Transcript Globalization

Global
Business
Today
3rd Canadian Edition
Charles W. Hill - Thomas McKaig
©2011 McGraw-Hill Ryerson
All rights reserved
Global Business Today 3rd Edition ©2011 McGraw Hill Ryerson All rights reserved
PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 1
The Political
Economy of
International
Trade
Chapter 6
Global Business Today 3rd Edition ©2011 McGraw Hill Ryerson All rights reserved
PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 2
As discussed previously …
• In a world without trade barriers, trade patterns
•
are determined by the relative productivity of
different factors of production in different
countries.
Countries will specialize in products that they
can make most efficiently, while importing
products that they can produce less efficiently
Global Business Today 3rd Edition ©2011 McGraw Hill Ryerson All rights reserved
PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 3
Free Trade
•
•
Free Trade refers to a
situation where a
government does not
attempt to restrict what
its citizens can buy from
another country,
or what they can sell to
another country.
Global Business Today 3rd Edition ©2011 McGraw Hill Ryerson All rights reserved
PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 4
Free Trade
•
•
The political reality is that while many
nations are committed to free trade,
they tend to intervene in international
trade to protect the interests of
politically important groups.
The opening case about banana
producers illustrates the nature
of such political realities.
Global Business Today 3rd Edition ©2011 McGraw Hill Ryerson All rights reserved
PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 5
The political and economic
reasons that governments have
for intervening in international
trade
•When governments intervene, they
often do so by restricting imports of
goods and services into their nation,
while adopting policies that promote
exports.
•Normally their motives are to protect
domestic producers and jobs from
foreign competition while increasing the
foreign market for products of domestic
producers.
Global Business Today 3rd Edition ©2011 McGraw Hill Ryerson All rights reserved
PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 6
When governments intervene they use
what we call “Instruments of Trade
Policy”
•
Tariffs
•
•
Subsidies
Import quotas and voluntary
export restraints
Local content requirements
Administrative policies
Antidumping policies
•
•
•
• Ad valorem tariffs
• Specific tariffs
Global Business Today 3rd Edition ©2011 McGraw Hill Ryerson All rights reserved
PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 7
“Instruments of Trade Policy”
•
Tariffs
• Ad valorem tariffs
Are levied as a proportion of the
value of the imported good.
• Specific tariffs
Are levied as a fixed charge for each
unit of a good imported (for example,
$3 per barrel of oil)
Global Business Today 3rd Edition ©2011 McGraw Hill Ryerson All rights reserved
PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 8
“Instruments of Trade Policy”
Subsidies
•
•
•
A government payment to a domestic
producer.
Can take many forms including
•
•
•
•
cash grants,
low-interest loans,
tax breaks,
and government equity participation.
By lowering production costs, subsidies
help domestic producers in two ways:
•
•
they help them compete against foreign
imports,
and they help them gain export markets.
Global Business Today 3rd Edition ©2011 McGraw Hill Ryerson All rights reserved
PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 9
“Instruments of Trade Policy”
Import quotas and voluntary export
restraints
•
•
•
A direct restriction on the quantity of some
good that may be imported into a country.
The restriction is usually enforced by
issuing import licences to a group of
individuals or firms.
For example, the United States has a quota
on cheese imports.
•
The only firms allowed to import cheese are
certain trading companies
Global Business Today 3rd Edition ©2011 McGraw Hill Ryerson All rights reserved
PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 10
“Instruments of Trade Policy”
Local content requirements
•
•
Demands that some specific fraction of a
good be produced domestically.
The requirement can be expressed either
in physical terms,
•
•
•
(e.g., 75 percent of component parts for
this product must be produced locally)
or in value terms
•
(e.g., 75 percent of the value of this product
must be produced locally).
Buy America Act, specifies that
government agencies must give
preference to American products when
putting contracts for equipment
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PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 11
“Instruments of Trade Policy”
Administrative policies
•
•
•
Bureaucratic rules designed to make it
difficult for imports to enter a country.
Federal Express has had a tough time
expanding its global express shipping
services into Japan because Japanese
customs inspectors insist on opening a
large proportion of express packages to
check for pornography, a process that can
delay an “express” package for days.
It also gives the Japanese competitor to
Federal Express an advantage
Global Business Today 3rd Edition ©2011 McGraw Hill Ryerson All rights reserved
PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 12
“Instruments of Trade Policy”
Antidumping policies
• Dumping is selling goods in a
foreign market at below their costs
of production, or as selling goods
in a foreign market at below their
“fair” market value.
