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econ 103 final commentary

by: Hashim Khan

econ 103 final commentary chem 102

Hashim Khan


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General Chemistry
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This 11 page Class Notes was uploaded by Hashim Khan on Tuesday March 15, 2016. The Class Notes belongs to chem 102 at 1 MDSS-SGSLM-Langley AFB Advanced Education in General Dentistry 12 Months taught by IIIIII in Spring 2016. Since its upload, it has received 7 views. For similar materials see General Chemistry in Chemistry at 1 MDSS-SGSLM-Langley AFB Advanced Education in General Dentistry 12 Months.


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Date Created: 03/15/16
One of the many objectives of the WTO is to initiate and enforce globalization in the world along with regulating the trade barriers of the world. This article reflects India’s views on the WTO ruling concerning their food security and trade barriers along with other developing nations. It also relates to the effects of domestic policies on international trade, development and globalization. Globalization defines the integration of the domestic economy with the global trade sector. The purpose behind this initiative is to increase global competition and freedom in the production sector through the reduction of tariffs and creation of free trade zones. But in order to create global competition, there have to be fair laws. This article presents the fact that this proposal had been made in 2013 in the Bali Conference and that India had refused to accept any cutbacks on their subsidy and price support budget because they were following certain protectionist measures. This was proposed so that global competition would not be affected due to lower price in certain regions. This article touches upon the ongoing argument/debate about the pros and cons and the background of each proposal. India refused to accept the proposal for reduction in price support and subsidies towards the electricity and agricultural department because these were major industries that supported the countries GDP and a loss in the production of these would risk deflation and economic depression. To add weight to its argument, India says that it has also officially capped its total rainfall to be about 12% of the water needed. This fact was used to establish the proposal that subsidies and price support were still needed. Although the requirement of high subsidy rates is made very clear, the article also touches upon a certain agreement called the Peace Clause. The peace clause was signed by the developing nations of the WTO to allow them to supply monetary aid to their domestic industries as long as the prices, supply and demand in the global economy were not affected. This is where the article points out that even though India has a strong reason to veto the proposal for putting a cap on its subsidies; it has not kept its side of the deal in the Peace Clause. The WTO produced reports that proved that due to the increase in financial AID in India, nearby nations were suffering due to low price levels in India. So though India’s price level was low and the GDP was developing, the competition was being defeated in an unfair battle. Analysis-History The TFA is a set of agreements the WTO members came to at the Bali Conference in 2013 December. The TFA addressed many pressing problems in global trade during the time such as the many trade barriers and bureaucratic delays that occurred at the initial stages of the international trade. This issue was addressed because it was causing a huge loss to the small suppliers/exporters because they had limited monetary resources. In turn this was causing widespread poverty and loss of jobs. The creation of a more open ad free trade base would result in the reduction of these issues. This piece of text provides witness to one of the biggest Trade-Offs in todays global economy between international trade and domestic trade. We see how the implementation of price support and subsidies causes the global economy to lose out. The low price levels in countries like India cause high levels of competition to the neighboring countries in their trade sector, leading to a loss in GDP due to reduced sales. But on the other hand if the support was removed and the global economy was allowed to spread its effects, the domestic suppliers would lose out and lose independence in choice making. This causes the debate between the use of interventionist policies and supply side policies. Interventionist policies allow the government to regulate the money supply in the economy through its expenditure and revenue programs so that the economy is stimulated in a controlled manner. Whereas the supply side policies propose that there should be a reduction in the aid provided by the government so that the producers enter a more competitive market and have the independence to invest in their own industry. The Two interventionist methods used by the government Price support exists in the form of rationalizing the food prices. The government buys the excess supply in the market at market price and sells it to the consumers at a lower price, thus absorbing the extra costs. The other method is to subsidize the rates of production (Subsidies are monetary grants from the government towards the public industries to help stimulate growth and productivity), thus giving a higher incentive to supply. As mentioned in the article, 17000Crore were set aside for the Aid. PROTECTIONISM AND TRADE POLICIES These methods adhere to a certain policy used by many developing countries known as Protectionism. Protectionism involves the policies through which the nations government protects the domestic economies from losing their independence in the market. Protectionist measures also define a certain concept called food security, defined as having access to sustainable amounts of healthy nutrition. In the argument presented by the Indian government, the claim is that if the citizens are denied lower prices in this developing economy, then there will be a huge loss in food security, thus affecting the economy’s productivity. This would eventually cause a leftwards shift in the production possibility curve of the economy. (Figure 1) Using Figure 2, it can be seen that due to subsidies the domestic supply shifts rightwards as the quantity demanded moves from QD1 to QD2. To maintain this kind of progressive demand and supply in the domestic economy, the price level is increased in global trade to stimulate the international economy. This is done through the implication of tariffs. Tariffs are taxes imposed on imported goods and services. As shown in Figure 3, as the taxes are imposed, the price level goes up from P1 to P2, thus causing the world supply to shift upwards. This causes demand in the world market to decrease from QD2 TO QD1 and the domestic supply to increase from QS1 to QS2. These two figures prove that by providing subsidies and increasing taxes, it