Copyright Atomic Dog Publishing, 2002 International Expansion Trade Barriers Trade Facilitators

International Trade  Most int’l trade consists of the purchase & sale of industrial equipment, consumer goods, oil & agricultural products Federal Reserve Bank of New York

Copyright Atomic Dog Publishing, 2002 What factors encourage companies to take their business abroad? Competition Trade agreements Economic Growth Move to Market Economy Keep up w/competition Market opportunities Profitability Extend mature phase of PLC

International Trade & Trade Policy Opinions on trade  Protectionism - regulate trade to protect home markets -Trade barriers  Free Trade – an open global market -Trade facilitators

Free trade vs. protectionism Protectionism – regulate trade to protect home markets:  Protect jobs at home  Protect infant industries  Protect national security  Diversify the economy by keeping weaker industries competitive  Protect the environment from the travails of excess demand Free trade – an open global market:  Economies of scale  Increased competitiveness  Greater selection of goods & services  Downward pressure on consumer prices

Copyright Atomic Dog Publishing, 2002 Barriers/Facilitators to Trade Barriers:  Import restrictions, standards, boycotts/embargos, other Facilitators:  International Organizations  U.S. Government Organizations  Other (incl. Foreign Trade Zones)

Trade Barriers Import Policies:  Tariffs - taxes/duties levied against imported goods. -A tax of 15% makes jewelry from Mexico more expensive than jewelry made in the United States.  Quotas - limits quantity or dollar amount of goods allowed in the host country -Korea may export only 15,000 automobiles a year to the United States.  Import Licenses - like quota, but on a case-by-case basis Standards:  health, quality, safety, labeling, certification -The rungs on the ladder of any bulldozer sold in Germany must be 12 inches apart; US manufacturers generally make rungs 15 inches apart. National Council on Economic Education National Council on Economic Education Copyright © EconEdLink. All rights reserved.

Trade Barriers Other  Voluntary Agreements - reciprocal limits between 2 countries to avoid penalties by one  Monetary Barriers – e.g., Exchange Permit - government permit required to convert local currency into foreign (U.S.) money for transfer abroad.  Anti-dumping penalties – penalties for underpricing goods in a foreign market in order to shut out the competition abroad.  Other Restrictions - e.g., language laws, product labels, religious conventions, etc.

Example: Honduras 15% tariff on finished goods Exchange permit required Strict sanitary standards; Sanitary permit required Label law; labels must include sanitary registration number Country Commercial Guide

Barriers to International Trade: Boycotts & Embargos Boycotts – “can’t buy from”  ban on the purchase of all goods associated with a particular company and/or country Embargos –”can’t sell to”  Prohibits all business deals with the target country

Facilitators of International Trade

International Trade/Development Organizations History Organizations:  World Trade Organization  International Monetary Fund (IMF)  Development Banks – e.g., World Bank United Nations Organizations

Copyright Atomic Dog Publishing, 2002 International Monetary Fund Founded 1944 to prevent another world-wide depression Oversees world economic situation Monitors countries’:  Balance of payments  Financial sector  Economies Provides assistance

The World Trade Organization (WTO) 150 member countries A forum of governments to negotiate trade agreements via:  A negotiating forum  A set of overriding rules Purpose: “to help trade flow smoothly, freely, fairly and predictably”  remove barriers to international trade  Settle trade disputes

Government Organizations Facilitating International Trade United States Agencies  US Agency for International Development (USAID)  US Department of Commerce  Export-Import Bank of the United States  State and Local Government Agencies  Department of State  Small Business Administration  Department of Agriculture

Non-government Organizations that Facilitate International Trade  Commercial banks  Export intermediaries  Chamber of commerce and trade associations  American chambers of commerce abroad  International trade consultants and other advisors

Copyright Atomic Dog Publishing, 2002 Free Trade Zones Tax-free area not considered part of the country in terms of import regulations