Copyright Atomic Dog Publishing, 2002 International Trade: Barriers and Facilitators Dana-Nicoleta...

Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002

International Trade:Barriers and Facilitators

Dana-Nicoleta Lascu

Chapter 3


Chapter 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


Arguments for Protectionism

• Excess productive capacity

• Excess labor• Infant industry argument

and industrialization • Natural resources

conservation and environmental protection

• Consumer protection• National defense

Entry Barriers


Tools of Government Protectionism

• Tariffs Discourage imports of

particular goods Penalize countries that

are not politically aligned with the importing country

Generate revenues

• US tariffs < 10%• Other countries can

impose tariffs > 100% for protected products


Tools of Government Protectionism, continued

• 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


Tools of Government Protectionism, continued

• 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” Expansion and Restraints

• Voluntary import expansion Governments agree to allow imports from a particular country

as result of pressure from another country Increases foreign access to a domestic market Increases competition and reduces local prices

• Voluntary export restraints Self-imposed export quotas–imposed to avoid a greater

penalty Used by the importing country to protect local industries


Price Controls

• Price increase Increasing prices of imports to match minimum domestic

prices

• Antidumping and countervailing duty actions When used as price controls, they involve initiating

investigations to determine if products were sold below fair value to get rid of excess inventory (dumping) or as a result of foreign subsidies. Such measures can be used to intimidate importers.

• Paratariff measures Additional charges that increase the cost of imports, such

as advance import deposits, import charges, seasonal tariffs and customs charges


Standards

• Environmental, performance, manufacturing and other standards used as barriers to imports; primarily imposed by highly industrialized countries

• Excessive standards can help local and international industry alike, by deterring gray markets


Percentage Requirements

• Requirement that a percentage of the products imported be locally produced

• Local content requirement Met by manipulating and/or assembling the product on the

territory of the importing country, usually in a foreign trade zone

• Favoring local contribution and labor• Alternatively, limiting foreign ownership to a certain

percentage


Boycotts, Embargos, Sanctions

• Boycotts Action group calling for a ban on all goods associated with a

particular company and/or country Target company may be representative of, or even

synonymous with, its country of origin

• Embargos Prohibiting all business deals with the target country; affects

third parties • Sanctions

Punitive trade restrictions applied by a country or group against another country for noncompliance


Currency Controls

• Blocked currency Does not allow importers to exchange of local currency

for currency a seller is willing to accept as payment

• Differential exchange rates Favorable and less favorable exchange rates imposed on

imports, based on the extent to which they are necessary and desirable

Can also be the difference between black market and government exchange rates

• Foreign exchange permits Give priority to imports in the national interest Delay access to hard currency exchange for products not

deemed essential


Facilitators of International Trade

• International Trade and Economic Development Organizations

• Government Organizations

• Other Institutions and Procedures Facilitating International Trade


World Trade Organization

• Largest and most influential international trade organization

• Ensures free flow of trade• Functions:

Provides assistance to developing and transition economies Offers help for export promotion Promotes regional trade agreements and economic

cooperation Reviews members’ trade policies and engages in routine

notification of new trade measures


World Trade Organization, continued

• WTO agreements represent trade rules and regulations and act as contracts guaranteeing countries trade rights and binding governments to free trade policies. Agreements: General Agreement on Tariffs and Trade General Agreement on Trade in Services (GATS) Trade-Related Aspects of Intellectual Property Rights

(TRIPS)


Group of Seven (Eight) – G7 (G8)

• Members from the most industrialized countries: Canada, France, Germany, Italy, Japan, United Kingdom, United States – and Russia Yearly meetings involve heads of state, government

ministers, directors of central banks Addresses: biotechnology,food safety, economic

development, disarmament, arms control, organized crime, drug trafficking, terrorism, environmental issues and trade


International Monetary Fund (IMF)

• Encourages unrestricted conversion of currencies through clear and unequivocal values

• Member voting power linked to amount they contribute

• Less of a lender of last resort, than a body instituting appropriate development strategies

• Mediator between debtors and creditors• Provides training and technical assistance

for monetary and financial strategies


Development Banks• The World Bank

Largest international bank that sponsors economic development

Employs international specialists in economics, finance, sectoral development

Focus on health and information technology

• African Development Bank

• Asian Development Bank

• European Bank for Reconstruction and Development

• Inter- American Development Bank


United Nations Organizations

• Promote the economic and financial welfare of developing countries

• Focus on developing industrial, communication, agricultural and transportation infrastructures

• 16 different United Nations Organizations


Government Organizations

• United States Agencies US Agency for International Development (USAID) US Department of Commerce Export-Import Bank of the United States State and Local Government Agencies


Free Trade Zones (FTZs)

• Tax-free area not considered part of the country in terms of import regulations and restrictions–site is considered an international area

• Merchandise in FTZ is outside the jurisdiction of host country’s customs services

• Host country benefits: Creates demand for local services, products, and raw

materials–hence local jobs Increases trade balance–re-exports add to total number of

exports from the respective country


Free Trade Zones (FTZs), continued

• Firm benefits from using an FTZ: Foreign goods are exempt from duties as long as they do not

enter the country

Goods are imported when demand is high, thus deferring tariffs until that time

Payment is delayed until goods are sold

Firm can use the FTZ for breaking bulk


Free Trade Zones (FTZs), continued

• Firm benefits from using an FTZ, cont.: Lowers prices for goods sold in the importing country

Helps importing country impose local content regulations on products from abroad

Safer than most ports of entry–bonded warehouse

Products can be labeled as manufactured in the foreign trade zone country, if products from that country have a positive country-of-origin (country image).


Other Privileged Trade Positions

• Customs-Privileged Facilities Products are brought into an in-bond area, manipulated

(processed, repackaged, assembled), and re-exported to country where products originated

Low tariffs assessed only on value-added processing that took place in the zone

Limits on products imported to encourage re-exporting

• Most-Favored-Nation Status Preferential tax treatment on imported products from

countries that are not part of a US trade agreement


Chapter Summary

• Rationales for protectionism include protection of markets with excess production capacity, with excess labor, infant industry argument, protection of environment, consumers, and national defense arguments

• Protection tools involve imposing tariff and non-tariff barriers

• Several institutions facilitate international trade directly, or by promoting economic development. They are: the World Trade Organization, the Group of Seven (Eight), and the development banks; government institutions; and other entities, such as Free Trade Zones and Customs-Privileged Facilities

Copyright Atomic Dog Publishing, 2002 International Trade: Barriers and Facilitators Dana-Nicoleta...

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