trade business class at Abu dhabi university

marketing

1. Topic 6 –Chapter 6
Government
Influence on Trade
Dr. Fauzia Jabeen
Associate Professor of Management,
College of Business, Abu Dhabi
University, Abu Dhabi, UAE
Email: [email protected]

2. Copyright © 2015 Pearson Education, Inc. 6-2
Learning Objectives
Explain why governments try to enhance and
restrict trade
Show the effects of pressure groups on trade
policies
Compare the potential and actual effects of
government intervention on the free flow of trade
Illustrate the major means by which trade is
restricted and regulated

3. Learning Objectives
Demonstrate the business uncertainties
and opportunities created by
governmental trade policies
Copyright © 2015 Pearson Education, Inc. 6-3

4. Copyright © 2015 Pearson Education, Inc. 6-4
Introduction
Protectionism -policies that
affect the ability of foreign producers to
compete in your home market
limit or enhance your company’s ability to sell
abroad or acquire needed foreign supplies
Class Discussion
https://www.bloomberg.com/view/articles/2018 -
07-19/with-rcep-and-epa-asia-and-europe-
carry-the-mantle-of-free-trade

5. What is FREE TRADE?
Free tradeis a policy by which a
government does not discriminate
against imports or interfere with
exports by applying tariffs (to
imports) or subsidies (to exports).

6. Copyright © 2015 Pearson Education, Inc. 6-6
Introduction
Physical and Social Factors Affecting the Flow of Goods and Services

7. Copyright © 2015 Pearson Education, Inc. 6-7
Conflicting Results
of Trade Policies
Governments intervene in trade to achieve
economic, social, and political goals
Policymakers are challenged by
conflicting objectives
interest groups

8. Copyright © 2015 Pearson Education, Inc. 6-8
The Role of Stakeholders
Stakeholders include
Workers
Owners
Suppliers
Local politicians
Consumers usually don’t care

9. Copyright © 2015 Pearson Education, Inc. 6-9
Economic Rationales for
Governmental Intervention
Learning Objective:
Explain why governments try to enhance
and restrict trade

10. Copyright © 2015 Pearson Education, Inc. 6-10
Economic Rationales for
Government Intervention
Why governments intervene in trade
Economic rationales
Fighting unemployment
Protecting infant industries
Promoting industrialization
Improving comparative position
Non-economic rationales
Maintaining essential industries
Promoting acceptable practices abroad
Maintaining or extending spheres of influence
Preserving national culture

11. Copyright © 2015 Pearson Education, Inc. 6-11
Fighting Unemployment
Learning Objective:
Show the effects of pressure groups on
trade policies

12. Copyright © 2015 Pearson Education, Inc. 6-12
Fighting Unemployment
The unemployed are the most effective pressure
group
But, import restrictions
can lead to retaliation by other countries
are less likely retaliated against effectively by small
economies
are less likely to be met with retaliation if implemented
by small economies
may decrease export jobs because of price increases for
components
may decrease export jobs because of lower incomes
abroad

13. Copyright © 2015 Pearson Education, Inc. 6-13
Protecting ‘Infant
Industries’
Learning Objective:
Compare the potential and actual effects
of government intervention on the free
flow of trade

14. Copyright © 2015 Pearson Education, Inc. 6-14
Protecting ‘Infant
Industries’
The infant industry argument
government protection of import competition is
necessary to help certain industries evolve
from high-cost to low-cost production
Used by developing countries

15. Copyright © 2015 Pearson Education, Inc. 6-15
Developing an Industrial Base
Countries promote industrialization
because it
brings faster growth than agriculture
brings in investment funds
diversifies the economy
creates growth in manufactured goods
reduces imports and promotes exports
helps the nation-building process

16. Copyright © 2015 Pearson Education, Inc. 6-16
Economic Relationships
With Other Countries
Trade controls can be used
to improve the balance of payments
to gain fair access to foreign markets
comparable access argument
(Eg.Emirates and Air Canada)
as a bargaining tool
believability and importance
to control prices
Dumping (Eg. Tax dumping in Slovakia,
2006)

