoled from the looser one to the tighter one: preferential tariff arrangement, free trade area, customs union, common market, economic union.Market access: It is an essential principle of the WTO. This principle isfulfilled through tariff and prohibition of quantitative restrictions National treatment: It requires that foreign goods or services---once they have satisfied whatever border measures applied---be treated no less favorably than like or directly competitive goods or services produced domestically.AssignmentDo Ex. I, II, III, and Additional ReadingUnit 4 Forms of International Cooperation Between Corporations ObjectivesTo learn some basic business terms;To be aware of inter-firm cooperative agreements;To know the reasons for inter-firm cooperative agreements and their different forms.Key ContentA new trend in conducting international business since 1980s (Para.1-2) The reasons: value added chain (Para. 3-4) or:risk reductionreducing innovation time spanaccess to marketsaccess to technologyeconomies of scale and production rationalizationco-opting and blocking competitionSeveral forms of international cooperation (Para. 5-7)Some definitions to the key termsinter-firm cooperative agreements: agreement between firms in conducting international business activities by using a variety of different modes of cooperation that do not involve equity.the value chain: Every firm is a collection of activities that are performed to design, produce, market, deliver, and support its product. All these activities can be presented using a value chain. In comopetitive terms, value is the amount buyers are willing to pay for what a firm provides for them. Value is measured by total revenue, a reflection of the price a firms’ product commands and the units it can sell.value added chain: Para 1, P48upstream activities: activities undertaken in the earlier stages of a product, usually covering less value addeddonwstream activities: activities undertaken in the latter stages of a product, usually involving greater value addedvertical integration/linkage: When a firm expands its value added activities along the same value chain either by acquiring an existing operation, or setting up a new subsidiary, it is engaging in vertical integration.horizontal integration: When a firm acquires or sets up another production facility in a related industry, but at the same stage of the value added chain, it is said to undertake horizontal integration.FDI---Foreign direct investment: the full or partial ownership of an enterprise located in one country by investors located in aonther country. MNC---Multinational corporation, also called MNE, TNC, TNE: referring to the phenomenon that production is taking place in plants located in two or more countries but under the supervision and general direction of the headquarters located in one country.Assignment: Do Ex. III TranslationUnit 5 Foreign Direct Investments (FDI)main purposeTo be familiar with the definition of FDI and its important role in the world economy;To know the factors influncing the increase of FDI and the characteristics of FDI.Text explanationAsk the students answer question 1 after 10 minute reading of the whole passage.Outline the whole passageExpain some key termsFDI---Acquisition or construction of physical capital by a firm from one (source) country in another (host) country. Or see the first paragraph. The country of origin v.s. the host countryEconomic growth---The increase over time in the capacity of an economy to produce goods and services and (ideally) to improve the well-being of its citizens.GDP (the total value of new goods and services produced in a given year within the borders of a country., regardless of by whom. ) Cf.GNP (the total value of new goods and services produced in a given year by a country’s domestically owned factors of production, regardless of where. Financial capital---Fianncial assets, such as stocks, bonds, bank deposits, etc., as opposed to real assets such as buildings and captial equipment. Cf. financial returnsRegional integration---Reduing barriers to mutual trade and investment between countries within regions. Cf. economic integration---Reducing barriers among countries to transactions and to movemens of goods, capital, and labor, including harmonization of laws, regulations, and standards. Common forms include FTAs, customs unions, and common markets. Sometimes classified as shallow inttegration vs. deep integration.Trade liberalization---Reduction of tariffs and removal or relaxation of NTBs.Trade policy---Any policy affecting international trade, including especially tariffs and nontariff barriers.Labor intensive-- Describing an industry or sector of the economy that relies relatively heavily on inputs of labor, usually relative to capital but sometimes to human capital or skilled labor, compared to other industries or sectors. See factor intensity.Characters of FDI---cyclical, structural, short-term, and long-term Factors influncing FDI---cyclical development, government policy, trade policy, corporate strategy.AssignmentEx. 1,2, 3Unit 6 International Trade and EnvironmentObjectives:---To examine the relationship between trade and enviroment;---To analyze the argument whether trade liberalization should be abandoned to protect the enviroment;---To weigh whether trade will lead to eco-dumping and whether trade policies should be used to encourage countries to participate in international environmental agreements.Definitions to some key terms：Restrictive trade policy: Some Limits imposed on the international free movement of goods and services, including tariff and non-tariff barriers Eco-dumping, or environmental dumping: Export of a good from a country with weak or poorly enforced environmental regulations, reflecting the idea that the exporter’s cost of production is below the true cost to society, providing an unfair advantages in international trade. Imperfect competition: Any departure from market perfection. However, it usually refers to one of the market structures other than perfect competition.Optimal tariff: The level of a tariff that maximizes a country’s welfare. In a non-distorted small open economy, the optimal tariff is zero. In a large country, it is positive, due to its effect on the terms of trade.Private cost: The cost to an individual economic agent, such as a consumer or firm, from an event, action, or policy change.Social cost: The cost to society as a whole from an event, action, or policy change. It includes externalities and does not count costs that are transfers to others.Market failure: Any departure from the ideal benchmark of perfect competition, especially the complete absence of a market due to incomplete or asymmetric information.Free riding: Enjoying the benefits of public good without bearing the cost.Text AnalysisWhat are the benefits of free trade? Is it reasonable to develop one’s foreign trade at the expense of his environment?Is it fair to take ecological dumping?Does it have the same environmental implication for exporters and importers to engage in foreign trade?AssigmentDo Ex. 2 and 3Preview the additional reading。