Download - BUS 350 Chap 6 - Week 3 Tuesday
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Global Business Today
byCharlesW.L.Hill
McGraw-Hill/Irwin Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
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GreatProjectReportExample
Exampleof
Experiential
Learning
class
project
report
onYouTube:
http://www.youtube.com/watch?v=tknI9OEv8aU
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MarketingTeamPRAssignment
Foryourclassproject:
Talkto
Ms.
Lan
to
find
out
how
you
can
get
publicity
inVietnamfortheworkyourclassisdoingforthe
pediatrichospital.
Developasimple
Public
Relations
(PR)
plan
and
includeitinyourMidTermandFinalPresentations.
FollowyourPRplanandgetasmuchpublicityas
possiblein
English
language
(e.g.,
Viet
Nam
News)
andVietnameselanguagenewspapersand
websites.
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Chapter 6
ThePoliticalEconomyof
InternationalTrade
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Introduction
Freetradereferstoasituationwhereagovernment
doesnotattempttorestrictwhatitscitizenscanbuy
fromanother
country
or
what
they
can
sell
to
anothercountry
Whilemany
nations
are
nominally
committed
to
freetrade,theytendtointerveneininternational
tradetoprotecttheinterestsofpolitically
importantgroups
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InstrumentsofTradePolicy
Question: Howdogovernmentsinterveneininternational
trade?
Therearesevenmaininstrumentsoftradepolicy
1. Tariffs
2. Subsidies3. Importquotas
4. Voluntaryexportrestraints
5. Localcontentrequirements
6. Antidumpingpolicies
7. Administrativepolicies
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Tariffs
Atariffisataxleviedonimportsthateffectively
raisesthecostofimportedproductsrelativeto
domesticproducts
Specifictariffsareleviedasafixedchargefor
eachunit
of
agood
imported
Advaloremtariffsareleviedasaproportionof
thevalueoftheimportedgood
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Tariffs
Question: Whydogovernmentsimposetariffs?
Tariffs
increasegovernmentrevenues
provideprotectiontodomesticproducersagainst
foreigncompetitors
by
increasing
the
cost
of
importedforeigngoods
forceconsumerstopaymoreforcertainimports
So,tariffs
are
unambiguously
pro
producer and
anti
consumer,andtariffsreducetheoverallefficiencyof
theworldeconomy
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Subsidies
Asubsidyisagovernmentpaymenttoadomestic
producer
Subsidieshelpdomesticproducers
competeagainstlowcostforeignimports
gainexport
markets
Consumers
typically
absorb
the
costs
of
subsidies
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ImportQuotasand
VoluntaryExport
Restraints
Animportquotaisadirectrestrictiononthequantityofsome
goodthatmaybeimportedintoacountry
Tariffratequotasareahybridofaquotaandatariffwherea
lowertariffisappliedtoimportswithinthequotathantothose
overthequota
Voluntaryexportrestraintsarequotasontradeimposedbythe
exportingcountry,typicallyattherequestoftheimporting
countrysgovernment
Aquotarentis theextraprofitthatproducersmakewhensupply
isartificiallylimitedbyanimportquota
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ImportQuotasand
VoluntaryExport
Restraints
Question: Whobenefitsfromimportquotasand
voluntaryexportrestraints?
Importquotasandvoluntaryexportrestraints
benefitdomesticproducersbylimitingimport
competition,buttheyraisethepricesofimported
goodsforconsumers
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LocalContentRequirements
Alocalcontentrequirementdemandsthatsome
specificfractionofagoodbeproduceddomestically
Therequirement
can
be
in
physical
terms
or
in
valueterms
Localcontent
requirements
benefit
domestic
producersandjobs,butconsumersfacehigher
prices
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AdministrativePolicies
Administrativetradepolices arebureaucraticrules
thataredesignedtomakeitdifficultforimportsto
enteracountry
Thesepoliceshurtconsumersbydenyingaccessto
possiblysuperior
foreign
products
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AdministrativePolicies
Dumping issellinggoodsinaforeignmarketbelowtheircostof
production,orsellinggoodsinaforeignmarketatbelowtheir
fairmarketvalue
Itcanbeawayforfirmstounloadexcessproductioninforeign
markets
Somedumping
may
be
predatory
behavior,
with
producers
using
substantialprofitsfromtheirhomemarketstosubsidizepricesin
aforeignmarketwithaviewtodrivingindigenouscompetitors
outofthatmarket,andlaterraisingpricesandearningsubstantial
profits
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AdministrativePolicies
Antidumpingpolicesaredesignedtopunishforeign
firmsthatengageindumping
Thegoalistoprotectdomesticproducersfrom
unfairforeigncompetition
U.S.firms
that
believe
aforeign
firm
is
dumping
can
fileacomplaintwiththegovernment
Ifthecomplainthasmerit,antidumpingduties,also
knownas
countervailing
duties
may
be
imposed
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TheCasefor
GovernmentIntervention
Question: Whydogovernmentsinterveneintrade?
