.Chapter

02

The Dynamic Environment of International Trade

Modular:Afjal Hossain

Assistant Professor, Department of Marketing

PSTUMcGraw-Hill/Irwin International Marketing, 13/e

Balance of Payments• Transactions recorded yearly• Must always be in balance• A record of condition, not determinant of condition• A Balance of Payments statement includes three

accounts:– Current account– Capital account – Reserves account

Balance of Payments is the system of accounts that records a nation’s international financial transactions.

U.S. Current Account by Major Components, 2002 ($ billions)

United States Current Account Balance (% of GDP)

What Would One U.S. Dollar Buy?

Protection Logic and Illogic• Arguments concerning protectionism on trade:

– Protection of infant industry– Protection of the home market– Need to keep money at home– Encouragement of capital accumulation– Maintenance of the standard of living and real wages– Conservation of natural resources– Industrialization of a low-wage nation– Maintenance of employment and reduction of unemployment– National defense– Increase of business size– Retaliation and bargaining

Monetary Trade Barriers

• Monetary Barriers– Blocked currency– Differential exchange– Government approval

• Others – Tariffs– Boycotts and Embargoes

Non-monetary Trade Barriers

• Standards• Antidumping Penalties• Others– Quotas– Voluntary Export Restraints

The Omnibus Trade and Competitiveness Act

• Designed to deal with trade deficits, protectionism, and the overall fairness of our trading partners.

• The bill covers three areas considered critical in improving U.S. trade:– Market access– Export expansion– Import relief

• Four ongoing activities to support the growth of international trade:– GATT– The associated World Trade Organization (WTO)– International Monetary Fund (IMF)– The World Bank Group

General Agreement on Tariffs and Trade• Paved the way for the first effective worldwide tariff

agreement.• Basic Elements of the GATT:

– Trade shall be conducted on a nondiscriminatory basis– Protection shall be afforded domestic industries through customs

tariffs, not through such commercial measures as import quotas– Consultation shall be the primary method used to solve global

trade problems.• Eliminating barriers to international trade (Uruguay Round):

– The General Agreement on Trade in Services (GATS)– Trade-Related Investment Measures (TRIMs)– Trade-Related Aspects of Intellectual Property Rights (TRIPs)

World Trade Organization• An institution, not an agreement as was GATT• Sets many rules governing trade between its 156 members• Provides a panel exports to hear and rule on trade disputes

between members.• Issues binding decisions• All member countries will have equal representation• For the first time, member countries, will undertake obligations

to open their markets and to be bound by the rules of the multilateral trading system.

• Trouble with U.S. ratification:– Concern for the possible loss of sovereignty over its trade laws to

WTO– The lack of veto power– The role the U.S. would assume when a conflict arises over an

individual state’s laws that might be challenged by a WTO member.

• Skirting the Spirit of GATT and WTO

The International Monetary Fund

• Created to assist nations in becoming and remaining economically viable.

• Objectives of the IMF:– Stabilization of foreign exchange rates– Establishment of freely convertible currencies to facilitate

the expansion and balanced growth of international trade• Special Drawing Rights (SDRs)– “paper gold”

The World Bank Group• Institution that has as its goal the reduction of poverty and

the improvement of living standards by promoting sustainable growth and investment in people.

• The World Bank has five institutions each of which performs the following services:– Lending money to the government of developing countries – Providing assistance to governments for developmental projects to the

poorest developing countries.– Lending directly to the private sector – Providing investors with investment guarantees against

“noncommercial risk.”– Promoting increased flows of international investment

Protests against Global Institutions

• The basic complaint against the WTO, IMF and others is the amalgam of unintended consequences of globalizing:– Environmental concerns– Worker exploitation and domestic job losses– Cultural extinction– Higher oil prices– Diminished sovereignty of nations

• Terrorism in London (2005)• “Antisweatshop” campaigns