SOCIAL AND CULTURAL

FACTORS

• Language: Potential problems include mistranslation,

inappropriate messaging, lack of understanding of local
customs and differences in taste.

• Values and Religious Attitudes: Differing values about

business efficiency, employment levels, importance of
regional differences, and religious practices, holidays, and
values about issues such as interest-bearing loans.
 ECONOMIC DIFFERENCES

• Infrastructure: Basic systems of communication, transportation,

energy facilities, and financial systems.

• Currency Conversion and Shifts: Fluctuating values can

make pricing in local currencies difficult and affect decisions
about market desirability and investment opportunities.
 POLITICAL AND LEGAL DIFFERENCES

• Political Climate
– Stability is a key consideration.
• Legal Environment
– U.S. law
– International regulations
– Country’s law
– Climate of corruption. Foreign Corrupt Practices Act forbids U.S.
companies from bribing foreign officials, candidates, or government
representatives.
• International Regulations
– Treaties between U.S. and other nations.
– Tariffs are taxes charged on imported goods.
– Enforcement problems, as with piracy
Figure 9.6 Types of Barriers to
International Trade

©2004 Prentice Hall 9-6

TARIFFS
A tariff is a tax on imports. Tarrifs come in two
different types:
• Revenue-producing: a source of federal income

• Protective: raises the price of imports to encourage consumers

to buy locally made goods.

 Ad Valorem Duty
 An import duty levied as a percentage of the invoice value
of imported goods
 Specific Duty
 A fixed sum levied on a physical unit of an imported good
NON TARIFF BARRIERS
 An IMPORT QUOTA limits either the quantity or the
monetary value of a product that may be imported.
These help local business compete with foreign
companies.
An EMBARGO is a total ban on specific goods
coming into and leaving a country. An embargo can be
imposed for different reasons:
• Poisoned or defective goods

• Political reasons
CONT…
• EXCHANGE CONTROLS through central
banks or government agencies regulate the
buying and selling of currency to shape foreign
exchange in accordance with national policy.
 Protectionism X is a government’s
establishment of economic policies that
systematically restrict imports in order to
protect domestic industries. It is the
opposite of free trade.
Reducing Barriers to International
Trade
The world is moving toward more free trade.
 There are many communities and groups that monitor and
promote trade
 International Economic Communities reduce trade barriers
and promote regional economic cooperation.
 Free-trade area: Members trade freely among selves without tariffs
or trade restrictions.
 Customs union: Establishes a uniform tariff structure for
members’ trade with nonmembers.
 Common market: Members bring all trade rules into agreement.
Organizations Promoting International
Trade

 GATT- WTO
GATT
• The General Agreement on Trade and Tariff (GATT)
came into existence in 1947
• It sought substantial reduction in tariff and other barriers
to trade and to eliminate discriminatory treatment in
international commerce.
• India signatory to GATT 1947 along with twenty two
other countries
• Eight rounds of negotiations had taken place during five
decades of its existence
WTO
• WTO Came into existence on 1-1-1995 with the conclusion
of Uruguay Round Multilateral Trade Negotiations at
Marrakesh on 15th April 1994, to :
 Transparent, free and rule-based trading system
• Provide common institutional framework for conduct of
trade relations among members
• Facilitate the implementation, administration and
operation of Multilateral Trade Agreements
• Rules and Procedures Governing Dispute Settlement
• Trade Policy Review Mechanism
• Concern on Non-trade issues such as Food Security,
environment, health, etc.
 Represents 149 negotiated trade agreements
among countries
Key Functions
Cooperating with other International Organizations
Providing a forum for Handling trade
trade negotiations disputes between
nations
Administering
WTO
Monitoring agreement Providing
national trade technical assistance and
policies training for people in
developing countries
 Promotes peace by Rules make life easier
handling trade disputes for all organizations
constructively to follow

Benefits
Trade stimulates System
economic growth encourages good
government
 WTO Fundamental Principles

 Most favored nation principle: when country A

grants a tariff concession to country B, the same
concession automatically applies to all other
countries that are members of WTO
 Reciprocity principle: each member country will
not be forced to reduce tariffs unilaterally. A tariff
concession is made only in return for comparable
concessions from the other countries.
 Transparency principle: tariffs are to be
readily visible to all countries
 NAFTA- NORTH AMERICAN FREE TRADE
AGREEMENT

 Created a free trade zone among Canada, Mexico, and

United States

 removed and reduced barriers to trade, such as

tariffs, quotas, and licenses
 increased trade
 tightened intellectual property right protection
 EUROPEAN UNION

 An organization with the goals of creating a single

market among member nations and establishing the
free movement of goods, people, services, and capital
currently 27 member countries
 Removes/Reduces:
physical barriers at country borders
technical barriers that prevent goods
produced in one country being sold in others
 Fiscal barriers:
red-tape and tax systems that hinder trade
financial barriers that prevent/hinder free
movement of investment capital
 Created the EURO as currency
IMF
1. IMF was created to assist nations in becoming and
remaining economically viable
2. It assists countries that seek capital for economic
development and restructuring
3. IMF loans come with stipulations that borrowing
countries slash spending and impose controls to
curb inflation
4. It helps maintain stability in the world financial
markets
 Objectives of the IMF include:
1. stabilization of foreign exchange rates
2. establish convertible currencies to facilitate
international trade
3. lend money to members in financial trouble
World bank

1. lending money to countries to finance development

projects in education, health, and infrastructure;
2. providing assistance for projects to the poorest
developing countries;
3. lending directly to the private sector in developing
countries with long-term loans, equity investments,
and other financial assistance;
4. provide investors with investment guarantees
against “noncommercial risk,” so developing
countries will attract FDI; and
5. provide conciliation and arbitration of disputes
between governments and foreign investors