Therearetwotypesofarguments
1. Politicalargumentsareconcernedwithprotecting
theinterestsofcertaingroupswithinanation
(normallyproducers),oftenattheexpenseof
othergroups(normallyconsumers)
2. Economicarguments
are
typically
concerned
with
boostingtheoverallwealthofanation(tothe
benefitofall,bothproducersandconsumers)
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Political ArgumentsforIntervention
Politicalargumentsforgovernmentinterventioninclude
1. protectingjobs
2. protectingindustriesdeemedimportantfornational
security
3. retaliatingtounfairforeigncompetition
4. protectingconsumersfromdangerousproducts
5. furtheringthegoalsofforeignpolicy
6. protectingthehumanrightsofindividualsinexporting
countries
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PoliticalArgumentsforIntervention
1.Protectingjobsandindustries
Thisis
the
most
common
political
reason
for
traderestrictions
Thisis
typically
the
result
of
political
pressures
by
unionsorindustriesthatare"threatened"bymoreefficientforeignproducers,andhavemorepoliticalcloutthantheconsumerswhowill
eventuallypay
the
costs
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PoliticalArgumentsforIntervention
2. NationalSecurity
Governmentssometimes
protect
certain
industriessuchasaerospaceoradvanced
electronicsbecausetheyareimportantfor
nationalsecurity
Thisargumentislesscommontodaythaninthe
past
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PoliticalArgumentsforIntervention
3.Retaliation
Whengovernmentstake,orthreatentotake,specific
actions,othercountriesmayremovetradebarriers
Thiscan
be
arisky
strategy
Ifthreatenedgovernmentsdontbackdown,tensions
canescalateandnewtradebarriersmaybeenacted
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PoliticalArgumentsforIntervention
4.ProtectingConsumers
Protecting
consumers
from
unsafe
products
is
also
be
anargumentforrestrictingimports
Thisofteninvolveslimitingorbanningtheimportof
certainproducts
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PoliticalArgumentsforIntervention
5.FurtheringForeignPolicyObjectives
Tradepolicycanbeusedtosupportforeignpolicyobjectives
Preferentialtradetermscanbegrantedtocountriesthat
agovernmentwantstobuildstrongrelationswith
Roguestatesthatdonotabidebyinternationallawsor
normscan
be
punished
However,itmightcauseothercountriestoundermine
unilateraltradesanctions
Twoacts,
the
Helms
Burton
Act
and
the
DAmato
Act,
have
beenpassedtoprotectAmericancompaniesfromsuch
actions
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PoliticalArgumentsforIntervention
6.ProtectingHumanRights
Governmentscan
use
trade
policy
to
improve
the
human
rightspoliciesoftradingpartners
Unlessalargenumberofcountrieschoosetotakesuch
action,however,itisunlikelytoprovesuccessful
Somecriticshavearguedthatthebestwaytochangethe
internalhumanrightsofacountryistoengageitin
internationaltrade
ThedecisiontograntChinaMFNstatusin1999wasbased
onthisphilosophy
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Economic ArgumentsforIntervention
Economicargumentsforgovernmentinterventionin
internationaltradeinclude
1. Theinfantindustryargument
2. Strategictradepolicy
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1.Theinfantindustryargument
Theinfantindustryargumentsuggeststhatanindustryshould
beprotecteduntilitcandevelopandbeviableand
competitiveinternationally
Thishasbeenacceptedasajustificationfortemporary
traderestrictions
under
the
WTO
However,thisargumenthasbeencriticizedbecause
