This presentation deals with the various aspects of Japan policy and the international trade.

1. Government Policy And
International Trade
Sudhanshu Bhatt (https://www.linkedin.com/in/sudhanshu-bhatt-b3665115/)
MBA –IBA
16.04.2023
References
Bulatov, A. (2023). World Economy and International Business Theories, Trends, and Challenges. In Springer. https://doi.org/10.12737/16614
Hill, C. W. L. (2022). Global Business Today 12e Charles.
Hill, C. W. L. (2023). International Business: Competing in Global Marketplace. In McGraw Hill LLC. https://doi.org/10.4324/9780203879412
Shenkar, O., Luo, Y., & Chi, T. (2022). International Business, Routledge. Routledge.
Images sourced from the internet

2. Q1. What do you mean by Government
Policy?
• Government policy refers to the actions and decisions taken by
a country's government to influence and regulate various
aspects of the economy, including international trade.
• Businesses play a crucial role in shaping government policy by
exerting pressure to promote free trade or trade restrictions,
depending on their interests.
• The theories of international trade suggest that promoting free
trade is generally in the best interests of a country, but
individual firms may not always benefit from it.
• Government policy can include tariffs, subsidies, and other
measures that affect the flow of goods and services across
borders.

3. Q3. What are the various policy instruments used
by the government to influence trade flows?
Trade Policy Uses Eight Main Instruments:
1. Tariffs
2. Export Tariffs & Bans
3. Subsidies
4. Import Quotas
5. Voluntary Export Restraints
6. Local Content Requirements
7. Administrative Policies
8. Antidumping Duties

4. Q4. Tariffs
• An import tariff is a tax on imports that can be specific or ad valorem.
• Specific tariffs are levied as a fixed charge for each unit of a good imported
(e.g., $3 per barrel of oil).
• Ad valorem tariffs are levied as a proportion of the value of the imported good.
• They are often used to protect domestic producers from foreign
competition, but also generate revenue for the government.
• Import tariffs are paid by the importer and result in increased prices for
consumers.
• Economic analysis suggests that import tariffs are generally pro-
producer and anti-consumer, reducing overall efficiency of the world
economy by encouraging domestic production that may be less
efficient than foreign production.
• The example of the 25% ad valorem tariff placed on imports of foreign steel by
President Trump in 2018 resulted in higher prices for steel consumers,
decreasing their international competitiveness and leading to job losses in steel-
consuming manufacturing companies.

5. Q5. Export Tariffs & Bans
An export tariff is a tax on exported goods that aims to limit
exports and ensure sufficient supply within a country.
• China has used export tariffs in the past to ensure sufficient supply of
grain and steel.
• Export tariffs are rare as most countries try to encourage exports.
Argentina has export tariffs on some agricultural products to reduce
exports and make more products available domestically at lower
prices.
On the other hand, an export ban restricts the export of a good
either partially or entirely.
• The US enacted an export ban on crude oil in 1975 to ensure sufficient
domestic supply during a period of restricted supply by OPEC. The ban
was lifted in 2015.
• The Trump administration also placed an export ban on
microprocessors to Huawei in 2019.

6. Q6. Subsidy
• A subsidy is a payment made by the government to domestic
producers, which takes various forms such as cash grants, low-
interest loans, tax breaks, and government equity participation.
• Subsidies help domestic producers lower their production costs, and
as a result, they can compete against foreign imports and gain
export markets.
• Agriculture is one of the largest beneficiaries of subsidies worldwide.
However, many subsidies tend to protect inefficient and promote excess
production, instead of increasing international competitiveness.
• Advocates of strategic trade policy favor subsidies to help domestic
firms achieve a dominant position in industries with economies of
scale.
• Still, government subsidies must be paid for by taxing individuals and
corporations, and whether subsidies generate national benefits that
exceed their national costs is debatable.

7. Q7. Import Quota
• An import quota is a direct restriction on the quantity of a good that can be
imported into a country.
• This is enforced by issuing import licenses to a group of individuals or
firms, who are the only ones allowed to import the restricted good.
• The United States, for example, has a quota on cheese imports where only certain
trading companies are allowed to import a maximum number of pounds of cheese
each year.
• This benefits domestic producers by limiting import competition, but it
raises the domestic price of the imported good, benefiting domestic
producers and hurting consumers.
• A tariff rate quota is a common hybrid of a quota and a tariff, where a
lower tariff rate is applied to imports within the quota than those over the
quota.
• In the U.S. sugar industry, import quotas have caused the price of sugar to be as
much as 40 percent greater than the world price. This benefits U.S. sugar producers,
who have lobbied politicians to keep the lucrative agreement, arguing that U.S. jobs in
the sugar industry will be lost to foreign producers if the quota system is scrapped.
However, this hurts consumers who have to pay higher prices for sugar.

