1. Business-Government Trade Relations Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

2. International Business 5e 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 Preview

3. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter 6 - 3 Political Motives ProtectjobsPreservenationalsecurity Respond to “unfair”tradeGaininfluence

4. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter 6 - 4 Economic Motives I Potential results + National income increases – Wrong industries protected – Firms grow complacent – Consumer prices rise – Public funds poorly spent Protect infant industries Protect emerging industries during development from global competition

5. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter 6 - 5 Economic Motives II Potential results + Global industry created – Firms’ efficiency reduced – Domestic costs increase – Special interests benefit Pursue strategic trade policy Help companies achieve economies of scale and gain a first- mover advantage

6. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter 6 - 6 Cultural Motives Result of increased globalization Nations block imports deemed harmful Usual suspects are U.S. media and consumer goods Protect national identity

7. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter 6 - 7 Trade Promotion and Restriction Trade promotion methods Trade restriction methods  Subsidies  Export financing  Foreign trade zones  Special government agencies  Tariffs  Quotas  Embargoes  Local content requirements  Administrative delays  Currency controls

8. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter 6 - 8 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 Subsidies

9. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter 6 - 9 Export Financing Export-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 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 guarantees

10. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter 6 - 10  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 Zones

11. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter 6 - 11 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

12. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter 6 - 12 Tariffs Potential results + 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

13. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter 6 - 13 Import 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

14. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter 6 - 14 Embargoes 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

15. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter 6 - 15 Local Content Requirements Laws that domestic producers must supply a specific amount of a good or service Forces international companies to employ local resources (usually labor) in production process

16. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter 6 - 16 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

17. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter 6 - 17 Currency Controls Restrictions on the convertibility 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

18. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter 6 - 18 General Agreement on Tariffs and Trade (GATT) Treaty designed to promote free trade by reducing tariffs and nontariff barriers to trade Uruguay Round Extended coverage to services Improved intellectual property rules Established the WTO Reduced trade barriers in agriculture

19. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter 6 - 19 World Trade Organization (WTO) International organization that regulates trade between nations Dumping and antidumping duties Doha Round of trade talks Normal trade relations (“most-favored-nation status”) Dispute Settlement Body

20. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e Chapter 6 - 20 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 Review

21. Business-Government Trade Relations Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

22. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall