ROLE OF GOVERNMENTS IN INTERNATIONAL MARKETS:Industry-level needs, Promotion of exports by governments

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International Marketing MKT630

Lesson # 13

ROLE OF GOVERNMENTS IN INTERNATIONAL MARKETS

Type of trading environments in countries:

There are two types of trade regimes in countries around the world;

· Free Trade

National governments exert minimal influence on exporting and importing decisions of private

firms and individuals

· Managed Trade (also called fair trade)

National governments intervene to ensure that exports / international business of local firms have

equitable share of foreign markets to minimize domestic job losses and market share in specific

industries

Rationales for trade intervention by governments:

Governments intervene in trade in their countries and abroad for a variety of reasons. The most common

reasons are discussed below;

Industry-level needs

National defense argument to promote local defense industry.

Strategic industry argument to support development of essential industry in the country (such as

textiles in Pakistan)

Infant industry argument to support emerging industry in the country, to protect it in the infancy

stage from foreign competition.

Maintenance of existing jobs governments intervene to support certain industries to maintain

existing jobs in the economy.

Government also intervene to help make local firms compete internationally, so that the export

from the country increase.

National-level needs

Governments also intervene as part of the economic development programs

· import substitution / export promotion

Government also intervene as a result of public choice (to pacify pressures from various interest

groups)

· unemployment level

· political/interest group pressures

Governments also intervene in trade to ensure required revenue earnings to manage the

government and its programs.

International Marketing MKT630

Intervention in trade is also done for regulating demand of certain products (cigarettes, alcohol

etc.).

Government also intervene in trade to influence economic relationships with other countries

· trade deficit / political or reactionary measures

Other needs

For achieving balance of payments adjustments.

For price-control objectives.

For maintaining spheres of influence by the countries and their governments.

For preserving national identities in certain industries.

Governments also intervene due to mere bureaucratic attitude

Forms of government controls:

Government exercise various types of tools to control / regulate foreign businesses;

Control over foreign owned businesses through

Taxes, ownership controls, controls on profit remittances, controls on borrowings / investments

licenses

Tariff (taxes placed on goods involved in international trade)

export duties

import duties

transit tariff

Form of taxes on international trade can be

% of value (ad valorem)

fixed amount on some unit of measurement (specific duty)

a combination (compound tariff)

Non tariff barriers can be

direct price influences

export subsidies

customs valuation

other direct price influences

quantity controls

import / export quotas

buy-local legislation

voluntary export restraint (VER)

embargo

other controls

licensing, foreign exchange controls, administrative delays, reciprocal requirements,

International Marketing MKT630

restriction on services, technical & govt. regulations

Promotion of exports by governments:

Governments work to promote exports in a variety of ways. The common forms are given in the

following;

Export subsidies

tax breaks

direct payments to producers

product price support

cheaper resources (i.e. land, utilities)

public services provided at lower cost

Establishment of export trade / processing zones

Export financing programs

Training / assistance programs

Other governmental assistance

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