Gravity model of trade

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Gravity_model_of_trade 

 

The gravity model of international trade in international economics is a model that, in its traditional form, predicts bilateral trade flows based on the economic sizes and distance between two units. Research shows that there is "overwhelming evidence that trade tends to fall with distance."
The model was first introduced in economics world by Walter Isard in 1954. The basic model for trade between two countries (i and j) takes the form of

${\displaystyle F_{ij}=G*{\frac {M_{i}*M_{j}}{D_{ij}}}}$

In this formula G is a constant, F stands for trade flow, D stands for the distance and M stands for the economic dimensions of the countries that are being measured. The equation can be changed into a linear form for the purpose of econometric analyses by employing logarithms. The model has been used by economists to analyse the determinants of bilateral trade flows such as common borders, common languages, common legal systems, common currencies, common colonial legacies, and it has been used to test the effectiveness of trade agreements and organizations such as the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO) (Head and Mayer 2014). The model has also been used in international relations to evaluate the impact of treaties and alliances on trade (Head and Mayer).

The model has also been applied to other bilateral flow data (also 'dyadic' data) such as migration, traffic, remittances and foreign direct investment.

Theoretical justifications and research

The model has been an empirical success in that it accurately predicts trade flows between countries for many goods and services, but for a long time some scholars believed that there was no theoretical justification for the gravity equation. However, a gravity relationship can arise in almost any trade model that includes trade costs that increase with distance.

The gravity model estimates the pattern of international trade. While the model’s basic form consists of factors that have more to do with geography and spatiality, the gravity model has been used to test hypotheses rooted in purer economic theories of trade as well. One such theory predicts that trade will be based on relative factor abundances. One of the common relative factor abundance models is the Heckscher–Ohlin model. Those countries with a relative abundance of one factor would be expected to produce goods that require a relatively large amount of that factor in their production. While a generally accepted theory of trade, many economists in the Chicago School believed that the Heckscher–Ohlin model alone was sufficient to describe all trade, while Bertil Ohlin himself argued that in fact the world is more complicated. Investigations into real-world trading patterns have produced a number of results that do not match the expectations of comparative advantage theories. Notably, a study by Wassily Leontief found that the United States, the most capital-endowed country in the world, actually exports more in labor-intensive industries. Comparative advantage in factor endowments would suggest the opposite would occur. Other theories of trade and explanations for this relationship were proposed in order to explain the discrepancy between Leontief’s empirical findings and economic theory. The problem has become known as the Leontief paradox.

An alternative theory, first proposed by Staffan Linder, predicts that patterns of trade will be determined by the aggregated preferences for goods within countries. Those countries with similar preferences would be expected to develop similar industries. With continued similar demand, these countries would continue to trade back and forth in differentiated but similar goods since both demand and produce similar products. For instance, both Germany and the United States are industrialized countries with a high preference for automobiles. Both countries have automobile industries, and both trade cars. The empirical validity of the Linder hypothesis is somewhat unclear. Several studies have found a significant impact of the Linder effect, but others have had weaker results. Studies that do not support Linder have only counted countries that actually trade; they do not input zero values for the dyads where trade could happen but does not. This has been cited as a possible explanation for their findings. Also, Linder never presented a formal model for his theory, so different studies have tested his hypothesis in different ways.

Elhanan Helpman and Paul Krugman asserted that the theory behind comparative advantage does not predict the relationships in the gravity model. Using the gravity model, countries with similar levels of income have been shown to trade more. Helpman and Krugman see this as evidence that these countries are trading in differentiated goods because of their similarities. This casts some doubt about the impact Heckscher–Ohlin has on the real world. Jeffrey Frankel sees the Helpman–Krugman setup here as distinct from Linder’s proposal. However, he does say Helpman–Krugman is different from the usual interpretation of Linder, but, since Linder made no clear model, the association between the two should not be completely discounted. Alan Deardorff adds the possibility, that, while not immediately apparent, the basic gravity model can be derived from Heckscher–Ohlin as well as the Linder and Helpman–Krugman hypotheses. Deardorff concludes that, considering how many models can be tied to the gravity model equation, it is not useful for evaluating the empirical validity of theories.

Bridging economic theory with empirical tests, James Anderson and Jeffrey Bergstrand develop econometric models, grounded in the theories of differentiated goods, which measure the gains from trade liberalizations and the magnitude of the border barriers on trade (see Home bias in trade puzzle). A recent synthesis of empirical research using the gravity equations, however, shows that the effect of border barriers on trade is relatively modest.

Adding to the problem of bridging economic theory with empirical results, some economists have pointed to the possibility of intra-industry trade not as the result of differentiated goods, but because of “reciprocal dumping.” In these models, the countries involved are said to have imperfect competition and segmented markets in homogeneous goods, which leads to intra-industry trade as firms in imperfect competition seek to expand their markets to other countries and trade goods that are not differentiated yet for which they do not have a comparative advantage, since there is no specialization. This model of trade is consistent with the gravity model as it would predict that trade depends on country size.

