Trade Wars, Fake Louis’, and everything in between:
A few weeks ago I blogged about why we should be as open to trade as possible.Everyone comes out better by less trade restrictions. We pay less for products, more jobs are created, and we have access to a plethora of goods and services.
So now that we have established trade is good and we have been trading with others for hundreds of years, do problems ever arise and if so, how are they dealt with?
Yes, problems arise often between countries with trade disputes.The organization that sets the rules and hears the cases that arise is called the World Trade Organization (formerly known as GATT).
The World Trade Organization is like the NATO of goods and services.Countries join and by joining agree to a set of rules that are fair.
·Protects intellectual property rights
·Helps catch people who produce knock offs (hello fake Louis Vuittons!)
·Have settled over 300 trade disputes
·Have eliminated tariffs.
Here are a few interesting cases that ended up in the World Trade Organization Court System (most disputes are settled out of court through mediation).
The Banana Dispute:
The European Union would only allow bananas to be imported from former colonies (think Africa). As a result Europeans paid twice the amount they should be paying.The world’s largest banana producers happen to be American owned Chiquita, Dole and Del Monte. These companies get their bananas mainly from South America, so they were not allowed to be purchased by Europeans.The US brought a case against the European Union basically saying they were violating the “rules” to which all members agreed upon. Ultimately the US banana companies won and now Europeans pay less for bananas and American companies have more money.It is a win-win situation.
The Crawfish Dispute:
Around 2004 Louisiana residents and crawfish producers started noticing large batches of crawfish being imported to the US from China.At first the Cajuns did not react because they felt Louisiana crawfish were far superior and people would not purchase this Chinese crawfish.Unfortunately they were wrong and Americans started buying the cheap crawfish because it tasted the same.The US brought a case against China accusing China of “dumping the market”(charging below market value). The problem was that most people in China don’t eat crawfish so they played “dumb” about the market value.Louisiana politicians immediately reacted by doubling the import tax so that the crawfish prices were on par. In the meantime a few bags of crawfish sent to Sweden had some disease so the US happily suspended crawfish imports from China for a short period of time.The Chinese got creative and just changed their bag labels to say the crawfish came from Singapore.A LA politician was flown over to Singapore to investigate and found out about the fraud.Eventually the case went to the WTO court and was settled favorably.
My neighbor works for the Department of Commerce and interacts a lot with these types of trade disputes. He told me that recently there is a dispute about bags of shrimp being labeled (Gulf Coast Shrimp) when in actuality they are coming from other places. In order to gather evidence, they have extracted DNA from thousands of shrimp and found out that a high percentage of shrimp labeled Gulf Coast, is in fact, not from the Gulf of Mexico.
My grandmother made a living years ago traveling to South Korea, buying “knock offs” and selling them out of her house. She would get caught every once in a while, but made so much money it was worth the risk. I will never forget being given Reebok shoes in every color. After teaching economics I realize why buying fake items is not right.
So, my question for you, have any of you been into one of those “backrooms”? Ha Ha!
*Much of my information came from Macroeconomics teacher Ken Norman.