Chapter 6 Business-Govt Trade Relations

Front 1

Free Trade

Back 1

Patternof imports and exports that occurs in the absence of trade barriers

Front 2

-Political

-Economic

-Cultural

Back 2

Reasons forGovernment Intervention to Trade

Front 3

Political Motives

-protect jobs

-preserve national security (competition for imports anddual uses for exports)

-responding to other nation’s unfair trade practices

-gain influence over other nations

Back 3

PoliticalMotives of government in intervening with trade

Front 4

Added cost of continuing to produce a good or servicedomestically when it can be supplied more efficiently abroad

Back 4

Main drawback of protection from import competition

Front 5

Dual uses

Back 5

Technologies or products that have both industrial andmilitary applications.Requires special governmental approval before export cantake place.

Examples: Nuclear materials, technological equipment,certain chemicals and toxins, some sensors and lasers, specific devices relatedto weapons, navigation, aerospace and propulsion

Front 6

-protect infantindustries
-promotestrategic trade policy

Back 6

EconomicMotives of government in intervening with trade

Front 7

Infant industry argument

Back 7

Country’s emerging industries need protection frominternational competition during their development phase until they becomesufficiently competitive internationally.

*Need protection because of steep learning curve

Front 8

Steep learning curve

Back 8

Asan industry grows and matures, it gains the knowledge it needs to become moreinnovative, efficient and competitive

Front 9

1. Distinguishing industries that are worth protecting bythe government is hard

2. Protection from international companies can make themcomplacent in innovation (limited incentives to obtain knowledge to be morecompetitive)

3. consumers end up paying more for products because of lackof competition (few incentives to cut production cost or improve quality)

4. small promising companies need to obtainfunding from government’s financial support and not just from capital markets

Back 9

Drawbacksof protecting infant industries

Front 10

Strategic trade policy

Back 10

Governmentintervention to take advantage of economies of scale and gain first moveradvantage

Front 11

Economiesof scale

Back 11

Firstmover advantages arise because of _____________ in production limit the numberof companies that an industry can sustain

Front 12

-results in increased national income

Back 12

Benefitsof Strategic trade policy

Front 13

* Inefficiency and high cost

* Choice of industries to support influenced by lobbying of special interest groups & no benefit for consumers

* Consumers pay more for lower quality goods

Back 13

Drawbacksof strategic trade policy

Front 14

-protection of national identity (language)

Back 14

CulturalMotives of government in intervening with trade

Front 15

Methods to promotetrade

1.Subsidies

2. Export financing

3. Foreign tradezones

4.special government agencies

Back 15

Methodsto promote trade

Front 16

Trade Restriction

1.Tariffs

2. Quotas

3. Embargo

4. Local contentrequirements

5. Administrativedelays

6.Currency controls

Back 16

Methodsto restrict trade

Front 17

Subsidy

Back 17

Financialassistance to domestic producers to fend off international competition (in homemarket or intl market through exports)

Front 18

Forms of Subsidy

-cash payments

-low interest loans

-tax breaks

-productprice supports

Back 18

Forms of Subsidy

Front 19

-Encourage inefficiencyand complacency by covering costs that should be absorbed by competitive industries

-Long term benefits to citizens is questionable

-Leads to an overuse of resources, negative environmental effects and higher cost forcommodities

Back 19

Drawbacksof subsidy

Front 20

Export FinancingMeans

-offer loans that acompany could not obtain

-charge lowerinterest rate than the market rate

-loan guarantee

Back 20

Export FinancingMeans

Front 21

Loan guarantee

Back 21

guarantee of repayment by government should the company default

Front 22

Export- Import Bankof the US

Overseasprivate Investment Corporation

Back 22

Specialagencies that help domestic companies obtain export financing

Front 23

Export- Import Bankof the US (Ex-Im Bank)

Back 23

Specialagency that finances export activities of companies in the US and offers insuranceon foreign accounts receivable

Front 24

Overseas privateInvestment Corporation(OPIC)

Back 24

Special agency that provides insurance for investors againstlosses due to

-Expropriation

-Currency inconvertibility

-War revolution and insurrection

Front 25

Foreign Trade Zones

Back 25

Designated geographic region through which merchandise isallowed to pass with

*lower customs duties (taxes) and/or

*fewer customs procedures

Front 26

-organize trips tovisit countries to meet potential business partners and generate contracts fornew business-open trade officesin other countries

-promote homecountry’s exports and introduce business to host nation’s potential partners

-advertise country’sexports

-encourage importsthat the nation does not or cannot produce

Back 26

Rolesof government trade promotion agencies

Front 27

Tariff

Back 27

Government tax levied on a product as it enters or leavesthe country

to directly increase the price of product andmake it less appealing to buyers

Front 28

Non tariff barrier

Back 28

Limitsthe availability of an imported product which increases its price indirectlyand make it less appealing to buyers

Front 29

Categories of Tariffs

Export tariff

Transit tariff

Import tariff

Back 29

Categoriesof Tariffs

Front 30

Export tariff

Back 30

Levied by the government that is exporting a productUsed by countries when they believe an export’s price islower than it should be ex: low priced natural resources

Front 31

Transit tariff

Back 31

Levied to the product that is passing throughNon-existent due to international tradeagreements

Front 32

Import tariff

Back 32

Levied by the government that is importing a product

*Most common tariff used by governments today

Front 33

Kinds of Import tariff

Ad valorem tariff

Specific tariff

Compound tariff

Back 33

Kinds of Import tariff

Front 34

Ad valorem tariff

Back 34

Tarifflevied as a percentage of the stated price of an imported product

Front 35

Specific tariff

Back 35

Tarifflevied as a specific fee for each unit (measured by number or weight) of animported product

