1. 2.02 Barriers to International Trade

2. Trade Barriers Nations have two main reasons for limiting trade:
To protect special interest or selective industries.
To help reach national goals
International marketers must understand the nature of trade barriers, the reasons countries set barriers, and how nations negotiate to lower barriers.

3. Arguments for Setting Trade Barriers
Infant Industry Argument: argument on setting trade barriers based on the idea that a developing industry in a country needs time to become globally competitive.
Setting protections allows companies to compete without pressure from international competitors. However, it is unlikely that the industry could be globally competitive.

4. Arguments for Setting Trade Barriers
National Security Argument: argument for setting trade barriers based on the idea that a country does not want to become dependent upon other countries for products.
Ex: Japan could allow foreign rice to enter its market at low global prices, but it would drive Japanese farmers out of business making Japan dependent on other countries for their main food source, rice.

5. Arguments for Setting Trade Barriers
Free Trade favors Rich Countries Argument: large, developed countries often have comparative advantages in many areas. These countries can use their advantages to control markets.
Ex: Canadians have expressed a fear that the U.S. could dominate the Canadian media market. The U.S. has a large media industry, and Canadians can access U.S. programming using the Internet or satellite technology.

6. Commercial Policy
Commercial policies: regulations and restrictions that countries use to control international trade.
International marketers must understand the commercial policies of their home country and every country in which they do business.

7. Tools Used to Control Trade
Tariff: a tax placed on imported or exported products. aka: custom’s duty
Tariffs directly raise a product’s price
Countries use tariffs as a means of income
Ensures that imported products are not sold for less than local, or domestic, products
Ex: Japan’s rice tariff keeps imported rice from selling for less than domestic rice.

8. Tools Used to Control Trade
Import Quotas: restrictions on the amount of a product that can be imported into a country.
Purpose is to protect domestic products by limiting competition. However, it allows domestic businesses to raise prices.
Ex: In 1981, Japan agreed to voluntarily limit exports on cars shipped to the U.S. This agreement was to give U.S. manufacturers time to retool for production of fuel-efficient cars. Instead of retooling, U.S. auto manufacturers raised prices to increase profits.

9. Tools Used to Control Trade
Embargo: the ban of commerce and trade with a certain country.
Designed to limit trade with terrorists, drug dealers or politically undesirable countries.
Ex: U.S.-based companies are not allowed to do business with Cuba.
A type of embargo is a boycott. Participants usually believe that the boycotted organization or country has done something morally wrong.

10. Non-Tariff Barriers
Non-Tariff Barriers: barriers often based on legislative rules and regulations related to a certain product.
Ex: Many companies have imposed import restrictions on genetically modified (GM) plants. Europe has required the GM food products be labeled as GM. The U.S. that exports GM products view this requirement as an attempt by Europe to limit the import of U.S. farm products.

11. Non-Tariff Barriers
Voluntary Export Restraints: these restraints limit the total amount of products exported.
Ex. China has voluntarily limited the total amount of textiles exported to the United States. Firms in the U.S. have used these restraints to raise prices rather than to prepare to meet competition.

12. Non-Tariff Barriers
Dumping: countries sell products for less than the cost of production.
Dumping is a type of predatory pricing.
Predatory pricing is the lowering of a price to gain market share.
Countries use anti-dumping penalties to counteract this tactic. Such as, imposing tariffs and setting quotas or limits on imports.
Anti-dumping claims have been made on products such as steel, textiles, televisions, computer hardware, and farm crops.
China is a primary target for anti-dumping complaints

13. Export Support Systems
Governments undertake indirect support activities to support the sales of products.
Includes promoting export product sales through special trade fairs and consulates.
Consulates are government appointed officials from one country that reside in another country to represent the business interests of the appointing country’s citizens.

14. Export Support Systems
Export Subsidies: direct or indirect payments made by governments to support the export of products.
Direct Export Subsidies clearly support exporting by lowering the price of an exported product.
May include payments made directly to the exporter by the government or through other types of export support programs, such as low-interest loans to support sales.
Ex. Heavily used by European governments to support their farm exports.

15. Export Support Systems
Export Subsidies (cont.)
Indirect Export Subsidies support exporting in a roundabout way.
Ex. Aircraft manufacturers Boeing and Airbus have received indirect export subsidies. Both companies have received help from their government in the research and development of their planes. This lowers Boeing’s and Airbus’s internal research and development costs and, in turn, helps both companies keep the cost of their planes lower for their customers.

16. In Conclusion…