CHAP 7: GOVERNMENTAL INFLUENCE ON TRADE

Governmental restrictions and support to influence international trade

competitiveness are known as protectionism.

CONFLICTING RESULTS OF TRADE POLICIES

Despite free-trade benefits, governments intervene in trade to attain economic,
social, or political objectives.
Stakeholders - as in business ethics.

ECONOMIC RATIONALE FOR GOVERNMENTAL INTERVENTION

1. Limit import to fight domestic unemployment
- Also damage (retaliate) other countries
- Affect large and small companies differently
- Reduce import handling jobs
- Reduce the job in another industries due to insufficient resources
- Affect export also
2. To protect infant industries
The infant-industry argument holds that a government should shield an emerging
industry from foreign competition by guarantee- ing it a large share of the domestic
market until it can compete on its own.
- Increased economies of scale
- Greater work efficiency.
3. To develop an industrial base
- More output than agriculture base
- Long-term reliance on agriculture is a detriment to the economy
4. Economic relationship with other countries - improving comparative position
- Making balance-of-trade adjustment
- Gaining comparable access to foreign market
- Using restrictions as a bargaining tool
- and controlling prices

NON ECONOMIC RATIONALE FOR GOVERNMENT INTERVENTION

 1. Maintain essential industries
2. Promoting acceptable practices abroad
3. Maintain or extend spheres of influence (gia nhap cac hoi, nhom)
4. Preserving national culture

INSTRUMENTS OF TRADE CONTROL

1. Tariff
- Charge tariff when it crosses the boundaries
+ Specific tariff: on per-unit
+ Ad valorem tariff: percentage
+ Both: compound tariff
- Various types of tariff
+ Import
+ Transit
+ Export
-> Tariff reduces over time

2. Non-tariff (direct prices influences)

- Subsidy (viện trợ chính phủ)
+ Aid and loans: the company receive the loan and have to donor back to the
host country - tied aid and tied loan.
- Customer valuation

3. Non-tariff (quality control)

- Quota: limited the quantity of a product can be exported or imported
- Embargo: ban all product from that categories
- Buy local legislation: set rules whereby the government gives preferences to
local goods
- Standards and labels
- Specific permission requirement
- Administrative delay