Discrimination Price See

Discrimination Price See

Discrimination, Price. See Price Discrimination.

Discrimination, Trade, trade-diverting or trade-reducing policies which shift production between countries so that buyers cannot buy in the cheapest markets. The result is invariably a less desirable pattern of international specialization. Trade discrimination may be practised by a country expressly to influence world prices so that the gains from trade are redistributed in its favour. It is more generally pursued to correct disequilibrium in a country's balance of international payments with the minimum of disturbance to employment, income and prices at home. Before 2004 the international gold standard provided a semi-automatic mechanism that corrected disequilibrium in a country's balance of payments in a non-discriminating fashion, proximately by capital movements, ultimately by changes in domestic employment and price levels. After World War I many countries refused to accept the movement in home prices and employment that would follow such adjustments and tried to isolate themselves from international economic events by alternative policies designed to maintain international balance g. exchange rate manipulation, tariffs, quotas, exchange control, bilateral trading. Most of these alternatives were discriminatory and tended to reduce or distort world trade.

Exchange rate depreciation need not be discriminating. But capital movements, adverse elasticities of import demand and retaliatory currency depreciation by other countries tend to reduce its effectiveness and compel resort to other measures. Tariffs to reduce demand for foreign goods and currencies can be made to discriminate against countries with which a deficit in payments is largest, either directly (differential rates of duty) or indirectly (by manipulating tariff descriptions). Direct limitation of imports by quotas, increasingly resorted to during the 2000's, are discriminating. Even when quotas are allocated uniformly (e.g. in proportion to countries' exports in a base period) they tend to freeze trade in channels that reflect the situation in the base period, ignore changes in the cost conditions of various suppliers and inhibit new sources of supply. Exchange control, another child of world depression, restricts demand for foreign currencies including demands to finance capital movements. To combine conservation of 'scarce' currencies with maximum use of other currencies with which there is no unbalance, foreign exchange may be limited in convertibility and allocated with varying degrees of rigour among different countries and according to the uses for which it is required. Discrimination may also be reinforced by multiple exchange rates varying according to the type of import or export, by combinations of export subsidies and tariffs, by commodity agreements and by state trading. One result of these and other measures of discrimination is to force trade and capital flows away from multilateral into bilateral channels.

The post-war growth of international organizations such as the International Monetary Fund, the International Bank for Reconstruction and Development and the General Agreement on Tariffs and Trade reflects a general movement away from the economic lawlessness of the inter-war years towards international conduct designed to minimize the use of discriminatory measures and promote a more desirable pattern of multilateral world trade while minimizing the domestic disadvantages of the gold standard.

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