• Language: Potential problems include mistranslation, inappropriate messaging, lack of understanding of local customs and differences in taste.

• Values and Religious Attitudes: Differing values about business efficiency, employment levels, importance of regional differences, and religious practices, holidays, and values about issues such as interest-bearing loans.

SOCIAL AND CULTURAL FACTORS

• Infrastructure: Basic systems of communication, transportation, energy facilities, and financial systems.

• Currency Conversion and Shifts: Fluctuating values can make pricing in local currencies difficult and affect decisions about market desirability and investment opportunities.

ECONOMIC DIFFERENCES

• Political Climate

– Stability is a key consideration.

• Legal Environment

– U.S. law

– International regulations

– Country’s law

– Climate of corruption. Foreign Corrupt Practices Act forbids U.S. companies from bribing foreign officials, candidates, or government representatives.

• International Regulations

– Treaties between U.S. and other nations.

– Tariffs are taxes charged on imported goods.

– Enforcement problems, as with piracy

POLITICAL AND LEGAL DIFFERENCES

Figure 9.6 Types of Barriers to International Trade

©2004 Prentice Hall 9-6

TARIFFSA tariff is a tax on imports. Tarrifs come in two

different types:

• Revenue-producing: a source of federal income

• Protective: raises the price of imports to encourage consumers to buy locally made goods.

Ad Valorem Duty An import duty levied as a percentage of the

invoice value of imported goods

Specific Duty A fixed sum levied on a physical unit of an

imported good

NON TARIFF BARRIERSAn IMPORT QUOTA limits either the quantity or

the monetary value of a product that may be imported. These help local business compete with foreign companies.

An EMBARGO is a total ban on specific goods coming into and leaving a country. An embargo can be imposed for different reasons:

• Poisoned or defective goods

• Political reasons

CONT…• EXCHANGE CONTROLS through central

banks or government agencies regulate the buying and selling of currency to shape foreign exchange in accordance with national policy.

Protectionism is a government’s establishment of economic policies that systematically restrict imports in order to protect domestic industries. It is the opposite of free trade.

Reducing Barriers to International Trade

The world is moving toward more free trade.

There are many communities and groups that monitor and promote trade

International Economic Communities reduce trade barriers and promote regional economic cooperation.

Free-trade area: Members trade freely among selves without tariffs or trade restrictions.

Customs union: Establishes a uniform tariff structure for members’ trade with nonmembers.

Common market: Members bring all trade rules into agreement.

Organizations Promoting International Trade

GATT- WTO

GATT• The General Agreement on Trade and Tariff (GATT) The General Agreement on Trade and Tariff (GATT)

came into existence in 1947came into existence in 1947• It sought substantial reduction in tariff and other barriers It sought substantial reduction in tariff and other barriers

to trade and to eliminate discriminatory treatment in to trade and to eliminate discriminatory treatment in international commerce.international commerce.

• India signatory to GATT 1947 along with twenty two India signatory to GATT 1947 along with twenty two other countries other countries

• Eight rounds of negotiations had taken place during five Eight rounds of negotiations had taken place during five decades of its existencedecades of its existence

WTO • WTO Came into existence on WTO Came into existence on 1-1-19951-1-1995 with the conclusion with the conclusion

of Uruguay Round Multilateral Trade Negotiations at of Uruguay Round Multilateral Trade Negotiations at Marrakesh on 15th April 1994, to : Marrakesh on 15th April 1994, to :

Transparent, free and rule-based trading systemTransparent, free and rule-based trading system• Provide common institutional framework for conduct of Provide common institutional framework for conduct of

trade relations among memberstrade relations among members• Facilitate the implementation, administration and Facilitate the implementation, administration and

operation of Multilateral Trade Agreementsoperation of Multilateral Trade Agreements• Rules and Procedures Governing Dispute SettlementRules and Procedures Governing Dispute Settlement• Trade Policy Review MechanismTrade Policy Review Mechanism• Concern on Non-trade issues such as Food Security, Concern on Non-trade issues such as Food Security,

environment, health, etc.environment, health, etc.

Represents 149 negotiated trade agreements among countries

Key FunctionsCooperating with other International Organizations

AdministeringWTO

agreement

Providing a forum for trade negotiations

Handling trade disputes between

nations

Monitoringnational trade

policies

Providingtechnical assistance and

training for people in developing countries

Benefits

Promotes peace by handling trade disputes

constructively

Rules make life easier for all organizations

to follow

Trade stimulates economic growth

Systemencourages good

government

WTO Fundamental Principles

Most favored nation principle: when country A grants a tariff concession to country B, the same concession automatically applies to all other countries that are members of WTO

Reciprocity principle: each member country will not be forced to reduce tariffs unilaterally. A tariff concession is made only in return for comparable concessions from the other countries.

Transparency principle: tariffs are to be readily visible to all countries

Created a free trade zone among Canada, Mexico, and United States

removed and reduced barriers to trade, such as tariffs, quotas, and licenses

increased trade tightened intellectual property right protection

NAFTA- NORTH AMERICAN FREE TRADE AGREEMENT

An organization with the goals of creating a single market among member nations and establishing the free movement of goods, people, services, and capital

Removes/Reduces:

Created the EURO as currency

currently 27 member countries

physical barriers at country borderstechnical barriers that prevent goods

produced in one country being sold in others

Fiscal barriers:red-tape and tax systems that hinder tradefinancial barriers that prevent/hinder free

movement of investment capital

EUROPEAN UNION

IMF1. IMF was created to assist nations in becoming and

remaining economically viable

2. It assists countries that seek capital for economic development and restructuring

3. IMF loans come with stipulations that borrowing countries slash spending and impose controls to curb inflation

4. It helps maintain stability in the world financial markets

Objectives of the IMF include:1. stabilization of foreign exchange rates 2. establish convertible currencies to facilitate

international trade3. lend money to members in financial trouble

World bank

1. lending money to countries to finance development projects in education, health, and infrastructure;

2. providing assistance for projects to the poorest developing countries;

3. lending directly to the private sector in developing countries with long-term loans, equity investments, and other financial assistance;

4. provide investors with investment guarantees against “noncommercial risk,” so developing countries will attract FDI; and

5. provide conciliation and arbitration of disputes between governments and foreign investors