Barriers To International Trade

Barriers to International Business

Purpose of Barriers To help protect domestic businesses and consumers May be used to:
1. help assist a new business getting started 2. protect an existing industry struggling in a competitive global environment. 3. protect consumers from imports with problems or that do not conform to country safety standards.

Barriers to International Business

Barriers include:
1. 2. 3.

4. 5.

Tariffs or Custom duties Non-Tariff barriers Increased costs of importing and Exporting Excise taxes Currency Fluctuations

1. Tariffs

Also called custom duties

One of the most important tools for any government in managing trade with other countries. A form of tax on certain types of imports (goods coming into India from other countries)

Companies bringing in the goods from another country to sell in India must pay the tariffs.
Tariffs are based on a percentage of the retail value, (i.e. 5% of retail selling price.) or; On another basis (i.e. $6 per kilogram) Money collected goes to the government.

Tariffs
Whose job is it to: 1. monitor Indian tariff policies? 2. monitor tariff policies of other countries? 3. change Indian tariff policies to best serve the Indian economy?

Answer:

Tariffs
Provide an example of when it may be: beneficial for India to reduce tariffs on certain goods imported from outside countries? beneficial to increase or create tariffs on certain goods being imported from outside countries?

2. Non-tariff Barriers
Legal and policy standards for the quality of imported goods are set so high that foreign competitors can not enter the market. Examples: A Indian law forces an international company to apply for a license to do business in India (it may be very time consuming and expensive)

Government will allow some goods into the country only after being inspected and having met certain health and safety standards set out by the Indian Food and Inspection Agency.

Imported Goods That Require Permits, Inspection, or Special Packaging

Imported Goods 1. Endangered animals and plants and products made from them
2. Agricultural and food products 3. Non-food products and clothing precious metals, and radio communications equip.

Government Department__________ 1. Environment Canada

2. Agriculture and Agri-food India 3. Industry India

4. Fish and fish products

5. Food, drugs, medicines, pharmaceuticals, medical and radiation-emitting devices 6. Hazardous waste, goods that may contain chlorofluorocarbons or lead gas 7. Motor vehicles

4. Fisheries and Oceans India

5. Health India

6. Environment India

7. Transport India

3. Costs of Importing and Exporting

Landed Cost The actual cost for an imported purchased item. It is composed of the vendor cost, transportation charges, duties, taxes, broker fees, and any other charges associated with getting the product ready to sell in a foreign market. (another country)
Question If you owned Indian Tire and had to choose between selling a tool from a Indian manufacturer or a foreign manufacturer, which one would you select if the quality of both products was equal? a. the foreign tool whose landed cost was greater than the domestic purchase cost or; b. the domestic tool whose cost was cheaper than the landed cost.

Costs of Importing and Exporting

Price of a good sold is based on the following costs among others:

Manufacturing (includes wages); storage; Marketing; Shipping; Advertising Overhead (Equipment, Heating etc, Salaries) % of profit the company wants to make on the sale

Depending on the laws of another country and cultural differences, additional costs may be incurred.

Factors Affecting Exchange Rates

1. The financial health of Indias economy versus the US
economy

2. Interest Rates
Example: If the Indian economy is performing better than the US, the value of the Indian rupee will increase. The demand for the Indian rupee rises. Demand > Supply, the value rises. If interest rates are higher than those of other countries while inflation remains fairly stable, the value of the Indian rupee will increase. Foreigners will be attracted to invest in Indian funds where banks are providing higher interest rates. Demand > Supply, the value rises.

4. Excise Taxes
Excise Tax A tax on the manufacture, sale, or consumption of a particular product produced in your country Governments use excise taxes to: 1. Raise money (i.e tobacco related health care costs) 2. Discourage people from engaging in certain activities 3. Increase the costs of imported goods to encourage consumers to buy Indian products.

5. Currency Fluctuations

Converting the value of Indian Rupee to US currency and other national currencies.