Elements of Economic environment

Different measures to asses a countrys performance and potential Informal-No of newspapers, no of wireless phones Managers need information on monetary value of the total flow of goods and services in the economy of nation 1. Gross National Income 2. Gross Domestic Product 3. Growth Rates 4. Income Distribution 5. Inflation 6. Unemployment 7. Wages 8. Productivity debit 9. Balance of payments

Degree of Human Development

Helps to measure people in terms of capabilities and opportunities that people enjoy Human development is instrumental in increasing GNI The Human Development Index combines indicators of real purchasing power, education and health to give a more comprehensive measure of economic development Analyze economic environment in terms of overall quality of life in a country: measuring how well a country dos in terms of social liberties, life expectancy and literacy rates UN Human Development Index: Measures average achievement s in a country on 3 dimensions 1. Longevity-as measured by life expectancy at birth 2. Knowledge, as measured by adult literacy rat and combined, primary, secondary and tertiary gross enrollment ratio 3. Standard of living as measured by GNI per capita, expressed in PPP for USD

 Classification of countries on the basis of income Region-Wise classification of countries Economies in Transition Economic Scenario Economic Systems Economic Policies Structural Adjustments

Classification of Countries on basis of income

OECD (Organization for Economic Cooperation and Development) and United Nations Classify countries by economic status But best system is the one recommended by World Bank-211 countries with a population of atleast 30,000 are ranked by their levels of gross national income (GNI) per capita for the previous year. These economies are then classified as of 1 July 2013: 1. Low-Income (LIC)- Average incomes of $1,035 or less-South Sudan, Burkina Faso, Mali, Ethiopia, Zimbabwe, Haiti, Nepal, Bangladesh 2. Lower-middle income(LMC)- $1,036 to $4,085-Mauritania, India, Srilanka, Ghana, Vietnam, Bolivia, Kirbati, Senegal 3. Upper Middle Income (UMC)- $4,086 to $12,615-Jordan, China, Malaysia, Turkey, Hungary, Belize, Fiji, Mauritius, Costa Rica 4. High Income - $12,616 or more-Lativa, Russian Federation, Chili, UAE, Finland, France, Australia, Japan, Germany LIC, LMC, UMC are called developing countries High Incomes Countries are Developed Countries

Countries classified by economic System

The system of economy a nation follows depends on its political ideology Countries with individual goals at upper most follow market economies Countries with collective goals are given prominence, state intervention and restricted markets do exist 1. Market Economies 2. Command Economies 3. Mixed Economies

MARKET ECONOMY
Also called capitalist economies All productive functions and privately owned Production of goods and services is not planned by individuals Economic decisions are made by the basic principals of supply and demand If demand is more than supply, prices tend to rise forcing producers to produce more If Supply is more than demand, prices will fall, signaling producers to produce less. Consumers decide what producer should produce and supply Economic decisions are made by individuals competing to earn profits Profit is the motive for increasing work rather than quotas There are many economic freedoms There is competition among businesses Competition determines price which increase the quality of the product E.g: Hong Kong, Canada and US, Brazil, Kenya, India, United Kingdom, Nicaragua and Peru

Advantages
1. 2. 3. 4. 5. Competition between different firms leads to increased efficiency, as firms do whatever is necessaryincluding laying off workersto lower their costs; Most people work harder (the threat of losing one's job is a great motivator); There is more innovation as firms look for new products to sell and cheaper ways to do their work; Foreign investment is attracted as word gets out about the new opportunities for earning profit; The size, power, and cost of the state bureaucracy is correspondingly reduced as various activities that are usually associated with the public sector are taken over by private enterprises; The forces of production, or at least those involved in making those things people with money at home or abroad want to buy, undergo rapid development; Many people quickly acquire the technical and social skills and knowledge needed to function in this new economy; A great variety of consumer goods become available for those who have the money to buy them; and Large parts of the society take on a bright, merry and colourful air as everyone busies himself trying to sell something to someone else.

6. 7. 8. 9.

MARKET ECONOMY
Characteristics: Private Ownership of Resources Role of Government Intervention Disadvantage: Gross in equalities of income, recurrence of trade cycles because of thee free play of market forces and exploitation of poor by rich People in capitalist society earn more and consequently indulge in excessive and wasteful expenditure on consumer durables and luxuries Disproportional political influence, Corruption, Unemployment, unused industrial capacity.

