International Trade Environment

7/25/2019 International Trade Environment

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International TradeInternational Trade

Environment, Country RiskEnvironment, Country RiskAnalysis, Opportunities andAnalysis, Opportunities and

Threats for InternationalThreats for International

Business, BRIC EconomiesBusiness, BRIC Economies

International Business Management

Mr Arpan Anand, Asst !rof


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AgendaAgenda

Case "tudy on Anti#$umpingAnalysis of %lo&al Environment ' !olitical,

Economic, "ocial, Cultural, (egalTechnological, )atural environment

Country Risk Analysis

Opportunities and threats for Intl&usiness

Rise of ne* economies like Bra+il, Russia,India, China BRIC- and Asian Countries



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CASE STUDYCASE STUDY

$umping on Trade Complaints



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One of the &iggest pro&lems in internationaltrade is the a&ility of domestic producers tolo&&y their home governments to erect&arriers to trade In the past, the te.tile,apparel, and shoe industries *ere a&le too&tain protection from cheaper importsthrough tari/s, 0uotas, and special measures

)o* multilateral trade agreements under the%ATT and 1TO and also regional and &ilateralagreements such as )A2TA and the emergingAsian !aci3c Economic Cooperation forum-

outla* such &latant instruments of protection4o*ever, these agreements have &eenreplaced &y more su&tle ones



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!rominent as a ne* type of protectionistdevice is the use of 5unfair trade la*s6,

especially antidumping A$- andcountervailing duty actions C7$-

The economic logic of A$ and C7$ makessome sense It is unfair for a foreign

producer to 5dump6 a product in yourcountry &elo* its price in the home country,or &elo* the cost of producing it

"imilarly, su&sidi+ed foreign products should

&e o/set &y a countervailing duty ofe0uivalent e/ect The pro&lem, ho*ever, lies*ith the administration of the trade la*s,*hich is su&8ect to political lo&&ying



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A variety of studies have found that the&ureaucrats *ho administer A$ and C7$ la*s aresu&8ect to capture &y the home industries, *hothen use A$ and C7$ cases as harassment tools

against often economically e9cient foreign rivalproducers

2or e.ample, Rugman and Anderson :;" administration of A$ and C7$ *as usedin a &iased manner against Canadian producers,

especially in resource#&ased industries such assoft#*ood lum&er, 3shing, and agriculture

Thus in the Canadian#>" 2ree Trade Agreement of

:;" and Canadian- trade la*

agencies



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In a su&se0uent study, Rugman and Anderson:;;=- found that these &i#national panels *erea&le to remand &ack ie, successfully challenge-

the decision of the >" agencies t*ice as often incases involving Canada as in A$ and C7$ casesinvolving the rest of the *orld

In related *ork it has &een found that the E> is8ust as &ad as the >" in that the E> &rings in

0uestiona&le A$ measures, especially againstAsian countries Indeed, one of the unresolvedpro&lems is ho* smaller countries can secureaccess to the protected markets of triadeconomies >"A, ?apan, 1estern Europe- such as

the >" and the E> In ?apan@s case there are similar arguments

including those from its triad rivals- that thereare entry &arriers in place preventing marketaccess



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uestionsuestions

1hy are anti#dumping and countervailingduty measures &rought and imposed

1hat is the impact on a 3rm from a non#triadcountry if it faces an A$ or C7$ case in its

ma8or market1hat is the solution to the a&usive use of A$

and C7$ measures &y triad economies



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Countervailing $utyCountervailing $uty

%ATT Article 7I :;;D- allo*s the use of C7$to o/set pu&lic su&sidies for themanufacture, production or e.port of anymerchandise

C7$ use re0uires

proving the e.istence of su&sidy

proving that the su&sidi+ed import causes orthreatens to cause in8ury to domestic industry



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Anti#dumping $utyAnti#dumping $uty

$umping the introduction of a product ofone country into the commerce of anothercountry at less than its fair or normal value

)ormal value compara&le price for the

product, in the ordinary course of trade,*hen destined for domestic consumption

A$ duties can &e used if it is proven that

$umping e.ists

Causes or threatens to cause material in8ury



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ImpactImpact

Many of the e.port products in developingcountries are produced &y la&our intensive,small and medium enterprises Imposition ofcountervailing duties or even the threat ofimposition of such duties has a serious adverseimpact on the functioning of such units includingfall in production, large unemployment, declinein incomes and increase in poverty levels

The high cost of capital, lo* level ofinfrastructure development, inade0uateintegration and organi+ation of the economy,

poorly developed information net*orks arecharacteristics of industry in developing andleast developed countries It has &eenrecogni+ed that the state has to assume a moreactive and positive role in assisting its industry



