GEM 470

INTERNATIONAL BUSINESS [IB]

Birat Shrestha
BBIS, January 2024
LACM, KU
5. INTERNATIONAL BUSINESS SYSTEM
International Business System
▪ Trade Restrictions through control of imports
▪ Arguments for Trade Restrictions
▪ Instruments of Trade Control
▪ Investment Policy Measures
NATIONAL GOVERNMENT’S INFLUENCE ON
THE TRADE AND INVESTMENT
Reasons/Arguments for Trade Restrictions
• Revenue generation through customs import duty
on essential, non-essential, and luxury items
• “Infant industry” argument – protection of domestic
industry to create employment
• Balance of payment correction – to maintain foreign
reserves earned through exports
• Protection of human health and health of plants,
animals, national heritage and culture, religious and
defense reason
• Protection of agricultural and handicraft products
• Discouraging non-essential and dumped products
 Free Trade Vs Protectionist Trade
• Free trade
– Enables firms & countries to specialize in activities
they are more efficient on
– More production & higher living standard
– It creates jobs, offers choices
– Firms have wider & accessible markets
• Protectionist (controlled) trade
– Includes trades barriers – tariffs, non-tariff
barriers, exchange control mechanisms
– Still continuing in many forms
▪ Tariff
▪ Non-Tariff Barriers
▪ Export Incentives
INSTRUMENTS OF TRADE CONTROL
 TRADE BARRIERS CATEGORIES

NON-TARIFF BARRIERS
TARIFFS
Non- Technical Technical
Customs Tariff Measures Measures
Anti-dumping Duty Quotas Sanitary &
Countervailing Duty Subsidies Phyto-Sanitary
Para tariff Regulating Measures
System Technical
Barriers to Trade
Tariff
•The taxes or duties levied on imported goods

•The primarily purpose is of raising their selling

price in the importing nations market to reduce
competition for domestic products.

•Tariffs are also levied for enlarging government

revenue.
 Tariff Categories
• Custom Tariff – Import duty; export duty; transit duty
• Antidumping duty (on dumped goods)
• Countervailing duty (on exporting country’s subsidized goods)
• Para Tariff – Other Charges and Duties (ODC)
– Allows an initial number (quota) of product units to enter the
country free of duty, but charges tariffs on subsequent shipments
in excess of this quota
– They generally include - “advance import deposits” & “additional
import charges
– It is imposed for specific purposed (development, security) for
specific period
 Basis of Calculating Tariffs
■ Specific Duties: It is a fixed sum of money levied on a physical unit of an imported
product, like weight, gauge, and other measure of quantity. They are specific rates of Dollars
or Rupees for a given unit of measure. For example Rs. 500 per ton, Rs. 100 per pc, or Rs. 10
per kg etc. It is import quantity based

■ Ad Valorem Duty: It is an import duty levied as a percentage of the invoice value of

imported goods, usually on Rupees or Dollars. The term “Ad Valorem” means “according to
value,” so such duties are stated as a fixed percentage of the invoice value of the imported
goods. For example 20% on a product worth Rs. 20,000. It is import value based.

■ Compound Duty: It is the mix of “specific,” & “ad valorem” duties. It is also known as
combined rates. Customs authorities that adopts this duty combines both import L/C
value-based & quantity-based tariffs, & applies whichever tariff amount is higher.
Non-Tariff-Barriers (NTB)
•They are all forms of discrimination against imports
other than the import duties.
•As nations progressively reduced import duties,
non-tariff barriers have assumed greater importance.

•They are non-fiscal measures, which are not revenue

oriented, but protects domestic industries, and
maintains BOP
 Non-Tariff Barriers Categories
Non-Technical Measures
• Restriction on volume or value
– Quota (quantitative restrictions on volume or value)
– Import License (selected importers)
– Import Ban (for illegal goods)
– Embargoes (political trade restriction)
– Voluntary Export Restraint (VER – pressure from the government or industry in
the importing countries authorized by domestic law – instead of restricting the
imports directly, countries may request exporting countries to voluntarily control
their exports themselves or face tariffs or quotas by the exporting countries)
• Subsidy (countries give grants or concessions to their domestic
products to reduce prices and make them artificially competitive
to discourage imports though unfair price competition and also
to promote their exports)
• Regulating System (forex control; state trading; counter trade)
 Non-Tariff Barriers Categories
Technical Measures
• Sanitary and Phyto-Sanitary Standards (for social
life, health and safety measures – for plants,
animals)
• Technical Barriers to Trade (TBT)
– Product and Technical Standards (ingredients,
components, technology used, packaging types
– Product Tests (product certifications requirements)
• Social Causes (socially acceptable products)
• Curio Pass (for products with archeological values)
Other Trade Issues
• GSP & preferential system of trade
– Agreement under WTO
– Products of LDCs and developing nations are
provided duty-free access to the markets in
developed nations
• Super 301
– The way to take retaliatory action against
‘unreasonable’ trade practices of any foreign
country
Export Incentives
▪They are the internal fiscal policy or monetary policy
consisting of support facilities to the exporters from the
side of the exporting country government
▪Direct incentives reduces the cost of production thus
increasing the profits, while indirect incentives
facilitates the exports
▪Export incentives are meant to make the product
competitive in the export market
 Export Incentives
Direct Incentives Indirect Incentives
• Subsidies and cash • Special access to infrastructure
incentives facilities and industrial estate
• Research & Development
• Tax relief support
• Low freight rates • Trainings (Human Resource
• Low utility costs Development)
• Subsidized raw materials • Price support
• Trade agreements and
• Duty free imports of inputs diplomacy
• Low interest rate export • Market promotion and trade fair
financing and credit support
facilities • Export processing zones
▪ Trade Related Measures
▪ Non-Trade Related Measures
INVESTMENT POLICY MEASURES
 Trade Related Measures
■ Local content requirement – use of domestic inputs

■ Trade balancing requirement – use of imported inputs for exports

■ Domestic sales or export restraint – priority to domestic

consumption

■ Export performance requirements – export compulsion

■ Product/market mandating requirement – product market

matching
 Non - Trade Related Measures
■ Manufacturing requirement – certain products to be manufactured

locally

■ Manufacturing limitations– banned or sensitive products

■ Technology transfer– local source of R&D

■ Licensing requirements – for the use of certain technology

■ Local equity requirement – limiting FDI share on JV

■ Remittance restrictions – transferring limited profits to home country

Questions/Answers/Discussions

Thank You/ Best Wishes