Question4

Tariff barriers to trade:

The international marketing firms have number of obstacles when initialising

international marketing. Tariff and non-tariff barriers are still very common, even today.

Tariff barriers are charges imposed upon imports - so they are a form of import taxation.
This could mean that for a company, its margins are reduced so much and obliviously trading
overseas becomes too unprofitable. Tariff barriers are also known as import restraints, since
these barriers reduce the quantity of goods which is supposed to be imported into a particular
country. Now in recent years many developed countries have decided to reduce their tariff
trade barriers to encourage the exchange of goods across their borders.

Classifications of Tariff barriers:

Export duties: an export duty is a tax imposed on a commodity originating from the duty-
levying country destined for some other country.

Import duties: Import duty is a tax imposed on a commodity originating abroad and destined
for the duty-levying country

Transit duties: A transit duty is tax imposed on a commodity crossing the national frontier
originating from and destined for other countries.

Specific duties: A specific duty is a flat sum per physical unit of the commodity imported or
exported. And hence there must be a specific amount of duty levied upon each unit of goods
imported

Tariffs in UNITED KINGDOM:

Since United Kingdom has not signed a preferential tariff agreement, UK imports are covered
under the generic tariff classification known as Most Favoured Nation.
The United Kingdom has its tariffs designed according to origin of the goods or the
destination of the goods. They have designed it for European Union countries (EU) non-
European countries.
The rate of duty for any given product should be the same no matter into which EU country they are
imported, but may differ depending upon the country of origin. Set annually by the EU, Duty is
usually percentage based, and averages between 5-9% with extremes of nil and 85%.
http://www.dhl.co.uk/en/express/shipping/customs_support/duties_taxes.html (accessed on
may 06 2010)

Non-Tariff barriers:
Non-tariff barriers are tough to spot. Governments sometimes formulate their budget in favour of
their own domestic industries rather than allow competition from overseas. Bureaucracy is a hurdle
often encountered by exporting companies. Quotas are another form of non-tariff barrier i.e.
restricting the quantity of a product that can be imported into a particular country.

Forms of Non-Tariff barriers:

Quotas, a quota is a specific unit or dollar limit that is applied to a particular type of good.
For Example, Great Britain limits imported television sets, Germany quotas on the Japanese
ball bearings, Italy restricts Japanese motorcycles, and United States has quotas on sugar,
textiles, and peanuts. But from the year 2000, the quotas are replaced by tariffs and like tariff
the quotas increase the prices of the goods.

Voluntary export Restraints:

Voluntary export restraints are two-sided arrangements instituted to restrain the
rapid growth of exports of specific manufactured goods. For example, the United States and
the European Commodity have bilateral agreements which restrained the growth of exports
from Japan and some other newly industrialized countries.

Administered Protection:
Administered protection comprises a wide range of bureaucratic government
actions. Some of the protection measures are,

Safeguards: Safeguard actions, under which WTO Articles enable countries to undertake
temporary restrictions against influxes which are threatening the feasibility of the domestic
industries. These measures from the government often lead to forms of permanent barriers.

Health and product Standards: Several health and product standards imposed by the
developed countries have a negative effect on the exports of the developing countries,
because of the added costs or technical requirements. The United States and other countries
require some products (Particularly automobiles) to contain a percentage of local content to
gain admission in their markets. Approximately 45 % of U.S. manufactured imports are
subject to some form of non-tariff barriers

Customs procedures: Certain customs procedures of many countries become as trade

barriers. For example, the frequent changes that are in the japans’ customs regulation are
major barriers to exporters. Especially to the exporters those who are not affiliated with the
Japanese overseas joint ventures.

Consular Formalities: A number of countries insist on certain consular formalities, like

certification of export documents by the respective consulate of the importing country.

Licensing: Many countries regulate foreign trade, particularly imports, by licensing. In most
cases purpose of import licensing is to restrict imports.

