International Trade:
Barriers and Facilitators
Dana-Nicoleta Lascu
Chapter 3
Copyright Atomic Dog Publishing, 2002
Chapter Objectives
• Examine trade barriers imposed on international trade
and arguments used to erect and maintain these
barriers
• Provide an overview of organizations facilitating
international trade directly or by promoting economic
development
• Examine government efforts involved at promoting
economic development and international trade
• Describe trade facilitators such as foreign trade
zones, offshore-assembly plants, special economic
zones and the Most-Favored-Nation Status
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Arguments for Protectionism
Entry Barriers
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• Excess productive
capacity
• Excess labor
• Infant industry argument
and industrialization
• Natural resources
conservation
and environmental
protection
• Consumer protection
• National defense
Tools of Government Protectionism
• Tariffs



Discourage imports of
particular goods
Penalize countries that
are not politically aligned
with the importing country
Generate revenues
• US tariffs < 10%
• Other countries can
impose tariffs > 100%
for protected products
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Tools of Government Protectionism,
continued
• Non-Tariff Barriers

Measures, other than traditional tariffs, that are used to distort
international trade flows
- Raise prices of both imports and import-competing goods
- Favor domestic over foreign supply sources by causing
importers to charge higher prices and to restrict import volumes
- Examples:
• Orderly market arrangements
• Voluntary import expansion
• Voluntary export restraints
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Tools of Government Protectionism,
continued
• Quotas


Specify maximum quantity (unit limit) or value of a product
that may be imported during a specified period
Administered either on a global first-come, first-served basis
or on a bilateral basis to restrict shipments from a specific
supply source
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Licenses
• Non-automatic import licenses

Restrict volume and/or quantity of imports
• Automatic import licenses





Granted freely to importing companies
Facilitate import surveillance
Discourage import surges
Place administrative and financial
burdens on importer
May raise costs by delaying shipments
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“Voluntary” Expansion and Restraints
• Voluntary import expansion



Governments agree to allow imports from a particular country
as result of pressure from another country
Increases foreign access to a domestic market
Increases competition and reduces local prices
• Voluntary export restraints


Self-imposed export quotas–imposed to avoid a greater
penalty
Used by the importing country to protect local industries
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Price Controls
• Price increase

Increasing prices of imports to match minimum domestic
prices
• Antidumping and countervailing duty actions

When used as price controls, they involve initiating
investigations to determine if products were sold below fair
value to get rid of excess inventory (dumping) or as a result
of foreign subsidies. Such measures can be used to
intimidate importers.
• Paratariff measures

Additional charges that increase the cost of imports, such
as advance import deposits, import charges, seasonal tariffs
and customs charges
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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
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Percentage Requirements
• Requirement that a percentage of the products
imported be locally produced
• Local content requirement

Met by manipulating and/or assembling the product on the
territory of the importing country, usually in a foreign trade
zone
• Favoring local contribution and labor
• Alternatively, limiting foreign ownership to a certain
percentage
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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
• Sanctions

Punitive trade restrictions applied by a country or group
against another country for noncompliance
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Currency Controls
• Blocked currency

Does not allow importers to exchange of local currency
for currency a seller is willing to accept as payment
• Differential exchange rates


Favorable and less favorable exchange rates imposed on
imports, based on the extent to which they are necessary
and desirable
Can also be the difference between black market and
government exchange rates
• Foreign exchange permits


Give priority to imports in the national interest
Delay access to hard currency exchange for products not
deemed essential
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Facilitators of International Trade
• International Trade and Economic Development
Organizations
• Government Organizations
• Other Institutions and Procedures Facilitating
International Trade
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World Trade Organization
• Largest and most influential international trade
organization
• Ensures free flow of trade
• Functions:

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Provides assistance to developing and transition economies
Offers help for export promotion
Promotes regional trade agreements and economic
cooperation
Reviews members’ trade policies and engages in routine
notification of new trade measures
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World Trade Organization, continued
• WTO agreements represent trade rules and
regulations and act as contracts guaranteeing
countries trade rights and binding governments
to free trade policies. Agreements:

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General Agreement on Tariffs and Trade
General Agreement on Trade in Services (GATS)
Trade-Related Aspects of Intellectual Property Rights
(TRIPS)
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Group of Seven (Eight) – G7 (G8)
• Members from the most industrialized countries:
Canada, France, Germany, Italy, Japan, United
Kingdom, United States – and Russia


Yearly meetings involve heads of state, government
ministers, directors of central banks
Addresses: biotechnology,food safety, economic
development, disarmament, arms control, organized crime,
drug trafficking, terrorism, environmental issues and trade
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International Monetary Fund (IMF)
• Encourages unrestricted conversion of
currencies through clear and unequivocal
values
• Member voting power linked to amount
they contribute
• Less of a lender of last resort, than a body
instituting appropriate development
strategies
• Mediator between debtors and creditors
• Provides training and technical assistance
for monetary and financial strategies
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Development Banks
• The World Bank

Largest international bank that
sponsors economic development

Employs international specialists in
economics, finance,
sectoral development

Focus on health and information
technology
• African Development Bank
• Asian Development Bank
• European Bank for
Reconstruction and
Development
• Inter- American Development
Bank
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United Nations Organizations
• Promote the economic and financial welfare of
developing countries
• Focus on developing industrial, communication,
agricultural and transportation infrastructures
• 16 different United Nations Organizations
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Government Organizations
• United States Agencies

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US Agency for International Development (USAID)
US Department of Commerce
Export-Import Bank of the United States
State and Local Government Agencies
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Free Trade Zones (FTZs)
• Tax-free area not considered part of the country in
terms of import regulations and restrictions–site is
considered an international area
• Merchandise in FTZ is outside the jurisdiction of host
country’s customs services
• Host country benefits:


Creates demand for local services, products, and raw
materials–hence local jobs
Increases trade balance–re-exports add to total number of
exports from the respective country
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Free Trade Zones (FTZs), continued
• Firm benefits from using an FTZ:

Foreign goods are exempt from duties as long as they do not
enter the country

Goods are imported when demand is high, thus deferring
tariffs until that time

Payment is delayed until goods are sold

Firm can use the FTZ for breaking bulk
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Free Trade Zones (FTZs), continued
• Firm benefits from using an FTZ, cont.:

Lowers prices for goods sold in the importing country

Helps importing country impose local content regulations on
products from abroad

Safer than most ports of entry–bonded warehouse

Products can be labeled as manufactured in the foreign trade
zone country, if products from that country have a positive
country-of-origin (country image).
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Other Privileged Trade Positions
• Customs-Privileged Facilities

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Products are brought into an in-bond area, manipulated
(processed, repackaged, assembled), and re-exported to
country where products originated
Low tariffs assessed only on value-added processing that
took place in the zone
Limits on products imported to encourage re-exporting
• Most-Favored-Nation Status

Preferential tax treatment on imported products from
countries that are not part of a US trade agreement
Copyright Atomic Dog Publishing, 2002
Chapter Summary
• Rationales for protectionism include protection of
markets with excess production capacity, with excess
labor, infant industry argument, protection of
environment, consumers, and national defense
arguments
• Protection tools involve imposing tariff and non-tariff
barriers
• Several institutions facilitate international trade
directly, or by promoting economic development. They
are: the World Trade Organization, the Group of
Seven (Eight), and the development banks;
government institutions; and other entities, such as
Free Trade Zones and Customs-Privileged Facilities
Copyright Atomic Dog Publishing, 2002