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CHAPTER 2: The Dynamic Environment of International Trade

What Should You Learn?

The basis for the reestablishment of world trade following World War II The importance of balance-of-payment figures to a countrys economy

The effects of protectionism on world trade

The seven types of trade barriers The importance of GATT and the World Trade Organization

The emergence of the IMF and the World Bank.

Global Perspective Trade Barriers An International Marketers Minefield :-

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- Countries take advantage of U.S. open markets while putting barriers in the way of U.S.

exports.

- Tariff and nontariff barriers to trade are major issues confronting international marketers.

- To realize the benefits of the social, political, and economic changes, free trade must

prevail throughout the global marketplace.

- WTO (World Trade Organization)

Balance of Payments

The system of accounts that records a nations international finance transactions

- Transactions recorded annually

- Must always be in balance

- A record of condition, not determinant of condition

A balance of payments statement includes three (3) accounts :-

1. Current account2. Capital account3. Reserves account

Protectionism

- Tariffs, quotas, and nontariff barriers are designed to protect markets from intrusions by

foreign countries

- Nations utilize barriers to restrain entry of unwanted goods :-

Legal

Exchange Psychological Private market

Protection Logic and Illogic

Arguments concerning protectionism on trade

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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

Trade Barriers

1. Tariffs2. Quotas3. Voluntary Export Restraints (VER)4. Boycotts and embargoes5. Monetary barriers6. Blocked currency7. Differential exchange8. Government approval9. Standards10.Antidumping penalties

4 ongoing activities to support the growth of international trade :-

1. GATT2. The associated World Trade Organization (WTO)3. International Monetary Fund (IMF)4. The World Bank Group

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General Agreement on Tariffs and Trade

- Paved way for first effective worldwide tariff agreement

- Basic elements of the GATT

Trade shall be conducted on a nondiscriminatory basisProtection shall be afforded domesticindustries through customs tariffs, not through such commercial measures as import quotas,

Consultation shall be the primary method used to solve global trade problems,- Eliminating international trade barriers 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

WTO is an institution not an agreement

take a look here:http://www.wto.org/

Sets many rules governing trade between its 148 members Provides a panel exports to hear and rule on trade disputes between members

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Issues binding decisions All member countries will have equal representation Member countries have open their markets and to be bound by the rules of the multilateral

trading system

Skirting the Spirit of GATT and WTO:-

Loopholes- Reducing tariffs while at the same time increasing number and scope of technical

standards and inspection requirements :-

Imposing antidumping duties Negotiating bilateral trade agreements- May lead to multinational concessions

- Not necessarily consistent with WTO goals and aspirations

The International Monetary Fund

The International Monetary Fund (IMF) is an organization of 187 countries, working to foster global

monetary cooperation, secure financial stability, facilitate international trade, promote high

employment and sustainable economic growth, and reduce poverty around the world.

IMF WORK

http://www.imf.org/external/spring/2011/http://www.imf.org/external/spring/2011/

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The IMF provides loans to countries that have trouble meeting their international payments and cannot

otherwise find sufficient financing on affordable terms.

This financial assistance is designed to help countries restore macroeconomic stability by rebuilding

their international reserves, stabilizing their currencies and paying for importsall necessary conditions

for relaunching growth.

The IMF also provides concessional loans to low-income countries to help them develop their economies

and reduce poverty.

- Stabilization of foreign exchange rates

- Establishment of freely convertible currencies to facilitate the expansion and balanced

growth of international trade

- Paper gold

Created to assist nations in becoming and remaining economically viable Objectives of the IMF Special Drawing Rights (SDRs)

do take a look here:http://www.imf.org/

The World Bank Group

Institution created to reduce poverty and improve standard of living- By promoting sustainable growth and investment in people

The World Bank has five (5) institutions which perform the following services:-a) Lending money to the governments of developing countries

b) Providing assistance to governments for developmental projects to the poorest

developing countries

c) Lending directly to the private sector

http://www.imf.org/http://www.imf.org/http://www.imf.org/

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d) Providing investors with guarantees against noncommercial risk

e) Promoting increased flows of international investment

Summary

The benefits from absolute or comparative advantage clearly can accrue to any nation Increased pressure for protectionism from every region of the globe The consumer seldom benefits from such protection Free international markets help underdeveloped countries become self-sufficient Freer trade will always be partially threatened by various governmental and market barriers

that exist or are created for the protection of local businesses

The future of open global markets lies with the controlled and equitable reduction of tradebarriers