DIŞ TİCARET - Deneme Sınavı - 9

There are three basic functions of tariffs: (1) serving as a source of revenue, (2) shielding domestic industries, (3) remediation of trade distortions (as a sanction).

A tariff provides revenue to government based on imported products. It can be levied to shield domestic companies. A tariff could also be imposed on certain imported products to make sure that only a few people have an enough supply for those imports. It surges the price of the imported products, sometimes uplifting its status to
that of a luxury product.

Economic cooperation has been playing a substantial role in tailoring the diplomatic relations among countries since the ancient times. In this respect, China’s foreign policy constituted on the grounds of military power to protect the Silk Road in the third century BC is a substantial example. International trade has played a very dominant role during both the war and peace times and constituted the hub of economic cooperation among countries. Each of these early developments has helped to the signing of the General Agreement on Tariffs and Trade (GATT) in 1947, which is accepted as the first solid base of today’s multilateral trading system.

Apart from those early steps, II. World War constitutes a landmark on the realization of GATT, which is the predecessor of the World Trade Organization (WTO). It’d be sufficient to have a look at the daring meeting of Churchill and Roosevelt in 1941 to remember how economic cooperation nominates peace and security. This meeting of Churchill and Roosevelt in 1941 paved the way for the famous Atlantic Charter, which was a policy statement of the allies. Certainly, the examination of the Atlantic Charter is out of our scope but mentioning the 5th Clause would be useful to remind the importance of economic cooperation in constructing peace and democracy. The 5th Clause of the Atlantic Charter foresaw fullest cooperation between all countries within the economic matters (United Nations, 1941). Certainly, it is adequate to state that the end of the II. World War gave the opportunity to the Allies to re-shape the international legal, political and economic environment. Post-war international legal and political environment have been designed upon the rules and legislation of the United Nations and International Court of Justice. On the other hand, economic environment was proposed to be constructed upon the World Bank, International Monetary Fund (IMF) and International Trade Organization (ITO).

Since the legal and political re-shaping during the post-war period is out of our scope, we are content with giving brief information on the international economic environment and its main organizations. In this respect, we have to remind the Bretton Woods Conference held in July 1944 so as to discuss postwar international economic order. Bretton Woods Conference ended with the conclusion of establishing the World Bank, the IMF and the ITO, which correspond to a three-pillared structure for the post-war international economic order. These new-proposed institutions were referred to Bretton Woods Institutions.

As also understood from the information given, the correct answer is D. The World Bank, International Monetary Fund (IMF) and International Trade Organization (ITO), which were referred to Bretton Woods Institutions correspond to a three-pillared structure for the post-war international economic order. The information about the other options:

The General Agreement on Tariffs and Trade (GATT) signed in 1947 is accepted as the first solid base of today’s multilateral trading system. The GATT is neither an international organization nor an institution. It is simply an international agreement. GATT is the predecessor of the World Trade Organization.

World Bank is a group composed of five associated institutions: The International Bank for Reconstruction and Development, The International Development Association, The International Finance Cooperation, The Multilateral Investment Guarantee Agency and The International Center for Settlement of Investment Disputes. As also understood from the information given, the correct answer is E.

Today’s multilateral trading system is constructed upon the GATT. The GATT was agreed on by the signatory member countries in 1947 and has paved the way for the WTO. However, the GATT has been maintaining its entity under the WTO. It is still the main agreement on multinational commodity trade with its widened scope. During the Uruguay Round in which the member countries decided to establish the WTO, they also renewed the GATT. Thus, the GATT improved along with the addition of new articles is referred as the GATT 1994 while the initial one signed in 1947 is referred as the GATT 1947. Upon the failure of the ITO initiative, the GATT 1947 constituted the main nominator of establishing a strong and responsive multilateral trading system. It took concrete steps on making the multilateral trade freer via numerous negotiation rounds.

The GATT is not terminated upon the establishment of the WTO. It is still functioning as the main agreement on the multinational commodity trade under the auspices of the WTO and referred as GATT 1994.

As also understood from the information given, all of the statements in the options about The Gatt are correct, so the correct answer is E.

Multilateral trading system conducted by the WTO might be persumed as a quite confusing system dealing with pages long legal texts, numerous trade deals, tough negotiations with one hundred sixty-four member countries which are not similar in economic terms. Essentially, the multilateral trading system is run by five basic principles. It should be mentioned that these principles of the multilateral trading system have been the main guidelines since the GATT 1947. In other words, these principles are the main principles of both the GATT and the WTO:

As also understood from the information given, all of the principles in the options are the main principles of both the GATT and the WTO, so the correct answer is E.

Bound tariff: It represents the tariff ceiling that is committed. Once a tariff is bound, it cannot be increased over its ceiling.

Dumping: Dumping happens when a commodity is sold at a price less than its normal value at the foreign market. In other words, there is dumping when a commodity is exported with a price that is lower than its production cost.

