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ROLE OF GOVERNMENTS IN INTERNATIONAL MARKETSType of trading environments in countries:
There are two types of trade regimes in countries around the world;
• Free Trade
 
 – 
 
National governments exert minimal influence on exporting and importing decisions of privatefirms and individuals
• Managed Trade (also called fair trade)
 
 – 
 
National governments intervene to ensure that exports / international business of local firms haveequitable share of foreign markets
–
to minimize domestic job losses and market share in specificindustries
Rationales for trade intervention by governments:
Governments intervene in trade in their countries and abroad for a variety of reasons. The most commonreasons are discussed below;
Industry-level needs
 – 
 
National defense argument
–
to promote local defense industry.
 – 
 
Strategic industry argument
–
to support development of essential industry in the country (such astextiles in Pakistan)
 – 
 
Infant industry argument
–
to support emerging industry in the country, to protect it in the infancystage from foreign competition.
 – 
 
Maintenance of existing jobs
–
governments intervene to support certain industries to maintainexisting jobs in the economy.
 – 
 
Government also intervene to help make local firms compete internationally, so that the exportfrom the country increase.
National-level needs
–
Governments also intervene as part of the economic development programs
•
 
import substitution / export promotion
–
Government also intervene as a result of public choice (to pacify pressures from various interestgroups)
•
 
unemployment level
•
 
political/interest group pressures
–
Governments also intervene in trade to ensure required revenue earnings to manage thegovernment and its programs.Page 42
–
Intervention in trade is also done for regulating demand of certain products (cigarettes, alcoholetc.).
–
Government also intervene in trade to influence economic relationships with other countries
•
 
trade deficit / political or reactionary measures
Other needs
 – 
 
For achieving balance of payments adjustments.
 
 – 
 
For price-control objectives.
 – 
 
For maintaining spheres of influence by the countries and their governments.
 – 
 
For preserving national identities in certain industries.
 – 
 
Governments also intervene due to mere bureaucratic attitude
Forms of government controls:
Government exercise various types of tools to control / regulate foreign businesses;
Control over foreign owned businesses through
–
Taxes, ownership controls, controls on profit remittances, controls on borrowings / investments
–
licenses
Tariff 
(taxes placed on goods involved in international trade)
–
export duties
–
import duties
–
transit tariff 
Form of taxes on international trade can be
 – 
 
% of value (ad valorem)
 – 
 
fixed amount on some unit of measurement (specific duty)
 – 
 
a combination (compound tariff)
Non tariff barriers can be
–
direct price influences
• export subsidies
 
• customs valuation
 
• other direct price influences
 
–
quantity controls
• import
/ export quotas
• buy
-local legislation
• voluntary export restraint (VER)
 
• embargo
 
–
other controls
• licensing, foreign exchange controls, administrative delays, reciprocal requirements,
 restriction on services, technical & govt. regulations
Promotion of exports by governments:
Governments work to promote exports in a variety of ways. The common forms are given in thefollowing;Export subsidies
–
 
tax breaks
–
 
direct payments to producers
–
 
 product price support 
–
 
cheaper resources (i.e. land, utilities)
–
 
 public services provided at lower cost 
Establishment of export trade / processing zones
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