Barriers

Objectives Of Trade Barriers

To protect domestic industries from foreign goods To promote new industries and research and development activities by providing a home market for domestic industries

To maintain a favourable balance of payment, by restricting imports from foreign countries

To conserve the foreign exchange reserves of the country with surplus production

To mobilize additional revenues by imposing heavy duties on imports To counteract trade barriers imposed by other countries
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To encourage domestic production in the domestic market and thereby make

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Tariff barriers

A tariff barriers is a levy collected on goods when they enter a domestic tariff area through customs.

The term tariff refers to the duties imposed on internationally traded commodities when they cross national boundaries .

It may be in the form of heavy taxes or custom duties on imports, so as to discourage their entry into the home country for marketing purposes.

On the basis of Origin Export Duty Import Duty Transit Duty On the basis of Quantification
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Cont

On the basis of purpose 1. Revenue tariff 2. Protective tariff 3. Anti-Dumping4. Counter-vailing Similar to Anti dumping duties but not that severe Are imposed through cash assistance or subsidies by the foreign countries to its manufacturers

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Cont

On the basis of relations 1. Single column 2. Double column 3. Triple column

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Non-Tariff Barriers
1. Quota-A Quota is the most important nontariff trade barrier.

Import Quota It is a direct quantitative restriction on the amount of a commodity allowed to be imported.

Export Quota It is a direct quantitative restriction on the amount of a commodity

allowed to be exported.

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Cont

2. Licensing

Import Licensing- a formal permission to import, which

restricts imports in a way that is similar to quotas- a complicated, bureaucratic process in some countries
Effects Restrict volume and/or quantity of imports Place administrative and financial

burdens on importer
May raise costs by delaying shipments

Export Licensinga formal permission to export, which restricts exports in a way that is similar to quotas 4/28/12

Cont.

3. Consumer formalities-Social And Cultural Barriers Language Potential problems include mistranslation Inappropriate messaging Lack of understanding of local customs

Differences in taste

Values and Religious attitude

Differing values about business efficiency, employment levels, importance of regional differences, and religious practices, holidays, and values about issues such as interest-bearing loans.

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Cont 4. Trade blocks

5. Customs Regulations

Government Bureaucracy

6. State Trading

Attitudes Toward International Buying Political Stability Monitory Regulations

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Cont

7. FOREX regulationsFDI and ownership restrictions are common in industries such as broadcasting, utilities, air transportation, military technology, and financial services, oil, fisheries, etc. Examples Canada government restricts foreign ownership of local movie studios and TV shows to protect its indigenous film and TV industry from excessive foreign influence. Mexico government restricts FDI by foreign investors to protect its oil industry. Services sector FDI and ownership restrictions are burdensome because services usually cannot be exported; must establish 4/28/12 physical presence in the market

Cont

8. Health & Safety-Safety regulations: for automobiles and electronics

Health regulations: for hygienic production and packaging of imported food products

Labeling requirements: showing origin and contents While many regulations serve legitimate purposes, some thinly veiled disguises for restricting imports.

Other restrictions have resulted from laws requiring governments to buy from domestic suppliers.
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International Cartels

An international cartel is an organization of suppliers of a commodity located in different nations that agrees to restrict output and exports of the commodity with the aim of maximizing profits.

1.

Examples: OPEC: a cartel of major oil countries which restricts production and exports of oil.

2.

International Air Transport Association: a cartel of major airlines that set international fares and policies

Cartels are more successful with fewer members producing an essential

commodity with no close substitutes. 4/28/12

Cartels are less successful if there is a large number of international suppliers and if there are good substitutes for the commodity.

This explains the failure of, or inability to set up, international cartels in minerals other than petroleum and tin, and agricultural products other than sugar, coffee, cocoa, and rubber.

Cartel behaves as a monopolist in maximizing profits Since the power of a cartel lies in its ability to restrict output, there is an incentive for any one supplier to remain outside the cartel or to cheat on it by unrestricted sales at slightly below

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price.

Dumping

Definition: is the export of a commodity at below cost or at least the sale of a commodity at a lower price abroad than domestically.

1)

Dumping is classified as either: Persistent Dumping (or international price discrimination): is the continuous tendency of a domestic monopolist to maximize total profits by selling the commodity at a higher

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in the domestic market (which is insulted by

2)

Predatory Dumping: is the temporary sale of a commodity at below cost or at a lower price abroad in order to drive foreign producers out of business, after which prices are raised to take advantage of the newly acquired monopoly power abroad.

