Important Concepts In International

Business Dr.K.Prabhakar

Free trade areaA group of countries agreeing to abolish all

trade restrictions and barriers or charge low rates of tariffs. They may impose barriers on othre countries.

Different Kinds of Economic Integration

They abolish all trade barriers and low tariffs

They have uniform commercial policy towards non-member countries.

Customs Union

All members will abolish restrictions and barriers

Uniform policy with respect to other memebers

Free movement of human resources and capital.

Common Market

All members will have no barriers and least tariffs

Uniform policy with respct to non members Free movement of capital and human

resoruces Uniform monetary and fiscal policy.

Economic Union

Increases size of markets The resources are pooled. Rapid technological innovations and

economies of scale. Reduced prices for cusumers.

Advantages

Trade diversion A can of beer from a potential country is

1.20$ Non partner is 1$. Now If there is tariff for partner it will cost

1.20 for the country If it is 40% tariff for non partner it will be

1.40$. With out the trade agreement countries will be benefited by free trade so that they can get it for 1$.

Trade Creation and Trade Diversion

Tariff refers to tax imposed on imports. Specific tariffs- fixed charge per unit 1000rs for a

TV Ad Valorem- Propotion to the value of imported

good 100% on imported cars. Advantages Revenue, jobs protected. Disadvantages Highers prices They reduce the efficiency of world economy as the

highly efficiently produced goods will not be available to customers.

Tariff

To protect the domestic producer government pays by costs.

In India fertilizer subsidy, power subsidy,pesticides, fixing prices for agricultural inputs etc

Due to this foreign produced cannot enter the market.

However, advanced countries also provide subsidies

USA =.05%, Japan=2%, Sweden=2%, Ireland=7and they in the form of cash grant.

Subsidies

It provides easy access to foreign markets Boeing has the advantage of first mover. However, WTO discourages subsidies as

they encourage inefficiency.

Advantage of Subsidies

India started reducing the subsidies for fertilizers and other farm subsidies

The reservation of SSI is removed for most of the SSI units.

Indian Experience

Import quota is direct restriction on quantity of goods which are imported into a country.

These are done by issuing import licences for different goods.

They are removed from 31 March 2001.

Import Quota

It is by exporting country not to export beyond a quantity to a particular country.

US request to Japan on import of cars during 1981.

Local content requirement is another form of restriction.

Voluntary Export Restraint

LCR requires atleast a particular percentage (50% of compenents or 50% of value should be manufactured in a country).

LCR

National security. ( Chinese communication hardware)

Protecting domesting industries. ( loss of dolls business, locks etc in India)

Protecting jobs Retaliation: Due to political reasons we

retaliate other coutries. US not to trade with Cuba.

Administrative Policies

Market Agriculture Textiles ( Multi Fiber Agreement- 1 January

2005) Trade Related Intellectual property rights. Trade related investment Measures. Trade in services

Dunkel Proposals

Government should lessen its control over market forces

Market

Trade distorting support policies should be stopped (Amber Policy or Green Box)

Expenditure on research, disease control, expansion of infrastructure, environmental protection, fod security and direct payment for environmental programme.

Agriculture

1 January 2005. Protection of Patents for 20 years. Copy rights and computer programmes is

protected for 50 years Trade marks for 7 years

TRIPS-Food,Medicine, Drugs and clinical products

Abolition of restriction on Foreign capital Offering equal rights to foreign investor No limitation for a foreign company No limitation on import of machinary Not to force use of local material Export is not mandatory Restriction on repartiation, divident and

royalty

Trade Related Investement Measures