Chapter 6 Business-Government Trade Relations

© Prentice Hall, 2008International Business 4e Chapter 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

© Prentice Hall, 2008International Business 4e Chapter Political Motives ProtectjobsPreservenationalsecurity Respond to “unfair”tradeGaininfluence

© Prentice Hall, 2008International Business 4e Chapter Economic Motives 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

© Prentice Hall, 2008International Business 4e Chapter Economic Motives 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

© Prentice Hall, 2008International Business 4e Chapter Cultural Motives Result of increased globalization Nations block imports deemed harmful Usual suspects are US media and consumer goods Protect national identity

© Prentice Hall, 2008International Business 4e Chapter 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

© Prentice Hall, 2008International Business 4e Chapter 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

© Prentice Hall, 2008International Business 4e Chapter 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

© Prentice Hall, 2008International Business 4e Chapter  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

© Prentice Hall, 2008International Business 4e Chapter 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

© Prentice Hall, 2008International Business 4e Chapter 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

© Prentice Hall, 2008International Business 4e Chapter 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

© Prentice Hall, 2008International Business 4e Chapter 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

© Prentice Hall, 2008International Business 4e Chapter 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

© Prentice Hall, 2008International Business 4e Chapter 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

© Prentice Hall, 2008International Business 4e Chapter 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

© Prentice Hall, 2008International Business 4e Chapter 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

© Prentice Hall, 2008International Business 4e Chapter 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

© Prentice Hall, 2008International Business 4e Chapter 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