The reciprocal dumping model has held up to some empirical testing, suggesting that the specialization and differentiated goods models for the gravity equation might not fully explain the gravity equation. Feenstra, Markusen, and Rose (2001) provided evidence for reciprocal dumping by assessing the home market effect in separate gravity equations for differentiated and homogeneous goods. The home market effect showed a relationship in the gravity estimation for differentiated goods, but showed the inverse relationship for homogeneous goods. The authors show that this result matches the theoretical predictions of reciprocal dumping playing a role in homogeneous markets.

Past research using the gravity model has also sought to evaluate the impact of various variables in addition to the basic gravity equation. Among these, price level and exchange rate variables have been shown to have a relationship in the gravity model that accounts for a significant amount of the variance not explained by the basic gravity equation. According to empirical results on price level, the effect of price level varies according to the relationship being examined. For instance, if exports are being examined, a relatively high price level on the part of the importer would be expected to increase trade with that country. A non-linear system of equations are used by Anderson and van Wincoop (2003) to account for the endogenous change in these price terms from trade liberalization. A more simple method is to use a first order log-linearization of this system of equations (Baier and Bergstrand (2009)), or exporter-country-year and importer-country-year dummy variables. For counterfactual analysis, however, one would still need to account for the change in world prices.

Econometric estimation of gravity equations

Since the gravity model for trade does not hold exactly, in econometric applications it is customary to specify

${\displaystyle F_{ij}=G{\frac {M_{i}^{\beta _{1}}M_{j}^{\beta _{2}}}{D_{ij}^{\beta _{3}}}}\eta _{ij}}$

where ${\displaystyle F_{ij}}$ represents volume of trade from country ${\displaystyle i}$ to country ${\displaystyle j}$, ${\displaystyle M_{i}}$ and ${\displaystyle M_{j}}$ typically represent the GDPs for countries ${\displaystyle i}$ and ${\displaystyle j}$, ${\displaystyle D_{ij}}$ denotes the distance between the two countries, and ${\displaystyle \eta }$ represents an error term with expectation equal to 1.

The traditional approach to estimating this equation consists in taking logs of both sides, leading to a log-log model of the form (note: constant G becomes part of ${\displaystyle \beta _{0}}$):

${\displaystyle \ln(F_{ij})=\beta _{0}+\beta _{1}\ln(M_{i})+\beta _{2}\ln(M_{j})-\beta _{3}\ln(D_{ij})+\varepsilon _{ij}.}$

However, this approach has two major problems. First, it obviously cannot be used when there are observations for which ${\displaystyle F_{ij}}$ is equal to zero. Second, Santos Silva and Tenreyro (2006) argued that estimating the log-linearized equation by least squares (OLS) can lead to significant biases. As an alternative, these authors have suggested that the model should be estimated in its multiplicative form, i.e.,

${\displaystyle F_{ij}=\exp[\beta _{0}+\beta _{1}\ln(M_{i})+\beta _{2}\ln(M_{j})-\beta _{3}\ln(D_{ij})]\eta _{ij},}$

using a Poisson pseudo-maximum likelihood (PPML) estimator usually used for count data. This is despite the fact that simpler methods, such as taking simple averages of trade shares of countries with and without former colonial ties suggest that countries with former colonial ties continue to trade more. Santos Silva and Tenreyro (2006) did not explain where their result came from and even failed to realize their results were highly anomalous. Martin and Pham (2008) argued that using PPML on gravity severely biases estimates when zero trade flows are frequent. However, their results were challenged by Santos Silva and Tenreyro (2011), who argued that the simulation results of Martin and Pham (2008) are based on misspecified models and showed that the PPML estimator performs well even when the proportions of zeros is very large.

In applied work, the model is often extended by including variables to account for language relationships, tariffs, contiguity, access to sea, colonial history, and exchange rate regimes. Yet the estimation of structural gravity, based on Anderson and van Wincoop (2003), requires the inclusion of importer and exporter fixed effects, thus limiting the gravity analysis to bilateral trade costs (Baldwin and Taglioni 2007).

International trade

From Wikipedia, the free encyclopedia

 

International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services.

In most countries, such trade represents a significant share of gross domestic product (GDP). While international trade has existed throughout history (for example Uttarapatha, Silk Road, Amber Road, scramble for Africa, Atlantic slave trade, salt roads), its economic, social, and political importance has been on the rise in recent centuries.

Carrying out trade at an international level is a complex process when compared to domestic trade. When trade takes place between two or more nations factors like currency, government policies, economy, judicial system, laws, and markets influence trade.