8. Q8. Voluntary Export Restraint (VER)
• A Voluntary Export Restraint (VER) is a quota on trade
imposed by the exporting country, typically at the request of the
importing country's government.
• For example, Brazil imposed VERs on shipments of vehicles from
Mexico to Brazil due to a surge in vehicles from Mexico.
• Foreign producers agree to VERs because they fear more
damaging punitive tariffs or import quotas might follow if they do
not.
• This benefits domestic producers by limiting import competition,
but it also raises the domestic price of the imported good,
benefiting domestic producers and hurting consumers.

9. Q9. Local Content Requirements (LCRs)
• Local content requirements (LCRs) are regulations that require a
specific percentage of a good to be produced domestically.
• This requirement can be in physical or value terms, and is used to
shift the manufacturing base of a country towards local production.
• LCRs have been used by both developed and developing countries to
protect domestic industries and jobs from foreign competition.
• For example, the Buy America Act in the United States requires government
agencies to give preference to American products when putting contracts out to
bid, as long as at least 51% of the materials by value are produced
domestically.
• LCRs limit foreign competition, protecting domestic producers in
the same way that import quotas do.
• However, they also raise the prices of imported components,
which are passed on to consumers in the form of higher final prices.
• As with all trade policies, LCRs tend to benefit producers and not

10. Q10. Administrative Policies
• Administrative policies refer to informal or bureaucratic rules
that governments use to restrict imports and boost exports.
• These policies make it difficult for imports to enter a country.
• For example - import licensing requirements, customs valuation
procedures, and technical standards that products must meet before
they can be imported.
• These policies are not formal instruments of trade policy and
are often used to compensate for low formal tariff and non-tariff
barriers.
• Critics argue that some countries, such as Japan, use
administrative policies to limit imports despite having low formal
trade barriers.

11. Q11. Antidumping Policies
• Antidumping policies are measures taken by governments to counteract
the practice of dumping, which involves exporting goods to a foreign
market at prices below their fair market value or below the cost of
production.
• Dumping is viewed as an unfair trade practice because it can harm
domestic producers by flooding the market with cheap imports, and
creating an unequal playing field.
• Antidumping policies are designed to protect domestic producers from
this type of unfair competition.
• For Example - In the United States, a domestic producer can file a complaint
with the Commerce Department and the International Trade Commission (ITC) if
they believe that a foreign firm is dumping goods in the U.S. market. If the
complaint has merit, the Commerce Department may impose an antidumping
duty on the foreign imports, which represents a special tariff that can be
substantial and remain in place for up to five years. The objective is to level the
playing field and protect domestic producers from unfair foreign competition.

12. Q12. Political Arguments for government
intervention in foreign trade -1
1.Protecting Jobs and Industries
2.Protecting National Security
3.Retaliating
4.Protecting Consumers
5.Advancing Foreign Policy Goals
6.Advancing Human Rights

13. Q13. Economic Arguments for
Government Intervention In Foreign
Trade
• The Infant Industry Argument suggests that new industries need
temporary support from the government until they can compete on
an international level. However, many economists are critical of
this argument because protection from foreign competition does
not necessarily make industries more efficient and the assumption
that firms cannot make efficient long-term investments is no longer
valid with the development of global capital markets.
• The Strategic Trade Policy argument suggests that government
intervention can raise national income by ensuring that domestic
firms gain first-mover advantages in an industry instead of foreign
enterprises. However, there are potential downsides to this
approach, such as the risk of picking winners and losers, and it
may not always be clear which industries will be the most
promising.

14. Q14. Evolution of World Trading System
• The problem with free trade is that countries are afraid to lower
their trade barriers first, in case other countries don't follow
(Lack of Trust).
• To solve this, an international trading framework called the
General Agreement on Tariffs and Trade (GATT) was created
after World War II. It was later replaced by the World Trade
Organization (WTO) in 1995.
• GATT's objective was to reduce tariffs, subsidies, and other
trade restrictions over eight rounds.
• GATT was successful in reducing tariffs and stimulating
economic growth. In the 1980s and early 1990s, protectionist
trends emerged, leading to the establishment of the WTO
as a stronger international trading framework.

15. Q15. What is WTO?
• The WTO (World Trade Organization) is an international
organization that regulates and facilitates international trade
between member countries. It was established on January 1, 1995,
as a successor to the General Agreement on Tariffs and Trade
(GATT), which was created in 1948.
• The WTO aims to promote free trade by reducing barriers
such as tariffs and quotas, and by setting rules and standards for
trade between member countries. It also provides a forum for
member countries to negotiate and resolve trade disputes.

16. Q16. Is WTO a Successful organization?
Whether or not the WTO is a successful organization is a matter
of debate.
FOR AGAINST
On the one hand, the WTO has played a key
role in reducing trade barriers and promoting
free trade, which has helped to increase
economic growth and reduce poverty in
many countries. The organization has also
been successful in resolving many trade
disputes between member countries through
its dispute settlement mechanism.
On the other hand, critics of the WTO argue
that the organization has failed to address
some of the key challenges facing the global
economy, such as income inequality and
environmental degradation. Some also
argue that the WTO has unfairly favored the
interests of wealthy countries and
corporations over those of developing
countries.

17. • To be continued ……….