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Recourse against unfair useRecourse against unfair use

of C7$ A$ $utyof C7$ A$ $uty1TOCountries lodge complaint petition to one

another diplomatically

Industry groups 3le petitions *ith their

governments to launch investigationsagainst the country making unfair use ofC7$ A$

Eg Companies in the >" *ill 3le petition in

>" $epartment of Commerce and >nited"tates International Trade Commission *hilethose in Europe *ill 3le it in the EuropeanCommission



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GLOBALGLOBALENVIRONMENTENVIRONMENT



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Trading Environment ofTrading Environment of




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Trading Environment of International Trade

=

3. ECONOMY

Environmentaluncontrollablescountry market A

Environmentaluncontrollablescountrymarket B

Environmentaluncontrollablescountrymarket C

1. Competition

1. Competition

2. Tecnolo!y"rice "ro#uct

"romotion "lace$. %eo!rapy an#

&n'rastructure

(orei!n Environment)*ncontrollables+

,. -tructure o'istribution

3. Economy

/. "olitical0e!al

omestic environment)*ncontrollables+

)Controllables+

2 .Tecnolo!y

.Culture

/. "olitical0e!al

.

Culture

TargetMaret



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Economic EnvironmentEconomic Environment

F Economic developmentF Infrastructure

F Resource and product markets

F !er capita Income

F E.change rates

F Economic conditions



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!olitico#(egal Environment!olitico#(egal Environment

F !olitical risk Arises due to events or actions &y host governments

(oss of assets

(oss of earning po*er

(oss of managerial control

%overnment takeovers

Acts of violence

F %overnment takeovers

F Tari/s, 0uotas, ta.esF Terrorism, political insta&ility

F (a*s, regulations



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"ocio#Cultural"ocio#Cultural

EnvironmentEnvironmentCulture ' shared kno*ledge, &eliefs, values,

common modes of &ehavior, and *ays ofthinking among mem&ers of a society Intangi&le !ervasive $i9cult for outsider to learn

Managers need to understand di/erence in socialvalues to comprehend local cultures and deal*ith them e/ectively

$imensionsF "ocio values, &eliefs

F (anguageF Religion o&8ects, ta&oos, holidays-F Ginship patternsF 2ormal education, literaryFTime orientation



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!hysical and Technological!hysical and Technological

EnvironmentEnvironment !hysical 2actors, such as geographical factors,

*eather and climatic conditions may call formodi3cations in the product

!hysical facilities "ome products, like many consumer dura&les, have

certain use facility characteristics The sale of television

sets, for e.ample, is limited &y the e.tent of thecoverage of the telecasting

"imilarly, the demand for refrigerators and otherelectrical appliances is a/ected &y the e.tent ofelectri3cation and the relia&ility of po*er supply

Technological factors

$i/ering technological environment of di/erent marketsor countries may call for product modi3cations

2or e.ample, many appliances and instruments in the>"A are designed for ::H volts &ut this needs to &econverted into DH volts in countries *hich have thatpo*er system



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)atural Environment)atural Environment

%eographical and ecological factors, such asnatural resource endo*ments, *eather andclimatic conditions, topographical factors,locational aspects in the glo&al conte.t, portfacilities, etc, are all relevant to &usiness

Climatic and *eather conditions a/ect the location ofcertain industries like the cotton te.tile industry

Topographical factors may, a/ect the demand pattern2or e.ample, in hilly areas *ith a di9cult terrain, 8eepsmay &e in greater demand than car

Ecological factors have recently assumed greatimportance The depletion of natural resources,environmental pollution and the distur&ance ofthe ecological &alance has caused great concern



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Trading Environment ofTrading Environment of




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Country Risk AnalysisCountry Risk Analysis

A collection of risks associated *ith investing in a foreigncountry

These risks include political risk,

e.change rate risk,

economic risk,

sovereign risk and Transfer and converti&ility risk, *hich is the risk of capital &eing

locked up or fro+en &y government action

Country risk can reduce the e.pected return on an investmentand must &e taken into consideration *henever investinga&road "ome country risk does not have an e/ective hedgeOther risk, such as e.change rate risk, can &e protectedagainst *ith a marginal loss of pro3t potential

The >nited "tates is generally considered the &enchmark forlo* country risk and most nations can have their riskmeasured as compared to the >" Country risk is higher *ithlonger term investments and direct investments, *hich areinvestments not made through a regulated market ore.change



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Country Risk !olitical RiskCountry Risk !olitical Risk

!olitical risk covers cultural and ethnic risk, socio#economic risk or changes in political institutions

