I n t e r n a t i o n a l M a r k e t i n g

The Dynamic Environment

of InternationalTrade

Chapter 2

Global Perspective Trade Barriers – An International

Marketer’s Minefield• Countries take advantage of U.S. open markets while putting barriers in the way of U.S. exports

• Tariff and nontariff barriers to trade are major issues confronting international marketers

• To realize the benefits of the social, political, and economic changes, free trade must prevail throughout the global marketplace– WTO (World Trade Organization)

Top Ten 2007 U.S. Trading Partners

($ billions, merchandise trade)

The 20th to the 21st Century

• First Half of the Twentieth Century– Depression– WW I and WW II

• Marshall Plan• Move toward international cooperation among trading nations – General Agreement on Tariffs an Trade, (GATT)

• Last half of the 20th century marred by competing approaches to economic development– Socialist Marxist– Democratic capitalist

• Rapid growth of war-torn economies and previously underdeveloped countries

• Large-scale economic cooperation and assistance

• Rising standards of living

The 20th to the 21st Century

World Trade and U.S. Multinationals• New global marketing opportunities• 1950s – U.S. companies began to export and make significant investments in overseas marketing and production facilities

• 1960s – U.S. multinational corporations (MNCs) faced major challenges on two fronts– Resistance to direct investment– Increasing competition in export markets

• American MNCs confronted by a resurgence of competition from all over the world– NIC (Newly Industrialized Countries)– SOE (State-Owned Enterprises)

• The balance of merchandise trade– U.S. trade deficit

• U.S. dilemma of how to encourage trading partners to reciprocate with open access to their markets without provoking increased protectionism– WTO (World Trade Organization)– NAFTA– AFTA (American Free Trade Area)– APEC (Asia-Pacific Economic Cooperation Conference)

World Trade and U.S. Multinationals

World’s 100 Largest Industrial Corporations (Annual

Revenues)

Beyond the First Decade of the 21st Century

• U.S. economy has slowed dramatically• World growth (except China) also slowed– The Organization for Economic Cooperation and Development (OECD) estimates 3% average annual growth for next 25 years

• Developing countries will grow faster– From an annual rate of 4% in the past quarter to a rate of 6% for the next 25 years

– Share of world output will range from one-sixth to one-third

Beyond the First Decade of the 21st Century

• Level of intensity of competition will change as companies focus on gaining entry or maintaining their position – Emerging markets– Regional trade areas– Established markets in Europe, Japan, and the U.S.

• Smaller companies also seeking new markets– Novel approaches– Technological expertise

Balance of Payments• Balance of payments – the system of accounts that records a nation’s international finance transactions

• Transactions recorded annually• Must always be in balance• A record of condition, not determinant of condition

Balance of PaymentsA balance of payments statement includes three accounts

• The current account – a record of all merchandise exports, imports, and services plus unilateral transfers of funds;

• The capital account – a record of direct investment, portfolio investment, and short-term capital movements to and from countries; and

• The official reserves account – a record of exports and imports of gold, increases or decreases in foreign exchange, and increases or decreases in liabilities to foreign central banks.

Of the three, the current account is of primary interest to international business.

U.S. Current Account by Major Components, 2007 ($ billions)

U.S. Current Account Balance (% of GDP)

What Would One U.S. Dollar Buy?

Exhibit 2.5

Protectionism• Tariffs, quotas, and nontariff barriers are designed to protect markets from intrusions by foreign countries

• Nations utilize barriers to restrain entry of unwanted goods– Legal– Exchange– Psychological– Private market

Protection Logic and Illogic

• Arguments concerning protectionism on trade– Protection of infant industry– Protection of the home market– Need to keep money at home– Encouragement of capital accumulation– Maintenance of the standard of living and real wages– Conservation of natural resources– Industrialization of a low-wage nation– Maintenance of employment and reduction of unemployment

– National defense– Retaliation and bargaining

Trade Barriers• Tariffs• Quotas• Voluntary Export Restraints (VER)• Boycotts and embargoes• Monetary barriers

– Blocked currency– Differential exchange– Government approval

• Standards• Antidumping penaltiesOn average, the cost to consumers for saving one job in

these protected industries was $170,000 per year, or six times the average pay (wages and benefits) for manufacturing workers. In the steel industry, for example, countervailing duties and antidumping penalties on foreign suppliers of steel since 1992 have saved the jobs of 1,239 steelworkers at a cost of $835,351 each.

Types of Nontariff Barriers

International Trade• Four ongoing activities to support the growth of international trade– GATT– The associated World Trade Organization (WTO)– International Monetary Fund (IMF)– The World Bank Group

General Agreement on Tariffs and Trade

• Paved way for first effective worldwide tariff agreement

• Basic elements of the GATT– Trade shall be conducted on a nondiscriminatory basis– Protection shall be afforded domestic industries through customs

tariffs, not through such commercial measures as import quotas– Consultation shall be the primary method used to solve global

trade problems• Eliminating international trade barriers – Uruguay Round– The General Agreement on Trade in Services (GATS)– Trade-Related Investment Measures (TRIMs)– Trade-Related aspects of Intellectual Property Rights (TRIPs)

World Trade Organization• WTO is an institution – not an agreement

– Sets many rules governing trade between its 148 members– Provides a panel exports to hear and rule on trade

disputes between members– Issues binding decisions– All member countries will have equal representation– Member countries have open their markets and to be

bound by the rules of the multilateral trading system• U.S. ratification concerns

– Possible loss of sovereignty over its trade laws to WTO– Lack of veto power– Role U.S. would assume when a conflict arises over an

individual state’s laws that might be challenged by a WTO member

Skirting the Spirit of GATT and WTO

• Loopholes– Reducing tariffs while at the same time increasing number and scope of technical standards and inspection requirements

• Imposing antidumping duties• Negotiating bilateral trade agreements– May lead to multinational concessions– Not necessarily consistent with WTO goals and aspirations

The International Monetary Fund

• Created to assist nations in becoming and remaining economically viable

• Objectives of the IMF– Stabilization of foreign exchange rates– Establishment of freely convertible currencies to facilitate the expansion and balanced growth of international trade

The World Bank Group• Institution created to reduce poverty and improve standard of living – By promoting sustainable growth and investment in people

• The World Bank has five institutions which perform the following services:– Lending money to the governments of developing countries – Providing assistance to governments for developmental projects to the poorest developing countries

– Lending directly to the private sector – Providing investors with guarantees against “noncommercial risk”

– Promoting increased flows of international investment