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Learning Objectives

• The basis for the reestablishment of world trade following World War II

• The effects of protectionism on world trade• The seven types of trade barriers• The provisions of the Omnibus Trade and

Competitiveness Act• The importance of GATT and the World Trade

Organization• The emergence of the International Monetary Fund and

the World Bank Group

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Global PerspectiveTrade Barriers – An International

Marketer’s Minefield

• Every country seems to take advantage of the open U.S. market while putting barriers in the way of U.S. exports.

• Barriers to trade, both tariff and nontariff, are one of the major issues confronting international marketers.

• If the benefits of the social, political, and economic changes now taking place are to be fully realized, free trade must prevail throughout the global marketplace.

- WTO (World Trade Organization)

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Top Ten 2004 U.S. Trading Parnters($ billions, merchandise trade)

• Insert Exhibit 2.1

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The Twentieth to the Twenty-First Century

• First Half of the Twentieth Century- Depression plus two World Wars

• Last Half of the Twentieth Century- Marred by struggles between countries espousing the

socialist Marxist approach and those following a democratic capitalist approach

• Marshall Plan• Move toward international cooperation among trading

nations was manifest in the negotiation of the General Agreement on Tariffs an Trade, (GATT).

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World Trade and U.S. Multinationals

• 1950s, many U.S. companies that had never before marketed outside the U.S. began to export, others invested in production facilities overseas.

• 1960s, U.S. multinational corporations (MNCs) were facing major challenges on two fronts:

- Resistance to direct investment- Increasing competition in export markets

• American MNCs were confronted by a resurgence of competition from all over the world.

- NIC (Newly Industrialized Countries)

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World Trade and U.S. Multinationals (continued)

• The Balance of Merchandise Trade- U.S. Trade Deficit

• U.S. dilemma of how to encourage trading partners to reciprocate with open access to their markets without provoking increased protectionism.

- WTO (World Trade Organization- APEC (Asia-Pacific Economic Cooperation

Conference)- NAFTA

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The First Decade of the Twenty-First Century and Beyond

• The OECD estimates that economies of member countries will expand 3% annually for the next 25 years.

• The economies of developing nations will grow at faster rates of between 4% - 6% for the next 25 years.

• The level of intensity of competition will change as companies focus on gaining entry or maintaining their position in:

- Emerging markets- Regional Trade Areas- Established markets in Europe, Japan, and the U.S.

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Balance of Payments

• Transactions recorded yearly that must be in balance• A record of condition, not determinant of condition• A Balance of Payments statement includes three

accounts:- Current account, Capital account and Reserves

account

Balance of Payments is the system of accounts that records a nation’s international finance transactions.

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Protection Logic and Illogic

Protection of infant industry or home marketNeed to keep money at home

Encouragement of capital accumulation

Maintenance of the standard of living and real wages

Conservation of natural resources

Industrialization of a low-wage nation

Maintenance of employment and reduction of

unemployment

National defense

Retaliation and bargaining

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Trade Barriers

• Tariffs• Quotas• Voluntary Export Restraints• Boycotts and Embargoes• Monetary Barriers

- Blocked currency- Differential exchange

• Standards• Antidumping Penalties

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The Omnibus Trade and Competitiveness Act

• Designed to deal with trade deficits, protectionism, and the overall fairness of our trading partners.

• The bill covers three areas considered critical in improving U.S. trade:

- Market access, Export expansion and Import relief• Four ongoing activities to support the growth of

international trade:- GATT- The World Trade Organization (WTO)- International Monetary Fund (IMF)- The World Bank Group

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General Agreement on Tariffs and Trade

• Paved the way for the first worldwide tariff agreement.• Basic Elements of the GATT:

- Trade shall be conducted on a nondiscriminatory basis

- Protection shall be afforded domestic industries through customs tariffs, not through such commercial measures as import quotas

- Consultation shall be the primary method used to solve global trade problems.

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World Trade Organization

• An institution, not an agreement • Sets rules governing trade between its 148 members• Provides experts to rule on trade disputes• Issues binding decisions• All member countries will have equal representation• Trouble with U.S. ratification:

- Concern for the possible loss of sovereignty over its trade laws to WTO

- The lack of veto power• Skirting the Spirit of GATT and WTO

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The International Monetary Fund

• Created to assist nations in becoming and remaining economically viable.

• Objectives of the IMF:- Stabilization of foreign exchange rates- Establishment of freely convertible currencies to

facilitate the expansion and balanced growth of international trade

• Special Drawing Rights (SDRs)- “paper gold”

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The World Bank Group

The World Bank has five institutions performing the

following services -

Lending money to governments of developing countries.

Providing assistance to governments for developmental

projects to the poorest developing countries.

Lending directly to the private sector.

Providing investors with investment guarantees against

“noncommercial risk.”

Promoting increased flows of international investment.

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Protests against Global Institutions

• The basic complaint against the WTO, IMF and others is the amalgam of unintended consequences of globalizing:

- Environmental concerns- Worker exploitation and domestic job losses- Cultural extinction- Higher oil prices- Diminished sovereignty of nations

• Terrorism in London (2005)• “Antisweatshop” campaigns

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Summary

• The benefits from absolute or comparative advantage clearly can accrue to any nation.

• Increased pressure for protectionism.• The consumer seldom benefits from such protection.• Free international markets help underdeveloped countries

become self-sufficient.• Freer trade will always be partially threatened by various

governmental and market barriers that exist or are created for the protection of local businesses.

• The future of open global markets lies with the controlled and equitable reduction of trade barriers.