THE INTERNATIONAL

ENVIRONMENT: GOVERNMENT, Chapter 4

POLITICAL, AND LEGAL FORCES

INTRODUCTION
International marketing decisions by business firms are affected by the actions of
government bodies at all levels – supranational, national, and subnational.
The extent to which any government becomes involved in international marketing,
and the specific nature of such involvement, depends in part upon the type of
economic system in the country (e.g., capitalism, socialism, or communism)
The type or form of government organization (e.g., monarchy, republic, or
dictatorship)
INTRODUCTION
The type of legal system (code law or common law).
The bases for common law (in countries such as the United Kingdom and Canada)
are tradition, past practices, and legal precedents set by past court decisions.
In contrast code law, which is found in most countries of the world, is based on a
system of written rules of law that are considered to be all inclusive.
PAKISTAN EXPORT
Export Processing Zones (EPZs): Pakistan has established EPZs to provide a
conducive environment for export-oriented industries. Exporters operating within
EPZs benefit from various incentives, including exemption from customs duties,
sales tax, and income tax for a specified period. These incentives are provided at
preferential rates to encourage investment and export activities within EPZs.
Duty Drawback Schemes: Pakistan offers duty drawback schemes to refund or
exempt exporters from customs duties paid on imported raw materials, components,
or inputs used in the manufacturing of export goods. The rates for duty drawbacks
vary depending on the product category and export destination
PAKISTAN EXPORT
Export Refinance Scheme (ERS): The State Bank of Pakistan (SBP) offers the ERS
to provide financing facilities to exporters at concessional rates. Under this scheme,
exporters can avail financing at lower interest rates to meet their working capital
requirements for producing goods meant for export.
Tariff Rationalization: The government of Pakistan periodically reviews and
rationalizes import and export tariffs to promote exports and enhance
competitiveness. Tariff rationalization measures may include reducing or eliminating
tariffs on raw materials, machinery, and equipment used in export-oriented
industries, thereby reducing production costs and improving export competitiveness.
PAKISTAN EXPORT
Export Subsidies: The government of Pakistan provides export subsidies to certain
sectors or products to promote exports and enhance competitiveness. Export
subsidies may include direct cash incentives, subsidies on export-related expenses
such as transportation and marketing, or subsidies on inputs used in export
production, offered at different rates depending on the sector or product.
Trade Agreements and Preferential Tariff Arrangements: Pakistan negotiates
trade agreements and preferential tariff arrangements with various countries and
trading blocs to enhance market access for its exports. These agreements may
include preferential tariff rates, duty-free access, or reduced tariffs for Pakistani
exports in partner countries, thereby improving export competitiveness and
facilitating market penetration.
ROLE OF GOVERNMENT
As an environmental force affecting international/export marketing, government
intervenes in a single country’s (and the world) economy by being a participator,
planner, controller, or stimulator. Such intervention activities can be categorized into
the following three groups:
1. those that promote (i.e., encourage or facilitate) international/export marketing
transactions
2. those that impede such transactions
3. those that compete with or replace international/export marketing transactions by
private business firms
ROLE OF GOVERNMENT
These basic types of intervention activities exist to some extent at all levels of
government, but with varying emphases.
At the supranational level, the actions taken are primarily those whose effect is to
encourage and facilitate international marketing relationships, especially exports.
Agreement between Australia and New Zealand (Closer Economic Relations,
ANZCER) signed in the late 1980s.
GOVERNMENT CONTROLS
Restrictive controls may indirectly affect trading relationships by directly
influencing the advisability and/or profitability of individual transactions.
. Export controls typically are intended to restrict the shipment of defense products,
protect the domestic economy from a drain of scarce materials, and enhance national
security (physical and economic)
Government controls are used as a tool to further both the foreign and trade policy of
the government as well as controlling technology and resources.
GOVERNMENT CONTROLS
Export/import controls there are regulations that affect foreign operations and
ownership resulting from direct investment and strategic alliances such as licensing
arrangements.
A country that regulates foreign direct investment does so in order to limit the
influence of the foreign investor, typically a multinational (or global) corporation,
and at the same time have a pattern of investment that contributes in desired ways to
the achievement of the country’s economic, social, and political objectives
GOVERNMENT CONTROLS
Countries may regulate and limit within the broad dimension of foreign
investment
1. Decision-making through procedures affecting selecting type of investment,
control of takeovers, how mergers and acquisitions may be achieved, restrictions
(including prohibition) of investment in certain industries, and similar matters.
2. Regulation of ownership, managerial control, and employment through local
participation requirements in ownership, management, product content, and
employment.
3. Taxation and regulation of financial transactions, control of capital and profit
movement and remittance, and sources and types of foreign and local borrowing
 INFORMATION REQUIRED
The following information has to be included in a label, stamp, decal, print or
similar means that is permanent, indelible, legible and clearly visible:
(1) name of registered brand and tax identification of the domestic producer or
importer
(2) country of origin;
(3) fiber content;
(4) care labeling instructions; and
(5) size or dimensions, as applicable
LICENSE REQUIREMENTS
One way in which various countries regulate the nature of their external trading
relationships is by requiring that licenses be obtained before goods may be exported
or imported.
For products the government desires to restrict, licenses would not be granted or
only granted for limited amounts.
The extreme case is where there are specific prohibitions against exporting or
importing certain pro
Mexico prohibits the importation of selected products in order to encourage
development and growth of local industry. ducts.
LICENSE REQUIREMENTS IN
PAKISTAN
MTN
Business Profile
Business bank account
GST ( general sales tax)
Chamber of commerce
Import and export license (PSW)
TARIFFS
A tariff is a tax on imports, and is stated either as a percentage of value (ad valorem)
or on a per unit basis
A government may have a system of tariffs for purposes of keeping products out of
the country (protective tariff ) and/or to generate tax revenue (revenue tariff ).
The purpose of a protective tariff also may be simply to bring the price level of the
imported goods up to that of domestic substitutes.
revenue tariffs are often quite low since they are designed to generate maximum
revenue for the government
Pakistan's weighted average mean tariff of 12.7% is the highest amongst the top-70
exporting countries in the world
TARIFFS
A more permanent kind of surcharge takes the form of countervailing duties.
These may be assessed to offset some special advantage or discount (e.g., an export
subsidy) allowed by the exporter’s government
Another type of countervailing tariff is one imposed as an antidumping measure.
Dumping has been defined as selling in a foreign market at a significantly lower
price than on the domestic market, or at below cost if there are no domestic sales.
TARIFFS
Pakistan's weighted average mean tariff of 12.7% is the highest amongst the top-70
exporting countries in the world