3)

Sporadic Dumping: is the occasional sale of a commodity at below cost or at below price abroad than domestically in order to unload an unforeseen and temporary surplus of the commodity without having to reduce domestic prices.

Trade restriction to counteract predatory dumping are justified to protect domestic industries from unfair competition from abroad.

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These restrictions usually take the form of antidumping duties to offset price differentials, or the threat to impose such duties.

Domestic producers demand protection against any type of dumping, so they discourage imports and increase their own production and profits (rents).

Examples: Japan was accused of dumping steel and TV sets in the US, while European nations were accused from dumping cars, steel and agricultural products.

When dumping is proved, the violating nation or firm usually choose to raise prices rather than face dumping duties.

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Subsidies

Government grants (monetary or other resources) to firms or industries, intended to ensure their survival by facilitating production at reduced prices, or encouraging exports.

Examples are cash disbursements, material inputs, services, tax breaks, provision of infrastructure, government contracts at inflated prices.

For example, in France the government provides large subsidies to Air France, the national airline.

In India government gives subsidies to fertilizers, agricultural products 4/28/12

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Export Subsidies

Definition: they are direct payments (or the granting of tax relief and subsidized loans) to the nations exporters or potential exporters and/or lowinterest loans to foreign buyers to stimulate the nations exports. Export subsidies can be regarded as a form of dumping. Although export subsidies are illegal by international agreement, many nations provide them in disguised (hidden) and not-so-disguised forms. Examples: All major industrial nations give foreign buyers of the nations export low-interest loans to finance the purchase through agencies such as the US Export-Import Bank. Countervailing duties are often imposed on imports to offset export subsidies by foreign governments.

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Intellectual Property Rights

Patents Supplementary Protection Certificates Trademarks Designs Unregistered Design Right Copyright Confidentiality and Trade Secrets
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Other Non Tariff Barriers

Standards Environmental, performance, manufacturing and other standards used as barriers to imports; primarily imposed by highly industrialized countries

Excessive standards can help local and international industry alike, by deterring gray markets

Infrastructure Basic facilities must be available for the trade such as power,roads, security etc.

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

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Sanctions

For Social And Cultural Barriers

Sellers Must Examine the Following Before Planning a Marketing Program Within a Given Country.

How Customers Think About and Use Products Cultural Traditions, Preferences, and Behaviors

Business Norms and Behavior

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How Firms Should Respond to Government Intervention

1. 2.

Research to gather knowledge and intelligence. Understand the extent and nature of trade and investment barriers, and government intervention in each target market.

3.

Choose the most appropriate entry strategies. Most firms choose exporting as their initial strategy.

4.

But, if high tariffs are present, FDI, joint ventures, or licensing may be better alternatives.

5.

Take advantage of foreign trade zones. where imports receive preferential tariff treatment
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Cont..

5. Seek favorable customs classifications for exported products. Reduce exposure to trade barriers by appropriately classifying products according to the harmonized product code 6.Take advantage of investment incentives and other government support programs. Government assistance in the form of subsidies and incentives helps reduce costs.

7. Lobby for freer trade and investment. For example,

Mid-2000s the Doha round of WTO negotiations sought to

make trade more equitable for developing countries.

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To increase lobbying effectiveness, foreign firms may hire

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References

http://www.cottingham.com.tw/c/en/news/latest-news/188.html

http://www.assatashakur.org/forum/conscious-edutainment-videos-movies-tv/30335-life-debt-h Trade Conflict and the US-European Union Economic Relationship, CRS Report for Congress, Raymond j. Ahearn http://www.msnbc.msn.com/id/26444467/ http://www.msnbc.msn.com/id/25811141/ http://www.msnbc.msn.com/id/13593486/ http://trade.gov/mas/manufacturing/OAAI/auto_stat_index.asp

http://www.bls.gov/news.release/ximpim.htmhttp://library.thinkquest.org/06aug/00036/intltrade http://www.itintl.com/ http://www.infoplease.com/cig/economics/barriers-international-trade.html http://en.wikipedia.org/wiki/Main_Page http://www.fas.usda.gov/itp/Policy/nafta/nafta.asp http://www.aseansec.org/ http://europa.eu/index_en.htm 4/28/12