Political Forces Affecting Global Trade PDF

Because learning changes everything.® Module 5 Political Forces That Affect Global Trade © 2023 McGraw Hill, LLC. All rights reser...

Because learning changes everything.® Module 5 Political Forces That Affect Global Trade © 2023 McGraw Hill, LLC. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill, LLC.  Learning Objectives 5-1 Describe the goals of nationalizing and privatizing business. 5-2 Explain government protection and stability and their importance to business. 5-3 Describe the role of country risk assessment in international business. 5-4 Explain the political motivations for government intervention in trade and the major types of government trade restrictions. © McGraw Hill, LLC 2  Linking Political and Economic Dimensions in International Trade Venezuela was the fifth nation to join Mercosur in 2012. One aim of Mercosur was to strengthen democratic principles in the region. In 2016, presidents of Argentina, Brazil, and Paraguay met to discuss suspending Venezuela which was not meeting membership requirements, based on examples of human rights violations and a lack of democratic order. Failing to meet standards within a three-month period, Venezuela was suspended from membership. Mercosur members clearly linked political and humanitarian behaviors with economic benefits of international trade. © McGraw Hill, LLC 3  Governments and the Ownership of Business 1 Nationalization: Why Governments Get Involved. Nationalization: the process of taking of privately owned property and converting it to a publicly owned asset. Motivated by the belief that government can manage a public good or necessity better than the private, profit-driven sector. © McGraw Hill, LLC 4  Governments and the Ownership of Business 2 Privatization: Why Governments Sell Businesses. Privatization: the selling of government owned property to the private sector. To gain more efficiency in business operations, to raise money or to change in political climate/philosophy. Governments also contract out to the private sector the provision of services they have provided in the past. © McGraw Hill, LLC 5  Critical Thinking Question Why might a government-owned firm have an unfair advantage over privately owned companies? © McGraw Hill, LLC 6  Government Stability and Protection 1 Stability: Issues with Lack of Peace and Predictability. Stable government maintains itself in power; fiscal, monetary, and political policies are predictable and not subject to sudden, radical changes. Instability occurs when a government cannot maintain itself in power or makes sudden, unpredictable, or radical policy changes. Protection From Unfair Competition. Protect the economic activities of citizens. © McGraw Hill, LLC 7  Government Stability and Protection 2 Protection from Terrorism, Cybercrime, and Other Threats. Terrorism: unlawful acts of violence committed for a wide variety of reasons. Kidnapping: provide source of operating funds for terrorists; often target businesspeople. Piracy: hijacking and kidnapping on the seas. Cybercrime: any illegal Internet-mediated activity that takes place in electronic networks, including hacking, ransomware, data espionage, and domain- or name-related offenses. © McGraw Hill, LLC 8  Figure 5.2 Global Kidnapping Risk Map 2018 Source: Red24, “Global Kidnapping Threat Map 2018,” https://www.red24.com/pdf/red24_Special_Risks_-_Global_Kidnapping_Risk_Map_2018.pdf, accessed November 29, 2020. Access the text alternative for slide images. © McGraw Hill, LLC 9  Table 5.1 Maritime Piracy Incidents, 2013 to 2017 Number of Latin America Piracy and the Rest of Total Incidents Africa Asia Caribbean World Incidents 2013 79 167 18 0 264 2014 55 183 5 2 245 2015 70 202 8 1 281 2016 122 101 27 1 251 2017 151 95 71 4 321 2018 121 98 85 0 304 2019 110 89 84 0 283 Sources: Oceans Beyond Piracy, The State of Maritime Piracy 2017, http://oceansbeyondpiracy.org/reports/sop, accessed November 29, 2020; and I CC International Maritime Bureau, Piracy and Armed Robbery Against Ships, https://www.icc-ccs.org, accessed November 29, 2020; Lydelle Joubert, 2020, The State of Maritime Policy 2019, Broomfield, CO: One Earth Future. © McGraw Hill, LLC 10  Country Risk Assessment and Countermeasures to Threats 1 Country Risk Assessment (CRA). An assessment of a country’s economic situation and politics to determine