Page 51 - DMGT547_INTERNATIONAL_MARKETING

International Marketing

Notes 2.6 Summary

This unit attempts to give an overview of the functions in as simple manner as possible.
The effect of tariff is to raise the cost of imported products and the consumers loose
because they have to pay more for imports.
By lowering costs, subsidies help domestic producers to compete against low-cost foreign
imports and to gain export markets.

An import quota is a direct restriction imposed by an importing country on the quantity
of some good that may be imported. A voluntary export restraint is a quota on trade-
imposed from the exporting country’s side.
A local content requirement calls for some specific fraction of a good to be produced
domestically.
An administrative policy is an informal instrument or bureaucratic rule that can be used
to restrict imports and boost exports.

There are two types of arguments for government intervention in international trade:
political and economic. Political arguments for intervention are concerned with protecting
the interests of certain groups, or with promoting goals with regard to foreign policy,
human rights, consumer protection, and the like. Economic arguments for intervention
are about boosting the overall wealth of a nation.
The problems with strategic trade policy are two fold: (a) such a policy may invite
retaliation, in which case all will loose, and (b) strategic trade policy may be captured by
special interest groups, which will distort it to their own ends.
The GATT was a product of the post-war free trade movement. The GATT was successful in
lowering trade barriers on manufactured goods and commodities. The move towards
greater free trade under the GATT appeared to stimulate economic growth.
The completion of the Uruguay Round of GATT talks and establishment of the World
Trade Organization have strengthened the world trading system by extending GATT
rules to services, increasing protection for intellectual property, reducing agricultural
subsidies, and enhancing monitoring and enforcement mechanisms.
The theory of economic integration refers to the commercial policy of discriminatively
reducing or eliminating trade barriers only among the nations joining together.

2.7 Keywords

General Agreements on Tariffs and Trade (GATT): International treaty that committed signatories
to lowering barriers to the free flow of goods across national borders and led to the WTO.
Non-tariff Barriers: Non-tariff barriers are restrictions arising from measures such as licensing,
product testing, certifications, procedural hurdles, etc.
Quota Restrictions: Quota restrictions mean explicit limit (usually measured by volume or
sometime by value) on the amount of a particular product that can be imported or exported
during a specified time period.

Tariff Barriers: Tariffs were originally intended to raise revenues for the government. However,
they are now commonly used as a form of protectionism-to restrict imports to protect domestic
industry or to restrict exports to preserve national endowments.

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