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Barriers to free trade are tactics and policies imposed by a nation’s government which are protectionist in nature and work to prevent foreign products from fairly and fully competing with local products. Typical barriers are: • a tariff , which is basically a tax on goods coming into the country which makes them more expensive than local products • licensing requirements beyond those imposed on local companies • import and export quotas , which are restrictions on quantities that can flow into or out of a country • local content requirements which is a mandate that some part of the product include a locally manufactured component The Exceptions to the Rules There are exceptions to every rule. Trade barriers may be imposed in a few limited situations without incurring the ire of the WTO. For example, when a nation fears that another nation’s products may endanger the health of its citizens , it may deny the import of that product into the country. Protectionist strategies may also be invoked if the product or service impacts national security , such as weapons and some telecommunications products. A developing country may invoke protectionist strategies to encourage the growth of a fledgling (startup) industry . Finally, countries often impose tariffs in retaliation for another country placing tariffs on its products. Free Trade Agreements The reality is, working within the WTO multilateral agreement can be a slow, painstaking process. WTO trade agreements are negotiated in rounds often over the course of many years. Rounds are named after the city that hosts the trade negotiations. The current round of negotiations, frequently mentioned in the financial news, is the Doha Round . It began in 2001 and has not yet concluded. (That’s right, 2001 .) The more parties to an agreement, the more issues and relationships there are to negotiate and resolve, and the longer the process can take. As a result, many countries pursue free trade agreements (FTAs) directly with one or more countries. Some FTAs are bilateral , dealing with trade between two nations. Others are multilateral , involving trade between several nations. FTAs are not a way of getting out of the WTO multilateral agreement, but a way to expedite and enhance free trade since agreements can be reached faster and parties may agree to preferential treatment. As of 2015, the U.S. has bilateral trade agreements with 20 countries or economic units, such as the EU. The Office of the U.S. Trade Representative (USTR) is an executive (presidential) branch agency which develops and negotiates trade agreements. Thereafter, the International Trade Administration (ITA) , a division of the Commerce Department, handles the day-to-day administration of the agreements, monitoring compliance, and advocating for American businesses overseas. When an American business has a trade problem, it contacts the ITA to file a complaint. The ITA represents the company to resolve the issue with the foreign government. SLIDE 17I PRODUCT PREVIEW
319 THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY
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