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around the world; • Free Trade
– National governments exert minimal influence on exporting and importing decisions of private
firms and individuals • Managed Trade (also called fair trade)
– National governments intervene to ensure that exports / international business of local firms have
equitable share of foreign markets – to minimize domestic job losses and market share in specific industries Rationales for trade intervention by governments: Governments intervene in trade in their countries and abroad for a variety of reasons. The most common reasons 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 as
textiles in Pakistan)
– Infant industry argument – to support emerging industry in the country, to protect it in the infancy
stage from foreign competition.
– Maintenance of existing jobs – governments intervene to support certain industries to maintain
existing jobs in the economy.
– Government also intervene to help make local firms compete internationally, so that the export
from 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 interest groups)
• unemployment level • political/interest group pressures
– Governments also intervene in trade to ensure required revenue earnings to manage the government and its programs. Page 42 – Intervention in trade is also done for regulating demand of certain products (cigarettes, alcohol etc.). – Government also intervene in trade to influence economic relationships with other countries
• trade deficit / political or reactionary measures
– 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 the following; 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
Export financing programs Training / assistance programs Other governmental assistance