24. The ways of the protection of the home market from the foreign competitors (Шляхи захисту вітчизнянного ринку від іноземних конкурентів)

The methods, which are used by the countries for the regulation of the international trade, can be divided into tariffs, which are based on the usage of customs tariff, and non-tariffs, such as quotas, licences, subsidies, antidumping duty, technical barriers etc.

The tariff methods of regulation. The most spread type of the trade restriction is import duty. It is the state levy, which is held under the control of custom organs from the international goods, which are brought into the country.

In contrary to the tariff methods the non-tariff methods of the regulation of the international trade become more and more spread in the modern conditions.

The countries with the developed market economy are using the non-tariff instruments very actively.

Licensing – is the method of regulation of the foreign economic activity that is based on the delivery of the permission (license) by the plenipotentiary organ for the realization of the foreign economic operations with the goods that are licensing.

Quantitative regulation is the restriction in quantitative and valuable form of goods volume that is permitted for the import (import quota) or for the export (export quota). As usual, the fixing a quota for the foreign trade is made by its licensing when, with the help of the plenipotentiary organs, the country gives the license for import or export of limited volume of the products and simultaneously forbids the non-license trade.

The situation when the exporter sells his products on the foreign market at the price which is lower than normal is fixed by dumping. Dumping can be accomplished by his own resources of companies-exporters or with the help of the country as the export subsidies.

25. Theories of International Trade

The most popular theories of international trade are mercantilism, absolute advantage, comparative advantage, product life cycle theory, Heckscher-Ohlin theory.

Mercantilism

This theory was popular in 17 century. It was based on gold standard during which the dominant international currency was gold. This theory includes total governments control of foreign trade. Countries have to export goods in order to get gold and they must restrict import of goods. The riches country was identified by the amount of gold it had.

Absolute advantage

The economist Adam Smith developed the theory of absolute advantage in 1776. A country that has an absolute advantage produces greater output of a good or service than other countries using the same amount of resources. Smith stated that tariffs and quotas should be denied. Smith affirmed that a country should concentrate on production of goods in which it holds an absolute advantage. No country would then need to produce all the goods it consumed.

Countries should specialized in producing what they are best at – things they have absolute advantage in.

Comparative Advantage

The most basic concept in international trade theories. It was introduced by David Ricardo.

According to this model countries involved in trade, specialize in producing the products in which they have comparative advantage.

The principle of comparative advantage states that a country should specialize in producing and exporting those products in which is has a comparative, or relative cost, advantage compared with other countries and should import those goods in which it has a comparative disadvantage.

The Heckscher-Ohlin theory

Due to this theory countries should produce and export goods that require resources (factors) that are abundant and import goods that require resources in short supply. This theory differs from the theories of comparative advantage and absolute advantage since these theory focuses on the productivity of the production process for a particular good.