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International Business Management Unit:II

P r e p a r e d B y : V . H a r i b a b u , M B A

1

International Trade & Regulatory Frame work

International Trade: It is an exchange of goods and services across national

boundaries or territories. International trade is branch of economy which together

with international finance forms the larger branch of international economy.

Traditionally trade was regulated through between two nations. Since the Second

World War multi lateral countries institutions like GATT (General Agreement on

Tariffs & Trade), WTO (World Trade Agreement) have attempted to create a

global regulated trade structure to solve the international business problems or

trade barriers.

The regulation for international trade done through the WTO at the global level.

The economic integration as well as regional trade blocks are classified into fourcategories:

1.Free Trade Area,2.Customs union,3.Common market, and4.Economic.

The above four areas integrate the entire world economy for the international

business development.

1)Free Trade Area: If a group of countries agree to abolish all traderestriction and barriers to carry out international trade such group is called

free trade area. But these countries impose trade barriers and restrictions

with regard to trade over the other countries.

2)Customsunion: This type of group of countries basically has two features.yThe member countries abolish all the restrictions and barriers on trade

among themselves or charge low rates of tariffs.

yThey adopt a uniform commercial policy of barriers and restrictions jointlywith regard to the trade with non-members countries.

3)Common Market: It has three basic characteristics:yAll members countries abolish all the restrictions and barriers by charging

low rates of tariffs.

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yThey adopt uniform policy over the non-member countries.yThey allow free movement of human resources and capital among the

members countries thus common market is superior to customs union.

4)Economic Union: It has four basic characteristics:yAll members of countries charges low rates of tariffs among them.yThey adopt common commercial policy of barriers over the non-member of

countries.

yThey allow free movement of HR, capital among themselves.yThey have uniformity in the case of monetary policy & fiscal policy among

the members countries. Thus economic union is superior to common market.

Regional Trade Blocks:

1)ASEAN: The AssociationofSouth-East AsianNations:It is establishedwith six countries namely Singapore, Brunei, Malaysia, Philippines, Thailand and

Indonesia, agreed in Jan 1992 to invite free trade among 6 countries.

Goals:

Accelerate economic growth.To promote regional peace and stability.To increase GDP almost all 700 billion dollars.Total trade above 850 million US dollars.Encourage the free flow of foreign capital.

2)EuropeanUnion:EU:The European economic community is also known asEuropean common market. Originally EU having six countries viz., France,

Germany, Italy, Belgium, Netherland and Luxembourg formed into the European

Economic Community by the treaty of Rome 1957. By 2004 it is having 25

countries as its members.

Goals:

Elimination of customs duties with regard to exports & imports of goodsamong member countries.

Impose common tariff and common commercial policy with regard to non-member countries.

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Promote the economic and social development.To maintain the common policy in the area of transport.Common policy in the area of agriculture. Etc.

3)NAFTA:NorthAmericanFreeTradeAgreement:It is established on 1st Jan

1994 with three countries: they are U.S.A, Canada, and Mexico. This signed on

the free trade agreement in 1994.

Goals:

Eliminate all tariffs and trade barriers.To create new business opportunities in Mexico.To reduce the prices of the products and services by enhancing the

competition.

To enhance industrial development.To improve and consolidate political relationship among member countries.

4)MERCOSUR:The treaty of Asuncion signed by Argentina, Brazil, piraguas,Uruguay, on March 26, 1991 created MERCOSUR. It is a customs union. It is

the South Americas largest trade block collecting a market of 575 million

people. It is the fastest growing trading block in the world.

Goals:

Fixing of a common external tariff and adopting of a common trade policywith regard to non-member status or countries.

Co-ordination of macro-economic, agriculture, industry, taxes, monetarysystem, exchange and capital, service, customs, frees competition between

members countries.

Thus the regional agreements helped a lot for the international trade and to avoid

or abolish the trade barriers within the member countries. Directly and indirectly

it is good sign for global business people as well as for all countries of the world.