To smoothen and justify the process of trade between countries of different economic standing, some international economic organisations were formed, such as the World Trade Organization. These organisations work towards the facilitation and growth of international trade. Statistical services of intergovernmental and supranational organisations and national statistical agencies publish official statistics on international trade.

Characteristics of global trade

A product that is transferred or sold from a party in one country to a party in another country is an export from the originating country, and an import to the country receiving that product. Imports and exports are accounted for in a country's current account in the balance of payments.

Trading globally may give consumers and countries the opportunity to be exposed to new markets and products. Almost every kind of product can be found in the international market, for example: food, clothes, spare parts, oil, jewellery, wine, stocks, currencies, and water. Services are also traded, such as in tourism, banking, consulting, and transportation.

Ancient Silk Road trade routes across Eurasia

Advanced technology (including transportation), globalisation, industrialisation, outsourcing and multinational corporations have major impacts on the international trade system.

Increasing international trade is crucial to the continuance of globalisation. Countries would be limited to the goods and services produced within their own borders without international trade. International trade benefits many countries in various aspects. In the case of Vizio’s flat-panel TVs, the manufacturing leadership has been shifting from one country to another due to global economic growth. At first, Japan could assemble the components of this TV and sell it out to the other countries such as US. However, recession affected Japan and South Korea took the lead in assembling the parts of this TV. Samsung played a critical role in the selling and manufacturing of the flat TV. Taiwan also took advantage of the recession that affected South Korea and the investors assembled electronic components of Vizio’s flat-panel TVs. At first the US suffered from this cycle because despite inventing this business idea, other countries implemented it in the international market. Chinese eventually started manufacturing flat TVs at a lower cost compared to the previous investors. It is important to note that US benefited from the cycle because many investors could manufacture the TV at lower cost (Kandel, Kosenko, Morck & Yafeh, 2013). China is also another country that benefited from this business because it started manufacturing the product late at a lower price. South Korea and Japan suffered from the global recession because it was expensive to manufacture Vizio’s flat-panel TVs at the beginning.

Despite the benefits that many countries enjoyed from selling Vizio’s flat-panel TVs, many nations suffered due to changes in international economy. Some countries experienced recessions that could not favor the manufacture of this product. For example, Japan became the first country to sell the flat-panel screens in 1990s but decade-long recession affected the business operations and surrendered to South Korea. It is also important to note that South Korea suffered the same fate from the Asian crisis in 1997 (Lazarev, 2007). Mexico is one lucky country that never suffered the consequences of crisis. The country could assemble flat-panel TVs after sourcing the electronic parts from other countries (Hill & Hult, 2019). In this regard, it is clear that countries that took part in the manufacture of these TVs were affected in different ways.

The US played a critical role in the invention and manufacture of the flat-panel TVs. In this regard, the decision made by the US may affect the entrepreneurs at the local and international level. If the US government demands that flat-panel displays be sold in the country only, the investors will have to sell the products at lower prices. It is clear that the prices of these flat-panel displays are cheap in the US compared to the countries. In addition, the local investors will not have the opportunity to compete at international level (Kandel, Kosenko, Morck & Yafeh, 2013). The quality of the screens can be compromised because the local manufacturers do not encounter foreign competitors.

The future production of these TVs will change. Technology is changing the mode of production from one year to another. For instance, the manufacture of these TVs began from assembling electronic parts from different countries. However, things have changed and currently, every country is aiming at using the local resources to manufacture the screens.

Differences from domestic trade

Ports play an important role in facilitating international trade. The Port of New York and New Jersey grew from the original harbor at the convergence of the Hudson River and the East River at the Upper New York Bay.

International trade is, in principle, not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not.

However, in practical terms, carrying out trade at an international level is typically a more complex process than domestic trade. The main difference is that international trade is typically more costly than domestic trade. This is due to the fact that a border typically imposes additional costs such as tariffs, time costs due to border delays, and costs associated with country differences such as language, the legal system, or culture (non-tariff barriers).

Another difference between domestic and international trade is that factors of production such as capital and labor are often more mobile within a country than across countries. Thus, international trade is mostly restricted to trade in goods and services, and only to a lesser extent to trade in capital, labour, or other factors of production. Trade in goods and services can serve as a substitute for trade in factors of production. Instead of importing a factor of production, a country can import goods that make intensive use of that factor of production and thus embody it. An example of this is the import of labor-intensive goods by the United States from China. Instead of importing Chinese labor, the United States imports goods that were produced with Chinese labor. One report in 2010 suggested that international trade was increased when a country hosted a network of immigrants, but the trade effect was weakened when the immigrants became assimilated into their new country.

History

The history of international trade chronicles notable events that have affected trading among various economies.

Theories and models

There are several models which seek to explain the factors behind international trade, the welfare consequences of trade and the pattern of trade.

Most traded export products

Largest countries by total international trade

Volume of world merchandise exports

 

The following table is a list of the 21 largest trading nations according to the World Trade Organization.

