CHAPTER 6

GOVERNMENTAL INFLUENCE ON TRADE


Case: United States - Japanese Auto Trade


Imports started in 1973

VERs: ceiling 1.68 million cars

Arguments for helping the U.S. industry:

- The costs of unemployment are higher than the increased costs to consumers
- Help overcome temporary problems

Antiprotectionists: blame poor management and taxpayers should not be expected to reward the companies

Efforts to penetrate the Japanese market

I - INTRODUCTION

All countries seek to influence trade and each has:

- economic, social, and political objectives
- Interest groups

II - THE RATIONALE FOR GOVERNMENTAL INTERVENTION


A - Unemployment

Import restrictions may lead to retaliation by other countries, may decrease export jobs

Loss of jobs in industries that rely on imported Products

Cost of protectionism: higher prices, low quality, lack of Innovation

B - Infant Industry Argument

Production becomes more competitive over time because of increased economies of scale and greater workers efficiency

C - Industrialization Argument

Countries seek protection to promote industrialization Because:

a) brings faster growth than agriculture
b) diversifies the economy
c) brings more price increases than primary products do.

D - Shifting Workers from Agriculture into Manufacturing

a) output increases if the marginal productivity of agricultural workers is very low.

b) Social concerns

E - Promoting Investment Inflows

Import restrictions increase direct investment

F - Diversification


G - Terms of Trade (Px/Pm)

Deterioration of terms of trade may prompt countries to protect and promote industrialization

H - Import Substitution versus Export Promotion

Export-Led Development

I - Balance-of-Payments Adjustments

-Countries may choose to restrict the least essential Imports

-Export restrictions

- Import Restrictions may prevent dumping


J - Maintaining Essential Industries

K - Preserving Cultures and National Identity




III - FORMS OF TRADE CONTROL


A - Tariff

A tariff may be assessed on a per unit basis, in which case it is known as a specific duty.

It may also be assessed as a percentage of the value of the item, in which case it is known as an ad valorem duty.

If both a specific duty and ad valorem duty are charged on the same product , the combination is known as a compound duty.

Tariff controversy: affects exports of LDCs, and who bears the brunt of paying tariff costs


B - Nontariff Barriers: Direct Price Influences


Subsidies: may help companies be competitive

Customs Valuation

Quotas

"Buy Local Legislation"

Standards

Administrative Delays and Procedures

Countertrade


IV - From GATT to WTO


GATT, 1947 with 23 members and grew to more than 100 Members

Uruguay Round: agreement to replace the GATT with the World Trade organization (WTO)


Most-Favored-Nation Clause: this clause requires that if a country grants a tariff reduction to one country it must grant the same concessions to all other countries.

V - GATT Sponsored Rounds


These rounds led to a number of multilateral reduction in tariffs and nontariff barriers for its members.

Uruguay Round

Settlement of Disputes

VI - International Business Strategy in the Internationalization Process

chapter7

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