1. Barriers To International Trade
TOPIC #5
Barriers To International Trade

2. Barriers to International Business
Purpose of Barriers
To help protect domestic businesses and consumers
May be used to:
1. help assist a new business getting started
2. protect an existing industry struggling in a competitive global environment.
3. protect consumers from imports with problems or that do not conform to Canadian safety standards.

3. Barriers to International Business
Barriers include:
Tariffs or Custom duties
Non-Tariff barriers
Increased costs of importing and Exporting
Excise taxes
Currency Fluctuations

4. 1. Tariffs Also called custom duties
One of the most important tools for any government in managing trade with other countries.
A form of tax on certain types of imports (goods coming into Canada from other countries)
Companies bringing in the goods from another country to sell in Canada must pay the tariffs.
Tariffs are based on a percentage of the retail value, (i.e. 5% of retail selling price.) or;
On another basis (i.e. $6 per kilogram)
Money collected goes to the government.

5. Tariffs Whose job is it to: 1. monitor Canadian tariff policies?
2. monitor tariff policies of other countries?
3. change Canadian tariff policies to best serve the Canadian economy?
Answer:
Finance Canada

6. Tariffs Provide an example of when it may be:
beneficial for Canada to reduce tariffs on certain goods imported from outside countries?
beneficial to increase or create tariffs on certain goods being imported from outside countries?

7. 2. Non-tariff Barriers
Legal and policy standards for the quality of imported goods are set so high that foreign competitors can not enter the market.
Examples:
A Canadian law forces an international company to apply for a license to do business in Canada (it may be very time consuming
and expensive)
Government will allow some goods into the country only after being inspected and having met certain health and safety standards set out by the Canadian Food and Inspection Agency.

8. Imported Goods That Require Permits, Inspection, or Special Packaging
Imported Goods Government Department__________
1. Endangered animals and Environment Canada
plants and products made
from them
2. Agricultural and food Agriculture and Agri-food Canada
products
3. Non-food products and clothing Industry Canada
precious metals, and
radio communications equip.
4. Fish and fish products Fisheries and Oceans Canada
5. Food, drugs, medicines, Health Canada
pharmaceuticals, medical
and radiation-emitting
devices
6. Hazardous waste, goods that Environment Canada
may contain chlorofluorocarbons
or lead gas
7. Motor vehicles Transport Canada

9. 3. Costs of Importing and Exporting
Landed Cost
The actual cost for an imported purchased item.
It is composed of the vendor cost, transportation charges, duties, taxes, broker fees, and any other charges associated with getting the product ready to sell in a foreign market. (another country)
Question
If you owned Canadian Tire and had to choose between selling a tool from a Canadian manufacturer or a foreign manufacturer, which one would you select if the quality of both products was equal?
a. the foreign tool whose landed cost was greater than the domestic purchase cost or;
b. the domestic tool whose cost was cheaper than the landed cost.

10. Costs of Importing and Exporting
Price of a good sold is based on the following costs among others:
Manufacturing (includes wages);
storage;
Marketing;
Shipping;
Advertising
Overhead (Equipment, Heating etc, Salaries)
% of profit the company wants to make on the sale
Depending on the laws of another country and cultural differences, additional costs may be incurred.

11. 4. Excise Taxes Excise Tax
A tax on the manufacture, sale, or consumption of a particular product produced in your country
Governments use excise taxes to:
1. Raise money (i.e tobacco related health care costs)
2. Discourage people from engaging in certain activities
3. Increase the costs of imported goods to encourage consumers to buy Canadian products.
Examples of excise taxes:
10 cents per litre on gasoline for the federal government
14.5 cents per litre on gasoline for the provincial government
Excise tax on tobacco products varies from province to province

12. 5. Currency Fluctuations
Converting the value of $1 Canadian dollar to US currency and other national currencies.
Examples
Nov $100 US  $157 Canadian
Nov $100 US  $98 Canadian
Website to research a history of exchange rates

13. Factors Affecting Exchange Rates
1. The financial health of Canada’s economy versus the US economy
2. Interest Rates
Example:
If the Canadian economy is performing better than the US, the value of the Canadian dollar will increase. The demand for the Canadian dollar rises. Demand > Supply, the value rises.
If interest rates are higher than those of other countries while inflation remains fairly stable, the value of the Canadian dollar will increase. Foreigners will be attracted to invest in Canadian funds where banks are providing higher interest rates. Demand > Supply, the value rises.
Information on factors affecting exchange rates:

14. Impacts of Exchange Rates
Canadian economy is largely dependent on the value of imports and exports which can be greatly impacted by the value of the Canadian dollar.
The US is Canada’s biggest trading partner.
When Canadian Exports to US > US Imports = Trade Surplus
When Canadian Exports to US < US Imports = Trade Deficit
Exports decrease when:
the Canadian dollar increases in value to the US dollar, it makes exports more expensive.
the US economy is weak and the CD dollar is increasing, the US will be purchasing less from Canadian businesses
Note: Canadian consumers also tend to purchase more products from the US because the value of the dollar is higher, and goods are often cheaper in the US, thus making imports higher.
Result:
Less sales revenue for Canadian businesses which in the long run, can end up hurting the Canadian economy. For example, when businesses are earning less revenue, profits decrease and if significant decreases occur, businesses may start laying off employees.