INTERNATIONAL TRADE

LAWS
MGNM803
Learning Outcomes

 You will understand the concept of protectionism

Protectionism

 Protectionism refers to government policies that restrict international trade to

help domestic industries.
 Protectionist policies are usually implemented with the goal to improve
economic activity within a domestic economy but can also be implemented for
safety or quality concerns.
Institutional Factors Affecting the Flow of Goods and
Services

TRADE
ENHANCEMENTS
COUNTRY A COUNTRY B

• Political policies and • Political policies and

legal practices legal practices
TRADE RESTRICTIONS
• Cultural values, attitudes, • Cultural values, attitudes,
and beliefs and beliefs
• Economic forces • Economic forces
• Geographic influences • Geographic influences

COMPANIES
COMPETETIVE
ENVIRONMENT
Economic Rationales for Governmental Trade
Intervention

 Fighting unemployment

 Protecting infant industries

 Promoting industrialization

 Improving comparative position

Fighting Unemployment

The unemployed can form an effective pressure group for import restrictions.

Germany, Canada, France

Farmers protest in Australia, demanding greater protection for
their industry
Fighting Unemployment

Import restrictions to create domestic employment

 May lead to retaliation by other countries,- (EU, Brazil and Japan threatened to restrict purchases of US
products such as Oranges, when the US imposed import restrictions on their steel.)

 Affect large and small economies differently (US – China – Mauritius)

 Reduce import handling jobs,

 May decrease sales in another industry, because they must incur higher costs for components

 May decrease export jobs because of lower incomes abroad.

Protecting Infant Industries

 The infant-industry argument holds that a government should shield an emerging industry
from foreign competition by guaranteeing it a large share of the domestic market until it
can compete on its own.
Question need to be addressed

 Is the Infant Industry argument valid ?

Answer

 Risk in designating Industries

 Determining Probability of Success – Automobile production in Brazil and South

Korea, however in Malaysia and Australia, the same industry remains inefficient.
 Identifying Qualified Industries
Promoting Industrialization

Countries seek protection to promote industrialization because that type of production-

• Brings faster growth than agriculture

• Brings in investment funds

• Diversifies the economy

• Helps the nation building process

• Can use surplus agricultural workers more easily

Promoting Industrialization

When a country shifts from agriculture to industry

 Output may increase as the agricultural workers produced little before

 Demands on social and political services in cities may increase,

 Development possibilities in the agricultural sector may be

overlooked,
Major Instruments of Trade Control

 Tariffs

 Nontariff Barriers
Tariffs: Direct Price Influences

 A tariff is a tax levied on a good shipped internationally.

 Tariffs collected by the exporting country are called export tariffs.

 Tariffs collected by a country through which the goods pass are called transit tariffs.

 Tariffs collected by importing countries are called import tariffs.

Example: Harley Davidson
Nontariff Barriers: Direct Price Influences

 Governmental subsidies may help companies be competitive,

 Subsidies offer direct assistance to companies to boost their

competitiveness,

 Agricultural subsidies are difficult to dismantle,

 Especially to overcome market imperfections because they are least

controversial.
Question need to be Addressed

 Why are subsidies provided by the governments of various economies?

Answer

It is given for a variety of reasons, and in a variety of sectors, Like

 This could be to make items of daily need more affordable, such

as food or fuel;

 Create an employable pool of educated people who would

contribute to GDP growth (subsidised education);
 Provide a leg-up to certain sectors, or

 Boost industrialisation in under-developed areas through tax exemptions

Custom Valuation

 Import tariff assessments depend on the product, price, and origin. It is difficult for
customs officials to determine the honesty of import invoices.
 The United States tariffs on athletic footwear are different from those on sports footwear,
and these are subcategorized by whether the sole overlaps the upper part of the shoe or
not. Each type of accessory and reinforcement of the shoe’s uppers is a different category.
Governments regulations and practices affect the quantity of imports and exports
directly. The various forms these typically take are:

 Quotas

 Buy Local

 Standards & Labels

 Specific Permission Requirements

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Thank you