trade barriers chapter 03
TRANSCRIPT
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Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002
International Trade:
Barriers and Facilitators
Dana-Nicoleta Lascu
Chapter 3
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Chapter Objectives
Examine trade barriers imposed on international trade
and arguments used to erect and maintain these
barriers
Provide an overview of organizations facilitatinginternational 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
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Arguments for Protectionism
Excess productive
capacity
Excess labor
Infant industry argumentand industrialization
Natural resources
conservation
and environmentalprotection
Consumer protection
National defense
Entry Barriers
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Tools of Government Protectionism
Tariffs
Discourage imports of
particular goods
Penalize countries that
are not politically alignedwith the importing country
Generate revenues
US tariffs < 10%
Other countries canimpose tariffs > 100%
for protected products
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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 causingimporters to charge higher prices and to restrict import volumes
- Examples: Orderly market arrangements
Voluntary import expansion
Voluntary export restraints
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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 specificsupply source
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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
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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 quotasimposed to avoid a greater
penalty Used by the importing country to protect local industries
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Price Controls
Price increase
Increasing prices of imports to match minimum domesticprices
Antidumping and countervailing duty actions When used as price controls, they involve initiating
investigations to determine if products were sold below fairvalue to get rid of excess inventory (dumping) or as a resultof foreign subsidies. Such measures can be used tointimidate importers.
Paratariff measures Additional charges that increase the cost of imports, such
as advance import deposits, import charges, seasonal tariffsand customs charges
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Standards
Environmental,
performance,
manufacturing and
other standards used
as barriers to imports;
primarily imposed by
highly industrialized
countries
Excessive standardscan help local and
international industry
alike, by deterring gray
markets
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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 theterritory of the importing country, usually in a foreign trade
zone
Favoring local contribution and labor
Alternatively, limiting foreign ownership to a certain
percentage
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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
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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
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Facilitators of International Trade
International Trade and Economic Development
Organizations
Government Organizations
Other Institutions and Procedures Facilitating
International Trade
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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
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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)
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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
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International Monetary Fund (IMF)
Encourages unrestricted conversion of
currencies through clear and unequivocal
values
Member voting power linked to amountthey 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
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Development Banks The World Bank
Largest international bank thatsponsors economic development
Employs international specialists ineconomics, finance,sectoral development
Focus on health and informationtechnology
African Development Bank
Asian Development Bank
European Bank forReconstruction andDevelopment
Inter- American Development
Bank
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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
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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
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Free Trade Zones (FTZs)
Tax-free area not considered part of the country in
terms of import regulations and restrictionssite is
considered an international area
Merchandise in FTZ is outside the jurisdiction of hostcountrys customs services
Host country benefits:
Creates demand for local services, products, and raw
materialshence local jobs
Increases trade balancere-exports add to total number of
exports from the respective country
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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 deferringtariffs until that time
Payment is delayed until goods are sold
Firm can use the FTZ for breaking bulk
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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 entrybonded 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).
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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 thattook place in the zone
Limits on products imported to encourage re-exporting
Most-Favored-Nation Status
Preferential tax treatment on imported products fromcountries that are not part of a US trade agreement
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Chapter Summary
Rationales for protectionism include protection ofmarkets with excess production capacity, with excesslabor, infant industry argument, protection ofenvironment, consumers, and national defensearguments
Protection tools involve imposing tariff and non-tariffbarriers
Several institutions facilitate international tradedirectly, or by promoting economic development.
They are: the World Trade Organization, the Groupof Seven (Eight), and the development banks;government institutions; and other entities, such asFree Trade Zones and Customs-Privileged Facilities