is indeed protecting its own producers by increasing the demand of their products This is understandably a crucial component for the development of a country. Thus we see that India’s stance has a reasonable argument, which suggests that if India, a developing nation, were to reduce their food security and subsidy rates their domestic market could crash. They say that this would happen due to a fall in comparative quality and price with the global market. Its implied that India’s primary goal is to protect its farmers from international competition by adopting protectionist policies to help their developing nation be safe and progress without interruption. This can also be analyzed by using a Keynesian cross(Figure 4). The AE curve shifts up from AE1 to AE2 when the government invests in the economy by providing price support and thus reducing the deflationary gap. This direct effect proves that through constant government intervention the marginal propensity to consume of the common consumer increases and the excess output is reduced. This causes an overall improvement in the food security of the nation because incomes of producers are protected. The WTO’s stance includes the fact that due to low price levels caused due to AID, the international competition would suffer. It backs up its proposal for the TFA by saying that India did not abide by its agreement to the Peace Clause. But in this unique case, the plea of the developing economy trumps the need for reform in the government policies considering the fact that there could be unforeseen domino effects and regression in the domestic economy. WHY INDIA’S ARGUMENT IS STRONGER The argument on both sides is valid for it seeks to help in either local progression or global flexibility in tradeThe claim for India taking temporary supplementary measures to avoid the decline in food security of the Indian domestic Economy surely has the upper hand in the argument. Anjali Prasad, India's ambassador to the 1 WTO , claims that this method is being employed to maintain food security amongst the local producers who have access to scarce resources. I believe that when the global economy enters the Indian Economy there is a huge possibility of a disincentive effect occurring where the high level of competition might discourage the local farmers and producers from supplying at the equilibrium price. This might lead to a fall in prices and a hidden deflation effect where the National GDP will rise due to International Inflow of capital and resources but the domestic economy and product wont grow in quantity. This might leave India in a very dependent state upon the International investments where it will not further its own economic growth. Food security is another huge concern in this situation. As the dependence of the domestic economy on global trade increases the local producers income goes down, thus reducing their savings and investments and even the amount of money they allocate for consumption. This causes many blue-collar workers to lose jobs and food security. This in turn affects many families because it is a general trend in India that there is only one person financially supporting the family. Another way to look at it would be to analyze the demand and supply shift and movement in the economy. Conclusion- The effect of reduction of tariffs and a cap on subsidies. If there were high levels of globalization and reduction in tariffs while a cap on the subsidies was imposed, there would be a negative effect on the economy of India due to high levels of competition. This article does not say that India is against the idea of lesser tariffs but instead says that India does not want to risk the negative effects of lowering the subsidy rates. This is justifiable. 1 trade-rules-1406471335 Considering the fact that tariffs have already been reduced, the price of international products is lower relative to the domestic products. This means that without high levels of subsidies, the domestic producers will not be able to cope up with the international competition. This will eventually bring down the national productivity and GDP. This concept is better explained through figures 4 and 5. As shown in Figure 4, since the price of the international products is comparatively cheaper to the domestic products, the demand moves from QD1 to QD2 leading to a shift in the supply of international goods. This increases the competition for the domestic economy. Since the international goods are cheaper, the demand curve in Figure 5 shifts to the left from AD1 to AD2 causing the supply curve to move down. This causes an overall fall in the country’s price level and leads to deflation. The domestic producers now have lesser incentive to produce and thus their supply goes down. Thus protectionism is a more favored policy by the Indians over globalization because the country is still developing. What path must India and WTO take now? In my opinion, India would look favorably upon a temporary (5 years) high subsidy rate at which it was already functioning so that the local producers could compensate for the high competition caused by the lower trade barriers. These measures would also bring about healthy competition that could benefit and fulfill the intentions of the WTO. After a few years India would be able to reduce their subsidy rates and thus be in complete competition. After that the government should employ the use of the supply side policies through the reduction of subsidies and increase the competition in the employment sector of the economy by making hire/fire laws more flexible and providing lesser unemployment aid to the general public. This is This whole debate boils down to the clash between interventionist and supply side policies. By intervening and regulating the subsidy rates and monetary aid the government has full control over the economy but gives less incentive for the economy to become self- sustaining. Whereas, by imposing supply side policies the government loses control but there is a better chance that due to healthy competition the economy will grow and flourish. So it’s just a matter of risking time lag and uncertainty, which is a huge risk that countries in todays’ global economy must take. As Mark Zuckerberg correctly and profoundly said: “The biggest risk is not taking any risk... In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks.” Figure 1. Production Possibility Curve between Agriculture and Electricity. Figure 2. Subsidies Figure 3. Protectionism through Import Substitution Figure 4. Keynesian cross showing increase in Aggregate Expenditure as the domestic supply of monetary aid is increased. Figure 5. Increase in supply of international goods Figure 5. Decrease in supply of the domestic producers due to high competition Bibliography 1. to-the-wto-trade-facilitation-agreement-2005181 2. 25/news/66884503_1_peace-clause-wto-members-subsidies   3. might-not-ratify-wto-trade-facilitation-pact-115072900006_1.html 4. rules-1406316667


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