!olitical risk pertains to the risk of e.posurestemming from the political environment Thefactors in this category relate to the threat of *ar,

social unrest, disorderly transfers of po*er, politicalviolence, international disputes, regime changes,institutional ine/ectiveness, &ut also include the0uality of the &ureaucracy, the transparency andfairness of the political system, and levels of

corruption and crime in the country in 0uestion 2actors %overnment "ta&ility, "ocioeconomic

Conditions, Investment !ro3le, Internal ConKict,E.ternal ConKict, Corruption



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Country Risk E.change RateCountry Risk E.change Rate

RiskRiskThe risk that a &usinessL operations or an

investmentLs value *ill &e a/ected &y changesin e.change rates

Investors and multinational &usinesses

e.porting or importing goods and services ormaking foreign investments throughout theglo&al economy are faced *ith an e.changerate risk *hich can have severe 3nancialconse0uences if not managed appropriately

Management 4edging, for*ard, futurecontracts, options , s*aps



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Country Risk EconomicCountry Risk Economic

RiskRiskThe likelihood that economic developments in

one country may negatively impact internationaltransactions "uppose Country A and Country Ben8oy a free trade agreement, *hich greatlyincreased trade &et*een the t*o nations

A protectionist party may &e elected to o9ce inCountry B and immediately revoke the 2TA )otonly *ill this a/ect &usiness, perhaps &othpositively and negatively, *ithin Country B, &ut

e.porters from Country A *ill suddenly 3nd thattheir investments have evaporated

2actors %$! per head, Real %$! gro*th,InKation rate



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Country Risk "overeignCountry Risk "overeign

RiskRisk"overeign risk comes from the government@s

ina&ility or un*illingness to ful3ll its loano&ligations

It also includes the risk that a country@s

central &ank *ill alter its foreign#e.changeregulations there&y signi3cantly reducing orcompletely nulling the value of foreign#e.change contracts



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Country Risk TransferCountry Risk Transfer

RiskRiskThe risk a government imposes capital or e.change

controls that prevent an entity from converting localcurrency into foreign currency andor transferring fundsto creditors located outside the country

Transfer risk arises from foreign government@srestrictions on capital movements and may &e a

political response to a permanent gro*ing currentaccount de3citTransfer risks can occur *hen a &uyer has received the

goods promised and is ready to make payment Thegovernment of the &uyer@s country sees its foreignreserves rapidly leaving the country The la* or central&ank institutes regulations to stop all movement of

funds out of the country *ithout speci3c approval Thisprogram halts the transfer out of the country of the&uyer@s currency as *ell as the currency of any othercountry The &uyer is *illing and a&le to make thepayment to the seller ho*ever, &y governmentintervention, the payment is &locked from taking place



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Opportunities forOpportunities for

International BusinessInternational Business%lo&al "ourcing of ra* materialOutsourcing of services

%ro*th of information technology tools,including the Internet and electronic

commerce e#commerce- make &usinesstransactions are faster and more glo&al

Opportunity to &ecome &road#&ased 2irms3nd it easier to manage do*nturns as they

can enter markets in emerging economies



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Threats for InternationalThreats for International

BusinessBusinessRisks related to international &usiness

!olitical#(egal

"ocio#Cultural

Transfer riskE.change rate risk

(a. regulation in international3nancial markets leading to 3nancialcrisis

Increased glo&al integration leading torisk of contagion spread of crisis-



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Rise of )e* EconomiesRise of )e* Economies

Emerging maret!are nations *ith socialor &usiness activity in the process of rapidgro*th and industriali+ation The economiesof China and India are considered to &e the

largestThe eight largest emerging and developing

economies &y either nominal %$! or %$!!!!- are Bra+il, Russia, India, China, Me.ico,

"outh Gorea, Indonesia, and Turkey!ositive e.pectations a&out emerging

economies atThe Atlanticand here

http://www.theatlantic.com/international/archive/2012/02/the-next-5-emerging-economies-that-will-change-the-world/253463/http://www.theatlantic.com/special-report/next-global-economies/http://www.theatlantic.com/special-report/next-global-economies/http://www.theatlantic.com/international/archive/2012/02/the-next-5-emerging-economies-that-will-change-the-world/253463/


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$ream $ecade for Emerging$ream $ecade for Emerging

Economies may &e overNEconomies may &e overNAs per articles inThe EconomistRefer to your notes on Emerging

Economies

http://www.economist.com/topics/emerging-marketshttp://www.economist.com/topics/emerging-markets


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!ossi&le uestions!ossi&le uestions

E.plain the concept of country risk analysis$iscuss political risk and socioeconomic riskand management of these risks

1hat is country risk analysis Comment on

cultural environment and ethical practicesE.plain the concept of country risk analysis

Comment on socioeconomic risk and itsmanagement

E.plain the meaning of country risk analysis1hat are the socio#economic and politicalfactors that may &e considered &efore goinginternational

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International Trade Environment