chapter 6 business-government trade relations. © prentice hall, 2008international business 4e...

Chapter 6 - 1International Business 4e© Prentice Hall, 2008

Chapter 6 Business-

Government Trade Relations

© Prentice Hall, 2008 International Business 4e Chapter 6 - 2

• Describe the political, economic, and cultural reasons nations intervene in trade

• Identify the methods that nations use to promote trade

• Describe the methods that nations use to restrict trade

• Discuss the main institutions of the global trading system

Chapter PreviewChapter Preview


Political MotivesPolitical Motives

ProtectProtectjobsjobs

PreservePreservenationalnationalsecuritysecurity

Respond toRespond to““unfair”unfair”

tradetrade

GainGaininfluenceinfluence


Economic MotivesEconomic Motives

Potential resultsPotential results

+ National income increases

– Wrong industries protected

– Firms grow complacent

– Consumer prices rise

– Public funds poorly spent

Protect infant Protect infant industriesindustries

Protect emerging industries during development from global competition


Economic MotivesEconomic Motives


+ Global industry created

– Firms’ efficiency reduced

– Domestic costs increase

– Special interests benefit

Pursue Pursue strategic trade strategic trade

policypolicyHelp companies achieve economies of scale and gain a first-mover advantage


Cultural MotivesCultural Motives

Result of increasedResult of increasedglobalizationglobalization

Nations block importsNations block importsdeemed harmfuldeemed harmful

Usual suspectsUsual suspectsare US media andare US media andconsumer goodsconsumer goods

Protect Protect national national identityidentity


Trade Promotion and Trade Promotion and RestrictionRestriction

Trade promotionmethods

Trade restrictionmethods

Subsidies

Export financing

Foreign trade zones

Special government agencies

Tariffs

Quotas

Embargoes

Local content requirements

Administrative delays

Currency controls


Financial assistance in the form of cash, tax breaks, price supports, etc.

Potential results

+ Increased competitiveness

– Encourage inefficient firms

– Increased consumer prices

– Overuse of resources

Potential results

+ Increased competitiveness

– Encourage inefficient firms

– Increased consumer prices

– Overuse of resources

SubsidiesSubsidies


Export FinancingExport Financing

Export-Import Bank of the United StatesExport-Import Bank of the United States Working capital loan guarantees Credit information on nation or firm abroad Export credit insurance against loss Loan guarantees to buyers of U.S. goods and much more…

Export-Import Bank of the United StatesExport-Import Bank of the United States Working capital loan guarantees Credit information on nation or firm abroad Export credit insurance against loss Loan guarantees to buyers of U.S. goods and much more…

Financing such as low-interest loans and loan guaranteesFinancing such as low-interest loans and loan guarantees


Designated geographic region in which merchandise is allowed to pass through with lower customs duties (taxes) and/or fewer customs procedures

Purpose is to increase employment and trade within the nation

Foreign Trade ZonesForeign Trade Zones


Special Government Agencies

Organize trade missions for officials and businesses

Operate export-promotion offices at locations abroad

Help import products the home nation does not produce


Tariffs


+ Protect domestic firms from competitors+ Generate income for the government

– Reduce competitiveness of home-based firms– Raise consumer prices


+ Protect domestic firms from competitors+ Generate income for the government

– Reduce competitiveness of home-based firms– Raise consumer prices

Export tariff

Transit tariff

Import tariff

Government tax levied on a product as it enters or leaves a nation


Import and Export QuotasImport and Export Quotas

Restriction on the amount of a good that can enter or leave a country during a certain

period of time

Import Quotas

1. Protect domestic producers of a good

2. Force outside firms to compete for market access

Export Quotas

1. Retain an adequate domestic supply of a product

2. Restrict world supply of a product to raise its price


EmbargoesEmbargoes

Complete ban on trade (imports and exports)in one or more products with a particular country

Can be difficult for a nation to

enforce

Often used to achieve political

goals

Most restrictive nontariff trade

barrier


Local Content Requirements

Laws that domestic producers must supply a specific amount

of a good or service

Forces international companies toemploy local resources (usually labor)

in production process


Administrative Delays

Regulatory controls or bureaucratic rules to slow imports into a country

Inconvenient ports for imports

Product-damaging inspections

Understaffed customs offices

Lengthy licensing procedures


Currency Controls

Restrictions on theconvertibility of a nation’s currency

Limit the amount of globally accepted currency available to pay for imports

Set an unfavorable exchange rate when paying for imports


General Agreement onGeneral Agreement onTariffs and Trade (GATT)Tariffs and Trade (GATT)

Treaty designed to promote free trade byreducing tariffs and nontariff barriers to trade

Treaty designed to promote free trade byreducing tariffs and nontariff barriers to trade

Uruguay Round Uruguay Round

Extended coverage to services Extended coverage to services

Improved intellectual property rules Improved intellectual property rules

Established the WTO Established the WTO

Reduced trade barriers in agriculture Reduced trade barriers in agriculture


World Trade Organization World Trade Organization (WTO)(WTO)

International organization that regulatestrade between nations

International organization that regulatestrade between nations

Dumping and antidumping duties Dumping and antidumping duties

Doha Round of trade talks Doha Round of trade talks

Normal trade relations (“most-favored-nation status”) Normal trade relations (“most-favored-nation status”)

Dispute Settlement Body Dispute Settlement Body


• Describe the political, economic, and cultural reasons nations intervene in trade

• Identify the methods that nations use to promote trade

• Describe the methods that nations use to restrict trade

• Discuss the main institutions of the global trading system

Chapter ReviewChapter Review

chapter 6 business-government trade relations. © prentice hall, 2008international business 4e...

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domestic firms

trade missions

adequate domestic supply

inefficient firms

loss loan guarantees

loan guaranteesbusiness

exportpromotion offices

export quotasrestriction