Dynamic Environment in International Trade

CH: 2

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CHAPTER OUTLINE

Global perspectives: Trade barriers-An international market minefield.

The twentieth to twenty first century: World trade & US multinationals.

The first decade of the twenty first century & beyond.

Balance of payments Easing the trade restriction.

General agreement on trade & Tariff - GATT

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CHAPTER OUTLINE

World trade organization – WTO

Skirting the spirit of GATT & WTO

The international Monetary fund & world bank group

Protest against Global institutions

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CHAPTER LEARNING OBJECTIVE

Basis for reestablishment of the world following World war two.

Importance of balance of payment figure on world economy

Effect of protectionism on world trade Seven types of trade barriers Importance of GATT & WTO Emergence of IMF & World bank group

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TWENTITH TO TWENTY FIRST CENTURY First half of twentieth centuryo Depressiono World war 1 & World war 2 Last half of twentieth centuryo Marshall plan o Establishment of GATTo Formation of WTOo Formation of IMF & world bank World bank estimation regarding India, Brazil,

Indonesia, china & Russia

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WORLD TRADE & US MNCs

Era between 1950 to 1960 Problem faced in era of 1960o Resistance to direst investmentso Increasing competition in export marketing Major threatso NIC –Newly industrialized countrieso SOE –state owned enterprise

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WORLD TRDE & US MNC,s

Balance of Merchandise trade US trade deficient US encouraging efforts for open trade Role model as open market AFTA – Anemia free trade area GATT – General agreement on tariff & trade WTO – World trade organization APEC – Asia pacific economic cooperation

conference

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FIRST DEACDE OF TWENTY FIRST CENTURY

NIC – Newly industrialized countries World bank estimation regarding new emerging

countries Brazil, India & Indonesia OECD – Organization of economic cooperation

devolvement Changes in intensity of competition Emerging markets Regional trade areas Established market in Europe, Japan & US

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BALANCE OF PAYMENTS

The system of accounts that records a nations’ international financial transactions is called its balance of payments.

Record financial transactions ------- usually for one year.

Record maintained on double entry book keeping system.

It is record of condition, not a determinant of condition.

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BALANCE OF PAYMENTS

Basically it presents;

Overall view of a nations’ international economic position.

Difference between receipt from foreign countries on one side and payments to them on the other.

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BALANCE OF PAYMENTS

An important economic measure used by;TreasuriesCentral banks& other government agencies

Responsible to maintain external and internal economic stability.

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BALANCE OF PAYMENTS

Plus side of US balance of paymets;

Merchandise export sales.Money spent by foreign tourists.Payments to US for insurance.Transportation and similar services.Payments of dividends and interest on

investment abroad.Return on capital invested abroad.New foreign investmets in US.Foreign Govt. paymets to the US.

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BALANCE OF PAYMENTS

Minus side of US balance of payments;

Cost of goods imported.Spending by the US tourists overseas.Cost of foreign military and economic aid.

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Payments ReceiptsInternational

Deficit ExportMore tourists from outside

The Balance;

BALANCE OF PAYMENTS

Include 3 types of accounts;

Current account (Important)○ Record--- merchandise import, export,

services, unilateral transfer of funds.

Capital account○ Record--- direct investment, portfolio

investment, short term capital movement to and from the countries.

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BALANCE OF PAYMENTS

Include 3 types of accounts;

Reserves account○ Records--- import and export of gold, increase

of decrease in foreign exchange, increase or decrease in liabilities to foreign central bank.

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PROTECTIONISM

The tariffs, quotas and non-tariff barriers designed to protect a country‘s market from intrusion by foreign countries.

WTO role.Nations utilize legal, exchange and psychological

barriers to restrain entry of unwanted goods.While arguing for protection, the basic economic

advantages of international trade are ignored.

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PROTECTIONISM (Protection Logic and Illogic)

Arguments by protectionists supporting Govt. restrictions on trade.

Economists recognize as valid;

1.Protection of infant industry

2.National defense

3.Industrialization of underdeveloped countries.

Most protectionists argue the need for tariffs in one of above 3.

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Arguments by protectionists supporting Govt. restrictions on trade.

Others Protection of home market Need to keep money at home Encouragement of capital accumulation. Maintenance of standards of living and wages. Conservation of natural resources

(Environmental consciousness) Maintenance of employment and reduction of

unemployment(proponents)

Increase of business size Retaliation and bargaining Etc.

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PROTECTIONISM (Protection Logic and Illogic)

Certain barriers are established by the Govt. to encourage the development of domestic industry and protect the existing industry.

Imposed against import and foreign business. Inspiration may be economical or political Encouraged by local industry

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PROTECTIONISM (Barriers)

Tariffs; (arbitrary, discriminatory and require supervision)

Tax imposed by Govt. on goods entering the border.

Tariff;

Increases○ Inflationary pressure○ Special interest privileges○ Govt. control and political considerations in

economic matters○ The number of tariffs.

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Tariff;

Weaken○ Balance of payments○ Supply and demand pattern○ International relations (trade wars)

Restrict○ Manufacturers supply source○ Choice available to consumers○ competitions

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Quotas

Specific unit or dollar limit applied to a particular type of good.

Put absolute restriction on quantity of a specific good to be imported.

Like tariff, quota tend to increase price.

○ Great Britin------ limits imported television sets○ Germany ------ quotas on Japenese ball bearings○ Italy ------ Japenese motorcycles○ US ------ Sugar , textile etc.

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Voluntary Export Restraints (VERs)

Orderly Market Aggrements (OMSs)

Aggrement between the importing country and exporting country for a restrictions on volume of exports.

It is voluntary because the exporting country sets the limits.Under threat; stiffer quotas and tariffs being set by importing

countries

○ Japan has a VER on automobiles to US

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EASING TRADE RESTRICTIONS

The omnibus trade & competitiveness act Correction of perceived in justice in trade practices Openness of new market to US goods Barriers to enter in new market Majors ongoing activities to support growth

of international trade GATT WTO IMF World Bank

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The Dynamic environment of international trade

GENERAL AGREEMENT ON TRADE & TARIFF - GATT

Background & history Major functions

No discrimination

Protection of domestic industry

Consultancy will be primary method for problem solving

Establishment of trade related investment measures

Investment restrictions as trade barriers

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WORLD TRADE ORGANIZATION – WTO

Development as an institution Equal representation of all member states Role in product standardization & in other

areas International Monetary fund Objectives & role

World Bank Objectives & functions

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Documents

Dynamic Environment in International Trade