Front 36

Compound tariff

Back 36

Tariffcalculated partly as a percentage of the stated price and partly as a specificfee for each unit

Front 37

Protect domesticproducers

Generate revenue (developing nations)

Back 37

Effects of imposing tariffs

Front 38

Quota

Back 38

Restriction on the amount (weight or units) of a good that can enter or leave a country duringa certain period of time

Administered by granting quota licenses to the companies orgovernments of other nations (import) and domestic producer (export) on ayear by year basis

Front 39

Import quota

Back 39

Limit on the amount of goods allowed to enter the country

To help domestic producer maintain market shareand prices by restraining competitive forces

Front 40

*Consumers lose bec ofhigher prices and limited selection

*Domesticproducers lose because of the limited access in required intermediate goods forproduction

Back 40

Effects of Import Quota

Front 41

*To maintain adequate supplies of a product in the home market (natural resources)

*To increase the international price of the good

Back 41

Reasonsfor implementing export quotas

Front 42

Voluntary export restraints (VER)

Back 42

Unique version of export quota that a nation imposes on its exports, usually at the request of an importing nation.

Usually done in response to the threat of animport quota or a total ban on the product by an importing nation

Front 43

Tariff-quota

Back 43

A hybrid form of trade restriction where a lower tariff rate for a certainquantity of imports and a higher rate for quantities that exceed the quota.

Front 44

Embargo

Back 44

Complete ban on trade (imports and exports) in one or moreproducts with a particular country

It may be placed on 1 or few goods or may completely bantrade in all goods

The most restrictive non-tariff trade barrier available & typicallyapplied to accomplish political goals; less used today due to difficulty inenforcement

Front 45

Local Content Requirements

Back 45

Laws stipulating that producers in the domestic market mustsupply a specified amount of a good or service

Certain portion of the end product must comefrom domestic sources to force companiesto use local resources in their product ion processes particularly labor.

Front 46

Administrative delays

Back 46

Regulatorycontrols or bureaucratic rules designed to impair the flow of imports into acountry to discriminate against imported products or PROTECTIONISM

Front 47

-requiring international air carrier to land at inconvenient airports

-requiring product inspections that damage the product itself

-purposely under staffing customs offices to cause unusual time delays

-requiring special licenses that take a long time to obtain

Back 47

Forms of Admin Delays or nontariff barrier

Front 48

Currency Controls

Back 48

Restrictions on the convertibility of a currency into other currencies.

Front 49

Ways Currencycontrols are applied

- requirecompanies to apply for a license to obtain

- stipulate an exchange rate that is unfavorable to importers to reduce imports

Back 49

Ways Currency controls are applied

Front 50

General Agreements on Tariff and Trade GATT

Back 50

System of multilateral agreements or a treaty designed to promote free trade by reducing both tariff and non-tariff barriers to international trade in 1940s by 23 nations

Front 51

Uruguay Round of Negotiations GATT

Back 51

The negotiation that modified that original GATT whichdefined agreements on

-trade in Service

-Intellectual property rights

-Agricultural subsidies

-created WTO

Front 52

4 Different forms ofinternational trade in services

1.Cross border supply

2.Consumption abroad

3.Commercial Presence

4.Presence of naturalpersons

Back 52

4 Different forms of international trade inservices

Front 53

Cross border supply

Back 53

Servicessupplied from one country to another (i.e intl telephone calls)

Front 54

Consumption abroad

Back 54

Consumersor companies using a service while in another country (i.e tourism)

Front 55

Commercial Presence

Back 55

Acompany establishing a subsidiary in another country in order to provide aservice (banking operations)

Front 56

Presence of natural persons

Back 56

Individualstraveling to another country in order to supply a service (businessconsultants)

Front 57

Intellectual property

Back 57

Property resulting from people’s intellectual talent andabilitiesLegally protected by copyrights, patents andtrademarks

Front 58

TRIP or Trade related aspects of intellectualproperty

Back 58

Helpedstandardize intellectual properties around the world because it encourages thedevelopment of new technologies and other creations. It supports both the Berneconvention and Paris convention

Front 59

Tariffication

Back 59

Processof converting all nontariff barriers to tariff forced by the GATT Uruguay round

Front 60

WTO World Trade Organization

Back 60

International organization that regulates trade amongnations

Front 61

Goals of WTO

help free flow of trade

help negotiate further opening of markets

settle trade disputes among members

Back 61

Goals of WTO

Front 62

Normal trade relations

Back 62

Key component of the WTO from the GATT

Also called most favored nation status

A requirement that WTO members extend the samefavorable terms of trade to all members that extend to any single member

Front 63

Settle trade disputes

Back 63

Power of WTO which differentiates it to GATT

Spine of the global trading system because itresults to an ability to penalize offending member nations

Front 64

Dumping

Granting of subsidies

Back 64

Disputes settled by the WTO

Front 65

Dumping

Back 65

Exporting a product at a price wither lower than the price that the product normally commands in its domestic market or lower than the cost of production

Back 66

TheWTO can respond only to the actions of a country that retaliates against acompany that is dumping.

Front 67

*can show that dumping is actuallyoccurring,

*cancalculate the damage to its own companies,

*can show that the damage issignificant.

Back 67

Conditionsfor WTO to allow a nation to retaliate in dumping

Front 68

antidumping duty

Back 68

Additional tariff placed on animported product that a nationbelievesis being dumped on its market

Front 69

countervailing duty

Back 69

Additional tariff placed on an imported productthat a nation believes is receiving an unfair subsidy.

Front 70

Carbon dioxide emissions

Back 70

The principal greenhouse gas believed tocontribute to global warming.