Rank	Country	International trade of goods (billions of USD)	International trade of services (billions of USD)	Total international trade of goods and services (billions of USD)
–	World	32,430	9,635	42,065
–	European Union	3,821	1,604	5,425
1	United States	3,706	1,215	4,921
2	China	3,686	656	4,342
3	Germany	2,626	740	3,366
4	United Kingdom	1,066	571	1,637
5	Japan	1,250	350	1,600
6	France	1,074	470	1,544
7	Netherlands	1,073	339	1,412
8	Hong Kong	1,064	172	1,236
9	South Korea	902	201	1,103
10	Italy	866	200	1,066
11	Canada	807	177	984
12	Belgium	763	212	975
13	India	623	294	917
13	Singapore	613	304	917
15	Mexico	771	53	824
16	Spain	596	198	794
17	Switzerland	572	207	779
18	Taiwan	511	93	604
19	Russia	473	122	595
20	Ireland	248	338	586
21	United Arab Emirates	491	92	583

Top traded commodities by value (exports)

Rank	Commodity	Value in US$('000)	Date of information
1	Mineral fuels, oils, distillation products, etc.	$2,183,079,941	2015
2	Electrical, electronic equipment	$1,833,534,414	2015
3	Machinery, nuclear reactors, boilers, etc.	$1,763,371,813	2015
4	Vehicles other than railway	$1,076,830,856	2015
5	Plastics and articles thereof	$470,226,676	2015
6	Optical, photo, technical, medical, etc. apparatus	$465,101,524	2015
7	Pharmaceutical products	$443,596,577	2015
8	Iron and steel	$379,113,147	2015
9	Organic chemicals	$377,462,088	2015
10	Pearls, precious stones, metals, coins, etc.	$348,155,369	2015

Source: International Trade Centre

Observances

President George W. Bush observed World Trade Week on May 18, 2001, and May 17, 2002. On May 13, 2016, President Barack Obama proclaimed May 15 through May 21, 2016, World Trade Week, 2016. On May 19, 2017, President Donald Trump proclaimed May 21 through May 27, 2017, World Trade Week, 2017. World Trade Week is the third week of May. Every year the President declares that week to be World Trade Week.

Melange (fictional drug)

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Melange_(fictional_drug) 

 

Melange
Container of melange being examined by a poison snooper in David Lynch's Dune (1984)
Plot element from the Dune franchise
First appearance	Dune 1965
Created by	Frank Herbert
Genre	Science fiction
In-story information
Type	Drug
Function	Ingested to lengthen lifespan, improve health, and heighten awareness
Specific traits and abilities	Heavy powder which smells like cinnamon and glows blue; highly addictive, and longterm users acquire blue-within-blue colored eyes
Affiliation	Bene Gesserit CHOAM Fremen Sandworms

Melange (/meɪˈlɑːnʒ/), often referred to as simply "the spice", is the name of the fictional drug central to the Dune series of science fiction novels by Frank Herbert, and derivative works.

In the series, the most essential and valuable commodity in the universe is melange, a drug that gives the user a longer life span, greater vitality, and heightened awareness; it can also unlock prescience in some humans, depending upon the dosage and the consumer's physiology. This prescience-enhancing property makes safe and accurate interstellar travel possible. Melange comes with a steep price, however: it is addictive, and withdrawal is fatal. Harvesting melange is also hazardous in the extreme, as its only known source is the harsh desert planet Arrakis, and melange deposits are guarded by giant sandworms.

Description

Melange is a drug able to prolong life, bestow heightened vitality and awareness, and can unlock prescience in some humans. This prescience-enhancing property makes safe and accurate interstellar travel possible, as it enables Spacing Guild Navigators to see safe paths through space-time and navigate the gigantic Guild heighliners safely between planets. The massive amount of melange needed to achieve this requires that Navigators be contained in a large tank within a cloud of spice gas. This intense and extended exposure mutates their bodies over time. In larger quantities, the spice possesses intense psychotropic effects, and is used as a powerful entheogen by both the Bene Gesserit and Fremen to initiate clairvoyant and precognitive trances, access genetic memory, and heighten other abilities. The Fremen also use the spice to make, among other things, paper, plastics, and chemical explosives, and the existence of "spice-cloth" and "spice-fiber" rugs are noted in Dune Messiah (1969) and Children of Dune (1976). Melange can be mixed with food, and it is used to make beverages such as spice coffee, spice beer, and spice liquor.

