Assignment:
Research and write about any one trade barrier that any one country imposes on an imported product from another country/ countries. Is this trade barrier good or bad for the imposing country? Explain why or why not?
International Trade: Institutional Barriers and Facilitators
Arguments for Protectionism
Commonly used against open trade by low-income countries and middle-income countries.
1. Employment Protection - addresses markets with high levels of excess labor and underemployment. To prevent MNCs from importing foreign products and to prevent efficient international companies from taking over local enterprises and firing excess workers.
2. Protection of Markets with Excess Productive Capacity - To protect state-owned enterprises, national governments limit foreign investment and entrance of foreign competing products.
3. Infant Industry Arguments - allow low-income countries to protect their new industries from international competitors
4. Natural Resources Conservation and Protection of the Environment - allow governments to impose trade restrictions aimed at conserving national natural resources.
5. Protection of Consumers - involve favoring local over international businesses by applying rigid standards, quality controls, and product origin requirements.
6. National Defense Interests - result in the banning of publications or products that attempt to destabilize the government or that bring outside influence (Western influence in particular).
Tools of Government Protectionism: Tariff and Nontariff Barriers
1. Tariffs - Taxes imposed on goods entering a particular country in order to protect local industries (protective), penalize countries not politically aligned with the importing country (retaliatory), or to generate revenues for the importing country (revenue tariffs.)
2. Non-tariff Barriers
1) Import Quotas: A maximum quantity of a product that may be imported during a specific period.
2) Import Licenses: Nonautomatic licenses are issued on a discretionary basis and are used to restrict imports of a given product. Automatic Import licenses are granted freely to importers, but may be used for import surveillance and to discourage import surges.
3) Voluntary Import Expansion: Governments agree to allow imports from a particular country as result of pressure from that country, to avoid severe trade restrictions; results in increased competition and reduced prices.
4) Voluntary Export Restraints: Self-imposed export quotas to a particular country in order to avoid more severe restrictions.
5) Price Controls: Include increasing prices of imports to match minimum prices of domestic products.
• Antidumping duties -to counter imports that are sold way below market value.
• Countervailing duties -to counter imports that are subsidized.
• Paratariff measures - by using a combination of quotas and tariffs.
6) Standards: Environmental, performance, manufacturing and other stds used as barriers, primarily by highly-industrialized countries, preventing importers from selling products below a certain quality specification.
7) Local Content Requirements: Mandate that a certain percentage of the imports are locally produced. Foreign ownership restrictions are also used to ensure that a certain percentage of the business in owned by a national firm.
8) Boycott: Initiated by an action group, calls for a ban on consumption of all goods associated with a particular company and/or country.
9) Embargoes: Prohibition of all business deals with the target country.
10) Sanctions: Punitive trade restrictions applied by a country or group of countries against another for non-compliance.
11) Currency & Capital Flow controls: Blocked currency, differential exchange rates etc.
International Trade Facilitators
One argument for free trade is based on economist David Ricardo's theory of comparative advantage - countries benefit from specialization in an industry in which they have comparative advantage (producing quickly at a lower cost) and from trading with one another.
The International Trade and Economic Development Organizations
1) World Trade Organization
2) Group of Eight (G8)
3) International Monetary Fund and the World Bank: Act as specialized agencies of the UN
4) United Nations Organizations
Government Organizations
1) United States federal and state government agencies promote the interest of U.S. businesses abroad, and encourage foreign direct investment in the U.S.
2) US Agency for International Development (USAID) is an arm of the U.S. State Department
3) United States Department of Commerce with its International Trade Administration offices in each country of interest
4) Export-Import Bank of the US offer financial assistance
5) State and local government agencies such as states' economic development offices
Other facilitators of international trade - Foreign Trade Zone (FTZ, also known as a free trade zone)
A tax-free area in a particular country that is not considered part of the respective country in terms of import regulations and restrictions.
FTZs offer advantages to both the host country and to the international firms.