trade barriers chapter 03

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Copyright Atomic Dog Publishing, 2002Copyright Atomic Dog Publishing, 2002

International Trade:

Barriers and Facilitators

Dana-Nicoleta Lascu

Chapter 3


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Copyright Atomic Dog Publishing, 2002


Chapter Objectives

Examine trade barriers imposed on international trade

and arguments used to erect and maintain these

barriers

Provide an overview of organizations facilitatinginternational trade directly or by promoting economic

development

Examine government efforts involved at promoting

economic development and international trade

Describe trade facilitators such as foreign trade

zones, offshore-assembly plants, special economic

zones and the Most-Favored-Nation Status


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Arguments for Protectionism

Excess productive

capacity

Excess labor

Infant industry argumentand industrialization

Natural resources

conservation

and environmentalprotection

Consumer protection

National defense

Entry Barriers


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Tools of Government Protectionism

Tariffs

Discourage imports of

particular goods

Penalize countries that

are not politically alignedwith the importing country

Generate revenues

US tariffs < 10%

Other countries canimpose tariffs > 100%

for protected products


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Tools of Government Protectionism,

continued

Non-Tariff Barriers

Measures, other than traditional tariffs, that are used to distort

international trade flows

- Raise prices of both imports and import-competing goods

- Favor domestic over foreign supply sources by causingimporters to charge higher prices and to restrict import volumes

- Examples: Orderly market arrangements

Voluntary import expansion

Voluntary export restraints


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Tools of Government Protectionism,

continued

Quotas

Specify maximum quantity (unit limit) or value of a product

that may be imported during a specified period

Administered either on a global first-come, first-served basis

or on a bilateral basis to restrict shipments from a specificsupply source


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Licenses

Non-automatic import licenses

Restrict volume and/or quantity of imports

Automatic import licenses Granted freely to importing companies

Facilitate import surveillance

Discourage import surges

Place administrative and financial

burdens on importer

May raise costs by delaying shipments



Voluntary Expansion and Restraints

Voluntary import expansion

Governments agree to allow imports from a particular country

as result of pressure from another country

Increases foreign access to a domestic market

Increases competition and reduces local prices

Voluntary export restraints

Self-imposed export quotasimposed to avoid a greater

penalty Used by the importing country to protect local industries



Price Controls

Price increase

Increasing prices of imports to match minimum domesticprices

Antidumping and countervailing duty actions When used as price controls, they involve initiating

investigations to determine if products were sold below fairvalue to get rid of excess inventory (dumping) or as a resultof foreign subsidies. Such measures can be used tointimidate importers.

Paratariff measures Additional charges that increase the cost of imports, such

as advance import deposits, import charges, seasonal tariffsand customs charges



Standards

Environmental,

performance,

manufacturing and

other standards used

as barriers to imports;

primarily imposed by

highly industrialized

countries

Excessive standardscan help local and

international industry

alike, by deterring gray

markets



Percentage Requirements

Requirement that a percentage of the products

imported be locally produced

Local content requirement

Met by manipulating and/or assembling the product on theterritory of the importing country, usually in a foreign trade

zone

Favoring local contribution and labor

Alternatively, limiting foreign ownership to a certain

percentage



Boycotts, Embargos, Sanctions

Boycotts

Action group calling for a ban on all goods associated with a

particular company and/or country

Target company may be representative of, or even

synonymous with, its country of origin

Embargos

Prohibiting all business deals with the target country; affects

third parties

Sanctions Punitive trade restrictions applied by a country or group

against another country for noncompliance



Currency Controls

Blocked currency

Does not allow importers to exchange of local currency

for currency a seller is willing to accept as payment

Differential exchange rates

Favorable and less favorable exchange rates imposed on

imports, based on the extent to which they are necessary

and desirable

Can also be the difference between black market and

government exchange rates Foreign exchange permits

Give priority to imports in the national interest

Delay access to hard currency exchange for products not

deemed essential



Facilitators of International Trade

International Trade and Economic Development

Organizations

Government Organizations

Other Institutions and Procedures Facilitating

International Trade



World Trade Organization

Largest and most influential international trade

organization

Ensures free flow of trade

Functions: Provides assistance to developing and transition economies

Offers help for export promotion

Promotes regional trade agreements and economic

cooperation

Reviews members trade policies and engages in routine

notification of new trade measures


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World Trade Organization, continued

