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Gross National Happiness (GNH)
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International Marketing ATB
There has been a lot of attempts to
regulate the international economic
environment to free up trade
between countries.
Since WWII, nations have shown a
tremendous interest in economic
cooperation.
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General Agreement on Tariffs and
Trade (GATT)
A treaty among 123 nations whose
governments agreed in principle to
promote trade among members.
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GNH Index includes both objective
and subjective indicators:
psychological well-being, time use,
community vitality, culture, health,
education, environmental diversity,
living standards, and governance.
International Marketing ATB
Today, there are many degrees of
economic cooperation and several
types of preferential trade
agreements.
These range from agreement among
2 or more nations to reduce trade
barriers to the full scale economic
integration of 2 or more national
economies.
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GATT is based on 3 principles
Nondiscrimination – each member
country must treat the trade with other
member countries equally
Open markets – prohibition of all forms
of protection except customs tariffs
Fair trade – prohibits export subsidies
on manufactured products and limits
export subsidies on primary products
International Marketing ATB
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General Agreement on Tariffs and
Trade (GATT)
It has no enforcement power – the
losing party in a dispute is entitled to
ignore any ruling.
The process of dealing with disputes
sometimes stretched on for years
(general agreement to talk and talk).
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World Trade Organization (WTO)
Its central tenet is that the treatment
accorded by one member to another
must be accorded to all members.
Every member is to treat every other
member as a “most favored
nation”(MFN).
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World Trade Organization (WTO)
Rules prohibit the placing of quantitative
restrictions on goods entering a country
except for balance of payments reasons.
This exception is often abused.
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World Trade Organization (WTO)
Came into existence in 1995 –
successor of GATT.
In contrast to GATT which was more
loosely organized, WTO as a permanent
institution is endowed with more
decision-making power in undecided
cases.
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World Trade Organization (WTO)
Associated with MFN is the “no new
preference rule”, whereby one country
shall not accord a new preferential
arrangement to any other country.
Members are required to consult each
other concerning trade problems and
the agreement provides a framework for
negotiation.
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Economic integration – nations
banding together to improve their
competitive position.
Integration takes a variety of forms:
Preferential trade arrangements
Free trade areas
Customs union
Economic unions
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Participants reduce most restraints to
trade between themselves but retain
barriers to trade with countries not
party to the arrangement.
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Countries that belong to a free trade
area can and do maintain
independent trade policies with non-
FTA countries.
A system of certificates of origin
discourages importing goods into the
member country with the lowest
tariff for transhipment to countries
within the area with higher external
tariffs.
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In 1996, the EU and Turkey initiated
a customs union eliminating an
average of 14% tariffs that added
US$1.5 billion annually to the cost of
European goods imported by Turkey.
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A FTA is formed when 2 or more
countries agree to abolish all internal
barriers to trade among themselves.
Ex. NAFTA (North American Free
Trade Area: US, Canada, Mexico);
EEA (European Economic Area: 27-
nation EU plus Norway, Liechtenstein
and Iceland; G3 (Group of Three:
Columbia, Mexico, Venezuela)
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This represents the logical evolution of
a free trade area.
In addition to eliminating internal
barriers to trade, member-countries
agree to the establishment of common
external tariffs (CETs).
Ex.: (SICA: Sistema de la Integración
Centroamericana or Central American
Integration System)
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This is the next level of economic
integration.
In addition to eliminating internal
barriers and the establishment of
common external barriers, common
market allows for free movement of
factors of production (including
labor, capital and information).
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Builds on the elimination of internal
tariff barriers , establishment of
common external barriers and the
free flow of factors.
Seeks to coordinate and harmonize
economic and social policy to
facilitate free flow of capital, labor
and goods and service from country
to country.
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Tariffs can be thought of as the 3 Rs
of global business: rules, rate
schedules (duties) and regulations of
individual countries.
Duties are “taxes that punish
individuals for making choices which
their governments disapprove”.
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A product’s classification can make a
substantial difference in the duty
applied.
Is a Chinese-made X-Men action
figure a doll or a toy?
As a doll, the duty for import into the
US was 12%; for toys, 6.8%.
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The full evolution would involve the
creation of:
a unified central bank
the use of a single currency
common policies on agriculture, social
services and welfare, regional
development, transport, taxation,
competition and mergers
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Administering a tariff is an enormous
problem.
The introduction of new products and
new materials in manufacturing
processes creates new problems.
Often, determining the rate on a
particular article requires assessing
how the item is used or determining
its main component material.
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Action figures representing non-
human creatures like monsters and
robots were categorized as toys
(lower duties).
Human figures classified as dolls by
the Customs Service have higher
duties.
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The rumor is that the reason Darth
Vader takes his helmet off in the 3rd
installment of Star Wars trilogy is to
clarify his “human” origin as well as
to qualify his action figure for a lower
import duty.
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Quota is a government-imposed limit
or restriction on the number of units
or the total value of a particular
product or product category that can
be imported.
The trade distortion caused by a
quota is more severe than that due
to a tariff because once the quota
has been reached, market price
mechanisms cease to operate.
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The US has more than 8,000
different tariff classifications, of
which 3,600 are restricted by quotas
and other control mechanisms.
Some critics argue that the US
engages in “managed” trade rather
than free trade.
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Non-tariff barrier (NTB) is any
measure other than a tariff that is a
deterrent or obstacle to the sale of
products in a foreign market.
They include quotas, discriminatory
procurement policies, restrictive
custom procedures, arbitrary
monetary policies and restrictive
regulations.
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State trade controls refer to the
practice of monopolizing trade in
certain commodities.
The Swedish government controls
the import of all alcoholic beverages
and tobacco products.
The French government controls all
imports of coal.
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Discriminatory procurement
policies can take the form of
government rules and
administrative regulations as well
as formal or informal company
policies that discriminate against
foreign suppliers.
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The Buy American Act of 1933
stipulates that US federal agencies
must buy articles produced in the
US unless domestically produced
goods are not available, the cost is
unreasonable, or purchasing US
materials would be inconsistent
with the public interest.
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A country might require importers to
place on deposit – at no interest - an
amount equal to the value of
imported goods.
Such action constitutes an arbitrary
monetary policy that in effect raises
the price of foreign goods by the cost
of money for the term of the required
deposit.
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But the effect of these regulations has
been to make it so expensive to
comply with that some automakers
have withdrawn certain models from
the market.
Volkswagen was forced to stop selling
diesel automobiles in the US for
several years.
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Customs procedures are considered
restrictive if they are administered in
a way that makes compliance difficult
and expensive.
Discriminatory exchange policies
distort trade in much the same way
as selective import duties and export
subsidies.
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International Marketing ATB
Restrictive administrative and
technical regulations may take the
form of antidumping regulations, size
regulations, and safety and health
regulations.
The safety and pollution regulations in
the US are motivated by legitimate
concerns about highway safety and
pollution.
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International Marketing ATB
Custom duties are divided into 2
categories:
Ad valorem duty – expressed as a % of
the value of goods.
Specific duty – expressed as a specific
amount of currency per unit of weight,
volume, length or other unit of
measurement (50 cents per pound or $1
per pair, 25 cents per square yard).
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