Like buying Nikon
Cameras in New York
for a cheaper price
than in Japan – where
they make them
Global Business Today 3rd Edition ©2011 McGraw Hill Ryerson All rights reserved
PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 13
“Instruments of Trade Policy”
Antidumping duties
•
•
•
•
(antidumping duties are often called
countervailing duties )
If a domestic producer believes that a
foreign firm is dumping production in the
local market, it can file a petition
In Canada, companies can complain to
the CBSA
•
Canada Border Services Agency
The CBSA may investigate and, if
appropriate, initiate a tax on the imported
item
Global Business Today 3rd Edition ©2011 McGraw Hill Ryerson All rights reserved
PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 14
“Instruments of Trade Policy”
Antidumping duties
• Canada Border Services Agency
•
•
In 2005 CBSA (Canada Border Services Agency)
concluded an anti-dumping re-investigation
concerning women's leather boots imported from
China (PRC).
There was a suspicion that women's leather boots were
being shipped into Canada, from China, at very, very
low prices and this was creating an unfair competitive
situation for Canadian boot manufacturers.
•
CBSA investigated the Chinese manufacturers
• The Chinese manufacturers did not co-operate,
• So the CBSA slapped a 72% tariff on the
incoming boots from China.
Global Business Today 3rd Edition ©2011 McGraw Hill Ryerson All rights reserved
PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 15
The Case for Government Intervention
Political Arguments for Intervention
1. Protecting jobs and industries
2. National security
3. Retaliation
4. Protecting consumers
5. Furthering foreign policy objectives
6. Protecting human rights
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PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 16
The Case for Government Intervention
Economic Arguments for Intervention
1. The infant industry argument
2. Strategic trade policy
Global Business Today 3rd Edition ©2011 McGraw Hill Ryerson All rights reserved
PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 17
The Case for Government Intervention
Economic Arguments for Intervention
1. The infant industry argument
•
•
•
•
•
•
new manufacturing industries cannot initially compete with
well-established industries in developed countries.
To allow manufacturing to get a toehold, the argument is
that governments should temporarily support new
industries
with tariffs,
import quotas,
and subsidies
until they have grown strong
enough to meet international
competition.
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PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 18
The Case for Government Intervention
Economic Arguments for Intervention
2. Strategic trade policy, which consist
of two components:
a. Government can help raise national
b.
income
Government might intervene in an industry
if it helps domestic firms to overcome the
barriers to entry created by foreign firms.
•
Bombardier in Quebec has benefited greatly
from support from the federal government and
the Quebec provincial government
Global Business Today 3rd Edition ©2011 McGraw Hill Ryerson All rights reserved
PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 19
Development of World Trade System (1)
• From Smith to Great Depression
In 1846, Great Britain officially embraced
Free Trade as government policy
In 1930, the US Congress passed the Smoot
Hawley Tariff to protect domestic industries
• 1947 – 1979: GATT, Trade
Liberalization, and Economic Growth
From 1953 to 1963, world trade grew at an
annual rate of 6.1 percent.
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PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 20
Development of World Trade System (2)
•
1980 – 1993: GATT under pressure
•
The Uruguay Round and the World Trade
Organization
During the 80s and 90s GATT came under pressure
due to:
1. Economic success of Japan
2. Persistent trade deficit in the world’s largest
economies
3. Countries found ways to get around GATT
regulations, such as VERs (Voluntary Exports
Restraints)
•
•
1995 the agreement was formally signed.
The World Trade Organization (WTO) was created
to implement the GATT agreement.
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PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 21
The World Trade Organization
The WTO acts as an umbrella organization
that encompasses the following bodies:
1.
2.
3.
GATT
GATs (General Agreement on Trade in Services)
TRIPs (Trade Related Aspects of Intellectual Property
Rights)
WTO has taken the responsibility for
arbitrating trade disputes and monitoring
the trade policies of member countries
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PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 22
The World Trade Organization
Simple basics of the WTO
When two countries have a trade dispute, the
WTO looks at the various trade
agreements these countries have had
over the years, and rules which is the best
outcome of a current situation
• Like a global UFC “trade” referee
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PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 23
The Future of WTO: Unresolved Issues
Three issues at the forefront of the WTO
agenda:
1. The rise of antidumping policies
2. The high level of protectionism in
agriculture
3. The lack of strong protection for
intellectual property rights
Global Business Today 3rd Edition ©2011 McGraw Hill Ryerson All rights reserved
PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 24
The Future of WTO: The Doha Round
In 2001, at Doha, Qatar, member states agreed to
launch a new round of talks and staked out an
agenda.
The agenda agreed upon at Doha includes:
1.
2.
3.
Cutting tariffs on industrial goods and services
Phasing out subsidies to agricultural producers
Reducing barriers for cross-border investment
(FDI)
Limiting the use of antidumping laws
4.
Negotiations are still in progress.
Global Business Today 3rd Edition ©2011 McGraw Hill Ryerson All rights reserved
PowerPoints by Prof. W. Tim G. Richardson, Seneca College and University of Toronto
Chpt 6 Slide number 25
WTO: Protectionism in Agriculture
In Canada, agriculture is one of the top export
categories
Therefore it is important that Canadian farmers can export
their products at a reasonable price without having to go up
against competition from other countries were the farmers
are heavily subsidized
Chpt 6 Slide number 26