International Marketing, 5th Edition

Keeping money at home: This argument is based on the belief that international trade will lead to outflow of money, making foreigners richer and local people poorer. This argument rests on the fallacy of regarding money as the sole indicator of wealth. Also it erroneously assumes that foreigners receive money without having to give something of value in return.

Reducing unemployment: This argument assumes that import reduction will create more demand for local products and subsequently create more jobs. The problems with this argument are:

1. it ignites inflation
2. the costs of job protection are enormous and must be borne by consumers
3. there is no hard evidence to support this argument.

Equalizing cost and price: This argument attempts to show that foreign goods have lower prices because of lower production costs and that these costs and prices must be raised to make locally made products more competitive. But trade takes place only because of price differentials. Also trade, not the lack of it, is likely to bring about cost and price equalization.

Enhancing national security: This is based on the idea that a nation should be self-sufficient. One problem is that it is extremely difficult for any nation to be completely self-sufficient. Furthermore, self sufficiency usually comes at great costs (at the expense of efficiency).

Protecting infant industry: This argument points out that some industries need to be protected until they become viable. It is possible, however, that protection may make the protected industries complacent and lack incentive to ‘grow up.’

1. import and export tariffs are imposed on the basis of the direction of product movement. Usually, tariffs are imposed on imports, even though some countries also impose tariffs on their exports.
2. protective and revenue tariffs are based on the purpose: to raise revenues or to protect local industries. In general, a revenue tariff is relatively lower.
3. surcharge and countervailing duty are classified based on length of time. A tariff surcharge is a temporary action, whereas a countervailing duty is a permanent surcharge.
4. Specific duties are a fixed or specified amount of money per unit of weight, gauge, or other measure of quantity. Ad valorem duties are duties ‘according to value’ and are stated as a fixed percentage of the invoice value.

Single-stage sales tax is a tax collected only at one point in the manufacturing and distribution chain. A value-added tax is a multistage, noncumulative tax on consumption. It is levied at each stage of the production and distribution system, though only on the value added at that stage. Cascade taxes are collected at each point in the manufacturing and distribution chain and levied on the total value of a product, including taxes borne by the product at earlier stages. An excise tax is a one-time charge levied on the sales of specified products.

In the case of administrative guidance, a government provides trade consultation to private companies, providing a guidance on how to trade. Subsidies are incentives (e.g., cash, credit, tax, interest rate, etc.) provided by the government to lower its exporters' costs of doing business. State trading is the ultimate in government participation (and government interference) because the government itself is now the customer or buyer who determines what, when, where, how, and how much to buy.

Other than cash, subsidies can take other forms: interest rate, value-added tax, corporate income tax, sales tax, freight, insurance, employee training, schooling for foreign employees' children, and infrastructure.

Product classification can be used to determine the entry eligibility of a product and its duty status. Product valuation can increase the duties imposed on a product because the determined value affects the amount of tariffs levied. Documentation prevents a product's entry when the required documents are missing or are not completely filled out. A license/permit may not be granted or the issuance may be delayed. A thorough inspection of every item will delay the clearance of merchandise through customs. Finally, health and safety regulations may be passed or arbitrarily interpreted for the purpose of making imports difficult.

Product standards can be set unreasonably high or frequently changed to frustrate foreign firms. Packaging, labeling, and marking may make foreign firms' product packages illegal, and costly modification may be required to make the marking and labeling complete as required. Product testing may be done, thoroughly and slowly, before a product is certified as being suitable for consumption. Product specifications can be extremely detailed and written in such a way as to favor local bidders while forcing foreign suppliers to modify their products to conform to unnecessary details at great costs.

An export quota is sometimes imposed in order to preserve the country's scarce resources. It is also used to either keep prices stable at home or increase prices abroad by restricting the supply for overseas markets.

An absolute quota, the most restrictive, limits in absolute terms the amount imported. A tariff quota permits the entry of a limited quantity of the quota product at a reduced rate of duty. Quantities in excess of the quota can be imported but are subject to a higher duty rate.

Whereas an OMA involves a negotiation between two governments to specify export management rules, the monitoring of trade volumes, and consultation rights, a VER is a direct agreement between an importing nation's government and a foreign exporting industry. Both are supposed to be voluntary.

An exchange control limits the amount of the currency that can be taken abroad, making less money available to pay for imports. Multiple exchange rates make it possible for exported items to benefit from favorable exchange rates while making imports expensive because of the use of other exchange rates which are less favorable. Prior import deposits are forced deposits tying up an importer's capital. Credit restrictions are employed to make it difficult for importers to receive credit or financing. In the case of profit remittance restrictions, they regulate the remittance of profits earned in local operations and sent to a parent organization located abroad.

The WTO is the World Trade Organization that serves along with the International Monetary Fund and the World Bank to monitor trade and resolve disputes. It is more permanent and legally secure than GATT, its predecessor. Its objective is to achieve a broad, multilateral, and free worldwide system of trading. The WTO provides a single, coordinated mechanism to ensure full, effective implementation of the trading system. It also provides a permanent, comprehensive forum to address the new or evolving issues of the global market.

GSP (Generalized System of Preferences) is the U.S. tariff preferential system designed to promote economic development within less developed countries. Products manufactured in the designated countries are permitted to enter the United States duty free.

The discussion below is based on: WTO Accession Will Help Vietnam Strengthen Economy IMF Survey, 29 January 2007, 23.

With regard to Vietnam's benefits (exports), Vietnamese exporters will have greater access to foreign markets because other WTO members should remove remaining quantitative restrictions on imports of Vietnamese textiles and footwear.

In terms of Vietnam's problems (imports), the country will face greater competition domestically from foreign producers of garments and footwear because its import tariffs and subsidies will be substantially reduced upon accession. Fortunately, imports of cheaper raw materials and semi-processed inputs should allow Vietnamese producers to preserve their comparative advantage. There will also be a decline of import barriers in most other sectors.

WTO accession, while reducing Vietnam's import duty receipts, offers a number of long-run benefits. The reduction of trade barriers will be accompanied by import growth, and cheaper imports will play a role in containing inflation as well as increasing consumer welfare. In addition, Vietnam will have better access to world export and capital markets. As evidence, the improved investment climate resulted in FDI reaching a record high of $10 billion in 2006.

Before joining the WTO, Vietnam had greatly progressed toward integration with the global economy, and WTO accession will further its global integration. Since 1993, exports have become the country's leading engine of growth. Vietnam has more than doubled the sum of exports and imports in relation to GDP, while more than tripling its export market share. GDP growth has averaged more than 7½% annually, while there has been a sharp decline in poverty. Still it is expected that it will take 12 years for Vietnam to achieve full ‘market economy’ status.