INTERNATIONAL TRADE: INSTITUTIONAL BARRIERS AND

FACILITATORS

TEACHER: Juan Conde RevueltaMEMBERS: Andrea Aguila Stefanie Aguila Daniela Restrepo Natalia Salazar

INTERNATIONAL MARKETING

OBJECTIVES:

•Examine trade barriers imposed on international trade and arguments used to

erect and maintain these barriers.•Provide an overview of organizations facilitating international trade directly or by promoting economic development.•Examine government efforts involved at promoting economic development and international trade.•Describe trade facilitators such as foreign trade zones, offshore-assembly plants, special economic zones and the Most-Favored-Nation Status.

PROTECTIONISM

All actions by national and local governments aimed at protecting local markets from foreign competitors.

ARGUMENTS FOR PROTECTIONISMCountless reasons to maintain government restrictions on trade are given as a reason by protectionists, but essentially all arguments can be classified as follows:

1) Protection of markets with excess productive capacity

2) Employment protection and Protection of markets with excess labor.

3) Infant industry arguments and Arguments related to the

industrialization of developing countries.

4) Natural resources conservation and Protection of the environment.

5) Protection of consumers.

6) National Defence Interests.

● PROTECTION OF MARKETS WITH EXCESS OF PRODUCTIVE CAPACITY

The excess production capacity of some industries is rooted in local government protectionism in the new industries and reliance on the conventional industries.

● PROTECTION OF MARKETS WITH EXCESS LABORThe erection of barriers to imports of products competing with local offerings in an effort to protect local jobs.

EMPLOYMENT PROTECTIONProtection of local employment by not granting import licenses for products competing with similar locally produced goods.

INFANT INDUSTRY ARGUMENTSA protectionist strategy aimed at protecting a national industry in its infancy from powerful international competitors.

PROTECTION OF THE ENVIRONMENTEnvironmental protection is a practice of protecting the natural environment on individual, organizational or governmental levels, for the benefit of both the natural environment and humans.

PROTECTION OF CONSUMERSConsumer protection is a group of laws and organizations designed to ensure the rights of consumers as well as fair trade, competition and accurate information in the marketplace. The laws are designed to prevent businesses that engage in fraud or specified unfair practices from gaining an advantage over competitors. They may also provide additional protection for those most vulnerable in society.

TOOLS OF GOVERNMENT PROTECTIONISM

TARIFFS

● Discourage imports of particular goods

● Protect local industry

● Penalize countries that are not politically aligned with the importing country

● Generate revenues for the importing country

● US tariffs < 15%

● Other countries can impose tariffs > 100% for protected products

NON TARIFF BARRIERS

Measures, other than traditional tariffs, that are used to distort international trade flows.

-Raise prices of both imports and import-competing goods

-Favor domestic over foreign supply sources by causing importers to charge higher prices and to restrict import volumes

-Examples:

•Orderly market arrangements

•Voluntary import expansion

•Voluntary export restraints

IMPORT QUOTAS

● Specify maximum quantity (unit limit) or value of a product that may be imported during a specified period.

● Administered either on a global first-come, first-served basis or on a bilateral basis to restrict shipments from a specific supply source.

LICENSES

•Non-automatic import licenses

Restrict volume and/or quantity of imports

•Automatic import licenses

Granted freely to importing companies

Facilitate import surveillance

Discourage import surges

Place administrative and financial burdens on importer

May raise costs by delaying shipments

VOLUNTARY IMPORT EXPANSION

● Voluntary Import Expansion:A government’s response to the protectionist threats.

It agrees: 1. Open the market to imports.2. Increase foreign access to a domestic market.3. Increase competition and reduces prices.

Voluntary Export Restraints - Price Controls:Increasing Prices of Imports

● Voluntary Export Restraints:A government’s self-imposed export quotas to a particular country.

1. To avoid more severe protectionist action.2. To protect local industries.

● Price Controls: Increasing Prices of Imports:Strategy to sell for a particular price in local market.

1. To increase the prices of imports.

Price Controls: Antidumping and Countervailing Duty Actions

● Antidumping: To offset dumping.

● Countervailing duty actions: Result of foreign subsidies.

1. Protect the local market.2. restrict trade.

Price Controls: Paratariff Measures

● Paratariff measures:Additional fees that increase the cost of imports.

Such as: Advance import depositsImport chargesSeasonal tariffs and customs charges

Mainly imposed by highly industrialized countries.

Standards: As a Barrier to Trade - Local Content Requirements and Foreign Ownership

● Standards: As a barrier to trade:Imposes performance, environmental, or other requirement that are primarily aimed imports.

1. Help local and international industry.

● Percentage Requirements:A percentage of the products imported are locally produced.

1. Local content requirement.2. Limit foreign ownership.

Boycott - Embargo - Sanctions

● Boycott:Action calling for a ban on consumption all goods.

● Embargo:Prohibiting all business deals with the target country.

● SanctionsPunitive trade restrictions applied for noncompliance.

