International Business Chapter Six Government Influence on Trade International Business 10e Daniels/Radebaugh/Sullivan 2004 Prentice Hall, Inc 6-1

2004 Prentice Hall, Inc Chapter Objectives Evaluate rationale for government policies that impact trade Evaluate rationale for government policies that impact trade Examine effects of pressure groups Examine effects of pressure groups Compare protectionists rationales used in developed countries with those used in emerging countries Compare protectionists rationales used in developed countries with those used in emerging countries Study potential and effects of government intervention on free trade Study potential and effects of government intervention on free trade Review methods of trade restriction, regulation, and liberalization Review methods of trade restriction, regulation, and liberalization Profile the GATT and World Trade Organization Profile the GATT and World Trade Organization Demonstrate government policies that create business uncertainty and opportunity Demonstrate government policies that create business uncertainty and opportunity 6-2

2004 Prentice Hall, Inc Effect of Government Regulations Figure

2004 Prentice Hall, Inc Rationale for Government Intervention Preserve national identity Improve position compared to other countries Maintain spheres of influence Promote industrialization Deal with unfriendly countries Protect infant industries Maintain essential industries Prevent unemployment Non-economic Rationale Economic Rationales 6-4

2004 Prentice Hall, Inc Industrialization Argument Surplus workers can more easily increase manufacturing output than agricultural output Surplus workers can more easily increase manufacturing output than agricultural output Inflows of foreign investment can promote sustainable growth Inflows of foreign investment can promote sustainable growth Prices and sales of agricultural products and raw materials fluctuate Prices and sales of agricultural products and raw materials fluctuate 6-5

2004 Prentice Hall, Inc Industrialization Argument, con ’ t Markets for industrial products grow faster than markets for agricultural products Markets for industrial products grow faster than markets for agricultural products Local industry reduces imports and promotes exports Local industry reduces imports and promotes exports Industrial activity helps the nation building process Industrial activity helps the nation building process 6-6

2004 Prentice Hall, Inc Economic Relationships Balance-of- Payments Adjustments Balance-of- Payments Adjustments Comparable access or “ fairness ” Comparable access or “ fairness ” Price control objectives Price control objectives DumpingDumping Optimum-tariff theoryOptimum-tariff theory 6-7

2004 Prentice Hall, Inc Non-economic Rationales for Government Intervention Maintenance of essential industries Maintenance of essential industries Prevention of shipments to unfriendly countries Prevention of shipments to unfriendly countries Maintenance or extension of spheres of influence Maintenance or extension of spheres of influence Protecting activities that preserve national identity Protecting activities that preserve national identity 6-8

2004 Prentice Hall, Inc Government Instruments of Trade Control Tariffs Tariffs Export tariffExport tariff Transit tariffTransit tariff Import tariffImport tariff Specific dutySpecific duty Subsidies Subsidies Aid and loans Aid and loans Customs valuation Customs valuation Quotas Quotas 6-9

2004 Prentice Hall, Inc Comparison of Trade Restrictions Figure

2004 Prentice Hall, Inc Issues With Sanctions Costs of sanctions on innocent people Costs of sanctions on innocent people Inability of sanctions to induce a change in leadership Inability of sanctions to induce a change in leadership Uneven application among countries Uneven application among countries Review the country ’ s overall record Review the country ’ s overall record Lack of agreement about the cause being protested Lack of agreement about the cause being protested 6-11

2004 Prentice Hall, Inc General Agreement on Tariffs and Trade (GATT) Formed in 1947 by 23 countries to abolish quotas and reduce tariffs Formed in 1947 by 23 countries to abolish quotas and reduce tariffs Laid the foundation to liberalize world trade Laid the foundation to liberalize world trade Required members to open markets equally to every other member Required members to open markets equally to every other member However, it could not enforce compliance However, it could not enforce compliance The World Trade Organization replaced GATT in 1995 The World Trade Organization replaced GATT in

2004 Prentice Hall, Inc World Trade Organization (WTO) 140 current members (90% of trade) 140 current members (90% of trade) Adopted the principles and trade agreements of GATT Adopted the principles and trade agreements of GATT Expanded to cover trade in Expanded to cover trade in ServicesServices InvestmentInvestment Intellectual propertyIntellectual property Governments bring charges of unfair trade practices to the WTO Governments bring charges of unfair trade practices to the WTO WTO rulings are binding WTO rulings are binding 6-13

2004 Prentice Hall, Inc Dealing with Governmental Trade Influences Companies can: Companies can: Move operations to a lower-cost countryMove operations to a lower-cost country Concentrate on markets that attract less international competitionConcentrate on markets that attract less international competition Adopt internal innovationsAdopt internal innovations Increase efficiency Increase efficiency Superior products Superior products Try to get government protectionTry to get government protection 6-14

2004 Prentice Hall, Inc Chapter Review Evaluate rationale for government policies that impact trade Evaluate rationale for government policies that impact trade Examine effects of pressure groups Examine effects of pressure groups Compare protectionists rationales used in developed countries with those used in emerging countries Compare protectionists rationales used in developed countries with those used in emerging countries Study potential and effects of government intervention on free trade Study potential and effects of government intervention on free trade Review methods of trade restriction, regulation, and liberalization Review methods of trade restriction, regulation, and liberalization Profile the GATT and World Trade Organization Profile the GATT and World Trade Organization Demonstrate government policies that create business uncertainty and opportunity Demonstrate government policies that create business uncertainty and opportunity 6-15