SOCIAL AND CULTURAL FACTORS

Language: Potential problems include mistranslation, inappropriate messaging, lack of understanding of local customs and differences in taste. Values and Religious Attitudes: Differing values about business efficiency, employment levels, importance of regional differences, and religious practices, holidays, and values about issues such as interest-bearing loans.

ECONOMIC DIFFERENCES

Infrastructure: Basic systems of communication, transportation, energy facilities, and financial systems. Currency Conversion and Shifts: Fluctuating values can make pricing in local currencies difficult and affect decisions about market desirability and investment opportunities.

POLITICAL AND LEGAL DIFFERENCES

Political Climate
Stability is a key consideration.

Legal Environment
U.S. law International regulations Countrys law Climate of corruption. Foreign Corrupt Practices Act forbids U.S. companies from bribing foreign officials, candidates, or government representatives.

International Regulations
Treaties between U.S. and other nations. Tariffs are taxes charged on imported goods. Enforcement problems, as with piracy

Figure 9.6 Types of Barriers to International Trade

2004 Prentice Hall

9-6

TARIFFS
A tariff is a tax on imports. Tarrifs come in two different types:
Revenue-producing: a source of federal income Protective: raises the price of imports to encourage consumers

to buy locally made goods.

Ad Valorem Duty
An import duty levied as a percentage of the

invoice value of imported goods

Specific Duty
A fixed sum levied on a physical unit of an

imported good

NON TARIFF BARRIERS

An IMPORT QUOTA limits either the quantity or the

monetary value of a product that may be imported. These help local business compete with foreign companies. An EMBARGO is a total ban on specific goods coming into and leaving a country. An embargo can be imposed for different reasons:
Poisoned or defective goods Political reasons

CONT
EXCHANGE CONTROLS through central

banks or government agencies regulate the buying and selling of currency to shape foreign exchange in accordance with national policy.

Protectionism is a governments

establishment of economic policies that systematically restrict imports in order to protect domestic industries. It is the opposite of free trade.

Reducing Barriers to International Trade

The world is moving toward more free trade.
There are many communities and groups that

monitor and promote trade

International Economic Communities reduce trade

barriers and promote regional economic cooperation.

without tariffs or trade restrictions.

Free-trade area: Members trade freely among selves Customs union: Establishes a uniform tariff structure for

members trade with nonmembers. agreement.

Common market: Members bring all trade rules into

Organizations Promoting International Trade

GATT- WTO

GATT

The General Agreement on Trade and Tariff (GATT) came into existence in 1947 It sought substantial reduction in tariff and other barriers to trade and to eliminate discriminatory treatment in international commerce. India signatory to GATT 1947 along with twenty two other countries Eight rounds of negotiations had taken place during five decades of its existence

WTO

WTO Came into existence on 1-1-1995 with the conclusion of Uruguay Round Multilateral Trade Negotiations at Marrakesh on 15th April 1994, to : Transparent, free and rule-based trading system Provide common institutional framework for conduct of trade relations among members Facilitate the implementation, administration and operation of Multilateral Trade Agreements Rules and Procedures Governing Dispute Settlement Trade Policy Review Mechanism Concern on Non-trade issues such as Food Security, environment, health, etc.

 Represents 149 negotiated trade agreements among countries Key Functions Cooperating with other International Organizations
Providing a forum for trade negotiations Handling trade disputes between nations

Monitoring national trade policies

Administering WTO agreement Providing technical assistance and training for people in developing countries

Promotes peace by handling trade disputes constructively Trade stimulates economic growth

Rules make life easier for all organizations to follow System encourages good government

Benefits

WTO Fundamental Principles

Most favored nation principle: when country A

grants a tariff concession to country B, the same concession automatically applies to all other countries that are members of WTO

Reciprocity principle: each member country will

not be forced to reduce tariffs unilaterally. A tariff concession is made only in return for comparable concessions from the other countries.

Transparency principle: tariffs are to be

readily visible to all countries

NAFTA- NORTH AMERICAN FREE TRADE AGREEMENT

Created a free trade zone among Canada, Mexico, and United States

removed and reduced barriers to trade, such as tariffs, quotas, and licenses increased trade tightened intellectual property right protection

EUROPEAN UNION
An organization with the goals of creating a single market among member nations and establishing the free movement of goods, people, services, and capital
currently 27 member countries

Removes/Reduces:
physical barriers at country borders technical barriers that prevent goods produced in one country being sold in others

Fiscal barriers:
red-tape and tax systems that hinder trade financial barriers that prevent/hinder free movement of investment capital

Created the EURO as currency

IMF
1. 2. 3.

4.

IMF was created to assist nations in becoming and remaining economically viable It assists countries that seek capital for economic development and restructuring IMF loans come with stipulations that borrowing countries slash spending and impose controls to curb inflation It helps maintain stability in the world financial markets

 Objectives of the IMF include: 1. stabilization of foreign exchange rates 2. establish convertible currencies to facilitate

international trade 3. lend money to members in financial trouble

World bank
1. 2. 3. 4. 5.

lending money to countries to finance development projects in education, health, and infrastructure; providing assistance for projects to the poorest developing countries; lending directly to the private sector in developing countries with long-term loans, equity investments, and other financial assistance; provide investors with investment guarantees against noncommercial risk, so developing countries will attract FDI; and provide conciliation and arbitration of disputes between governments and foreign investors