trade distortions and marketing barriers
TRANSCRIPT
TRADE DISTORTIONS AND MARKETING BARRIERS
Marketing Barriers
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Chapter Outline
• Protection of Local Industries
• Government: A Contribution to Protectionism
• Marketing Barriers: Tariffs
• Marketing Barriers: Nontariff Barriers
• Private Barriers
• World Trade Organization (WTO)
• Preferential Systems
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Protection of Local Industry
• Keeping Money at Home
• Reducing Unemployment
• Equalizing Cost and Price
• Enhancing National Security
• Protecting Infant Industry
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Keeping money at home
Argue:
International trade will lead to an
outflow of money, making foreigners
richer and local people poorer. This
argument is based on the fallacy of
regarding money as the sole indicator
of wealth, but …!
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Reducing unemployment
Assumption:
Import reduction will create more
demand for local products and
subsequently create more jobs!
- Import reduction makes foreigners earn
fewer
- Foreigners inclined to invest only when
import demand is great enough to
justify building and using local facilities
- With higher prices at home, consumers
become poorer and buy less
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Equalizing cost and price
➢ First, to determine the cause of price differentials is unusually difficult.
➢ Second, even if the causes of price differentials can be isolated and
determined, it is hard to understand why price and cost have to be artificially
equalized in the first place.
✓ If cost/price equalization is a desired end, then international trade may be the
only instrument that can achieve it. For example, if wages are too high in one
country, that country will attract labor from a lower-wage country.
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Enhancing national security
➢ A nation can never be completely self-
sufficient because raw materials are not
found in the same proportion in all areas of
the world.
➢ National security is achieved at the cost of
higher product prices, and money could be
used for something more productive to the
national interest.
Source: Courtesy of the US Council for Energy Awareness.
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Protecting infant industry
➢ The necessity to protect an infant industry is perhaps the most credible
argument for protectionist measures.
In practice, it is not an easy task to protect industries.
• First, the government must identify deserving industries.
• Second, appropriate incentives must be created to encourage productivity.
• Finally, the government has to make sure that the resultant protection is only
temporary.
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Marketing Barriers
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Marketing Barriers: Tariffs
• Direction: Import and Export Tariffs
• Purpose: Protective and Revenue Tariffs
• Lengths: Tariff Surcharge versus Countervailing Duty
• Rates: Specific duties, Ad Valorem, and Combined rates
• Distribution Point: - Distribution and Consumption Taxes: single-stage, value
added, cascade, and excise
Tariff, derived from a French word meaning rate, price, or list of charges, is a customs duty or a tax on products that move across borders
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Marketing Barriers: Nontariff Barriers
• Government Participation in Trade
- Administrative Guidance
- Government Procurement and State Trading
- Subsidies
Tariffs, though generally undesirable, are at least straightforward and obvious. Nontariff barriers, in comparison, are
more elusive or nontransparent.
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Marketing Barriers: Nontariff Barriers
• Customs and Entry Procedures
- Classification
- Valuation
- Documentation
- License or Permit
- Inspection
- Health and Safety Regulations
Customs and entry procedures may be employed as nontariff barriers. These
restrictions involve classification, valuation, documentation, license, inspection, and
health and safety regulations.
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Marketing Barriers: Nontariff Barriers
• Product Requirements
- Product Standards
- Packaging, Labeling, and
Marking
- Product Testing
- Product Specifications For goods to enter a country, product
requirements set by that country must be met.
Requirements may apply to product standards and
product specifications as well as to packaging,
labeling, and marking.
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Marketing Barriers: Nontariff Barriers
• Quotas
- Absolute Quotas
- Tariff Quotas
- Voluntary QuotasVER (voluntary export restraint)
OMA (orderly marketing agreement).
Quotas are a quantity control on imported goods. Generally, they are specific provisions limiting the amount of foreign products imported in order to protect local firms and to conserve foreign currency.
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Marketing Barriers: Nontariff Barriers
• Financial Control
- Exchange Control
- Multiple Exchange Rates
- Prior Import Deposits and Credit
Restrictions
- Profit Remittance Restrictions
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The World Trade Organization (WTO)
• Goal: broad, multilateral, and free worldwide system of trading
• Most Favored Nation (MFN) Principle
• Normal Trade Relations (NTR) Principle
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Preferential systems
➢ Tariff reduction generally favors manufactured goods rather than primary goods
➢ Less developed countries rely mainly on exports of primary products
➢ In response to less developed countries’ needs, the United Nations Conference
on Trade and Development (UNCTAD) was created
➢ Aiding economic development of developing countries
➢ Generalized System of Preferences (GSP)
- Allowing duty-free entry of products
Case Study
➢ Case Study on non-tariff barriers related to veterinary export certificates
in Dutch exports
- Two minutes presenting the summary
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QUESTIONS
• Explain the rationale and discuss the weaknesses of each of these arguments for protection of local industries: (a) keeping money at home, (b) reducing unemployment, (c) equalizing cost and price, (d) enhancing national security, and (e) protecting infant industry.
• Distinguish between these types of tariffs: (a) import and export tariffs, (b) protective and revenue tariffs, (c) surcharge and countervailing duty, and (d) specific and ad valorem duties.
• Explain how these distribution/consumption taxes differ from one another: single-stage, value-added, cascade, and excise taxes.
• Explain these various forms of government participation in trade: administrative guidance, subsidies, and state trading.
• Explain these customs and entry procedures and discuss how each can be used deliberately to restrict imports: (a) product classification, (b) product valuation, (c)29.10.2020 International Marketing, Alireza Ahmadi, Wintersemester 2020-2021 69
QUESTIONS
documentation, (d) license/permit, (e) inspection, and (f) health and safety regulations.
• Explain these various types of product requirements and discuss how each can be used deliberately to restrict imports: (a) product standards, (b) packaging, labeling, and marking, (c) product testing, and (d) product specifications.
• What is the rationale for an export quota?
• Distinguish these types of import quotas: (a) absolute, (b) tariff, (c) OMA, and (d) VER.
• Discuss how these financial control methods adversely affect free trade: exchange control, multiple exchange rates, prior import deposits, credit restrictions, and profit remittance restrictions.
• What is WTO? What is its purpose?
• What is GSP?
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DISCUSSION ASSIGNMENTS
• Between July 2018 and August 2019, the United States announced plans to
impose tariffs on more than $550 billion of Chinese products, and China retaliated
with tariffs on more than $185 billion of U.S. goods. Explain how the US-China
trade war hurt America? Do you see any impact also on US-EU trade?
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