Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
International Trade:Barriers and Facilitators
Dana-Nicoleta Lascu
Chapter 3
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
“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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
Facilitators of International Trade
• International Trade and Economic Development Organizations
• Government Organizations
• Other Institutions and Procedures Facilitating International Trade
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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)
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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).
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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
Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
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