Lecture International business - Chapter 6: Business-government trade relations

In this chapter, you will explore business-government trade relations. You will also: Examine the political, economic, and cultural reasons why governments intervene in trade; learn about the instruments that countries use to restrict and promote trade; and understand how the global trading system promotes trade.

6 Business­ 

Government Trade Relations

• Describe the political, economic, and cultural

motives behind governmental intervention in trade

• List and explain the methods governments use to

promote international trade

• List and explain the methods governments use to

restrict international trade

• Discuss the importance of the World Trade

Organization in promoting free trade

Chapter Objectives

• Global leader in media and entertainment

• Nations protect their traditional values

• Time Warner must tread carefully worldwide

Protect

jobs

Preserve national security

Respond to

“unfair”

trade

Gain influence

   Potential results

+ National income increases

– Wrong industries protected

– Firms grow complacent

– Consumer prices rise

– Public funds poorly spent

   Potential results

+ Global industry created

– Firms’ efficiency reduced

– Domestic costs increase

– Special interests benefit

Political motives include to protect

domestic jobs, preserve national

security, respond to “unfair” trade,

and gain influence over other

nations Economic motives include

to protect infant industries from

competition and to pursue strategic

trade policy Cultural motives

include to protect national identity,

block imports thought culturally

harmful, and protect budding artists.

 Foreign trade zones

 Special government agencies

Financial assistance in the form of cash, tax

breaks, price supports, etc.

Subsidies

Potential results

+ Increased competitiveness

– Encourage inefficient firms

– Increased consumer prices

Export­Import 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…

Export­Import 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

 Designated 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

  Organize trade missions for officials  and businesses

  Operate export­promotion offices at  locations abroad

  Help import products the home  nation does not produce

A geographic region within

a nation and in which

merchandise passes

through with lower

customs duties or fewer

A geographic region within

a nation and in which

merchandise passes

through with lower

customs duties or fewer

Potential results

+ Protect domestic firms        from competitors

+   Generate income for the        government

Restriction on the amount of a good that can enter

or leave a country during a certain period of time

2. Restrict world supply of a product to raise its price

How a Tariff­Quota Works

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

Laws that domestic market must supply

a specific amount of a product

Forces international companies to employ local resources in production process

Regulatory controls or bureaucratic rules to slow imports into a country

 Inconvenient ports for imports

 Product-damaging inspections

 Understaffed customs offices

 Lengthy licensing procedures

Restrictions on the

convertibility of a currency Limit the amount of 

globally accepted  currency available to pay  for imports

Set an unfavorable  exchange rate when  paying for imports

What are some of

the methods that

governments use

to restrict

international

trade?

General Agreement on Tariffs and Trade (GATT)

Completed Rounds of GATT

Improved intellectual property rules

Extended coverage to services

Created World Trade Organization

Reduced agriculture barriers

Dispute settlement body

Doha trade talks Normal trade relations status

Dumping and antidumping

The World Trade

Organization principle that

calls for nondiscrimination

among trading partners is

called .

a Least favored status

b Normal trade relations

c Countervailing relations

The World Trade

Organization principle that

calls for nondiscrimination

among trading partners is

called .

a Least favored status

b Normal trade relations

c Countervailing relations

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