International Marketing Chapter 2

GATT
A forum for member countries to negotiate tariff reductions and other trade barriers that started shortly after WWII. The panel was only advisory, and have no enforcement power. Replaced by the WTO in 1995.
Balance of payments
the system of accounts that records a nation’s international financial transactions.
Current account
a portion of a balance of payments statement that shows a record of all merchandise exports, imports, and services, plus unilateral transfers of funds.
Non-tariff barriers
Measures such as boycotts and quotas used to encourage development of domestic industry and to protect existing domestic industry.
Tariff
May be used to generate revenue or to discourage importation, sometimes both. Tariffs are set based on value, quantity or a combination of both. Tariffs are discriminatory and are often used in retaliation against protectionist moves of trading partners.
Voluntary export restraints (VERs)
Similar to quotas and also called orderly market agreements (OMAs), these are agreements between the importing country and exporting country for a restriction on the volume of exports.
World Trade Organization
An institution, unlike GATT which was an agreement, that sets many rules governing trade among its 157 members. WTO has enforcement power.
International Monetary Fund (IMF)
Objectives include stabilization of exchange rates and the establishment of freely convertible currencies to facilitate growth of international trade. Also lends money to members (developed countries) having trouble meeting financial obligations.
Balance of Payments Accounts (3)
1. Current Account= a record of all merchandise exports, imports, and services plus unilateral transfers of funds.
2. The Capital Account= records direct investment, portfolio investment and short-term capital movements.
3. The Official Reserves Account= records exports and imports of gold, changes in exchange rates and liabilities to foreign central banks.
World Bank
Objectives include reduction in poverty and improvement of living standards by promoting sustainable growth and investment to these developing countries by means of loans, technical assistance and policy guidance.
Protectionism
When nations utilize legal barriers, exchange barriers and psychological barriers to restrain entry of unwanted goods from foreign markets. 4 most important reasons are:
• Maintenance of employment, and reduction of unemployment.
• National defense.
• Enhancement of business size.
• Retaliation and bargaining.
Boycott
Government absolute restriction against purchase and importation of a certain country’s goods. Sometimes they can be informal and therefore are sponsored by an industry, not the government.
Embargo
A refusal to sell and export to a certain country by the government.
Blocked Currency
Monetary barrier in which the government will refuse to exchange the currency of a nation.
Government Approval
Often used by countries experiencing severe shortages of foreign exchange. Must have approval from government for any international transactions.
Standards
In place to protect health, safety and product quality. Often used in a discriminatory way to block trade.
Antidumping Laws
Designed to prevent foreign producers from predatory pricing, in which they intentionally sell their products abroad at a price less than the cost of production to undermine a competitor.
Ominbus Trade and Competitiveness Act (1988)
Designed to deal with trade deficits, protectionism and overall fairness between trading partners as the U.S. was viewed as an open market to most of the world while most of Asia was closed. The bill addresses three areas critical in improving U.S. trade; market access, export expansion and import relief.
Differential exchange rates
It encourages the importation of goods the government deems desirable and discourages importation of goods the government does not want by adjusting the exchange rate. The exchange rate for importation of a desirable product is favorable and vice-versa.
Primary difference between IMF and World Bank
The World Bank is primarily a lender (bank)
The IMF administers a ‘code of conduct’ relating to member countries’ monetary and exchange rate policies
The IMF does administer a pool of money from which members can draw when they are in trouble.
Predatory Pricing
when they intentionally sell their products abroad at a price less than the cost of production to undermine a competitor.