Command economy
1. 2. 3. Also known as a planned economy, the government largely determines what is produced and in what amounts and the price at which they are sold. Change occur relatively less frequently There is little individual freedom There is no competition Businesses are not run to create a profit Consumers have few chooses in the market place Factories are concerned with quotas Shortages are common because of poorly run factories and farms The government dictates the job in which you work The government sets the prices of goods and services Examples of command economies: Cuba, North Korea and the Peoples Republic of China Prices do not change but quality worsens for 3 reasons: Most products are usually in short supply Consumers typically have few or no alternatives There is not much incentive for companies to innovate and little profit to invest in upgrades.

Command economy
Command economies can appear to perform well for short periods of times, especially in terms of growth rates, because by controlling everything and everybody, state has tremendous ability to mobilize unemployed or underemployed resources to generate growth It is good in developing large-scale, capital-intensive production that often achieves marginal rates of efficiency while making acceptable products that are not competitive with global standards In practice, command economies are associated with socialism and communism, two closely related forms of government. Socialism and communism are characterized by collective ownership of the means of production and central planning functions that try to produce what people want and need, in the quantities and at the time required. Disadvantages: They tend to be badly organized, lack quality control or worker incentives, and have been responsible for severe environmental degradation. Denial of Individual Freedom, Failure in maintaining Rate of Economic Growth, (Soviet Union-1/6th of land surface of earth cannot feed it sown people), Assumes peoples Commitment to work, Equality, Lack of Flexibility, Luxurious Lifestyles-faith of Romania leader and his wife-300 bullets

Mixed economy
Government and individuals share the decision making process Followed in France, India, Italy, Sweden Government guides and regulates production of goods and services offered Individuals own means of production Protects consumers and workers from unfair policies Most effective economy for providing goods and services In general, market forces prevail in mixed economies. The government does not direct the private sector to produce certain goods and services in certain quantities at certain times. However, the government's influence in the economy stems from the amount of money (raised in the form of taxes and borrowings from the private sector) that it spends and, through various forms of welfare, redistributes. 1. Sectors in which both production and distribution are entirely managed and controlled by the State to the complete exclusion of private enterprise-E.g.: Airbus Industries is jointly owned by several European governments 2. Government can influence private production or consumption decisions such as by buying goods and services or by subsidizing or taxing certain activities 3. The government can redistribute income and wealth in pursuit of some equity objective, such as socialized medicine and other welfare programs Disadvantage: 1. No clarity and things might change

Classification of Countries by Region

East Asia and Pacific Europe (East and Central Europe) and Central Asia Latin America and Caribbean Middle East and North Africa South Asia Sub-Saharan Africa High Income Countries-which are widely scattered Implications: MNCs tend to organize their activities along geographical lines E.g.: IBM has its operations in Africa, America, Asia Pacific, Europe and Middle East Siemens discloses its sales by region-Africa, Middle East, CIS, Asia Pacific, The Americas, Europe and Germany World Banks also uses theses parameters to publish reports giving trends in key markets. Investors can use the data to analysis where potential growth and risk exist in the regions where the firms operate.

Macroeconomic Issues Affecting Business Decisions

Rate of Growth Inflation Savings and Investments Fiscal Stability Balance of Payments (BOP)

Financial Systems
Money Market: It is the market in which short-term funds are borrowed and lent mainly through monetary assets. It does not deal with cash or money It transacts in financial assets like trade bills, Treasury bills,. Promissory notes on short maturity periods Also called as NEAR MONEY The money market developed because there are parties that had surplus funds, while others needed cash(inter banking lending) Importance: It enhances liquidity, Stabilizes interest rate and helps financial and commercial institutions and commercial banks earn attractive interest. Capital Market: Long Term Funds Also called STOCK EXCHANGES Well developed stock exchanges obviously add to attractiveness of country for FDO Flow

Economic Freedom Index

Economic Freedom Index talks about freedom from government constrain on production, distribution or consumption of goods and service. Countries with freest economies have highest annual growth and a greater degree of wealth creation There are 50 independent indicators that are organized into 10 dimensions: 1. Business Freedom 2. Trade Freedom 3. Monetary Freedom 4. Freedom from Government 5. Fiscal Freedom 6. Property Rights 7. Investment Freedom 8. Financial Freedom 9. Freedom from corruption 10. Labor freedom Higher score of the scale indicates the lesser interference from the Government in economy Hong Kongs economic freedom score is 89.9, making its economy the freest in the 2012 Index. 2nd-Singapore, 3rd-Australia, 4th New Zealand