how much risk to employees, property, and investment exists for the firm doing business there. Often political, including wars, revolutions, and coups. Economic and financial country risks can take the form of persistent balance-of-payments deficits, high inflation rates, and loans that are unpaid or in arrears. Laws may be changed that govern taxes, currency convertibility, tariffs, quotas, labor permits, and other areas that affect business. © McGraw Hill, LLC 11  Figure 5.3 Sample Country Risk Rankings from Economist.com Source: "Risk Briefing," The Economist Intelligence Unit, 2020, http://eiu.com/viewswire, accessed December 20, 2020. Access the text alternative for slide images. © McGraw Hill, LLC 12  Country Risk Assessment and Countermeasures to Threats 2 Types of Countermeasures. Know country and region so risk-assessment is realistic. Insurance and outsourced skills, such as hostage negotiations, as needed to cope with crisis. Train for daily living skills: varying driving routes, awareness of surroundings, antiterrorism training. © McGraw Hill, LLC 13  Government Intervention in Trade 1 Reasons for Restricting Trade. Provide for National Defense. Certain industries need protection from imports because they are vital to security. Economists say this is a weak argument and used to gain emotional advantage. These bans reduce export revenues for the country’s manufacturers by closing off potential foreign markets; and can also impede efforts to sustain international market share and fund continued innovation, which enables competitors from other nations to improve their competitiveness. © McGraw Hill, LLC 14  Government Intervention in Trade 2 Reasons for Restricting Trade. Impose Sanctions. Inflict economic damage, punish, or encourage change of behavior. Seldom achieve their goal. Produce collateral economic damage. © McGraw Hill, LLC 15  Government Intervention in Trade 3 Reasons for Restricting Trade. Protect an Infant or Dying Industry. Give infant industries a change to grow and build comparative advantage. Without this, lower-cost imports will underprice in local market. Slow down impact of dying industry—move capital into other sectors. © McGraw Hill, LLC 16  Government Intervention in Trade 4 Reasons for Restricting Trade. Protect Domestic Jobs. “Cheap foreign labor” argument does not hold up—wages don’t account for all production costs. Argument has strong emotional appeal. © McGraw Hill, LLC 17  Government Intervention in Trade 5 Reasons for Restricting Trade. Ensure Fair Competition. Import duty to bring cost of imports up to cost of domestic goods. Don’t ban imports but equalize them. Consumer impact: import duty increases the price they pay. © McGraw Hill, LLC 18  Government Intervention in Trade 6 Reasons for Restricting Trade. Retaliate. Dumping defined in three ways. 1. Selling product abroad for less than cost of production. 2. Selling product abroad for less than price in home market. 3. Selling product abroad for less than price to third-party countries. Predatory dumping. Social dumping. Environmental dumping. © McGraw Hill, LLC 19  Figure 5.4 Agricultural Producer Support by Country, Selected Organization for Economic Co-Operation and Development and Developing Nations , 2019 OECD, “Agricultural Support,” https://data.oecd.org, accessed November 29, 2020. Access the text alternative for slide images. © McGraw Hill, LLC 20  Government Intervention in Trade 7 Reasons for Restricting Trade. Retaliate. Subsidies: Financial contributions, provided directly or indirectly by a government, that confer a benefit, including grants, preferential tax treatment, and government assumption of normal business expenses. Countervailing duties: Additional import taxes levied on imports that have benefited from export subsidies. © McGraw Hill, LLC 21  Global Debate This debate centers around the subject of sugar subsidies and questions whether they are “sweet for producers but sour for food manufacturers and consumers.” U.S. sugar tariffs went into place in 1789 and sugar imports are currently limited by quotas. These protect a relatively small group of growers in 18 states and costs U.S. consumers and businesses an estimated $4 billion a year. Sugar accounts for less than one percent of U.S. agricultural sales but have received an estimated 17 percent of all agricultural political contributions since 1990. Some note this as “a very effective lobby.” 