Pakistan uses the Harmonized System to classify goods.

The Harmonized System is a standardized numerical method of classifying traded
products. It is used by customs authorities around the world to identify products
when assessing duties and taxes and for gathering statistics. The HS is administrated
by the World Customs Organization (WCO) and is updated every five years.
QUOTAS
Quotas are specific provisions limiting the amount of foreign products that can be
imported.
Quotas may be classified into the following three categories
1. Most restrictive are absolute quotas, which limit absolutely the amount that can be
imported. The most extreme case is the zero quota, or embargo. There are times
when quotas may be changed.
2. Tariff quotas permit importation of limited quantities at low rates of duty, with any
amount in excess subject to a substantially higher rate.
3. There are different types of voluntary quotas. These are known as voluntary
export restraints (VERs) and are generally to protect domestic companies until they
have had time to make necessary adjustments to regain external competitiveness
QUOTAS
One type of VER results from an explicit international agreement. Another type is
unilateral in form but results from diplomatic negotiations, or other types of
pressures at the governmental level.
All VERs arise from some pressure from an importing country
There are times when quotas can work to the advantage of the export company and
the organizations selling its products overseas. An illustration is the voluntary
restraint agreement (VRA) that the Japanese government, under strong pressure from
the US government, imposed on its own exports of automobiles to the United States
beginning in 1983 (Duerr, 1992)
QUALITATIVE CONTROLS
These controls limit the profitability of exporting, foreign products can be imported
with few exceptions provided that the seller is willing to accept a lower net return
and/or the buyer pays a higher price.
They are far less restrictive than the various quantitative controls such as tariffs and
quotas.
In a study of Australian grocery shoppers, Miranda and Konya (2006) reported that
their results demonstrated that country-of-origin labeling itself may not be
persuasive enough to convince consumers to adopt a particular product. ‘Buy
domestic’ regulations are imposed also by subnational governments.
EXCHANGE CONTROLS
Exchange controls limit the amount of foreign currency that an importer, for example, can
obtain to pay for goods purchased and that an exporter may receive and hold for goods sold to a
foreign country.
The quantitative restriction is combined with a qualitative restriction of placing an unduly
high price, or official exchange rate, on the foreign currency desired.
When an exporter has an overseas sales subsidiary for certain markets, or has a direct
investment or licensing arrangement, profit or income remittance restrictions may become of
concern.
Multinational companies seek out so-called ‘tax havens’ for reincorporation and establishing a
legal domicile for the company
The State Bank of Pakistan (SBP) has lifted foreign exchange restrictions on imports effective
from 2 January 2023, according to a circular issued on 27 December 2022. In EPD Circular
Letter No.
PROMOTIONAL ACTIVITIES
The policies and programs adopted by governmental organizations to promote
exporting are an increasingly important force in the international environment
. Many of the activities involve implementation and sponsorship by government
alone while others are the results of the joint efforts of government and business
An export grouping scheme provides the opportunity for member companies to
spread the initial costs and risks of international market entry, to share
information and experiences, and to pool resources to support stronger
promotional efforts
PROMOTIONAL ACTIVITIES
Regulatory supportive activities:
activities generally fall within the political or legal
jurisdiction of the national government, and are essentially regulatory-type activities that
are used as promotional tools