What are the trade barriers? Or what are the types of Trade barriers?

I. Introduction: One of the most important of international trading environment

is trade barriers. Some of the countries perceive an inward looking strategy

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towards foreign trade. These countries use several barriers to protect domestic

countries, companies from the foreign companys competition.

II. Objectives of Trade barriers: The following objectives areas:

To protect industries from foreign trades or foreign competition.To maintain foreign exchange reserves.To maintain certain level of balance of payments.To mobilize revenue for the government.To discriminate against certain compounds.

III. Types of Trade barriers: The trade barriers generally include tariff & non-

tariff barriers. The following figure explains trade barriers clearly.

1)Tariff Barriers: A tariff is a tax imposed on goods and services an inwardlooking strategy towards foreign trade. It refers to the duties or taxes

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imposed on international traded goods when they cross national borders. In

the same way there are different tariffs on the environment. Such as:

Export Tariff: Taxes or tariffs are imposed on goods when theyleave home country is called export tariff.

Import Tariff: Taxes or tariffs are imposed on goods when thecountry receives goods is called import tariff.

Transit tariff: As goods pass through one country boundary foranother is called transit tariff.

pecific duty: It is equals to import duty. Duty: These duties are imposed as percentages on values of

goods imported. Ex: Goods weight, goods quality and goods value etc.

Compound duty: Partly on percentages and partly as a rate per unit.The combination of specific duty and dutcompound duty.

2)Non-Tariff Barriers: Present all tariffs are replaced by non-tariff barriersfrom 1980s on wards. These are also named as new protections measures.

The first category includes those which are generally used by developing

countries to prevent foreign exchange out flow and the second category of

government interventions on international trade relates to non-tariff

barriers. We consider the following barriers:

Quotas: Quotas refers to numerical limits on the quality issued to agroup of individuals or firms. There are two types of quotas.

Importquota:The aimof importquotatorestrictthequality of imports. The qualitative restriction may be to

protectthe interestof domestic procedures. Generally

there are five types of importquotas.

Tariff quota.Bilateral quota.Unilateral quota.Mixing quota.Licensing.Tariffquota:The imports ofacommodity up toa

specified volume orallowed duty free atalow special

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rate. But any importing excess of limit subject to duty

at a higher rate of duty.

Unilateralquota:A country unilaterally fixes aceilingonthequantity of aimports of aparticularcommodity

Bilateralquota:Itdepends up on thenegotiation ofcountries.

Mixingquota:These procedures are agreed toutilizedomestic raw materials up toacertainproportionin

the productof finished polts.

Licensing:To get licensingalso tariff incurred. ubsidies: A subsidy is a govt. payment to domestic producer.

Subsidies take several forms including cash grants, low interest loans,

tax breaks. Etc..

Other Barriers: There are few other barriers.Embargo:It refers toacomplete ban on trade in one or

more polts with aparticularcountry. An embargomay be

placed on one ormore goods completely ban trade in all

goods. Ex:import of beef in any formintoIndiais strictly

prohibited orbanned due toHinduism.

Localcontentrequirement:Itrefers tolegalstipulationthataspecified amountof agood orservicebesupplied byproducers inthedomesticmarket. Ex:manpower, locallabor,

otherinputs should beused inproductionof goods.

Administrationdelay:Regulationscontrolsorbureaucraticrulesdesigntoimpairtheflow of importsintoacountryare

calledadministrativedelays.

Currency:Restrictions ontheconvertibilityof currencyintoothercurrencies. A countrythat wishes to import goods,

must payforeigncurrencyina common, internationally

acceptablecurrencies such as U.S $, EuropeanUnionEuro,

JapaneseYen. Etc.

Polt& testingstandards:Thisisnon-tariff barriersrequiresthatforeigngoodsmeetacountriesdomestic poltortesting

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standards before they can be offered for sale in that

country. Ex: China- foreign motor vehicles, electronic goods

etc before they enter its market.

