Personal notes of Prof.

Manohar Pandit No unauthorised distribution

Government Intervention in International Business

DR. MANOHAR PANDIT

Government Intervention
Personal notes of Prof. Manohar Pandit No unauthorised distribution

Helps understand country risk assessment

Intervention in trade and investment to achieve political, social, or economic objectives

Intervention changes the competitive landscape either by hindering or by helping the ability of firms to compete internationally Intervention opposes the comparative advantage, as international trade
DR. MANOHAR PANDIT

theory of it restricts
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The Nature of Government Intervention

Personal notes of Prof. Manohar Pandit No unauthorised distribution

Protectionism

National economic policies to restrict free trade that results in raising the revenue or to protect domestic industries from foreign competition
Government should encourage FDI and imports to stimulate competition that will improve trade

WTO helps in international trade

DR. MANOHAR PANDIT
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The Nature of Government Intervention

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Forms of Government intervention Tariff Barriers Specific Duty Ad Valorem Government gains revenue Producers gains from protection Consumer has no choice and pays more

DR. MANOHAR PANDIT

TARIFFS
Increases
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Inflationary Process Govt. Controls Number of Tariffs BoP Positions Supply and Demand Patterns International Relations

Weakens

Restricts

Manufacturers Supply Source Consumer Choice Competition Tariffs Are Arbitrary, Discriminatory Needs Constant Administration and Supervision

The Nature of Government Intervention

Forms of Government intervention Subsidies Helps to compete imports and gain export market Cash incentives Subsidized interest Easy loans Tax breaks Equity participation by Government Encourages inefficiency Burden on tax payers
DR. MANOHAR PANDIT
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Personal notes of Prof. Manohar Pandit No unauthorised distribution

The Nature of Government Intervention

Personal notes of Prof. Manohar Pandit No unauthorised distribution

Forms of Government intervention Quotas Quantitative MFA Tariff rate quotas Quotas increase prices Voluntary Export Restraints (VER) Quota imposed by exporting country at the request of exporting country
DR. MANOHAR PANDIT
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VOLUNTARY EXPORT RESTRAINTS (VERs) ORDERLY MARKETING AGREEMENTS (OMAs) Textiles, Clothing, Steel, Agriculture, Automobiles Agreement Between Exporting and Importing Countries Restriction on Volume of Exports Japan Has VER on Cars to US Japan Had OMA with US for CTV Exports OMA Resulted in Shifting Manufacturing Base To US By Japanese Cos. Exporting County Sets The Limits Better Than Quota and Tariff

Personal notes of Prof. Manohar Pandit No unauthorised distribution

The Nature of Government Intervention

Personal notes of Prof. Manohar Pandit No unauthorised distribution

Forms of Government intervention Local content requirements In physical terms In value terms Imposed by developing countries to force the foreign manufacturers to shift manufacturing rather than only assembling Imposed by developed countries to protect local jobs and foreign competition

DR. MANOHAR PANDIT

The Nature of Government Intervention

Personal notes of Prof. Manohar Pandit No unauthorised distribution

Forms of Government intervention Administrative Trade Policies Informal trade policies to restrict imports Form of nontariff barriers Japan Fedex, Tulip bulbs Regulatory policies, France- VCRs from Japan Local producers are benefited Consumer pays more

DR. MANOHAR PANDIT

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The Nature of Government Intervention

Personal notes of Prof. Manohar Pandit No unauthorised distribution

Forms of Government intervention Antidumping Policies Dumping Selling goods in foreign market below cost or below fair market value Dumping is to unload excess production in foreign markets Antidumping policies is to protect domestic producers from unfair trading practices Antidumping duties are imposed

DR. MANOHAR PANDIT

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The Nature of Government Intervention

Personal notes of Prof. Manohar Pandit No unauthorised distribution

Case for Government intervention

Political Protection of producers at the expenses of consumers

Economical For boosting wealth of the nation

DR. MANOHAR PANDIT

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The Nature of Government Intervention

Personal notes of Prof. Manohar Pandit No unauthorised distribution

Political arguments for intervention

Protection of jobs and industry National security Retaliation sanction by USA on China to accept IPR Protecting consumers from unsafe products Drugs, Guns, Bird flu, Mad cow disease, GM products
DR. MANOHAR PANDIT
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The Nature of Government Intervention

Personal notes of Prof. Manohar Pandit No unauthorised distribution

Political arguments for intervention

Protecting and promoting human rights MFN status to China by USA China has poor human rights record China joined WTO in 2001 Trade and human rights issue decoupled

DR. MANOHAR PANDIT

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The Nature of Government Intervention

Personal notes of Prof. Manohar Pandit No unauthorised distribution

Economic arguments for intervention Infant industry argument Protecting competitive advantage of developing nations Strategic trade policy To help gain prime mover advantage for domestic producers Government helps domestic producers to compete foreign firms that have gained prime mover advantage. France - Airbus
DR. MANOHAR PANDIT
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WTO: A Force for Reducing Tariffs

Governments have tended to reduce tariffs over time Tariff reduction was the primary goal of the General Agreement on Tariffs and Trade (GATT) In 1995, the GATT became the World Trade Organization (WTO) Countries as diverse as Chile, Hungary, Turkey, and South Korea have liberalized their previously protected markets, lowering trade barriers
DR. MANOHAR PANDIT
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Personal notes of Prof. Manohar Pandit No unauthorised distribution

WTO: A Force for Reducing Tariffs

Governments have tended to reduce tariffs over time Tariff reduction was the primary goal of the General Agreement on Tariffs and Trade (GATT) In 1995, the GATT became the World Trade Organization (WTO) Countries as diverse as Chile, Hungary, Turkey, and South Korea have liberalized their previously protected markets, lowering trade barriers
DR. MANOHAR PANDIT
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Personal notes of Prof. Manohar Pandit No unauthorised distribution

Cost of Protection in US
Personal notes of Prof. Manohar Pandit No unauthorised distribution

21 Protected Industries Consumer Pays $70b annually in excess due to Duties Cost of Saving One Job USD 170,000 pa or six times average pay of worker for similar job Steel Industry Antidumping Penalties since 1992 Saved Jobs of 1239 Workers Cost of Saving Jobs USD 835,351 pa Protectionism Politically Popular, Economically ?

Smith Corona vs. Brother SC Accused Brother of Dumping 1990 SC Shifted Production From NY to Mexico, Singapore & Other Plants Outside US Question - How American Co without Manufacturing Base in US Can Claim Dumping Brother Moved Manufacturing From Nagoya to Tennessee & Became American Company in1991 Brother Accused SC of Dumping Legal Battle of 14 Years Ended in 1994

Personal notes of Prof. Manohar Pandit No unauthorised distribution