1. Should sugar continue to be a protected commodity? 2. Should the U.S. consumer continue to fund protection for U.S. sugar farmers? Why or why not? © McGraw Hill, LLC 22  Government Intervention in Trade 8 Tariff Barriers. Tariffs. Taxes on imported goods for the purpose of raising their price to reduce competition for local producers or stimulate local production. Ad Valorem Duty. An import duty levied as a percentage of the invoice value of imported goods. © McGraw Hill, LLC 23  Government Intervention in Trade 9 Tariff Barriers. Specific Duty. A fixed sum levied on a physical unit of an imported good. Compound Duty. A combination of specific and ad valorem duties. Variable Levy An import duty set at the difference between world market prices and local government-supported prices. © McGraw Hill, LLC 24  Government Intervention in Trade 10 Nontariff Barriers. NTBs are all forms of discrimination against imports other than import duties. Quantitative Barriers. Numerical limits for specific goods imported during specific period. Voluntary Export Restraints. VERs are export quotas imposed by exporting nation. Orderly marketing arrangements are formal agreements. © McGraw Hill, LLC 25  Government Intervention in Trade 11 Nontariff Barriers. Nonquantitative Nontariff Barriers. Direct government participation in trade. Customs and other administrative procedures. Government and private standards. © McGraw Hill, LLC 26  Figure 5.5 Total Technical Barriers to Trade Notifications, 2010–2019 Access the text alternative for slide images. © McGraw Hill, LLC Source: World Trade Organization. 27  Get That Job! From Backpack to Briefcase Angela Schmitz Angela Schmitz discusses her summer job in which she spent eight weeks working for Acción Humana in Guatemala. While there she did graphic design and website management, and she also taught four English language classes. Her work area consisted of three desks in a small room that was just two feet from the boss’s home. She experienced cultural difference including starting meetings 4 hours late! This experience helped her in getting future internships and jobs. Schmitz said that her experience in Guatemala helped her to get other internships and jobs. What might an employer look for in a person that has had such an experience abroad? © McGraw Hill, LLC 28  MiniCase The minicase “Chocolate: Is Your Treat the Result of Unfair Labor and the Exploitation of Child Labor?” explores the question of the use of child slave labor on the Ivory Coast. Nearly 60 percent of the world’s cocoa comes from the Ivory Coast where it is estimated that more than 500,000 children work in hazardous conditions, many of which are thought to be victims of human trafficking. It’s highly likely that all chocolate treats enjoyed by consumers have their start on the Ivory Coast. 1. Should labor practices in another country be a relevant consideration in international trade? Why or why not? 2. With regard to trade in products such as cocoa, what options are available to governments, businesses, and consumers for dealing with practices such as child labor or slave labor in other countries? What are the implications associated with each of these options? 3. How would international trade theorists view the Fair Trade movement? © McGraw Hill, LLC 29  Because learning changes everything. ® www.mheducation.com © 2023 McGraw Hill, LLC. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill, LLC.  Accessibility Content: Text Alternatives for Images © McGraw Hill, LLC 31  Figure 5.2 Global Kidnapping Risk Map 2017 – Text Alternative Return to parent-slide containing images. The map shows the global kidnapping risk map as of 2018. The countries with a severe kidnapping risk are the following: Libya; Afghanistan; Syria and Yemen. The countries with a high kidnapping risk are the following: Mexico; Colombia; Venezuela; Brazil; Mali; Niger; Nigeria; Sudan; Iraq; Kenya; Somalia; Pakistan and Philippines. The countries with a moderate kidnapping risk are the following: Nicaragua; Panama; Ecuador; Peru; Paraguay; Argentina; Mauritania; Algeria; Burkina Faso; Chad; Egypt; CAR; South Sudan; Ethiopia; Democratic Republic of Congo; Angola; South Africa; Zimbabwe; Mozambique; Madagascar; Uganda; Eritrea; Turkey; Ukraine; Moldova; Iran; Russia; India; China; Myanmar; Malaysia; Brunei and