International Business Management Unit:II 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 four categories: 1. Free Trade Area, 2. Customs union, 3. Common market, and 4. 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 trade

restriction 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) Customs union: This type of group of countries basically has two features. • • Page

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The member countries abolish all the restrictions and barriers on trade among themselves or charge low rates of tariffs. They adopt a uniform commercial policy of barriers and restrictions jointly with regard to the trade with non-members countries.

1) Common Market: It has three basic characteristics:

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International Business Management Unit:II
All members’ countries abolish all the restrictions and barriers by charging low rates of tariffs.
• •

They adopt uniform policy over the non-member countries. They allow free movement of human resources and capital among the member’s countries thus common market is superior to customs union.

1) Economic Union: It has four basic characteristics:

• • • •

All members of countries charges low rates of tariffs among them. They adopt common commercial policy of barriers over the non-member of countries. They allow free movement of HR, capital among themselves. They have uniformity in the case of monetary policy & fiscal policy among the member’s countries. Thus economic union is superior to common market.

Regional Trade Blocks:
1) ASEAN: The Association of South-East Asian Nations: It is established

with 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.
1) European Union: EU: The European economic community is also known as Page

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European 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:

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International Business Management Unit:II
➢ Elimination of customs duties with regard to exports & imports of goods among member countries.
➢ Impose common tariff and common commercial policy with regard to non-

member countries. ➢ Promote the economic and social development. ➢ To maintain the common policy in the area of transport. ➢ Common policy in the area of agriculture. Etc.
1) NAFTA: North American Free Trade Agreement: 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.
1) 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 America’s largest trade block collecting a market of 575 million people. It is the fastest growing trading block in the world. Goals:
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➢ Fixing of a common external tariff and adopting of a common trade policy with regard to non-member status or countries.
➢ Co-ordination of macro-economic, agriculture, industry, taxes, monetary

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system, exchange and capital, service, customs, frees competition between member’s 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.
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International Business Management Unit:II
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 towards foreign trade. These countries use several barriers to protect domestic countries, companies from the foreign company’s 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 & nontariff barriers. The following figure explains trade barriers clearly.

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International Business Management Unit:II

1) Tariff Barriers: A tariff is a tax imposed on goods and services an inward

looking strategy towards foreign trade. It refers to the duties or taxes 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 they leave home country is called export tariff. Import Tariff: Taxes or tariffs are imposed on goods when the country receives goods is called import tariff. Transit tariff: As goods pass through one country boundary for another is called transit tariff. Specific duty: It is equals to import duty.
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International Business Management Unit:II
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 compound duty.
1) Non-Tariff Barriers: Present all tariffs are replaced by non-tariff barriers

duty is called

from 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 a group of individuals or firms. There are two types of quotas.
➢ Import quota: The aim of import quota to restrict the

quality of imports. The qualitative restriction may be to protect the interest of domestic procedures. Generally there are five types of import quotas. ✔ Tariff quota. ✔ Bilateral quota. ✔ Unilateral quota.
✔ Mixing quota.

✔ Licensing.
✔ Tariff quota: The imports of a commodity up to a

specified volume or allowed duty free at a low special rate. But any importing excess of limit subject to duty at a higher rate of duty.
✔ Unilateral quota: A country unilaterally fixes a ceiling

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on the quantity of a imports of a particular commodity
✔ Bilateral quota: It depends up on the negotiation of

countries.

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International Business Management Unit:II
✔ Mixing quota: These procedures are agreed to utilize

domestic raw materials up to a certain proportion in the product of finished polts.
✔ Licensing: To get licensing also tariff incurred.

Subsidies: 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 to a complete ban on trade in one or

more polts with a particular country. An embargo may be placed on one or more goods completely ban trade in all goods. Ex: import of beef in any form into India is strictly prohibited or banned due to Hinduism.
➢ Local content requirement: It refers to legal stipulation that

a specified amount of a good or service be supplied by producers in the domestic market. Ex: manpower, local labor, other inputs should be used in production of goods.
➢ Administration delay: Regulations controls or bureaucratic

rules design to impair the flow of imports into a country are called administrative delays.
➢ Currency: Restrictions on the convertibility of currency into

other currencies. A country that wishes to import goods, must pay foreign currency in a common, internationally acceptable currencies such as U.S $, European Union Euro, Japanese Yen. Etc.
➢ Polt & testing standards: This is non-tariff barriers requires Page

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that foreign goods meet a countries domestic polt or testing 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 business management.
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International Business Management Unit:II
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 the country. 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).
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✔ Pharmaceutical & Cosmetic export promotion council 1963. ✔ Coffee board 1942 ✔ Council for leather exports. ✔ Spices board India 1987 ✔ Sports goods export promotion council 1958.
✔ The Gem & Jewelers export promotion council 1966

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✔ Tobacco Board 1976 ✔ Directorate General of Foreign Trade. ✔ Export inspection council (EIC) 1963
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International Business Management Unit:II
✔ Council for leather exports 1984 ✔ Carpet 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
Page 1. Export promotion: It includes develop of product in export oriented industries

and making home goods competitive in the world market. There are five methods for exports promotion activities.
a. Replenishment license policy: According to this policy the export become

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entitled to get input license on the basis of their export performance. In 1988 this policy was introduced.
b. Cash compensatory support policy: This policy is given to the exporter for

their benefits when inputs used in the output of exported goods. There are 260 products which are benefited under this policy. Ex: plastic,
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International Business Management Unit:II
leather, chemical goods, eng goods etc. From 1991 onwards this policy was abolished in India.
c. Subsidized credit policy: The exporters can get both pre-shipment and

post-shipment credit at concessional rates of interest. EXIM bank providing nearly 7.5% to suppliers and 8.5% credit to buyers.
d. Duty exemption policy: The registered exporter can obtain necessary

inputs for export products at the international prices. Without payment of customs duty.
e. Blanket exchange permit policy: Under this policy the exporters are

allowed bearing a few polts to utilize 5-10% their foreign exchange earnings but undertaking exports promotional activities.
2. Import Substitution: It helps to reduce the outflow of foreign currency by

using any one of the following. a. Substitution of imported raw material, spare parts etc. with manufactured 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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