Subsidies: Subsidies are usually classified under two groups: Export subsidies and domestic subsidies. Export subsidies are subsidies that are given to an exporting firm by the government. Domestic subsidies do not require a contingency on exportation.

Anti-dumping duty: A country exposed to dumping can charge an anti-dumping duty from the exporter country in order to compensate its loss.

Countervailing duty: A country that is exposed to an export subsidy can charge a countervailing duty from the exporter country in order to compensate its loss.

As also understood from the information given, the definitions in the options I, II and III are correct, so the correct answer is C. The definitions in the options IV and V are not correct because of the fact that a country exposed to dumping can charge an anti-dumping duty from the exporter country in order to compensate its loss and a country that is exposed to an export subsidy can charge a countervailing duty from the exporter country in order to compensate its loss.

The WTO was established on 1 January 2005 upon the decisions taken at the Uruguay Round. The WTO is an international organization that deals with the multilateral trading system and its rules. The WTO operates as the successor of the GATT without terminating its existence. The GATT or as it is usually referred as, the GATT 1994, has still been the most comprehensive agreement with the WTO structure.

As also understood from the information given, all of the statements in the options about the World Trade Organization (WTO) are correct, so the correct answer is E.

Although the WTO is the perpetuation of the GATT aiming to reach common multilateral goals, it has its own fundamentals that are mostly the improved versions of the GATT system. The fundamentals of the WTO can briefly be examined under four subtitles:

As also understood from the information given, the correct answer is E. All of the subtitles in the options are the fundamentals of the WTO.

The multilateral trading system that is represented by the WTO is based on agreements. The WTO agreements are the outcomes of negotiations. Today’s WTO agreements are largely depend on the conclusions of the Uruguay Round.

The structure of the WTO is based on five pillars:

As also understood from the information given, the correct answer is E. The structure of the WTO is based on five pillars.

When countries come together and form economic collaborations, they may decide to go beyond a simple economic cooperation and pool their economic resources to get the benefits of an integrated economy. Nevertheless, the more the countries get integrated, the more they lose their domestic control over the economic decisions. Decisions to integrate the economies of countries are often taken in stages. Thus, the economic integration initiatives are examined by stages mostly referred as types of economic integration. Theory of economic integration examines the economic effects of each economic integration type.

As also understood from the information given, the correct order of the economic integration types from the loosest to the most comprehensive is in the option E, so the correct answer is E.

Theory of economic integration analyzes the economic effects of economic integrations. Theory of economic integration is developed upon the welfare effects of customs union. The welfare effects of customs union are introduced by Jacop Viner in 1950. In his book The Customs Union Issue, Viner examines the static effects of customs union. Static effects are the effects that occur at the time of establishment of the customs union. Static effects of customs union are called trade creation and trade diversion. Static effects of customs union They emanate at the formation of the customs union. Thus, they represent very short run effects. The static effects of customs union take into consideration only the welfare within the highest cost country. The static effects of customs union are sometimes referred as Vinerian customs union theory. Next to the static effects, there are also dynamic effects of customs union. Dynamic effects are long run effects. They arise due to increased competition within the customs union, higher level of technology, economies of scale, induce to foreign direct investments and better allocation of economic resources. Let’s give brief information about these dynamic effects:

As also understood from the information given, the correct answer is E. The dynamic effects of customs union are increased competition within the customs union, higher level of technology, economies of scale, induce to foreign direct investments and better allocation of economic resources.

Vienna Congress was the first initiative to construct a system of peace. Therefore, the correct choice is B.

The League of  Nations and the International Labor Organization are established in Geneva in 1919. This dates before the II. Wold War, therefore the correct choice is A.

One of the pillars of the Bretton Woods Conference was a development bank that would aid the re-construction of the economies wounded by the war. In this respect, World Bank was founded in 1944. Therefore, the correct choice is C.

World Bank is a group composed of five associated institutions. These are; The  International Bank for Reconstruction and Development, The International Development Association, The International Finance Cooperation, The Multilateral Investment Guarantee Agency and The International Center for Settlement of Investment Disputes. Therefore, the correct choice is D.

The tariff concessions deal was signed on 30 October 1947 by twenty-three countries and it came into effect by 30 June 1948 via the Protocol of Provisional Application. Therefore, the correct choice is E.

Standby Arrangements are one of the main instruments of the Financial Assistance mission of the IMF. Therefore, the correct choice is A.

During the Uruguay Round in which the member countries decided to establish the WTO, they also renewed the GATT. Therefore, the correct choice is C.

The multilateral trading system is run by five basic principles. These are: Free Trade without Discrimination Principle, Predictability Principle, Promoting Fair Competition Principle, Freer Trade Principle and Encouraging Economic Development and Reform Principle. Therefore, the correct choice is B.