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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

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
unemployment level
political/interest group pressures
– Governments also intervene in trade to ensure required revenue earnings to manage the
government and its programs.

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

(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,
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
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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