Economies in Transition
A transition economy or transitional economy is an economy which is changing from a centrally planned economy to a free market. The process has been applied in China, the former Soviet Union and Communist bloc countries of Europe, and many third world countries. China and Vietnam adopted a gradual transition mode, however Russia and some other East-European countries used more aggressive model of transition 1 May 2004 (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia) have completed the transition process Hungary, Cambodia, Vietnam, Kosovo, Serbia, Poland, Ukraine, Romania

The main ingredients of the transition process are

Liberalization the process of allowing most prices to be determined in free markets and lowering trade barriers that had shut off contact with the price structure of the world's market economies. Macroeconomic stabilization bringing inflation under control and lowering it over time, after the initial burst of high inflation that follows from liberalization and the release of pent-up demand. This process requires discipline over the government budget and the growth of money and credit (that is, discipline in fiscal and monetary policy) and progress toward sustainable balance of payments. Restructuring and privatization the creation of a viable financial sector and reforming the enterprises in these economies to render them capable of producing goods that could be sold in free markets and of transferring their ownership into private hands. Legal and institutional reforms redefining the role of the state in these economies, establishing the rule of law, and introduce appropriate competition policies.

Economies in Transition-Russia
Russia as an entity came into being following the dissolution of USSR in 1991 and as of today, it is leading member of Commonwealth of Independent States (CIS) Central planning had been largely eliminated during the last two years of the Soviet period in 1990-91 The remaining elements of central allocation of resources were terminated during 1992. Nearly all prices were freed from state control on January 2, 1992 Russia also quickly established a regime of relatively free imports, free international capital flows, and free currency exchange Throughout the presidencies of Boris Yeltsin in the 1990s and of Vladimir Putin in 2007, Russia has opened its doors to international trade, investment, tourism, the media, and the Internet. In sharp contrast to the Soviet Union, Russia now publishes voluminous (if not always reliable) economic, social, and demographic information. GDP is about one fifth that of China, but double in per capita terms. Since 1991, Russia's real GDP growth rate has been more than twice the unweighted average of the other G-8 members...

Economies in Transition-Russia
During Putin's tenure since 2000, ... its foreign debt has been reduced from 50 percent of GDP to less than 30 percent, and its $3.3 billion debt to the International Monetary Fund was repaid ahead of schedule in 2005. Of the $40 billion owed to its creditors in the Paris Club, Russia has paid $15 billion ahead of schedule, and its foreign-exchange reserves have more than tripled, to more than $250 billion. The number of privately owned enterprises more than doubled in the past decade, to nearly 80 percent of all enterprises, while the share of state-owned enterprises shrank from 14 percent to less than 4 percent. How much of it should properly be attributed to the windfall of higher oil and naturalgas prices (hence, to factors not under Russia's control), rather than to improved economic policies and reform. Recent empirical work at the RAND Corporation ... highlights Russia's heavy dependence on fossil fuels. Increased oil and natural-gas prices explain between one third and two fifths of the economy's growth over the period from 1993 to 2005. ... The buildup of Russian foreign-exchange reserves is a further illustration of this dependence.

 http://www.reuters.com/video/2013/03/05/econ omy-2013-intercontinental-europeceo?videoId=241457389 Economy 2013: InterContinental Europe CEO targets Russia Mar. 5 - InterContinental Hotels Europe CEO Angela Brav says the group will double its presence in Russia and introduce the Holiday Inn Express brand there for the first time. (Transcript)

Economies in Transition-Russia

Russia also quickly established a regime of relatively free imports, free international capital flows, and free currency exchange Among economies in transition, growth in the economies of the Commonwealth of Independent States (CIS) has continued in 2012, although it moderated in the second half of the year. Firm commodity prices, especially those of oil and natural gas, held up growth among energy-exporting economies, including Kazakhstan and the Russian Federation. In contrast, growth in the Republic of Moldova and Ukraine was adversely affected by the economic crisis in the euro area. The economies of small energy-importing countries in the CIS were supported by private remittances. Among economies in transition, the unemployment rate in the Russian Federation declined to a record low of 5.2 per cent in August 2012, partly as a result of increased public spending, but also because of a shrinking active population. Notable job creation has also been recorded in Kazakhstan, but the unemployment rate has increased in Ukraine as a result of tighter fiscal policy and weaker external sector. Source: World Economic Situation 2013-Global Outlook