By the events of Dune, the spice is used all over the universe and is a sign of wealth. Duke Leto Atreides notes that of every valuable commodity known to mankind, "all fades before melange. A handful of spice will buy a home on Tupile." Jon Michaud of The New Yorker wrote, "Imagine a substance with the combined worldwide value of cocaine and petroleum and you will have some idea of the power of melange." Due to the rarity and value of melange and its necessity as a catalyst for interstellar travel, the Padishah Emperor's power at the outset of Dune is secured by his control of Arrakis, which puts him on equal footing with both the assembly of noble families called the Landsraad and the Spacing Guild, which monopolizes interstellar travel. Seizing control of the planet, Paul Atreides intensifies this form of hydraulic despotism by asserting control over both the Landsraad and Spacing Guild, as well as other factions in the universe. Herbert wrote:

Not without reason was the spice often called "the secret coinage." Without melange, the Spacing Guild's heighliners could not move. Melange precipitated the "navigation trance" by which a translight pathway could be "seen" before it was traveled. Without melange and its amplification of the human immunogenic system, life expectancy for the very rich degenerated by a factor of at least four. Even the vast middle class of the Imperium ate diluted melange in small sprinklings with at least one meal a day.

— Alia Atreides, Children of Dune

Herbert is vague in describing the appearance of the spice. He hints at its color in Dune Messiah when he notes that Guild Navigator Edric "swam in a container of orange gas [...] His tank's vents emitted a pale orange cloud rich with the smell of the geriatric spice, melange." Later in Heretics of Dune (1984), a discovered hoard of melange appears as "mounds of dark reddish brown". Herbert also indicates fluorescence in God Emperor of Dune (1981) when the character Moneo notes: "Great bins of melange lay all around in a gigantic room cut from native rock and illuminated by glowglobes [...] The spice had glowed radiant blue in the dim silver light. And the smell—bitter cinnamon, unmistakable." Herbert writes repeatedly, starting in Dune (1965), that melange smells like cinnamon. In Dune, Lady Jessica notes that her first taste of spice "tasted like cinnamon". Dr. Yueh adds that the flavor is "never twice the same [...] It's like life—it presents a different face each time you take it. Some hold that the spice produces a learned-flavor reaction. The body, learning a thing is good for it, interprets the flavor as pleasurable—slightly euphoric. And, like life, never to be truly synthesized."

Physiological side effects

Extensive use of the drug tints the sclera, cornea, and iris of the user to a dark shade of blue, called "blue-in-blue" or "the Eyes of Ibad", which is something of a source of pride among the Fremen and a symbol of their tribal bond. In Dune, Paul initially has green eyes, but after several years on Arrakis they begin to take on the deep, uniform blue of the Fremen. On other planets, the addicted often use tinted contact lenses to hide this discoloration. In Dune, Padishah Emperor Shaddam IV notes of two Guildsmen:

The taller of the two, though, held a hand to his left eye. As the Emperor watched, someone jostled the Guildsman's arm, the hand moved, and the eye was revealed. The man had lost one of his masking contact lenses, and the eye stared out a total blue so dark as to be almost black.

Melange is also highly addictive, and withdrawal means certain death, though the exact method of death is unmentioned. Paul Atreides notes in Dune that the spice is "[a] poison—so subtle, so insidious...so irreversible. It won't even kill you unless you stop taking it." When aerosolized and used as an inhalant in extremely high dosages—the standard practice for Guild Navigators—the drug acts as a mutagen. In the first chapter of Dune Messiah, Guild Navigator Edric is described in his tank of spice gas as "an elongated figure, vaguely humanoid with finned feet and hugely fanned membranous hands—a fish in a strange sea."

In Children of Dune, the term "spice trance" is used to describe the effects of an overdose of spice. Alia had previously subjected herself to such an overdose late in Dune Messiah, hoping to enhance her prescient visions. She achieves some success, but in Children of Dune, Leto II and Ghanima blame the trance for Alia's descent into Abomination. Fearful of the same fate, they resist Alia's urgings to undergo the spice trance themselves. The trial is later forced upon Leto at Jacurutu when it is suspected that he too is an Abomination. Leto survives the challenge and escapes, but is left changed. Unlike Alia, however, he remains in control, and the spice trance opens his eyes to the Golden Path that will ultimately save humanity.

Sources

In Dune, there is only one source of melange: the sands of the planet Arrakis, colloquially known as Dune, and millennia later called simply "Rakis". Herbert notes in Dune that a pre-spice mass is "the stage of fungusoid wild growth achieved when water is flooded into the excretions of Little Makers", the "half-plant–half-animal deep-sand vector of the Arrakis sandworm". Gases are produced which result in "a characteristic 'blow', exchanging the material from deep underground for the matter on the surface above it." This blow is explosive in nature, erupting with enough force to kill anyone in the vicinity of it. Frank Herbert describes such a spice blow in the following passage from Dune:

Then he heard the sand rumbling. Every Fremen knew the sound, could distinguish it immediately from the noises of worms or other desert life. Somewhere beneath him, the pre-spice mass had accumulated enough water and organic matter from the little makers, had reached the critical stage of wild growth. A gigantic bubble of carbon dioxide was forming deep in the sand, heaving upward in an enormous "blow" with a dust whirlpool at its center. It would exchange what had been formed deep in the sand for whatever lay on the surface.

