CHAPTER 2: The Dynamic Environment of International Trade

What Should You Learn?

• The basis for the reestablishment of world trade following World War II

• The importance of balance-of-payment figures to a country’s economy

• The effects of protectionism on world trade

• The seven types of trade barriers

• The importance of GATT and the World Trade Organization

The emergence of the IMF and the World Bank.

Global Perspective Trade Barriers – An International Marketer’s Minefield :-

- Countries take advantage of U.S. open markets while putting barriers in the way of U.S.

  exports.

- Tariff and nontariff barriers to trade are major issues confronting international marketers.

- To realize the benefits of the social, political, and economic changes, free trade must 

  prevail throughout the global marketplace.

- WTO (World Trade Organization)

Balance of Payments

– The system of accounts that records a nation’s international finance transactions
- Transactions recorded annually
- Must always be in balance
- A record of condition, not determinant of condition

A balance of payments statement includes three (3) accounts :-

1. Current account
2. Capital account
3. Reserves account

Protectionism

- Tariffs, quotas, and nontariff barriers are designed to protect markets from intrusions by
  foreign countries
- Nations utilize barriers to restrain entry of unwanted goods :-

• Legal
• Exchange
• Psychological
• Private market

Protection Logic and Illogic

• Arguments concerning protectionism on trade
• Protection of infant industry
• Protection of the home market
• Need to keep money at home
• Encouragement of capital accumulation
• Maintenance of the standard of living and real wages
• Conservation of natural resources
• Industrialization of a low-wage nation
• Maintenance of employment and reduction of unemployment
• National defense
• Increase of business size
• Retaliation and bargaining

Trade Barriers

1. Tariffs
2. Quotas
3. Voluntary Export Restraints (VER)
4. Boycotts and embargoes
5. Monetary barriers
6. Blocked currency
7. Differential exchange
8. Government approval
9. Standards
10. Antidumping penalties

4 ongoing activities to support the growth of international trade :-

1. GATT
2. The associated World Trade Organization (WTO)
3. International Monetary Fund (IMF)
4. The World Bank Group

General Agreement on Tariffs and Trade

- Paved way for first effective worldwide tariff agreement
- Basic elements of the GATT

• Trade shall be conducted on a nondiscriminatory basisProtection shall be afforded domestic industries through customs tariffs, not through such commercial measures as import quotas,
• Consultation shall be the primary method used to solve global trade problems,

- Eliminating international trade barriers – Uruguay Round,

• The General Agreement on Trade in Services (GATS),
• Trade-Related Investment Measures (TRIMs),
• Trade-Related aspects of Intellectual Property Rights (TRIPs)

World Trade Organization           

      

     

WTO is an institution – not an agreement        

take a look here : http://www.wto.org/

• Sets many rules governing trade between its 148 members
• Provides a panel exports to hear and rule on trade disputes between members
• Issues binding decisions
• All member countries will have equal representation
• Member countries have open their markets and to be bound by the rules of the multilateral trading system

Skirting the Spirit of GATT and WTO :-

• Loopholes

        - Reducing tariffs while at the same time increasing number and scope of technical
          standards and inspection requirements :-

• Imposing antidumping duties

• Negotiating bilateral trade agreements

        - May lead to multinational concessions
        - Not necessarily consistent with WTO goals and aspirations


The International Monetary Fund

    

The International Monetary Fund (IMF) is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

IMF WORK

The IMF provides loans to countries that have trouble meeting their international payments and cannot otherwise find sufficient financing on affordable terms.

This financial assistance is designed to help countries restore macroeconomic stability by rebuilding their international reserves, stabilizing their currencies and paying for imports—all necessary conditions for relaunching growth.

The IMF also provides concessional loans to low-income countries to help them develop their economies and reduce poverty.

- Stabilization of foreign exchange rates
- Establishment of freely convertible currencies to facilitate the expansion and balanced
  growth of international trade
- “Paper gold”

• Created to assist nations in becoming and remaining economically viable
• Objectives of the IMF
• Special Drawing Rights (SDRs)

do take a look here : http://www.imf.org/



The World Bank Group

• Institution created to reduce poverty and improve standard of living

        - By promoting sustainable growth and investment in people

• The World Bank has five (5) institutions which perform the following services:-

        a) Lending money to the governments of developing countries
        b) Providing assistance to governments for developmental projects to the poorest
            developing countries
        c) Lending directly to the private sector
        d) Providing investors with guarantees against “noncommercial risk”
        e) Promoting increased flows of international investment


Summary

• The benefits from absolute or comparative advantage clearly can accrue to any nation
• Increased pressure for protectionism from every region of the globe
• The consumer seldom benefits from such protection
• Free international markets help underdeveloped countries become self-sufficient
• Freer trade will always be partially threatened by various governmental and market barriers that exist or are created for the protection of local businesses
• The future of open global markets lies with the controlled and equitable reduction of trade barriers