17. Copyright © 2015 Pearson Education, Inc. 6-17
Noneconomic Rationales for
Government Intervention
Noneconomic rationales include
Maintaining essential industries
Promoting acceptable practices abroad
Maintaining or extending spheres of influence
Preserving national culture

18. Copyright © 2015 Pearson Education, Inc. 6-18
Maintaining Essential Industries
The essential industry argument
protect essential industries so the country is
not dependent on foreign supplies during war
Countries must
determine which industries are essential
consider costs and alternatives
consider political consequences

19. Copyright © 2015 Pearson Education, Inc. 6-19
Promoting Acceptable
Practices Abroad
Import trade controls can be used
to promote changes in foreign countries’
political policies or capabilities
as a foreign policy weapon
to pressure governments to alter their stances
on a variety of issues
human rights
environmental protection

20. Copyright © 2015 Pearson Education, Inc. 6-20
Maintaining or Extending
Spheres of Influence
Governments provide assistance and
encourage imports from countries that join
a political alliance or vote a preferred way
within international bodies
Cotonou Agreement
A country’s trade restrictions may coerce
governments to follow certain political
actions or punish companies whose
governments do not

21. Copyright © 2015 Pearson Education, Inc. 6-21
Preserving National Culture
In order to preserve national culture,
countries
limit foreign products and services in certain
sectors
Canada’s cultural sovereignty
prohibit exports of art and historical items
deemed important to national heritage

22. Copyright © 2015 Pearson Education, Inc. 6-22
Instruments of Trade Control
Learning Objective:
Illustrate the major means by which trade
is restricted and regulated

23. Copyright © 2015 Pearson Education, Inc. 6-23
Instruments of Trade Control
Two types of trade controls
those that indirectly affect the amount traded
by directly influencing prices of exports or
imports
those that directly limit the amount of a good
that can be traded

24. Copyright © 2015 Pearson Education, Inc. 6-24
Tariffs
Tariffs arealso known as duties
refer to a government levied tax on goods
shipped internationally
Tariffs may be levied
on goods entering, leaving, or passing through
a country
for protection or revenue
on a per unit basis or a value basis
export tariffs
transit tariffs
import tariffs

25. Copyright © 2015 Pearson Education, Inc. 6-25
Nontariff Barriers:
Direct Price Influencers
Subsidies
direct assistance to companies to make them
more competitive
agricultural subsidies
overcoming market imperfections
(Monopoly)

26. Copyright © 2015 Pearson Education, Inc. 6-26
Nontariff Barriers:
Direct Price Influencers
Aid and loans
tied
untied
Customs valuation
Other direct-price influences
special fees and requirements

27. Copyright © 2015 Pearson Education, Inc. 6-27
Nontariff Barriers:
Quantity Controls
Quotas
limit the quantity of a product that can
be imported or exported in a given time
frame
Voluntary export restraint (VER)
Embargoes

28. Copyright © 2015 Pearson Education, Inc. 6-28
Nontariff Barriers:
Quantity Controls
“Buy local”legislation
Standards and labels
Specific permission requirements
import or export license
Administrative delays
Reciprocal requirements
Countertrade or offsets
Restrictions on services

29. Copyright © 2015 Pearson Education, Inc. 6-29
Dealing with Governmental
Trade Influencers
Companies facing import competition can
Move abroad
Seek other market niches
Create greater efficiency or superior products
Try to get governmental protection

30. Copyright © 2015 Pearson Education, Inc. 6-30
Tactics For Dealing
With Import Competition
Convince decision makers of the merits of
particular policies
Involve the industry and stakeholders
Prepare for changes in the competitive
environment

31. UAE FDI in Figures

32. Cont.
UAE had embraced capital intensive resource-based industries (RBI) to ( FDI).
The existence of a strong and profitable banking sector.
Large pool of expatriate labor are the country's undeniable assets.
The gas and oil sectors remain the key sectors for foreign investment.
High Potential Sectors: Aircraft parts and services, the construction industry, franchising, healthcare
services, oil and gas field machinery and services, renewable energy. Privatization programs

33. Discussion: Understanding Foreign Direct
Investment: UAE
Comment on FDI status (Protectionist/
Free/ Fair) of UAE and it’s positive and
negative sides.
8-33