©2004 Prentice Hall9-1 Chapter 9: Formulation of National Trade Policies International Business, 4 th Edition Griffin & Pustay

©2004 Prentice Hall9-2 Issues on Trade Intervention  Should a national government intervene to protect the country’s domestic firms by taxing foreign goods entering the domestic market or constructing other barriers against imports?  Should a national government directly help the country’s domestic firms increase their foreign sales through export subsidies, government-to-government negotiations, and guaranteed loan programs?

©2004 Prentice Hall9-3 Free Trade or Fair Trade?  Free trade –minimal influence from government  Fair trade – active intervention from government (managed trade)

©2004 Prentice Hall9-4 Industry-Level Arguments  National Defense Argument  Infant Industry Argument  Maintenance of Existing Jobs  Strategic Trade Theory

©2004 Prentice Hall9-5 National Defense Argument  Country must be self-sufficient in critical raw materials, machinery, and technology or else be vulnerable to foreign threats  Appeals to general public  Protects steel, electronics, and machine tools industries, and merchant marines

©2004 Prentice Hall9-6 Infant Industry Argument  Imposition of tariffs to give U.S. firms temporary protection from foreign competition until firms are fully established  Powerful economic development strategy  Which industries should be protected? For how long?

©2004 Prentice Hall9-7 Maintenance of Existing Jobs  Jobs in high-wage countries threatened by imports from low-wage countries  Forms of assistance –Tariffs –Quotas

©2004 Prentice Hall9-8 Strategic Trade Theory National government can make its country better off if it adopts trade policies that improve the competitiveness of its domestic firms in oligopolistic industries

©2004 Prentice Hall9-9 National Trade Policies  Economic Development Programs –Export promotion strategy –Import substitution strategy  Industrial Policy –Key domestic industries chosen, protected, and promoted  Public Choice Analysis –Consumers versus special interest groups

©2004 Prentice Hall9-10 Barriers to International Trade  Tariff barriers –Export tariff –Transit tariff –Import tariffs Ad valorem Specific Compound  Non-tariff barriers –Quotas –Numerical export controls –Product and testing standards –Restricted access to distribution networks –Public-sector procurement policies –Regulatory controls –Currency controls –Investment controls –Local-purchase requirements

©2004 Prentice Hall9-11 Exports of Canadian softwood lumber to the U.S. have resulted in a 30-year long trade dispute Canadian

©2004 Prentice Hall9-12 Figure 9.6 Types of Barriers to International Trade

©2004 Prentice Hall9-13 Promotion of International Trade  Subsidies  Foreign Trade Zones (FTZ)  Export Financing Programs

©2004 Prentice Hall9-14 Controlling Unfair Trade Practices  International Trade Administration (ITA) –Division of U.S. Department of Commerce –Determines whether an unfair trade practice has occurred –Confirmed cases transferred to U.S. International Trade Commission (ITC)  Two types of unfair trade practices –Government subsidies –Unfair pricing practices

©2004 Prentice Hall9-15 Controlling Unfair Trade Practices  Countervailing Duties (CVD)  Antidumping Regulations  Super 301

©2004 Prentice Hall9-16 Objectives of Unfair Trade Practice Laws  Promote global efficiency by encouraging production in those countries that can produce a good most efficiently  Ensure that trade occurs on the basis of comparative advantage, not the size of government subsidies  Protect consumers from predatory behavior