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Barriers to International Business

Free trade policy means policy of non intervention Tariff (tax) and Non Tariff (non tax) Barriers Other barriers like transportation cost, insurance, loading and unloading, port charges etc

Free trade
No barriers Least govt. intervention All countries are free to trade with each other No distinction between domestic and foreign firms No restriction on import or export

Benefits of free trade

Maximum output

Optimum utilization of resources

Best use of available resources

Mutually beneficial
Export of goods where prices are high Import from nations where prices are low

Best use of various conditions

soil., climate, minerals etc

Efficient entrepreneurship
Tough competition

International cooperation
People from different countries come in close contact with each other

Possibilities of inventions
Each country try to improve quality

Advantage to consumers

Wide market
Free trade means market of whole world is open to one and all

Increase in income and employment

Disadvantages of free trade

Non existence of perfect competition Selective industry development Damage to domestic industry Harmful products may enter the country Monopoly of MNCs Economic dependence Developed nations exploit developing nations Dumping Encouragement to corruption

Methods of protection
Methods of Protection

Tariff Barriers

Non Tariff Barriers

Natural Barriers

Tariff Barriers
It is a duty levied on the traded commodity as it crosses a national boundary Import duty Export duty Import tariff are more important than export tariff It increases the price of imported product

Types of Tariff Barriers




Types of Tariff Barriers

Specific Duty
Duty is fixed according to weight, measure or number of goods For example duty of Rs. 10,000 for import of a car from Germany This duty remains same regardless of the price of car

Ad-valorem Duty
Duty is fixed according to value of the goods Usually a fixed percentage of the value For example the value of the car is Rs. 15,00,000 and the duty is at the rate of 10% The total duty works out to be (10/100)*15,00,000= 150000

Compound duty
This duty is combination of specific duty and ad-valorem duty Specific duty is added to the ad-valorem duty For example specific duty on car is Rs. 10,000 Ad-valorem duty is 10% and the value of car is Rs. 15,00,000 Ad-valorem duty works out to be 1,50,000 Compound duty = Specific duty+ Ad-valorem = 10,000 + 1,50,000 = 1,60,000

Non- Tariff Barriers

Import quota
No importer is allowed to import more than the fixed quota Country quota Global quota

State Trading
Trading is done by govt. agencies Import of goods that are highly essential

Subsidies to domestic business Devaluation of currency

Encourages exports Discourages imports

Legal prohibition
British govt. prohibited import of cloth from India

Discriminating freight rates

Different freight rates on exports and imports

License system
License to import

Technical regulations
Testing on the grounds of health, safety and pollution

Administrative barriers
Bureaucratic hurdles Complicated export forms Administrative delays Excessive inspection

Preferences to domestic products in govt. procurements

Natural Barriers
Transportation Loading and unloading expenses Port charges Insurance etc.