itis
useless
unless
it
makes
the
industry
more
efficient
ifacountryhasthepotentialtodevelopaviable
competitiveposition,itsfirmsshouldbecapableofraising
necessaryfunds
Economic ArgumentsforIntervention
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2.StrategicTradePolicy
Strategictradepolicysuggeststhatincaseswhere
theremaybeimportantfirstmoveradvantages,
governmentscan
help
firms
from
their
countries
attaintheseadvantages
Strategictradepolicyalsosuggeststhat
governmentscan
help
firms
overcome
barriers
to
entryintoindustrieswhereforeignfirmshavean
initialadvantage
Economic ArgumentsforIntervention
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TheRevisedCaseforFreeTrade
Newtradetheoristsbelievegovernmentinterventionin
internationaltradeisjustified
Classictradetheoristsdisagree
Somenewtradetheoristsbelievethatwhilestrategictrade
theory
is
appealing
in
theory,
it
may
not
be
workable
in
practice theysuggestarevisedcaseforfreetrade
Twosituationswhererestrictionsontrademaybe
inappropriate
Retaliation
DomesticPolicies
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RetaliationandTradeWar
Krugmanarguesthatstrategictradepoliciesaimedat
establishingdomesticfirmsinadominantpositionin
aglobal
industry
are
beggar
thy
neighborpolicies
thatboostnationalincomeattheexpenseofother
countries
Acountrythatattemptstousesuchpolicieswill
probablyprovokeretaliation
Atrade
war
could
leave
both
countries
worse
off
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DomesticPolicies
Governmentscanbeinfluencedbyspecialinterest
Consequently,agovernments
decision
to
intervene
inamarketmayappeaseacertaingroup,butnot
necessarilythesupporttheinterestsofthecountry
asawhole
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DevelopmentoftheWorldTradingSystem
SinceWorldWarII,aninternationaltrading
frameworkhasevolvedtogovernworldtrade
Initsfirstfiftyyears,theframeworkwasknownas
theGeneralAgreementonTariffsandTrade(GATT)
Since1995,theframeworkhasbeenknownasthe
WorldTradeOrganization(WTO)
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FromSmithtotheGreatDepression
UpuntiltheGreatDepressionofthe1930s,most
countrieshadsomedegreeofprotectionism
In1930,theU.S.enactedtheSmootHawleyAct,
whichcreatedsignificantimporttariffsonforeign
goods
Othernationstooksimilarstepsandasthe
depressiondeepened,
world
trade
fell
further
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19471979:GATT,TradeLiberalization,andEconomicGrowth
AfterWWII,theU.S.andothernationsrealizedthevalueof
freertrade,andestablishedtheGeneralAgreementonTariffs
andTradein1947
TheapproachofGATT (amultilateralagreementtoliberalize
trade)wastograduallyeliminatebarrierstotrade
GATTsmembershipgrewfrom19tomorethan120nations
Tariffreductionwasspreadovereightroundsofnegotiation
GATTregulations
were
enforce
by
amutual
monitoring
system
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19801993:ProtectionistTrends
Theworldtradingsystemcameunderstrainduringthe1980s
andearly1990sbecause
Japanseconomicsuccessstrainedwhathadbeenmore
equaltradingpatterns
PersistenttradedeficitsbytheU.Scausedsignificant
problemsin
some
industries
and
political
problems
for
the
government
ManycountriesfoundthatalthoughGATTlimitedtheuseof
tariffs,
there
were
many
other
forms
of
intervention
that
hadthesameeffectthatdidnottechnicallyviolateGATT
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TheUruguayRoundandtheWorldTradeOrganization
TheUruguayRound(1986)focusedon
1.
