1. Business-Government Trade Relations

2. © Prentice Hall, 2006International Business 3e Chapter 6 - 2 Chapter Preview Describe the political, economic and cultural reasons nations intervene in trade Identify the methods that nations use to promote trade Describe the methods that nations use to restrict trade Discuss the main institutions of the global trading system

3. © Prentice Hall, 2006International Business 3e Chapter 6 - 3 Political Motives Protect jobs Preserve national security Respond to “unfair” trade Gain influence

4. © Prentice Hall, 2006International Business 3e Chapter 6 - 4 Economic Motives Protect infant industries - Protect emerging industries during development from global competition Potential results + National income increases – Wrong industries protected – Firms grow complacent – Consumer prices rise – Public funds poorly spent

5. © Prentice Hall, 2006International Business 3e Chapter 6 - 5 Economic Motives Pursue strategic trade policy - Help companies achieve economies of scale and gain a first-mover advantage Potential results + Global industry created – Firms’ efficiency reduced – Domestic costs increase – Special interests benefit

6. © Prentice Hall, 2006International Business 3e Chapter 6 - 6 Cultural Motives Protect national identity - Nations block imports deemed harmful - Usual suspects are US media and consumer goods - Result of increased globalization

7. © Prentice Hall, 2006International Business 3e Chapter 6 - 7 Trade Promotion and Restriction Trade promotion methods - Subsidies - Export financing - Foreign trade zones - Special government agencies Trade restriction methods - Tariffs - Quotas - Embargoes - Local content requirements - Administrative delays - Currency controls

8. © Prentice Hall, 2006International Business 3e Chapter 6 - 8 Subsidies Financial assistance in the form of cash, tax breaks, price supports, etc. Potential results - Increased competitiveness - Encourage inefficient firms - Increased consumer prices - Overuse of resources

9. © Prentice Hall, 2006International Business 3e Chapter 6 - 9 Export Financing Financing such as low-interest loans and loan guarantees Export-Import Bank of the United States - Working capital loan guarantees - Credit information on nation or firm abroad - Export credit insurance against loss - Loan guarantees to buyers of U.S. goods and much more…

10. © Prentice Hall, 2006International Business 3e Chapter 6 - 10 Foreign Trade Zones Designated geographic region in which merchandise is allowed to pass through with lower customs duties (taxes) and/or fewer customs procedures Purpose is to increase employment and trade within the nation

11. © Prentice Hall, 2006International Business 3e Chapter 6 - 11 Special Government Agencies Organize trade missions for officials and businesses Operate export-promotion offices at locations abroad Help import products the home nation does not produce

12. © Prentice Hall, 2006International Business 3e Chapter 6 - 12 Tariffs Government tax levied on a product as it enters or leaves a nation - Export tariff - Transit tariff - Import tariff Potential results - Protect domestic firms from competitors - Generate income for the government - Reduce competitiveness of home-based firms - Raise consumer prices

13. © Prentice Hall, 2006International Business 3e Chapter 6 - 13 Import and Export Quotas Restriction on the amount of a good that can enter or leave a country during a certain period of time - Import Quotas Protect domestic producers of a good Force outside firms to compete for market access - Export Quotas Retain an adequate domestic supply of a product Restrict world supply of a product to raise its price

14. © Prentice Hall, 2006International Business 3e Chapter 6 - 14 Embargoes Complete ban on trade (imports and exports) in one or more products with a particular country - Most restrictive nontariff trade barrier - Often used to achieve political goals - Can be difficult for a nation to enforce

15. © Prentice Hall, 2006International Business 3e Chapter 6 - 15 Local Content Requirements Laws that domestic producers must supply a specific amount of a good or service Forces international companies to employ local resources (usually labor) in production process

16. © Prentice Hall, 2006International Business 3e Chapter 6 - 16 Administrative Delays Regulatory controls or bureaucratic rules to slow imports into a country - Inconvenient ports for imports - Product-damaging inspections - Understaffed customs offices - Lengthy licensing procedures

17. © Prentice Hall, 2006International Business 3e Chapter 6 - 17 Currency Controls Restrictions on the convertibility of a nation’s currency - Limit the amount of globally accepted currency available to pay for imports - Set an unfavorable exchange rate when paying for imports

18. © Prentice Hall, 2006International Business 3e Chapter 6 - 18 General Agreement on Tariffs and Trade (GATT) Treaty designed to promote free trade by reducing tariffs and nontariff barriers to trade Uruguay Round - Extended coverage to services - Improved intellectual property rules - Reduced trade barriers in agriculture - Established the WTO

19. © Prentice Hall, 2006International Business 3e Chapter 6 - 19 World Trade Organization (WTO) International organization that regulates trade between nations - Normal trade relations (“most-favored- nation status”) - Dispute Settlement Body - Dumping and antidumping duties - Doha Round of trade talks