Herbert writes that the pre-spice mass, "after exposure to sun and air, becomes melange". He later indicates its color in Children of Dune, when Leto II passes "the leprous blotches of violet sand where a spiceblow had erupted".

Collecting the melange is hazardous in the extreme, since rhythmic activity on the desert surface of Arrakis attracts the worms, which can be up to 400 meters (1,300 feet) in length, and are capable of swallowing a mining crawler whole. Thus, the mining operation essentially consists of vacuuming it off the surface with a vehicle called a Harvester until a worm comes, at which time an aircraft known as a Carryall lifts the mining vehicle to safety. The Fremen, who have learned to co-exist with the sandworms in the desert, harvest the spice manually for their own use and for smuggling off-planet.

Within the 1500 years between the events of God Emperor of Dune (1981) and Heretics of Dune (1984), the Tleilaxu discover an artificial method of producing the spice in their axlotl tanks, previously only used to create gholas. It is noted in Heretics of Dune that "[f]or every milligram of melange produced on Rakis, the Bene Tleilax tanks produced long tons". The technology "had broken the Rakian monopoly on the spice" but is not fully successful in pushing natural melange out of the marketplace.

Prequels and sequels

Project Amal

In the Prelude to Dune prequel trilogy by Brian Herbert and Kevin J. Anderson (1999–2001), Project Amal is an early attempt by the Bene Tleilax to create synthetic melange in order to eliminate dependence upon Arrakis. Upon presenting their idea to the Padishah Emperor Elrood Corrino IX, in 10,154 A.G. the Tleilaxu are granted the right to occupy the planet Ix by force (with the help of Elrood's Sardaukar army) and remake it into a laboratory station for the project. The old Emperor wants to remove the spice monopoly by making sure that he has the only access to it, thus controlling the Spacing Guild. The Tleilaxu subsequently rename Ix "Xuttuh" after their founder. In the year 10,156 A.G., Elrood IX is assassinated by Count Hasimir Fenring at the behest of Crown Prince Shaddam. Shaddam, now under the name of Padishah Emperor Shaddam IV, gives Fenring the title of Imperial Spice Minister and orders him to supervise the project.

Although Tleilaxu Master Hidar Fen Ajidica manages to create an artificial melange (called "ajidamal", or "amal") that seems to have the original's properties, it does not work properly. Test-sandtrout explode when exposed to it, and Fenring's test of its use by Guild Navigators ends in catastrophe as one heighliner and its passengers are destroyed and the Navigator of a second heighliner dies. When Duke Leto Atreides invades Xuttuh in 10,175 A.G. and reestablishes Prince Rhombur of House Vernius as ruler of Ix, all the records of Project Amal are destroyed by Fenring. When the news hits the Landsraad, Shaddam denies all participation, claiming never to have heard of it. He maintains that it had probably been something his senile father Elrood had done in his last days. The Tleilaxu Masters involved are ultimately executed. Ajidica himself dies from the side effects of ajidamal: his body literally falls apart as the synthetic melange had eaten it away from the inside out.

Ultraspice

In Sandworms of Dune, Brian Herbert and Anderson's 2007 conclusion to the original series, the Spacing Guild is manipulated into replacing its Navigators with Ixian navigation devices and cutting off the Navigators' supply of melange. Sure to die should they be without the spice, a group of Navigators commission Waff, an imperfectly awakened Tleilaxu ghola, to create "advanced" sandworms able to produce the melange they so desperately require. He accomplishes this by altering the DNA of the worm's sandtrout stage and creating an aquatic form of the worms, which are then released into the oceans of Buzzell. Adapting to their new environment, these "seaworms" quickly flourish, eventually producing a highly concentrated form of spice, dubbed ultraspice. This new form of spice is so powerful that a relatively small dose causes a potential Kwisatz Haderach to descend into a complete and unbreakable coma through perfect prescience.

Analysis

In Mycelium Running, mycologist Paul Stamets argues that Herbert's creation of melange was related in part to his own personal experiences with psilocybin mushrooms. Carol Hart analyzes the concept of the drug in the essay "Melange" in The Science of Dune (2008).

Free-trade zone

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Free-trade_zone

A foreign-trade zone (FTZ) is a class of special economic zone. It is a geographic area where goods may be landed, stored, handled, manufactured, or reconfigured and re-exported under specific customs regulation and generally not subject to customs duty. Free trade zones are generally organized around major seaports, international airports, and national frontiers—areas with many geographic advantages for trade.