Classification based on Trade Policies

Inward-Looking Approach: Advocates that a country should not trade with other Restrictions on trade, people and communications Countries should evolve their own style of development-learning by doing Also called Import Substitution approach to international trade Outward-looking strategy calls for easy movement of goods and services among nations Free trade, encourages learning by trade and implies achievements of dynamic transformation of economy Also called Export Promotion Strategy Goods, capital, labor, enterprises and students

Barriers To trade
Inward-looking strategy toward foreign trade These countries use several barrier to protect domestic industries from competition from foreign firms The proposed law will hurt the over USD 100 billion Tariff and Non-Tariff Barriers IT-ITES industry in India and software firms like TCS andInfosys as their cost of operations could Tariffs: go up significantly. 1. Export Tariff 2. Import Tariff 3. Transit Tariff Non-Tariffs Barriers: 1. Quotas 2. Subsidies Visa restrictions amount to 'non3. Others tariff barriers': Product and Testing Standards Chidambaram Embargoes Local Content Requirements Administrative Delays Currency controls

Tariff Barrier
Tariff is tax imposed on goods involved in international trade Import Duties Export Tariff Tariffs may be either specific or ad valorem Specific Tariffs A fixed fee levied on one unit of an imported good is referred to as a specific tariff. This tariff can vary according to the type of good imported. E.g.: A country could levy a $15 tariff on each pair of shoes imported, but levy a $300 tariff on each computer imported. India levies specific duties on many textile and apparel products in Rupees per square meter, kilogram, or piece. Yarn-Silk or Wool-10-20% Ad Valorem Tariffs The phrase ad valorem is Latin for "according to value", and this type of tariff is levied on a goods based on a percentage of that good's value. An example of an ad valorem tariff would be a 15% tariff levied by Japan on U.S. automobiles. The 15% is a price increase on the value of the automobile, so a $10,000 vehicle now costs $11,500 to Japanese consumers. This price increase protects domestic producers from being undercut, but also keeps prices artificially high for Japanese car shoppers. Transit Tariff: This type of duty is levied on commodities that originate in one country, cross another, and are consigned to a third. As the name implies, transit duties are levied by the country through which the goods pass No longer in existence

Non Tariff Barriers

Non-tariff barriers to trade (NTBs) are trade barriers that restrict imports but are not in the usual form of a tariff Their use has risen sharply after the WTO rules led to a very significant reduction in tariff use. Some non-tariff trade barriers are expressly permitted in very limited circumstances, when they are deemed necessary to protect health, safety, or sanitation, or to protect depletable natural resources. Classification formed in 2008 by the eight international organizations FAO, IMF, ITC, OECD, UNCTAD, UNIDO, the World Bank and the WTO with subsequent revision in 2009 and 2012: 1. Technical(Chapters A and B) refer to product-specific properties such as characteristics, technical specifications and production process of a product. It also includes conformity assessment methods, which affirm the compliance of a product to a given requirement. These technical regulations are generally aimed at ensuring quality and food safety, environmental protection and national security, and at protecting animal and plant health. 2. Non-technical measures (Chapters C to O) do not refer to product-specific properties but to trade requirements, such as shipping requirements, custom formalities, trade rules, taxation policies, etc.

CHAPTER A: SANITARY AND PHYTOSANITARY MEASURES (SPS): Sanitary and phytosanitary (SPS) measures are technical in nature and can include prohibition, measures governing quality and hygenic requirements, production process, and related conformity assessments. SPS measures are generally applied to: Protect human or animal life from risks arising from additives, contaminants, toxins or disease-causing organisms in their food; Protect human life from plant- or animal-carried diseases; Protect animal or plant life from pests, diseases, or disease-causing organisms; Prevent or limit other damage to a country from the entry, establishment or spread of pests; and to protect bio-diversity. These include measures taken to protect the health of fish and wild fauna, as well as of forests and wild flora. Measures used for these objectives include import prohibition, authorization, tolerance limits and hygienic requirements, labeling and marking requirements, and conformity assessments such as testing, certification and quarantine requirements. Examples: Prohibition on import of poultry from countries affected by avian flu. Liquid eggs should be pasteurized or otherwise treated to destroy all viable Salmonella microorganisms; Live animals required to be quarantined for two weeks before entry into the territory