WTO agreements represent trade rules and

regulations and act as contracts guaranteeing

countries trade rights and binding governments

to free trade policies. Agreements:

General Agreement on Tariffs and Trade

General Agreement on Trade in Services (GATS)

Trade-Related Aspects of Intellectual Property Rights

(TRIPS)


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Group of Seven (Eight) G7 (G8)

Members from the most industrialized countries:

Canada, France, Germany, Italy, Japan, United

Kingdom, United States and Russia

Yearly meetings involve heads of state, government

ministers, directors of central banks

Addresses: biotechnology,food safety, economic

development, disarmament, arms control, organized crime,

drug trafficking, terrorism, environmental issues and trade


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International Monetary Fund (IMF)

Encourages unrestricted conversion of

currencies through clear and unequivocal

values

Member voting power linked to amountthey contribute

Less of a lender of last resort, than a body

instituting appropriate development

strategies

Mediator between debtors and creditors

Provides training and technical assistance

for monetary and financial strategies


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Development Banks The World Bank

Largest international bank thatsponsors economic development

Employs international specialists ineconomics, finance,sectoral development

Focus on health and informationtechnology

African Development Bank

Asian Development Bank

European Bank forReconstruction andDevelopment

Inter- American Development

Bank


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United Nations Organizations

Promote the economic and financial welfare of

developing countries

Focus on developing industrial, communication,

agricultural and transportation infrastructures 16 different United Nations Organizations


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Government Organizations

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


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Free Trade Zones (FTZs)

Tax-free area not considered part of the country in

terms of import regulations and restrictionssite is

considered an international area

Merchandise in FTZ is outside the jurisdiction of hostcountrys customs services

Host country benefits:

Creates demand for local services, products, and raw

materialshence local jobs

Increases trade balancere-exports add to total number of

exports from the respective country


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Free Trade Zones (FTZs), continued

Firm benefits from using an FTZ:

Foreign goods are exempt from duties as long as they do not

enter the country

Goods are imported when demand is high, thus deferringtariffs until that time

Payment is delayed until goods are sold

Firm can use the FTZ for breaking bulk


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Free Trade Zones (FTZs), continued

Firm benefits from using an FTZ, cont.:

Lowers prices for goods sold in the importing country

Helps importing country impose local content regulations on

products from abroad Safer than most ports of entrybonded warehouse

Products can be labeled as manufactured in the foreign trade

zone country, if products from that country have a positive

country-of-origin (country image).


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Other Privileged Trade Positions

Customs-Privileged Facilities

Products are brought into an in-bond area, manipulated

(processed, repackaged, assembled), and re-exported to

country where products originated

Low tariffs assessed only on value-added processing thattook place in the zone

Limits on products imported to encourage re-exporting

Most-Favored-Nation Status

Preferential tax treatment on imported products fromcountries that are not part of a US trade agreement


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C i ht At i D P bli hi 2002C i ht At i D P bli hi 2002

Chapter Summary

Rationales for protectionism include protection ofmarkets with excess production capacity, with excesslabor, infant industry argument, protection ofenvironment, consumers, and national defensearguments

Protection tools involve imposing tariff and non-tariffbarriers

Several institutions facilitate international tradedirectly, or by promoting economic development.

They are: the World Trade Organization, the Groupof Seven (Eight), and the development banks;government institutions; and other entities, such asFree Trade Zones and Customs-Privileged Facilities

trade barriers chapter 03

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