Two types of government activity are of special significance: state trading and the
granting of subsidies.
When engaging in state trading, a government either directly involves itself in
business transactions through buying and selling (by state-owned enterprises) or
regulates export activities.
Export subsidies are to the export industries what tariffs are to domestic industries
PROMOTIONAL ACTIVITIES
Subsidies can be given through such tactics as lower taxes on profits attributable to
export sales, refunding of various indirect taxes (e.g., some countries refund ‘value-
added’ taxes), lower transportation rates for exported merchandise, and manipulation
of the system of exchange rates.
Government export promotion programs are designed to deal with the following
major barriers:
1. lack of motivation, as international marketing is viewed as more time-consuming,
costly, risky, and less profitable than domestic business;
2. lack of adequate information;
3. operational/resource-based limitation
FINANCIAL ACTIVITIES
The role of an international banker
Role is carried out is through membership in international financial organizations
Some national governments grant direct loans to business firms
Export–Import Bank (Eximbank), the Agency for International Development
(AID), and the Commodity Credit Corporation (CCC)
FINANCIAL ACTIVITIES
Export Credit Insurance Corporation (ECIC), which provides credit insurance to
exporters against the risk of nonpayment for goods and services; it also has a Credit
Guarantee Scheme
In Australia, for example, the Export Finance and Insurance Corporation (EFIC)
provides payment risk insurance – or a guarantee – to a bank as well as improved
access to working capital. Most of EFIC’s clients are small exporters.
INFORMATION SERVICES
For a company to be successful in international marketing, its managers must be able
to make the right decisions consistently.
Over the long run, sound decision-making is next to impossible without adequate
and timely marketing information.
Marketing information is indispensable in making such decisions as what market(s)
to be in, when to be there, and how to be there
Information relevant for international/export marketers varies from country to country, the
following kinds are available from a number of leading nations:
EXPORT FACILITATING
ACTIVITIES
There are a number of national government activities for stimulating exporting that can be
called export facilitating activities. These include the following:
1. Operating trade development offices abroad, either as a separate entity or as part of the
normal operations of an embassy or consulate.
2. Sponsoring trade missions of business people who go abroad for the purpose of making
sales and/or establishing agencies and other foreign representation.
3. Operating – or participating in – trade fairs and exhibitions. A trade fair is a convenient
marketplace in which buyers and sellers can meet, and in which an exporter can display
products
. 4. Operating permanent trade centers in foreign market areas, which run trade shows often
concentrating on a single industry.
EXPORT FACILITATING
ACTIVITIES
The government-authorized free trade zones, free ports, and free perimeters
A free trade zone is basically an enclosed, policed area without resident population
in, adjacent to, or near a port of entry, into which foreign goods not otherwise
prohibited may be brought without formal Customs entry or payment of duties
. A free port encompasses a port or entire city isolated from the rest of the country
for customs purposes.
A free perimeter is similar to a free port in the kinds of activities allowed, but is
generally confined to a ‘remote’ underdeveloped region
PROMOTION BY PRIVATE
ORGANIZATIONS
A general listing of the types of nongovernmental organizations engaging in international
marketing promotion is as follows
1. chambers of commerce: local chambers of commerce; national chambers, national and
international associations of chambers; national chambers abroad and binational chamber
2. industry and trade associations: national, regional, and sectoral industry associations;
associations of trading houses; mixed associations of manufacturers, traders, and other bodies
3. organizations concerned with trade promotion: organizations carrying out export
research; regional export promotion organizations; world trade centers; geographically
oriented trade promotion organizations; export associations and clubs, international business
associations, world trade clubs; organizations concerned with commercial arbitration
4. export service organizations: banks; transport companies; freight forwarders; port
authorities; export merchants and trading companies.
STATE TRADING
The extreme level of government involvement in international marketing is state
trading, which is defined to include government engagement in commercial
operations, directly or through agencies under its control, either in place of or in
addition to private traders.
STATE TRADING
State trading to achieve one or more of the following objectives:
● dispose of surpluses in various products;
● encourage export trade
● enhance domestic planning programs by purchasing products needed to fill a gap in the plans;
● improve the country’s balance of international payments;
● control foreign exchange;
● maintain national security and defense;
● acquire specific products, either because they can be obtained at lower cost or because they are
scarce at home and/or abroad;
● help domestic interests by improving trade bargaining power or by protection against foreign
competition.
STATE TRADING
Private business firms are concerned about state trading for two reasons
First, the establishment of import monopolies means that exporters have to make
substantial adjustments in their export marketing programs.
Second, if state traders wish to utilize the monopolistic power they possess, private
international marketers are not really equipped to compete and deal with them.
ECONOMIC INTEGRATION
Economic integration means the unification in some way of separate individual
economies into a larger single economy.
Range from bilateral agreements to eliminate trade.
Regional integration schemes typically establish Rules of Origin, which include
provisions for the amount of content that must be region based in order for a product
to be exported/imported between countries in the region without tariff, or at a
reduced tariff .
ECONOMIC INTEGRATION