Papua New Guinea. The countries with a low kidnapping risk are the following: Costa Rica; French Guiana; Guyana; Bolivia; Uruguay; Falkland Islands; Ireland; Spain; Italy; Belarus; Slovenia; Croatia; Bosnia and Herzegovina; Serb; Montenegro; Macedonia; Kosovo; Greece; Bulgaria; Tunisia; Senegal; Guinea; Sierra Leone; Liberia; Cote D’Ivoire; Ghana; Togo; Benin; Gabon; Republic of Congo; Namibia; Zambia; Tanzania; Malawi; Saudi Arabia; Jordon; Georgia; Armenia; Azerbaijan; Uzbekistan; Kyrgyzstan; Nepal; Laos; Thailand; Cambodia; Sri Lanka; Singapore; Indonesia; Taiwan and North Korea. The countries with a minimal kidnapping risk are the following: Canada; United States; Greenland; Cuba; Belize; Chile; Puerto Rico; Suriname; Iceland; Svalbard and Jan Mayan; Norway; Sweden; Finland; Estonia; Latvia; Lithuania; Denmark; Netherlands; Germany; France; Czech Republic; Poland; Hungary; Romania; Slovenia; Switzerland; Slovakia; Austria; Portugal; Botswana; Oman; Turkmenistan; Mongolia; Japan, South Korea; Australia and New Zealand. Return to parent-slide containing images. © McGraw Hill, LLC 32  Figure 5.3 Sample Country Risk Rankings from Economist.com – Text Alternative Return to parent-slide containing images. The countries are indicated from the highest level of risk to the lowest: Syria, Venezuela, Yemen, Somalia, Congo Democratic republic, North Korea, Libya, Zimbabwe, Iraq, Nigeria, Russia, India, Mexico, China, U S, Canada, Singapore. The range of rankings falls from Syria at 88 out of 100 to Singapore at 11 out of 100. Return to parent-slide containing images. © McGraw Hill, LLC 33  Figure 5.4 Agricultural Producer Support by Country, Selected Organization for Economic Co-Operation and Development and Developing Nations , 2019 – Text Alternative Return to parent-slide containing images. On the bar graph the y axis ranges from 0 to 80 in increments of 10. Teh x axis lists the countries. Countries with the highest level of support include Iceland, Norway, and Switzerland at about 60. Next highest levels of support are found in Japan and Korea at around 50. The European Union, Israel, O E C D, and Russia provide around 20. Australia, Brazil, Canada, China, Mexico, New Zealand, South Africa, and the United States each provide less than 10. Return to parent-slide containing images. © McGraw Hill, LLC 34  Figure 5.5 Total Technical Barriers to Trade Notifications, 2010–2019 – Text Alternative Return to parent-slide containing images. The bar graph titled Total Technical Barriers to Trade Notifications, 2010–2019 plots years versus trade barriers. In 2010 the new notifications comprised of 1,411 technical barriers, Addenda and Corrigenda comprised of 439 technical barriers, revisions comprised of 19 technical barriers. In 2011 the new notifications comprised of 1,216 technical barriers, Addenda and Corrigenda comprised of 542 technical barriers, revisions comprised of 15 technical barriers. In 2012 the new notifications comprised of 1,552 technical barriers, Addenda and Corrigenda comprised of 624 technical barriers, revisions comprised of 19 technical barriers. In 2013 the new notifications comprised of 1,598 technical barriers, Addenda and Corrigenda comprised of 513 technical barriers, revisions comprised of 29 technical barriers. In 2014 the new notifications comprised of 1,529 technical barriers, Addenda and Corrigenda comprised of 677 technical barriers, revisions comprised of 34 technical barriers. In 2015 the new notifications comprised of 1,424 technical barriers, Addenda and Corrigenda comprised of 523 technical barriers, revisions comprised of 30 technical barriers. In 2016 the new notifications comprised of 1,648 technical barriers, Addenda and Corrigenda comprised of 649 technical barriers, revisions comprised of 34 technical barriers. In 2017 the new notifications comprised of 1,792 technical barriers, Addenda and Corrigenda comprised of 760 technical barriers, revisions comprised of 28 technical barriers. In 2018 the new notifications comprised of 2,083 technical barriers, Addenda and Corrigenda comprised of 927 technical barriers, revisions comprised of 51 technical barriers. In 2019 the new notifications comprised of 2,074 technical barriers, Addenda and Corrigenda comprised of 1,175 technical barriers, revisions comprised of 88 technical barriers. Return to parent-slide containing images. © McGraw Hill, LLC 35