THE DYNAMIC

ENVIRONMENT OF
INTERNATIONAL
TRADE
BY: DAISY S. GABULE, LPT, CFMS
OBJECTIVES:
• Identify and describe the different
international institutions and
agreements
• Explain how trade barriers affect
international trade
TRADE BARRIERS
• Government-imposed restrictions or regulations that prevent the free flow of goods
and services between countries

• These barriers can take various forms, including tariffs (taxes on imports), quotas
(limits on the quantity of goods that can be imported), subsidies to domestic
producers, import licenses, regulatory standards, and administrative hurdles.

• The primary purpose of trade barriers is to protect domestic industries from foreign
competition, promote domestic production, and safeguard national interests.

• However, they often lead to higher prices for consumers, reduced competition, and
inefficiencies in the economy.
TRADE BARRIERS
Governments establish tariffs and a variety of non-tariff barriers

• To encourage development of domestic industry 

• To protect existing industry 

• Include quotas, boycotts, monetary barriers, and market barriers 

• Against imports and against foreign businesse

SIX TYPES OF NON-TARIFF BARRIERS
Specific Limitations on Trade Customs and Administrative Entry
Procedures:
• Quotas
• Valuation systems
• Import licensing requirements
• Anti-dumping practices
• Proportion restrictions of foreign
• Tariff classifications
to domestic goods (local content • Documentation requirements • Fee
requirements)
• Minimum import price limits
• Embargoes
SIX TYPES OF NON-TARIFF BARRIERS
Standards: Government Participation in Trade:

• Standard disparities • Government procurement policies

• Export subsidies
• Intergovernmental acceptances
• Countervailing duties
of testing methods and standards
• Domestic assistance programs
• Packaging, labeling, and marking
SIX TYPES OF NON-TARIFF BARRIERS
Charges on Imports: Others: • Voluntary export restraints

• Prior import deposit subsidies

• Orderly marketing agreement
• Administrative fees
• Special supplementary duties
• Import credit discriminations
• Variable levies
• Border taxes
BALANCE OF PAYMENT
The system of accounts that records a nation’s international financial
transactions

When nations trade:

• Import and export of product and services.

• Exchanged of monetary gifts

• Investments are made

• Cash payments are received

• Vacant and foreign travel occur

In short, over a period of time, there is a constant flow of money into and out of a country
 3 Accounts of BP

a record of all merchandise a record of direct investment, a record of exports and imports
exports, imports, and services portfolio investment, and short- of gold, increases or decreases in
plus unilateral transfers of fund term capital movements to and foreign exchange, and increases
from countries. or decreases in liabilities to
foreign central bank
PROTECTIONISM
Government polices that restrict international trade to help domestic industries.

A protectionist trade policy allows the

government of a country to promote
domestic producers, and thereby boost the
domestic production of goods and services
by imposing tariffs or otherwise limiting
foreign goods and services in the
marketplace.
ARGUMENTS FOR PROTECTIONISM

Protectionism occurs
when countries
discourage imports of
foreign goods and
services by imposing
tariffs, quotas or other
trade restrictions.
5 COMMON ARGUEMENTS
If a product is used in the manufacturing of
military goods or other security sensitive
products, it may not be wise to import it
from another country. A domestic industry
needs to be protected through trade
restrictions to make sure that it continues
to supply enough of the product and not
become dependent on other countries.

National Security
 5 COMMON ARGUEMENTS
When a country dumps its products in a foreign country,
it sells them at below cost. Dumping is done to eliminate
competition in a foreign country and to establish a
monopoly position. For example, if a Japanese company
sells microchips in the United States at below cost in
order to eliminate competition in the U.S. it is considered
dumping. Sometimes foreign governments subsidize
their domestic firms to encourage dumping. To retaliate
against dumping and unfair foreign subsidies, the
argument is that tariffs, quotas, and other trade
restrictions need to be implemented.

Counteracting dumping and foreign subsidies.

5 COMMON ARGUEMENTS

Some countries are newly developing and

have industries that are just beginning to
grow. The argument is that they need to be
protected from other countries whose
industries are fully developed, already.
After a few years of protection, the industry
is expected to be mature and ready to
compete. Trade restrictions should be lifted
at this point

The infant industry argument

 5 COMMON ARGUEMENTS
Domestic industries lose sales and jobs
due to foreign competition. Examples of
industries affected by foreign
competition include the steel, textile,
and automobile industries. The
argument is that to protect these
industries and to prevent layoffs, trade
restrictions need to be imposed.

Protecting domestic jobs

5 COMMON ARGUEMENTS
A country experiences a trade deficit
when the value of its merchandise
imports exceeds the value of its
merchandise exports. The argument is
that by restricting imports through
tariffs and quotas, a country will
improve its trade deficit.

Improving the trade deficit

ANTI-DUMPING PENALTIES
Antidumping laws were designed to prevent foreign
producers from “predatory pricing,” a practice whereby a
foreign producer intentionally sells its products in another
country for less than the cost of production to undermine
the competition and take control of the market. This
barrier was intended as a kind of antitrust law for
international

New Anti-Dumping Penalties had emerged to form a new tariff and non-tariff
 The Omnibus Trade and
Competitiveness Act (OTCA)
• Focused on correcting perceived injustices in trade
practice

• Many countries are allowed to trade freely with the

United States but do not grant equal access to U.S.
products in their countries

• To ease trade restrictions, the OTCA focused on

correcting perceived injustices in trade practices.