CHAPTER B: TECHNICAL BARRIERS TO TRADE (TBT) TBT measures refer to technical regulations, and procedures for assessment of conformity with technical regulations and standards, excluding measures covered by the SPS Agreement. TBT regulations lay down product characteristics or their related processes and production methods, including the applicable administrative provisions, with which compliance is mandatory. It may also include or deal exclusively with terminology, symbols, packaging, marking or labeling requirements as they apply to a product, process or production method. This chapter also covers conformity assessment, i.e. any procedure used, directly or indirectly, to determine that relevant requirements in technical regulations or standards are fulfilled. It may include, inter alia: Procedures for sampling, testing and inspection; Evaluation, verification and assurance of conformity; Registration, accreditation and approval; Combinations of the above Examples: Importers of "sensitive product" such as medicines, drugs, explosives, firearms, alcohol, cigarettes, game machines, etc. may be required to be registered in the importing country; Refrigerators need to carry a label indicating its size, weight as well as electricity consumption level. For a product to be identified as chocolate, it must contain a minimum of 30% cocoa.

 Standards Standards take a special place among non-tariff barriers. Countries usually impose standards on classification, labeling and testing of products in order to be able to sell domestic products, but also to block sales of products of foreign manufacture. These standards are sometimes entered under the pretext of protecting the safety and health of local populations. E.g.: UK-MCA, Australia-TGA, ISO In Europe such requirements range from banning imported beef from cattle raised with hormones to not allowing older airplanes to land because of noise pollution concerns.

 CHAPTER C: PRE-SHIPMENT INSPECTION AND OTHER FORMALITIES This chapter includes measures that require mandatory quality, quantity and price control of goods prior to shipment from the exporting country. It my also include governments requirement for shipments to arrive directly from the country of origin (without stopping in a third country), or to pass through a designated entry point or to pass through specified port of customs. Examples: A pre-shipment inspection of textile imports by a third party is required for verification of colors and types of materials DVD players need to be cleared at a designated customs office

 CHAPTER D: CONTINGENT TRADE PROTECTIVE MEASURES These are measures implemented to counteract particular adverse effects of imports in the market of the importing country, including measures aimed at 'unfair' foreign-trade practices, contingent upon the fulfillment of certain procedural and substantive requirements. It includes antidumping, countervailing and safeguard measures. Examples: Antidumping duty imposed on particular product from certain countries to correct unfair pricing practices. A countervailing duty of 44.71% imposed by Mexico on imports of 'dynamic random access memory (DRAM) semiconductors' from Country A to offset the subsidies granted by the exporting country on the production or trade of the product.

 CHAPTER E: NON-AUTOMATIC LICENSING, QUOTAS, PROHIBITIONS AND QUANTITY-CONTROL MEASURES OTHER THAN FOR SPS OR TBT REASONS These measures are generally aimed at restraining the quantity of goods that can be imported, regardless of whether they come from different sources or one specific supplier. These measures can take the form of non-automatic licensing, fixing of a predetermined quota(Import Quota and Export Quota, Voluntary export Quota-VER), or through prohibitions. This creates a restriction on competition, and increases prices faced by consumers Examples: For example, Brazil could place a VER on the exportation of sugar to Canada, based on a request by Canada. Canada could then place a VER on the exportation of coal to Brazil. This increases the price of both coal and sugar, but protects the domestic industries. Imports of textile products are subject to a discretionary license. Import of motor a vehicle with cylinder under 1500cc is not permitted to encourage domestic production. Annual import of fish restricted to 100 tons.

 Embargo Embargo is a specific type of quotas prohibiting the trade. Like quotas, embargoes may be imposed on imports or exports of particular goods, regardless of destination, in respect of certain goods supplied to specific countries, or in respect of all goods shipped to certain countries. Although the embargo is usually introduced for political purposes, the consequences, in essence, could be economic. Example: USs embargo with Cuba

 CHAPTER F: PRICE CONTROL MEASURES, INCLUDING ADDITIONAL TAXES AND CHARGES Measures implemented to control or affect the prices of imported goods in order to, inter alia,: support the domestic price of certain products when the import prices of these goods are lower; establish the domestic price of certain products because of price fluctuation in domestic markets, or price instability in a foreign market; or to increase or preserve tax revenue. This category also includes measures, other than tariffs measures, that increase the cost of imports in a similar manner, i.e. by a fixed percentage or by a fixed amount: they are also known as 'para-tariff' measures. Examples: A minimum import price is established for fabric and apparel. Excise tax, tax on alcoholic consumption, cigarette tax CO2 emission charge on motor vehicles.