Definition

The World Bank defines free trade zones as "in, duty-free areas, offering warehousing, storage, and distribution facilities for trade, transshipment, and re-export operations." Free-trade zones can also be defined as labor-intensive manufacturing centers that involve the import of raw materials or components and the export of factory products, but this is a dated definition as more and more free-trade zones focus on service industries such as software, back-office operations, research, and financial services.

Synonyms

Free-trade zones are referred to as "foreign-trade zones" in the United States (Foreign Trade Zones Act of 1934), where FTZs provide customs-related advantages as well as exemptions from state and local inventory taxes. In other countries, they have been called "duty-free export processing zones," "export-free zones," "export processing zones," "free export zones," "free zones," "industrial free zones," "investment promotion zones," "maquiladoras," and "special economic zones." Some were previously called "free ports". Free zones range from specific-purpose manufacturing facilities to areas where legal systems and economic regulation vary from the normal provisions of the country concerned. Free zones may reduce taxes, customs duties, and regulatory requirements for registration of business. Zones around the world often provide special exemptions from normal immigration procedures and foreign investment restrictions as well as other features. Free zones are intended to foster economic activity and employment that could occur elsewhere.

Export-processing zone

An export-processing zone (EPZ) is a specific type of FTZ usually set up in developing countries by their governments to promote industrial and commercial exports. According to the World Bank, "an export processing zone is an industrial estate, usually a fenced-in area of 10 to 300 hectares, that specializes in manufacturing for export. It offers firms free trade conditions and a liberal regulatory environment. Its objectives are to attract foreign investors, collaborators, and buyers who can facilitate entry into the world market for some of the economy's industrial goods, thus generating employment and foreign exchange." Most FTZs are located in developing countries; Brazil, Colombia, India, Indonesia, El Salvador, China, the Philippines, Malaysia, Bangladesh, Nigeria, Pakistan, Mexico, the Dominican Republic, Costa Rica, Honduras, Guatemala, Kenya, Sri Lanka, Mauritius, and Madagascar all have EPZ programs. In 1997, 93 countries had set up export processing zones, employing 22.5 million people, and five years later, in 2003, EPZs in 116 countries employed 43 million people.

Brazil

In Brazil, 25 Export-Processing Zones have been authorized in 17 states, and 19 of them have been implemented. Brazilian government launched the first Export processing zones in 1988, aiming to fight the unbalances in the country. First EPZ area in operation was located near of the Port of Pecém in Ceará. Companies in these areas are benefited from tax exemptions and incentives at the ICMS Tax (State Value-Added Tax). Some Brazilian states offer other regional incentives. Companies also can take advantage of a Foreign exchange treatment supported by the law that created the EPZ and proximity of Custom authorities with offices inside the EPZ.

China

China has specific rules differentiating an EPZ from a FTZ. For example, 70% of goods in EPZs must be exported, but there is no such quota for FTZs.

Background

The world's first-documented free-trade zone was established on the Greek Island of Delos in 166 BCE. It lasted until about 69 BCE when the island was overrun by pirates. The Romans had many civitas libera, or free cities, some of which could coin money, establish their own laws, and not pay an annual tribute to the Roman Emperor. These continued through at least the first millennium CE. In the 12th century, the Hanseatic League began operating in Northern Europe and established trading colonies throughout Europe. These Free Trade Zones included Hamburg and the Steelyard in London. The Steelyard, like other Hansa stations, was a separate walled community with its own warehouses, weighing house, chapel, counting houses, and residential quarters. In 1988, remains of the former Hanseatic trading house, once the largest medieval trading complex in Britain, were uncovered by archaeologists during maintenance work on Cannon Street Station. Shannon, Ireland (Shannon Free Zone), established in 1959, has claimed to be the first "modern" free trade zone. The Shannon Zone was started to help the city airport adjust to a radical change in aircraft technology that permitted longer range aircraft to skip previously-required refueling stops in Shannon. It was an attempt by the Irish government to maintain employment around the airport so that the airport would continue to generate revenue for the Irish economy. It was hugely successful and is still in operation today. Other free zones to note are the Kandla Free Zone in India, which started in about 1960, and the Kaohsiung Export Processing Zone in Taiwan, which started in 1967. The number of worldwide free-trade zones proliferated in the late 20th century.

Corporations setting up in a zone may be given a number of regulatory and fiscal incentives, such as the right to establish a business, the right to import parts and equipment without duty, the right to keep and use foreign exchange earnings, and sometimes income or property tax breaks. There may also be other incentives relating the methods of customs control and filing requirements. The rationale is that the zones will attract investment, create employment, and thus reduce poverty and unemployment, stimulating the area's economy. These zones are often used by multinational corporations to set up factories to produce goods (such as clothing, shoes, and electronics).