Currency and Capital Flow Controls

● Capital Flow:

1. Affect international businesses.2. Restrict market dictated activity in the name of protectionism.

● Currency Flow:

1. To influence the stability of national currency. 2. Affect the flow of imports into the country .

Currency and Capital Flow Controls

Among the currency controls used by governments we can find the following :

● Blocked Currency:Does not allow importers to exchange of local currency or a currency that the seller is willing to accept as payment.

1. It can be used as a political weapon.2. Create obstacles for international businesses attempting to enter

the country.

Currency and Capital Flow Controls

● Differential Exchange Rates:

1. To promote imports of desirable and necessary goods.2. It can be the difference between the black market exchange rate

and the official government rate.

● Foreign Exchange Permit:1. Such permits are provided by the central bank of the country.2. Give priority to imports of goods that are in the national interest.

International Trade and Trade Facilitators

Severals important international and local institutions play an active role in promote international trade and have a considerable impact on the development of international trade and marketing operations.

● To increase the flow of good.● Open access to products and services.● To minimize cost to companies and final consumers.

The International Trade Imperative

Free Trade is essential to the economic development. Arguments for:

● Economist David Ricardo’s theory comparative advantage.

Free Trade = Benefits for all countries.

● Free trade suggest that opening up the home market:1. Increase competition.2. Reduction of prices to local consumers.

Free Trade = Economic Growth.

International Trade and Economic Development

Organizations

The General Agreement on Tariffs and Trade

- It is a multilateral agreement regulating international trade.

- It was signed by 124 nations.

- Promote trade.

- Eliminate barriers.

- Open markets.

The World Trade Organization

- It is the only global international organization.

- Intends to supervise and liberalize international trade.

- It is run by its member governments.

Group of Eight

- It is a group leading industrialised countries.

- The members are: Canada, France, Germany, Italy, Japan, the United Kingdom, the United States and Russia.

- The group addresses issues.

The International Monetary Fund

- It is an organization of 188 countries. - Foster global growth - Economic stability - Reduces poverty

World Bank

- It is an financial and technical assistance.

- Unique partnership to reduce poverty.

- Comprises five institutions managed by their member countries.

Other Development Banks

The African Development Bank

The Asian Development Bank

Poverty reduction in Africa

Focuses on the private sector

Other Development Banks

The European Bank for Reconstruction and

Development

The Inter-American Development Bank

Reforming and strengthening

markets

Clients companies that do not ordinarily deal with the large development bank

United Nations Organizations

- It is an intergovernmental organization.

- Maintain international peace and

security. - Achieve international cooperation in

solving international economic

GOVERNMENT ORGANIZATIONS

Promoting international trade constitutes one of the more important tasks of the national and local governments of most countries.Regardless of the level of country economic development, most international trade issues are addressed by the national Department of Commerce, known as the Ministry of Trade.Frequently, the Ministry of trade works in tandem with the State Department, known as the Ministry of Foreign Affairs which promotes the respective country’s foreign policy.

United States Agencies: Federal and State Government

Many United States Federal, state, and local government agencies promote the interests of U.S. businesses abroad, encouraging their international involvement in the form of export promotion or by providing foreign direct investment support. They also actively encourage foreign direct investment in the United States.

United States Agency for International Development (USAID): is an independent agency of the federal government. USAID engages in economic development-related operations. unlike the development organizations previously discussed, is an arm of the United States Department of State.

United States Agencies: Federal and State Government

United States Department of Commerce: engages in many activities that promote trade. It offers export assistance and counseling to businesses involved in international trade, provides country information and the assistance of country specialists, and helps bring buyers and sellers together through trade shows and other trade-related events.

The department of Commerce also regulates trade by issuing export licenses and by offering food, health, and safety inspections and certification.

United States Agencies: Federal and State Government

An example of government agencies that actively support international trade is the state economic development offices. Most of the 50 U.S. states have a department whose goal is to promote local firms internationally; this is typically the Department of Economic Development.Among the trade services that state governments provide often free of charge are export counseling, full or partial sponsoring of trade promotion (primarily trade shows), and dissemination of market information.State and local governments also actively attempt to promote international business.for example, the state of South Carolina was able to draw substantial investments from noteworthy international firms such as Michelin, Fuji, BMW.

Other institutions and Procedures Facilitating International Trade

Foreign Trade ZonesA foreign trade zone, is a tax-free area in a particular country that is not considered part of the respective country in terms of import regulations and restrictions.

An FTZ is a site within a particular country that is considered to be an international area; merchandise in the FTZ, both foreign and domestic, without outside the jurisdiction of the host country’s customs services.

The international firm operating in the FTZ benefits from the following:

● Foreign goods that enter the foreign trade zone are exempt from the usual customs duties, tariffs, and other import controls as long as the goods do not enter the country.

● An FTZ lowers prices for goods sold in the importing country: Unassembled goods are cheaper to transport, and duties are assessed at lower rates for unassembled, than for assembled, goods.

VIDEO: Exposing the Myth of Economic Protectionism

https://www.youtube.com/watch?v=9DoBnoMRo3Q