INTERNATIONAL BUSINESS
CHAPTER VI
BUSINESS- GOVERNMENT
TRADE RELATIONS
1
Learning Objectives
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.
2
I. WHY DO GOVERNMENTS INTERVENE IN TRADE?
Free Trade
Pattern of imports and exports that would result in the
absence of trade barriers.
3
I. WHY DO GOVERNMENTS INTERVENE IN TRADE?
Political Motives
Economic Motives
Cultural Motives
4
I.1 Political Motives
To Protect Jobs
To Preserve National Security
 National Security and Imports
 National Security and Exports
To Respond to “Unfair ” Trade
To Gain Influence
5
I.2 Economic Motives
To Protect Infant Industries
To Pursue Strategic Trade Policy
 Benefits of Strategic Trade Policy
 Drawbacks of Strategic Trade Policy
6
I.3 Cultural Motives
Nations often restrict trade in goods and services to achieve
cultural objectives, the most common being protection of
national identity.
The problem with such restrictions is that they reduce the
selections of products available to consumers.
Cultural Influence of the United States is more than any other
nations.
7
II. METHODS OF PROMOTING TRADE
Subsidies
Export Financing
Foreign Trade Zones
Special Government Agencies
8
II.1 Subsidies
Financial assistance to domestic producer in the form of cash
payments, low-interest loans, tax breaks, product price
supports, or some other form.
9
II.1 Subsidies

This can mean becoming more competitive in the home market
or increasing competitiveness in international market through
exports.

The W.T.O is often called on to settle arguments over charges of
unfair subsidies
10
II.1 Subsidies
Subsidies in Media and Entertainment
Media and entertainment are common subsidies in many countries.
Drawback of Subsidies
Subsidies cover costs that truly competitive industries should be
able to absorb on their own
11
II.2 Export Financing
Government often promote exports by helping companies
finance their export activities .
Many nations have special agencies dedicate to helping their
domestic companies gain export financing.
12
II.3 Foreign Trade Zones (FTZ)

Most countries promote trade with other nations by creating
what is call Foreign Trade Zones

Designated geographic region in which merchandise is allowed
to pass through with lower customs duties (taxes) and/or fewer
customs procedures
13
II.4 Special Government Agencies
The government of most nations have special agencies
responsible for promoting exports.
Can be particularly helpful to small and midsize businesses that
have limited financial resources.
Governments not only promote trade by encouraging exports but
also can encourage imports.
14
III. METHODS OF RESTRICTING TRADE
Tariffs
Quotas
Embargoes
Local Content Requirements
Administrative Delays
Currency Controls
15
III.1 Tariffs
Tariffs: Government tax levied on a product as it enters or leaves a
country
Ad valorem tariff : tariff levied as a percentage of the stated price of an imported
product
Specific Tariffs: Tariff levied as a specific fee for each unit ( measured by number,
weight, etc.) of an imported product
Compound tariff: Tariff levied on an imported product and calculated partly as a
percentage of its stated price and partly as a specific fee for each unit
16
Why Countries Levy Tariffs?
To Protect Domestic Producers
Tariffs are a way of protecting domestic producers
 Domestically produced goods more attractive to buyers.
To Generate Revenue
Tariffs are a source of government revenue
17
III.2 Quotas
Restriction on the amount of a good that can enter or leave a
country during a certain period of time.
18
III.2 Quotas
Reason for Import Quotas
Reason for Export Quotas
Tariff- Quotas
19
III.2 Quotas
Reason for Import Quotas
 To protect its domestic producers.
 Help domestic producers maintain their market shares and
prices
20
III.2 Quotas
Reason for Export Quotas
 To maintain adequate supplies of a product in the home
market.
 Increasing the international price of the good
21
III.2 Quotas
Voluntary Export Restraint (VER)
Unique version of export quota that a nation
imposes on its export, usually at the request of
an importing nation
22
III.2 Quotas
Tariff- Quotas
Lower tariff rate for a certain quantity of imports
and a higher rate for quantities that exceed the quota
23
III.3 Embargoes
Complete ban on trade ( imports and exports )
in one or more products with a particular
country
24
III.4 Local Content Requirement

Be laws stipulating that producers in the domestic market must
supply a specified amount of a good or service.

Force companies from other nations to use local resources in their
production processes- particularly labor.
25
III.5 Administrative Delays
Regulatory controls or bureaucratic rules
designed to impair the rapid flow of imports
into a country
26
III.6 Currency Controls
Restrictions on the convertibility of a
currency into other currencies
27
IV. GLOBAL TRADING SYSTEM
General Agreement on Tariffs & Trade (GATT)
World Trade Organization (WTO)
28
IV.1 General Agreement on Tariffs & Trade
(GATT)
Agreement on Services
Agreement on Intellectual Property
Agreement on Agricultural Subsidies
29
IV.2 World Trade Organization (WTO)
The international organization that regulates trade
between nations.
To help the free flow of trade
To help negotiate further opening of markets
To settle trade disputes between its members.
30
IV.2 World Trade Organization (WTO)
Normal Trade Relations
Requirement that WTO members extend the same favorable
terms of trade to all members that they extend to any single
member
31
IV.2 World Trade Organization (WTO)
Dispute Settlement in the WTO
Dumping and the WTO
Subsidies and the WTO
New Round of Negotiations
The WTO and the Environment
32
IV.2 World Trade Organization (WTO)
Dumping
Practice of exporting a product at a price either lower than the
price that the product normally commands in its domestic
market or lower than the cost of production
33
IV.2 World Trade Organization (WTO)
Antidumping Duty
Additional tariff placed on an imported product that a nation
believes is being dumped on its market
34
IV.2 World Trade Organization (WTO)
Countervailing Duty
Additional tariff placed on an imported product that a nation
believes is being dumped on its market
35
THE END
36