Lecture International business - Chapter 6: Business-government trade relations

ne
b. Special quota zone
c. Foreign trade zone
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Answer to Discussion Question
A geographic region within
a nation and in which
merchandise passes
through with lower
customs duties or fewer
customs procedures is
called a __________.
a. No subsidy zone
b. Special quota zone
c. Foreign trade zone
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Tariffs
Government tax levied as a product enters or leaves a nation

Potential results
 Export tariff

+ Protect domestic firms

 Transit tariff

       from competitors
+  Generate income for the
       government

 Import tariff

–  Reduce competitiveness
       of home­based firms
–  Raise consumer prices

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Import and Export Quotas
Restriction on the amount of a good that can enter
or leave a country during a certain period of time
Import Quotas

Export Quotas

1. Protect domestic producers 

1. Retain adequate domestic 

2. Force outside firms to 

2. Restrict world supply of a 

of a good

compete for market access

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supply of a product

product to raise its price

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How a Tariff­Quota Works

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Embargoes
Complete ban on trade (imports and exports)
in one or more products with a particular country

Most restrictive
nontariff trade
barrier

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Often used to
achieve political
goals

Can be difficult
for a nation to
enforce
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Local Content Requirements
Laws that domestic market must supply
a specific amount of a product

Forces international companies to
employ local resources in production process
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Administrative Delays
Regulatory controls or
bureaucratic rules to slow
imports into a country

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

Inconvenient ports for imports



Product-damaging inspections



Understaffed customs offices



Lengthy licensing procedures

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Currency Controls
Restrictions on the
convertibility of a currency

Limit the amount of 
globally accepted 
currency available to pay 
for imports

Set an unfavorable 
exchange rate when 

paying for imports

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Discussion Question
What are some of
the methods that
governments use
to restrict
international
trade?
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Answer Discussion Question
To restrict trade,
governments can use
methods such as
tariffs, quotas,
embargoes, local
content requirements,
administrative delays,
and currency controls.
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General Agreement on
Tariffs and Trade (GATT)
Early Success:
• Tariffs down 35%
• Trade up 2,000%
Then Problems:
• Nontariff barriers
• Services left out
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Completed Rounds of GATT

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Uruguay Negotiations
Improved intellectual property rules
Extended coverage to services
Reduced agriculture barriers
Created World Trade Organization

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World Trade Organization (WTO)
Normal trade relations status
Dumping and antidumping
Dispute settlement body
Doha trade talks

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Discussion Question
The World Trade
Organization principle that
calls for nondiscrimination
among trading partners is
called __________.
a. Least favored status
b. Normal trade relations
c. Countervailing relations
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Answer to Discussion Question

The World Trade
Organization principle that
calls for nondiscrimination
among trading partners is
called __________.
a. Least favored status
b. Normal trade relations
c. Countervailing relations
Copyright © 2014 Pearson Education, Inc.

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