Barriers to International Business
Free trade policy means policy of non intervention Tariff (tax) and Non Tariff (non tax) Barriers Other barriers like transportation cost, insurance, loading and unloading, port charges etc
Free trade
No barriers Least govt. intervention All countries are free to trade with each other No distinction between domestic and foreign firms No restriction on import or export
Benefits of free trade
Maximum output
Specialization
Optimum utilization of resources
Best use of available resources
Mutually beneficial
Export of goods where prices are high Import from nations where prices are low
Best use of various conditions
soil., climate, minerals etc
Efficient entrepreneurship
Tough competition
International cooperation
People from different countries come in close contact with each other
Possibilities of inventions
Each country try to improve quality
Advantage to consumers
Competition
Wide market
Free trade means market of whole world is open to one and all
Increase in income and employment
Disadvantages of free trade
Non existence of perfect competition Selective industry development Damage to domestic industry Harmful products may enter the country Monopoly of MNCs Economic dependence Developed nations exploit developing nations Dumping Encouragement to corruption
Methods of protection
Methods of Protection
Tariff Barriers
Non Tariff Barriers
Natural Barriers
Tariff Barriers
It is a duty levied on the traded commodity as it crosses a national boundary Import duty Export duty Import tariff are more important than export tariff It increases the price of imported product
Types of Tariff Barriers
Specific
Ad-valorem
Compound
Types of Tariff Barriers
Specific Duty
Duty is fixed according to weight, measure or number of goods For example duty of Rs. 10,000 for import of a car from Germany This duty remains same regardless of the price of car
Ad-valorem Duty
Duty is fixed according to value of the goods Usually a fixed percentage of the value For example the value of the car is Rs. 15,00,000 and the duty is at the rate of 10% The total duty works out to be (10/100)*15,00,000= 150000
Compound duty
This duty is combination of specific duty and ad-valorem duty Specific duty is added to the ad-valorem duty For example specific duty on car is Rs. 10,000 Ad-valorem duty is 10% and the value of car is Rs. 15,00,000 Ad-valorem duty works out to be 1,50,000 Compound duty = Specific duty+ Ad-valorem = 10,000 + 1,50,000 = 1,60,000
Non- Tariff Barriers
Import quota
No importer is allowed to import more than the fixed quota Country quota Global quota
State Trading
Trading is done by govt. agencies Import of goods that are highly essential
Subsidies to domestic business Devaluation of currency
Encourages exports Discourages imports
Legal prohibition
British govt. prohibited import of cloth from India
Discriminating freight rates
Different freight rates on exports and imports
License system
License to import
Technical regulations
Testing on the grounds of health, safety and pollution
Administrative barriers
Bureaucratic hurdles Complicated export forms Administrative delays Excessive inspection
Preferences to domestic products in govt. procurements
Natural Barriers
Transportation Loading and unloading expenses Port charges Insurance etc.