Services
and
Intellectual
Property Tradeissuesrelatedtoservicesandintellectualpropertyand
agriculturewereemphasized
2.TheWorldTradeOrganization
TheWTOwasestablishedasamoreeffectivepolicemanofthe
globaltraderules
TheWTO
encompassed
GATT
and
the
General
Agreement
on
TradeinServices(GATS)andtheAgreementonTradeRelated
AspectsofIntellectualPropertyRights(TRIPS)
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WTOExperiencetoDate
Sinceitsestablishment,theWTO hasemergedasaneffective
advocateandfacilitatoroffuturetradedeals,particularlyin
suchareasasservices
Sofar,mostcountrieshaveadoptedWTOrecommendations
fortradedisputes
TheWTO
has
brokered
negotiations
to
reform
the
global
telecommunicationsandfinancialservicesindustries
The1999meetingoftheWTOinSeattledemonstratedthat
issues
surrounding
free
trade
have
become
mainstream,
and
dependentonpopularopinion
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TheFutureoftheWTO:UnresolvedIssuesandtheDohaRound
TheWTOiscurrentlyfocusingon
1.Antidumpingpolicies
TheWTO
is
encouraging
members
to
strengthen
the
regulations
governingtheimpositionofantidumpingduties
2.Protectionisminagriculture
TheWTO
is
concerned
with
the
high
level
of
tariffs
and
subsidies
intheagriculturalsectorofmanyeconomies
3.Protectingintellectualproperty
Members
believe
that
the
protection
of
intellectual
property
rights
isessentialtotheinternationaltradingsystem
TRIPSobligesWTOmemberstograntandenforcepatentslasting
atleast20yearsandcopyrightslasting50years
h f h
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TheFutureoftheWTO:UnresolvedIssuesandtheDohaRound
4.Marketaccessfornonagriculturalgoodsandservices
TheWTOwouldliketobringdowntariffrateson
nonagriculturalgoodsandservices,andreducethescopefor
theselective
use
of
high
tariff
rates
5.Anewroundoftalks:Doha
TheWTO
launched
anew
round
of
talks
in
2001
to
focus
on
cuttingtariffsonindustrialgoodsandservices
phasingoutsubsidiestoagriculturalproducers
reducingbarriers
to
cross
border
investment
limitingtheuseofantidumpinglaws
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ImplicationsforManagers
Question: Whyshouldinternationalmanagerscare
aboutthepoliticaleconomyoffreetradeorabout
the
relative
merits
of
arguments
for
free
trade
and
protectionism?
Tradebarriers
impact
firm
strategy
Firmscanplayaroleinpromotingfreetradeor
tradebarriers
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TradeBarriersandFirmStrategy
Tradetheorysuggestswhydispersingproductionactivities
globallycanbebeneficial
However,tradebarriersmaylimitafirmsabilitytodoso
Tradebarriersraisethecostofexporting
Quotaslimitexports
Firmsmayhavetolocateproductionactivitieswithinacountrytomeetlocalcontentregulations
Thethreatoffuturetradebarrierscaninfluencefirm
strategy Allofthesecanraisecostsabovewhattheymayhavebeen
inaworldoffreetrade
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PolicyImplications
Internationalfirmshaveanincentivetolobbyforfree
trade,andkeepprotectionistpressuresfromcausing
them
to
have
to
change
strategies
Whiletheremaybeshortrunbenefitstohaving
governmentprotection
in
some
situations,
in
the
longrunthesecanbackfireandothergovernments
canretaliatemakingitmoredifficulttoconstructa
globally
dispersed
production
system
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OnYourHomework
YourName
YourKeukaIDNumber
YourClass
Number
TheNameoftheassignment(E.g.,Homework#2)
TheNameofyourHomeworkGroup(E.g.,Group1)
TheQuestion
you
are
answering
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A i t
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Assignment
ReadChapter
7&
Work
on
Project.
Homework#2(100points):Answerone oftheseshortessay
questionsandsubmityourprinted answeratthestartofclasson
Thursday.
60100words
Question1:Whatisalocalcontentrequirement? Howarelocalcontent
requirementstypicallyexpressed?
Question2:
Who
gains
and
who
losses
from
the
imposition
of
atariff
on
animportedgoods?Howcanitbedeterminedwhetherthenetgainfrom
thetariffexceedsthenetloss?
Question3:Whatisasubsidy? Providesomeexamplesoftheformsthat
subsidiestake.
How
do
subsidies
help
domestic
producers?
Question4:Whatisavoluntaryexportrestraint? Cancountriesuse
voluntaryexportrestraintstoavoidtraderetaliation? Explainyour
answer.