Monetary barriers : A government can effectively regulate the country’s international trade
by restricting foreign-exchange. For example during the crises in 1990-91, the Reserve bank
of India took measures which include a 25 percent interest rate surcharge on bank credit for
imports that are subjected to the commercial rate of interest of a minimum 17 per percent.
These barriers may be classified into three categories, they are
Blocked currency, it is used as a political weapon in a situation where the balance-of-
payments are worse. This currency blockage cuts off all importing or a certain level of
importing
Differential exchange rate, this is ingenious method of controlling the imports. This method
employed by the government favours the imports which the government wants and
discourages the imports that are against the government. For example, if a category of goods
which is favourable to the government might have the exchange rate of one unit of domestic
money for one unit of particular foreign currency. For the undesirable category of goods, the
government might have the exchange rates like three units of domestic money for one unit of
the particular foreign currency.

Government approval, in many countries the foreign exchange transactions are to be

approved by the ministry of that particular country. Thus importer who wants to buy foreign
goods must apply for the permit. For example, in Brazil for a foreign exchange the importer
has to get the permit from the government 360 days prior to the import date. These type of
barriers cause the importer the major cash flow problems which in turn increase the price of
the imports.
I
Boycotts and Embargoes, a government boycott is an complete restraint for the procurement
and the importation of goods. An Embargo occurs when a particular country decides not sell
products or goods to another country. United States uses boycotts and embargoes against the
countries with which it has disputes, For Example, Cuba and Iran still have sanctions
imposed by the United States. In other countries the citizens boycott the product, for
example the Nestle products were boycotted by the citizens of some less developed countries
due to the way of promotion of the baby milk formula which they considered as harmful to
their babies.

Antidumping Penalties, in the past due to the tariff and non-tariff barriers the free trade is
impeded, and then afters years this is eliminated or lowered by the efforts of GATT and
WTO. Now, there is new non trade barrier in the form of the antidumping laws, which is
designed to prevent foreign producers from predatory pricing, which is a practice where the
foreign producer sell its products for less than the production cost to gain control over the
market.

Strategic options for marketing firms to overcome non-tariff barriers

The managers of the international marketing firm who are deciding to engage in international trade,
they must first decide how they are going to enter foreign markets. Now in the international trade
sector the biggest problem has been the closed markets (i.e., those with a high level of tariffs and or
non tariff barriers) (Jeannet and Hennessey 1988).

Effective Entry Strategies:

The level of the protectionism on the non tariff barriers is mainly influenced by the
entry strategy that the particular firm choose to enter the international market. Since exporting
countries or firms gain more benefits (profits, wages, employment, etc.) than importing countries or
firms (lower prices, increased variety), many countries may discriminate against imports. The
selection of the entry strategies of the firm should be focusing on the level of protectionism that is
to be encountered.

Indirect Exporting, it involves using a middleman to manage the export activities. The common
types of the middleman are the export brokers and the manufacturing export agents, who are
appointed to develop expertise of the business that the firm needs to market its goods in the
particular country. And these middlemen become quite familiar with the tariffs and the non tariff
barriers in the country
Franchising is a developed form of licensing those results in a much higher level of control by the
franchisor. In this method the franchisor provides marketing programs, training, managerial
support, and operations policies and guidelines.

Joint ventures are the process of involving equity infusions from both the host country’s firm and
the foreign firm. In the joint venture if a firm want to be successful the partners must have goal
congruity and clearly defined responsibility. Often the host country partner will maintain operating
control. The Joint ventures are planned to avoid protectionist barriers due to import restraints or
restrictions on foreign business ownership.

References:
1) Baldwin, Robert E. (1970), "Non-Tariff Distortions of International Trade," Washington, D.C.: The
Brookings Institute.
2) Jeannet, Jean-Pierre, and Hubert D. Hennessey (1988), International Marketing Management:
Strategies and Cases, Boston: Houghton Mifflin
3) PHILIP R CATEORA (2008), International Marketing, Thirteenth Edition, Tata McGraw-hill
Publishing Company.
4) http://www.dhl.co.uk/en/express/shipping/customs_support/duties_taxes.html (accessed on
May 06 2010)