 CHAPTER G: FINANCIAL MEASURES Financial measures are intended to regulate the access to and cost of foreign exchange for imports and define the terms of payment. They may increase import costs in the same manner as tariff measures. It includes measures such as advance payment requirements, and regulations governing foreign exchange rates. Examples: Payment of 50% of the transaction value is required three months before the expected arrival of the goods to the port of entry. Imports of construction materials are allowed only if payments may be made through the foreign direct investment fund.

 CHAPTER H: MEASURES AFFECTING COMPETITION These measures are aimed at granting exclusive or special preferences or privileges to one or more limited group of economic operators. It may include government imposed special import channels or enterprises, and compulsory use of national services. Examples: A statutory marketing board with exclusive rights to control imports of certain grains; A canalizing agency with exclusive right to distribute petroleum.

 CHAPTER I: TRADE-RELATED INVESTMENT MEASURES These measures include requirement to use certain minimum levels of locally made components, restricting the level of imported components or measures limiting the purchase or use of imported products by an enterprise to an amount related to the volume or value of local products that it exports. Examples: In the production of automobiles, locally-produced components must account for at least 50% of the value of the components used. A company may import materials and other products only up to 80% of its export earnings of the previous year.

 CHAPTER J: DISTRIBUTION RESTRICTION Distribution of goods inside the importing country may be restricted. This may be controlled through additional license or certification requirements. Examples: Imported beverages may only be sold in cities that have facility to recycle the containers. Exporters of motor vehicles need to set up their own retail points as existing car dealers in the destination country belong exclusively to car producers in that country.

 CHAPTER K: RESTRICTION ON POST-SALES SERVICES Measures restricting producers of exported goods from providing post-sales services in the importing country. Example: After-sales servicing on exported TV sets must be provided by local service company of the importing country.

 CHAPTER L: SUBSIDIES Financial contribution by a government or government body to a domestic production structure of a particular industry or company, such as direct or potential transfer of funds (such as grants, loans and equity infusions). Example: The government provides producers of chemicals a one-time cash grant to replace antiquated production equipment. By lowering costs, subsidies help domestic products to: 1. Help them to compete against foreign imports 2. Gain access to exports markets

 CHAPTER M: GOVERNMENT PROCUREMENT RESTRICTIONS Measures controlling the purchase of goods by government agencies, generally by giving preference to national providers. Example: Government office has a traditional supplier of its office equipment requirement, despite higher prices than similar foreign suppliers.

 CHAPTER N: INTELLECTUAL PROPERTY Measures related to intellectual property rights in trade: intellectual property legislation covers patents, trademarks, industrial designs, lay-out designs of integrated circuits, copyright, geographical indications and trade secrets. Example: Clothing with unauthorized use of trademark is sold at much lower price than the authentic products

 CHAPTER O: RULES OF ORIGIN Rules of origin cover laws, regulations and administrative determinations of general application applied by governments of importing countries to determine the country of origin of goods. Rules of origin are important in implementing such trade policy instruments as anti-dumping and countervailing duties, origin marking, and safeguard measures. Example: machinery products produced in a country is difficult to fulfill the rules of origin to qualify for the reduced tariff rate of the importing country, as the parts and materials originate in different countries.

 CHAPTER P: EXPORT-RELATED MEASURES Export-related measures are all measures applied by the government of the exporting country to exported goods, including both technical and non-technical measures. Examples: Export of corn is prohibited because of shortage in domestic consumption An export monopoly board, to take advantage of terms of sale abroad; a marketing board, to promote for export on behalf of a large number of small farmers Exports of processed food products must be inspected for sanitary conditions.

Need for Trade Barriers

Tariffs and other trade barriers have a definite effect on consumption and production. Tariff raises the domestic price of the import The overall effect of tariffs and trade barriers is to reduce the volume of trade and to increase the prices of imports. There are several reasons advanced for imposing trade barriers. 1. National Security-Defense and Airlines 2. Protecting domestic producers against foreign competitors (especially infant industries)-E.g.: India protecting SSI 3. improving a nation's terms of trade, 4. Reducing domestic unemployment-E.g: BPO 5. improving a nation's balance of-payments position.-First mover advantage-helps country to survive in recession

Protectionism

Political Argument

Economic Arguments

National Security Retaliation

Protecting Jobs Protecting Human Rights

Infant Industry Argument

Strategic Trade Policy