Chapter 3
Trade Distortions and
Marketing Barriers
Chapter Outline
Protection of Local Industries
Government: A Contribution to Protectionism
Marketing Barriers: Tariffs
Marketing Barriers: Nontariff Barriers
Private Barriers
World Trade Organization (WTO)
Preferential Systems
Protectionism
Protectionism is the practice of following protectionist trade policies. A protectionist trade policy
allows the government of a country to promote domestic producers, and thereby boost the
domestic production of goods and services by imposing tariffs or otherwise limiting foreign
goods and services in the marketplace.
[Link] The taxes or duties imposed on imports are known as tariffs. Tariffs increase the price
of imported goods in the domestic market, which, consequently, reduces the demand for them.
[Link] are restrictions on the volume of imports for a particular good or service over a period
of time. Quotas are known as a “non-tariff trade barrier.” A constraint on the supply causes an
increase in the prices of imported goods, reducing the demand in the domestic market.
[Link] are negative taxes or tax credits that are given to domestic producers by the
government. They create a discrepancy between the price faced by consumers and the price
faced by producers.
[Link] The government of a country may require all foreign products to adhere to
certain guidelines. For instance, the UK Government may demand that all imported shoes
include a certain proportion of leather. Standardization measures tend to reduce foreign
products in the market.
Protection of Local Industry
Keeping Money at Home
Reducing Unemployment
Equalizing Cost and Price
Protecting Infant Industry
Marketing Barriers: Tariffs
Direction: Import and Export Tariffs
Purpose: Protective and Revenue Tariffs
Rates: Specific, Ad Valorem, and Combined
Distribution Point: Distribution and
Consumption Taxes
Marketing Barriers: Nontariff Barriers
Government Participation in Trade
- Administrative Guidance
- Government Procurement and State Trading
- Subsidies
Marketing Barriers: Nontariff Barriers
Customs and Entry Procedures
- Classification
- Valuation
- Documentation
- License or Permit
- Inspection
- Health and Safety Regulations
Marketing Barriers: Nontariff Barriers
Product Requirements
- Product Standards
- Packaging, Labeling, and Marking
- Product Testing
- Product Specifications
Marketing Barriers: Nontariff Barriers
Quotas
- Absolute Quotas
- Tariff Quotas
- Voluntary Quotas
Marketing Barriers: Nontariff Barriers
Financial Control
- Exchange Control
- Multiple Exchange Rates
- Prior Import Deposits and Credit Restrictions
- Profit Remittance Restrictions
National Trade Estimate Report on
Foreign Trade Barriers (NTE)
Defines trade barriers as “government laws, regulations, policies, or
practices that either protect domestic producers from foreign competition or
artificially stimulate exports of particular domestic products.”
Restrictive business practices and government regulations designed to protect
public health and national security are not considered as trade barriers.
National Trade Estimate Report on
Foreign Trade Barriers (NTE) --- Contd.
The report classifies the trade barriers into ten categories
[Link] policies (e.g., tariffs, quotas, licensing, and customs barriers)
[Link], testing, labeling, and certification
[Link] procurement
[Link] subsidies
[Link] of intellectual property protection
[Link] barriers (e.g., restrictions on the use of foreign data processing)
[Link] barriers
[Link] practices with trade effects tolerated by foreign governments
[Link] restrictions affecting electronic commerce (e.g., discriminatory taxation)
[Link] barriers that encompass more than one category (e.g., bribery and corruption).
The World Trade Organization (WTO)
Goal: broad and free worldwide system of
trading
Most Favored Nation (MFN) Principle
Normal Trade Relations (NTR) Principle
The World Trade Organization (WTO)
The four basic principles of GATT are
Member countries will consult each other concerning
trade problems.
The agreement provides a framework for negotiation and
embodies results of negotiations in a legal instrument.
Countries should protect domestic industries only through
tariffs, when needed and if permitted. There should be no
other restrictive devices such as quotas prohibiting imports.
Trade should be conducted on a nondiscriminatory basis.