Free-trade zones should be distinguished from free trade areas. A free trade zone is normally established in a single country, although there are a few exceptions where a free zone may cross a national border, such as the Syrian/Jordanian Free Trade Zone. Free trade areas are set up between countries; for example, the Latin America Free Trade Association (LAFTA) was created in the 1960 Treaty of Montevideo by Argentina, Brazil, Chile, Mexico, Paraguay, Peru, and Uruguay; and the North American Free Trade Agreement was established between Mexico, the United States, and Canada. In free trade areas, tariffs are only lowered between member countries. They should also be distinguished from customs unions, like the former European Economic Community, where several countries agree to unify customs regulations and eliminate customs between the union members.

Free-trade zones have more recently been also called special economic zones in some countries. Special economic zones (SEZs) have been established in many countries as testing grounds for the implementation of liberal market economy principles. SEZs are viewed as instruments to enhance the acceptability and the credibility of the transformation policies and to attract domestic and foreign investment. The change in terminology has been driven by the formation of the World Trade Organization (WTO), which prohibits members from offering certain types of fiscal incentives to promote the exports of goods, thus why the term Export Processing Zone (EPZ) is no longer used with newer zones. For example, India converted all of its EPZs to SEZs in 2000.

In 1999, there were 43 million people working in about 3,000 FTZs spanning 116 countries and producing clothes, shoes, sneakers, electronics, and toys. The basic objectives of economic zones are to enhance foreign exchange earnings, develop export-oriented industries, and generate employment opportunities.

US Foreign-Trade Zone Board and ASF

In the US, the Foreign Trade Zone Board is led by the Secretary of Commerce and the Secretary of the Treasury. In January 2009, the Foreign-Trade Zones Board adopted an FTZ Board staff proposal to make what it called the Alternative Site Framework (ASF) as a means of designating and managing general-purpose FTZ sites through reorganization. The ASF provides Foreign-Trade Zone grantees greater flexibility to meet specific requests for zone status by utilizing the minor boundary modification process. The theory of the ASF is that by more closely linking the amount of FTZ-designated space to the amount of space activated with Customs and Border Protection, Zone users would have better and quicker access to benefits. When an FTZ grantee evaluates whether or not to expand its FTZ project in order to improve the ease in which the Zone may be utilized by existing companies, as well as how it attracts new prospective companies, the Alternative Site Framework (ASF) should be considered. The ASF may be an appropriate option for certain Foreign-Trade Zone projects, but the decision of whether to adopt the new framework and what the configuration of the sites should be requires careful analysis and planning. Regardless of the choice to expand the FTZ project, the sites should be selected and the application drafted in such a manner as to receive swift approval while maximizing benefit to those that locate in the Zone. Successful zone projects are generally the result of a plan developed and implemented by individuals who understand all aspects of the FTZ program.

The Foreign Trade Zone Board (FTZB) approves the reorganization of Foreign Trade Zone (FTZ) 32 under the alternative site framework. The application submitted by its grantee, The Greater Miami Foreign Trade Zone was approved and officially ordered by the FTZB on January 8, 2013. From California to Oklahoma, North Carolina, and New York State, FTZs all across the nation have recently been making use of the flexible opportunities offered by the Alternative Site Framework (ASF) program. The ASF program is designed to serve zone projects that want the flexibility to both attract users/operators to certain fixed sites but also want the ability to serve companies at other locations where the demand for FTZ services will arise in the future. FTZ 32 was founded in 1979 and processes over $1 billion in goods with products from more than 65 countries and exported to more than 75 countries worldwide with speed and efficiency. According to the official order from the FTZB, FTZ 32 existing site 1, Miami Free Zone, will be classified as a magnet site.

UAE Free Zones

Due to growing business opportunities in the United Arab Emirates (UAE), the UAE government has introduced 'Free Zones' to make it easier for foreigners to invest and operate in the UAE. In these Free Zones, investors benefit from maintaining full business ownership and receiving tax exemptions.

Some of the benefits of setting up business in UAE Free Zones are:

• Tax exemption
• 100% ownership of business (Outside freezone, you are required to get a local sponsor)
• Bank accounts can be opened in a business's name
• Reasonable renewal fees
• 100% import and export tax exemptions
• 100% repatriation of profits and capital
• No personal income tax

Currently, there are 45 FTZs active in UAE.

Criticism

Sometimes the domestic government pays part of the initial cost of factory setup, loosens environmental protections and rules regarding negligence and the treatment of workers, and promises not to ask payment of taxes for the next few years. When the taxation-free years are over, the corporation that set up the factory without fully assuming its costs is often able to set up operations elsewhere for less expense than the taxes to be paid, giving it leverage to take the host government to the bargaining table with more demands, but parent companies in the United States are rarely held accountable.

Political writer Naomi Klein has also criticized the transient nature of FTZs, noting the factory closures connected to the 1997 Asian financial crisis. She criticized the low wages and long hours, citing work days of twelve or more hours in Indonesia, Philippines, Southern China, and Sri Lanka circa 2000.