TRADE DISTORTIONS AND MARKETING BARRIERS

TRADE DISTORTIONS AND MARKETING BARRIERS

Marketing Barriers

29.10.2020 International Marketing, Alireza Ahmadi, Wintersemester 2020-2021 51


Chapter Outline

• Protection of Local Industries

• Government: A Contribution to Protectionism

• Marketing Barriers: Tariffs

• Marketing Barriers: Nontariff Barriers

• Private Barriers

• World Trade Organization (WTO)

• Preferential Systems


Protection of Local Industry

• Keeping Money at Home

• Reducing Unemployment

• Equalizing Cost and Price

• Enhancing National Security

• Protecting Infant Industry


Keeping money at home

Argue:

International trade will lead to an

outflow of money, making foreigners

richer and local people poorer. This

argument is based on the fallacy of

regarding money as the sole indicator

of wealth, but …!


Reducing unemployment

Assumption:

Import reduction will create more

demand for local products and

subsequently create more jobs!

- Import reduction makes foreigners earn

fewer

- Foreigners inclined to invest only when

import demand is great enough to

justify building and using local facilities

- With higher prices at home, consumers

become poorer and buy less


Equalizing cost and price

➢ First, to determine the cause of price differentials is unusually difficult.

➢ Second, even if the causes of price differentials can be isolated and

determined, it is hard to understand why price and cost have to be artificially

equalized in the first place.

✓ If cost/price equalization is a desired end, then international trade may be the

only instrument that can achieve it. For example, if wages are too high in one

country, that country will attract labor from a lower-wage country.


Enhancing national security

➢ A nation can never be completely self-

sufficient because raw materials are not

found in the same proportion in all areas of

the world.

➢ National security is achieved at the cost of

higher product prices, and money could be

used for something more productive to the

national interest.

Source: Courtesy of the US Council for Energy Awareness.


Protecting infant industry

➢ The necessity to protect an infant industry is perhaps the most credible

argument for protectionist measures.

In practice, it is not an easy task to protect industries.

• First, the government must identify deserving industries.

• Second, appropriate incentives must be created to encourage productivity.

• Finally, the government has to make sure that the resultant protection is only

temporary.


Marketing Barriers


Marketing Barriers: Tariffs

• Direction: Import and Export Tariffs

• Purpose: Protective and Revenue Tariffs

• Lengths: Tariff Surcharge versus Countervailing Duty

• Rates: Specific duties, Ad Valorem, and Combined rates

• Distribution Point: - Distribution and Consumption Taxes: single-stage, value

added, cascade, and excise

Tariff, derived from a French word meaning rate, price, or list of charges, is a customs duty or a tax on products that move across borders


Marketing Barriers: Nontariff Barriers

• Government Participation in Trade

- Administrative Guidance

- Government Procurement and State Trading

- Subsidies

Tariffs, though generally undesirable, are at least straightforward and obvious. Nontariff barriers, in comparison, are

more elusive or nontransparent.



• Customs and Entry Procedures

- Classification

- Valuation

- Documentation

- License or Permit

- Inspection

- Health and Safety Regulations

Customs and entry procedures may be employed as nontariff barriers. These

restrictions involve classification, valuation, documentation, license, inspection, and

health and safety regulations.



• Product Requirements

- Product Standards

- Packaging, Labeling, and

Marking

- Product Testing

- Product Specifications For goods to enter a country, product

requirements set by that country must be met.

Requirements may apply to product standards and

product specifications as well as to packaging,

labeling, and marking.



• Quotas

- Absolute Quotas

- Tariff Quotas

- Voluntary QuotasVER (voluntary export restraint)

OMA (orderly marketing agreement).

Quotas are a quantity control on imported goods. Generally, they are specific provisions limiting the amount of foreign products imported in order to protect local firms and to conserve foreign currency.



• Financial Control

- Exchange Control

- Multiple Exchange Rates

- Prior Import Deposits and Credit

Restrictions

- Profit Remittance Restrictions


The World Trade Organization (WTO)

• Goal: broad, multilateral, and free worldwide system of trading

• Most Favored Nation (MFN) Principle

• Normal Trade Relations (NTR) Principle


Preferential systems

➢ Tariff reduction generally favors manufactured goods rather than primary goods

➢ Less developed countries rely mainly on exports of primary products

➢ In response to less developed countries’ needs, the United Nations Conference

on Trade and Development (UNCTAD) was created

➢ Aiding economic development of developing countries

➢ Generalized System of Preferences (GSP)

- Allowing duty-free entry of products

Case Study

➢ Case Study on non-tariff barriers related to veterinary export certificates

in Dutch exports

- Two minutes presenting the summary


QUESTIONS

• Explain the rationale and discuss the weaknesses of each of these arguments for protection of local industries: (a) keeping money at home, (b) reducing unemployment, (c) equalizing cost and price, (d) enhancing national security, and (e) protecting infant industry.

• Distinguish between these types of tariffs: (a) import and export tariffs, (b) protective and revenue tariffs, (c) surcharge and countervailing duty, and (d) specific and ad valorem duties.

• Explain how these distribution/consumption taxes differ from one another: single-stage, value-added, cascade, and excise taxes.

• Explain these various forms of government participation in trade: administrative guidance, subsidies, and state trading.

• Explain these customs and entry procedures and discuss how each can be used deliberately to restrict imports: (a) product classification, (b) product valuation, (c)29.10.2020 International Marketing, Alireza Ahmadi, Wintersemester 2020-2021 69

QUESTIONS

documentation, (d) license/permit, (e) inspection, and (f) health and safety regulations.

• Explain these various types of product requirements and discuss how each can be used deliberately to restrict imports: (a) product standards, (b) packaging, labeling, and marking, (c) product testing, and (d) product specifications.

• What is the rationale for an export quota?

• Distinguish these types of import quotas: (a) absolute, (b) tariff, (c) OMA, and (d) VER.

• Discuss how these financial control methods adversely affect free trade: exchange control, multiple exchange rates, prior import deposits, credit restrictions, and profit remittance restrictions.

• What is WTO? What is its purpose?

• What is GSP?


DISCUSSION ASSIGNMENTS

• Between July 2018 and August 2019, the United States announced plans to

impose tariffs on more than $550 billion of Chinese products, and China retaliated

with tariffs on more than $185 billion of U.S. goods. Explain how the US-China

trade war hurt America? Do you see any impact also on US-EU trade?


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TRADE DISTORTIONS AND MARKETING BARRIERS