1. The Dynamic Environment of International Trade
.Chapter 02
Modular:
Afjal Hossain
Assistant Professor, Department of Marketing
PSTU
McGraw-Hill/Irwin International Marketing, 13/e

2. Balance of Payments Transactions recorded yearly
Must always be in balance
A record of condition, not determinant of condition
A Balance of Payments statement includes three accounts:
Current account
Capital account
Reserves account
Balance of Payments is the system of accounts that records a nation’s international financial transactions.

3. U.S. Current Account by Major Components, 2002 ($ billions)

4. United States Current Account Balance (% of GDP)

5. What Would One U.S. Dollar Buy?

6. Protection Logic and Illogic
Arguments concerning protectionism on trade:
Protection of infant industry
Protection of the home market
Need to keep money at home
Encouragement of capital accumulation
Maintenance of the standard of living and real wages
Conservation of natural resources
Industrialization of a low-wage nation
Maintenance of employment and reduction of unemployment
National defense
Increase of business size
Retaliation and bargaining

7. Monetary Trade Barriers
Monetary Barriers
Blocked currency
Differential exchange
Government approval
Others
Tariffs
Boycotts and Embargoes

8. Non-monetary Trade Barriers
Standards
Antidumping Penalties
Others
Quotas
Voluntary Export Restraints

9. The Omnibus Trade and Competitiveness Act
Designed to deal with trade deficits, protectionism, and the overall fairness of our trading partners.
The bill covers three areas considered critical in improving U.S. trade:
Market access
Export expansion
Import relief
Four ongoing activities to support the growth of international trade:
GATT
The associated World Trade Organization (WTO)
International Monetary Fund (IMF)
The World Bank Group

10. General Agreement on Tariffs and Trade
Paved the way for the first effective worldwide tariff agreement.
Basic Elements of the GATT:
Trade shall be conducted on a nondiscriminatory basis
Protection shall be afforded domestic industries through customs tariffs, not through such commercial measures as import quotas
Consultation shall be the primary method used to solve global trade problems.
Eliminating barriers to international trade (Uruguay Round):
The General Agreement on Trade in Services (GATS)
Trade-Related Investment Measures (TRIMs)
Trade-Related Aspects of Intellectual Property Rights (TRIPs)

11. World Trade Organization
An institution, not an agreement as was GATT
Sets many rules governing trade between its 156 members
Provides a panel exports to hear and rule on trade disputes between members.
Issues binding decisions
All member countries will have equal representation
For the first time, member countries, will undertake obligations to open their markets and to be bound by the rules of the multilateral trading system.
Trouble with U.S. ratification:
Concern for the possible loss of sovereignty over its trade laws to WTO
The lack of veto power
The role the U.S. would assume when a conflict arises over an individual state’s laws that might be challenged by a WTO member.
Skirting the Spirit of GATT and WTO

12. The International Monetary Fund
Created to assist nations in becoming and remaining economically viable.
Objectives of the IMF:
Stabilization of foreign exchange rates
Establishment of freely convertible currencies to facilitate the expansion and balanced growth of international trade
Special Drawing Rights (SDRs)
“paper gold”

13. The World Bank Group
Institution that has as its goal the reduction of poverty and the improvement of living standards by promoting sustainable growth and investment in people.
The World Bank has five institutions each of which performs the following services:
Lending money to the government of developing countries
Providing assistance to governments for developmental projects to the poorest developing countries.
Lending directly to the private sector
Providing investors with investment guarantees against “noncommercial risk.”
Promoting increased flows of international investment

14. Protests against Global Institutions
The basic complaint against the WTO, IMF and others is the amalgam of unintended consequences of globalizing:
Environmental concerns
Worker exploitation and domestic job losses
Cultural extinction
Higher oil prices
Diminished sovereignty of nations
Terrorism in London (2005)
“Antisweatshop” campaigns