INTB3080: Chapter 7
INTB3080: Chapter 7 INTB3080
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This 2 page Class Notes was uploaded by Madison Morman on Thursday March 3, 2016. The Class Notes belongs to INTB3080 at University of Cincinnati taught by Dr. Ratee Apana in Spring 2016. Since its upload, it has received 32 views. For similar materials see Global Environment of Business in International Business at University of Cincinnati.
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Date Created: 03/03/16
Global Business Environment Chapter 7 The 7 instruments of Trade Policy 1. Tariffs: Oldest form of protection that generates revenue, protects domestic producers, BUT reduce efficiency and increase cost of goods a. Specific Tariffs: Levied as a fixed charge per unit b. Ad valorem: Levied as a proportion of the value of the imported good 2. Subsidies: Government payment to a domestic producer (cash grants, low-‐ interest loans, tax breaks. a. Subsidy revenues are generated from taxes b. Encourage over-‐production, inefficiency and reduced trade c. Agriculture subsidies: Keeps inefficient farmers in business, encourages production of subsidized product, produces products grown cheaper, reduces agriculture trade 3. Import Quotas: Restriction on the quantity of some good imported into a country a. Voluntary Export Restraint: Quota trade imposed by exporting country at request of importing country’s govt. • Import quotas and VER’s raise domestic prices on imported goods • Helps producers, hurts consumers 4. Local Content Requirements • A specific fraction of a good must be domestically produced (physical and percent value) • Used by developed countries to protect local jobs and industry from foreign competition • Widely used by developing countries to develop their manufacturing base 5. Administrative Policies: Informal bureaucratic rules that are designed to make it difficult for imports to enter a country • Selling goods in foreign market below production/fair market value • Result of: Unloading excess production/predatory behavior • Remedy: seek imposition on tariffs 6. Antidumping Duties: Selling goods in a foreign market below production costs or fair market value a. Result: Unloading excess production, predatory behavior b. Solution: Get imposition of tariffs 7. Voluntary Exports Restraints (VER): A quota on trade imposed by the exporting country, typically at the request of the importing country’s govt. -‐Political Arguments for Intervention: • Most common: Protecting industry jobs CAP & VER • National Security (human rights) • Retaliation-‐Risky; If handled wrong, will result in economic loss Helms-‐Burton Act: Oldest argument by Alexander Hamilton, that allows Americans to sue foreign firms that use property in Cuba confiscated from them after the 1958 revolution D’Amato Act: Aimed at Libya and Iran similar to Helms-‐Burton Act Infant Industry Argument: According to this argument, many developing countries have a potential comparative advantage in manufacturing, but new manufacturing industries can’t initially compete with established Strategic Trade Policy: Consists of two components a. Govt. can help raise national income if it can ensure that firms who gain first mover advantages are domestic b. It may pay a govt. to intervene in an industry by helping domestic firms overcome the barriers to entry created by foreign firms who have first-‐mover advantage Smoot-‐Hawley Act: Erected an enormous wall of tariff barriers/damaged employment abroad/U.S. exports declined GATT: Wanted to liberalize trade eliminating tariffs, subsidies, and import quotas WTO: Policing organization for GATT, services, and intellectual property • Achievements = 68 countries with 90% of world revenues & Financial Services with 95% of financial services market & 102 countries open market • Doha Agenda: Cutting tariffs on industrial goods and services, no subsidies on agriculture