Thus trade barriers influences or impacts over the international businessmanagement.

Explain export promotions and import substitution?

Export promotions: The main activity of international marketing is the export and

import procedure. This producer involves documentation, rules and regulations

imposed by both the exporting and importing countries. Export business basically

earns foreign exchange for the country in addition to providing direct and indirect

employment to the domestic people, generates economic development of thecountry. That is why many governments in the world promote the exports in order

to maximize the export earnings. Governments established various institutions to

provide different types of assistance to the exporters.

The objective of export:

Compensate the exporters for high domestic cost of production.Provide assistance to the new and infant exporters to develop the export

business.Increase the relative profitability of the export business as well as

domestic business.

Export promotion Institutions in India: There are some of the institutions which

provide necessary information to exporters. Namely

State trading corporation of India limited (STC).Tea trading corporation of India (TTCIL).Indian Institute of Foreign Trade (IIFT).Cashew export promotion council of India (CEPC).Pharmaceutical & Cosmetic export promotion council 1963.Coffee board 1942Council for leather exports.Spices board India 1987

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Sports goods export promotion council 1958.The Gem & Jewelers export promotion council 1966Tobacco Board 1976Directorate General of Foreign Trade.Export inspection council (EIC) 1963Council for leather exports 1984Carpet export promotion council 1982.

No country in the world is not all together self sufficient is providing the needed

commodities and services to the people at the nation.

In fact, every country either directly or indirectly depends on other countries.

One of the main economic objectives of any country is to reduce the deficient in

the balance of payments.

Balance of payments is the net difference between the trades by one country with

the rest of the world. Trade implies buying & selling. If the sales activity crosses

the border of one nation that can be called as exports. Similarly goods or services

accepted for the payment of certain return can be called as imports.

If the exports are exceeds the value of imports it is a sign of economic progress.

It states that balance of payments position in strong in that country. Instead of

that the value of imports exceeds the value of exports it is a sign of non

development. It states country position with respect to foreign exchange

dangerous.

Every country takes to search for several strategies, economic plans, to create

foreign exchange and to decrease deficient in balance of payments.

Every country adopts two methods to deal the situation of balance of payments.

They are

1.Export promotion: It includes develop of product in export oriented industriesand making home goods competitive in the world market. There are five

methods for exports promotion activities.

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a.Replenishmentlicensepolicy:According tothispolicytheexportbecomeentitled togetinputlicenseonthebasisof their exportperformance. In

1988 thispolicywasintroduced.

b.Cashcompensatorysupportpolicy:Thispolicyisgiventotheexporter fortheir benefitswheninputsused intheoutputof exported goods. Thereare260 productswhicharebenefited under thispolicy. Ex:plastic,

leather, chemicalgoods, eng goodsetc. From1991 onwardsthispolicywas

abolished inIndia.

c.Subsidized creditpolicy:Theexporterscangetbothpre-shipmentandpost-shipmentcreditatconcessionalratesof interest. EXIM bank

providing nearly7.5% tosuppliersand 8.5% credittobuyers.

d.Dutyexemptionpolicy:Theregistered exporter canobtainnecessaryinputsfor exportproductsattheinternationalprices. Withoutpaymentof customsduty.

e.Blanketexchangepermitpolicy:Under thispolicytheexportersareallowed bearing a few poltstoutilize5-10% their foreignexchange

earningsbutundertaking exportspromotionalactivities.

2.Import Substitution: It helps to reduce the outflow of foreign currency byusing any one of the following.

a.Substitution of imported raw material, spare parts etc. withmanufactured materials and components of the some specification.b.Reduction in the consumption of raw material per unit of production.c.Substitution of imported raw material by suitable alternatives.

Thus imported countries can maintain the reasonable balance of payments in the

international business in order to enhance their country economy.

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