• An Act to enhance the competitiveness of American industry.

 3 Areas of OTCA

MARKET ACCESS EXPORT EXPANSION IMPORT RELIEF

The act allows the U.S. president The act made it easier for US Provides a menu of remedies for
to restrict a country’s product in firms to export U.S. business adversely affected by
the U.S. market imports
 General Agreement on Tariffs and Trade
(GATT)

Signed in 1947 by 23
countries, is a treaty
minimizing barriers to
international trade by
eliminating or reducing
quotas, tariffs, and subsidies.

Is a legal agreement between many countries, whose overall purpose was to promote international trade by
reducing or eliminating trade barriers such as tariffs or quotas.
 3 BASIC AREAS OF GATT

Protection shall be afforded

Trade shall be to domestic industries Consultation shall be
conducted on a through customs tariffs, not the primary method
nondiscriminatory through such used to solve global
commercial measures as
basis import quota trade pro
General Agreement on Trade in Services
(GATS)
The creation of the GATS was
one of the landmark
achievements of the Uruguay
Round, whose results entered
into force in January 1995. The
GATS was inspired by essentially
the same objectives as its
counterpart in merchandise trade,
the General Agreement on Tariffs
and Trade (GATT):
General Agreement on Trade in Services (GATS)

Specific market-opening
GATS was the first It provides a legal basis for concessions from a wide range
multilateral, legally future negotiations aimed of individual countries were
enforceable agreement at eliminating barriers that achieved, and provision was
discriminate made for continued
covering trade and negotiations to liberalize
investment in against foreign services and telecommunications and
the services sector deny them market access. financial
services furth
Trade-Related Investment Measure (TRIMs)

It established the basic

principle that investment
restrictions can be major
trade barriers and
therefore are included, for
the first time, under GATT
procedure
 Trade-Related Aspects of Intellectual Property Rights
(TRIPs)
The TRIPs agreement establishes
substantially higher standards of
protection for a full range of intellectual
property rights (patents, copyrights,
trademarks, trade secrets, industrial
designs, and semiconductor chip mask
works) than are embodied in current
international agreements, and it
provides for the effective enforcement
of those standards both internally and at
the border
World Trade Organization (WTO
Unlike GATT, WTO is an institution, not an agreement
• It sets many rules governing trade between its 160 members
WTO provides a panel of experts to hear and rule on trade
disputes between members, and, unlike GATT, issues binding
decisions .
• The Internet exposed protected industries to global
competition.
• WTO was established January 1, 1995 through the Uruguay
round of GATT (1986–1993).
• Statutory powers to adjudicate trade disputes  Permanent
international organization.
• New legal and institutional foundation.
• Platform for trade relations: collective debate, negotiation, and
adjudication.
• Dispute settlement faster.
• Evolution of GATS, TRIMS, TRIP
INTERNATIONAL
ASPECTS OF
CORPORATE
FINANCE
 INTERNATIONAL ASPECTS OF CORPORATE
FINANCE

Corporate finance is In addition to capital

concerned with It deals with the day-to-day investments, corporate
how businesses operations of a business' finance is concerned
cash flows as well as with with monitoring cash
fund their long-term flows, accounting,
operations in order financing goals (e.g., issuing
bonds preparing financial
to statements, and
maximize profits taxation
 Understanding Corporate Finance

• Corporate finance departments are charged with governing and overseeing their firms' financial
activities and capital investment decisions.
• Such decisions include whether to pursue a proposed investment and whether to pay for the
investment with equity, debt, or both.
• They also include whether shareholders should receive dividends, and if so, at what dividend yield.
• Additionally, the finance department manages current assets, current liabilities, and inventory control
Foreign Currency Exchange

• Foreign Exchange (forex or FX)

is the trading of one currency
for another. For example, one
can swap the U.S. dollar for
the euro. Foreign exchange
transactions can take place on
the foreign exchange market,
also known
 Foreign Exchange Market (Forex)

• The forex market is the largest,

most liquid market in the world,
with trillions of dollars changing
hands every day. There is no
centralized location. Rather, the
forex market is an electronic
network of banks, brokers,
institutions, and individual traders
(mostly trading through brokers or
banks).
Exchange Rate

• An exchange rate is the value of a

country's currency vs. that of another
country or economic zone.
• Most exchange rates are free-floating
and will rise or fall based on supply and
demand in the market.
• Some exchange rates are not free-
floating and are pegged to the value of
other currencies and may have
restrictions
 Direct Quote
• A direct quote is a currency pair quote
where the foreign currency is expressed in
per-unit terms of the domestic currency.

• A direct quote gives you the quantity of

local currency needed to purchase one unit
of foreign currency.

• Because the U.S. dollar is the most traded

currency in the world, the USD generally
serves as the base currency in most direct
quotes. Some major exceptions to this rule
include the British pound and the euro.
Credit Market
• The credit market is where investors and
institutions can buy debt securities such as bonds.

• Issuing debt securities is how governments and

corporations raise capital, taking investors money
now while paying interest until they pay back the
debt principal at maturity.

• The credit market is larger than the equity market,

so traders look for strength or weakness in the
credit market to signal strength or weakness in the
economy.