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THE POLITICAL ECONOMY OF INTERNATIONAL TRADE
VER:
A voluntary export restraint (VER) may have the same effect as a quota. In a VER, another country or
countries agree to not export more than a certain quantity to another country or countries. VERs are
usually only enacted when it is feared that a more restrictive tariff or quota will be levied unless exports are"voluntarily" reduced. In other words, the threat of retaliation encourages compliance.
- Import quotas and VERs benefit domestic producers and harm domestic consumers. They can
also even help foreign producers, as foreign producers can raise the price they charge for the
limited supply they can sell, and take the difference as additional profit.
LOCAL CONTENT REQUIREMENT:
- Local content requirements specify that firms must produce some portion of a good domestically.
The purpose of a local content requirement is usually to aid the formation of domestic industries,
to keep manufacturers from switching to foreign suppliers, or to keep foreign firms from setting up
“screwdriver plants.” where imported manufactured components undergo simple assembly in order
to avoid some other trade restriction on the importation of the fully assembled product. Domestic
suppliers benefit, and domestic consumers must bear the costs.
ANTI-DUMPING LAWS:
- Dumping occurs when a country sells goods in another country below cost or below fair market
value. Dumping is a way firms can unload excess production into foreign markets. When plants
must operate at a certain level regardless of domestic demand, the producer may find it appropriate
to export some portion of the factory’s output abroad. At times dumping may also be done for
predatory reasons, hoping to drive other producers out of the market, and subsidizing foreign sales
with higher domestic prices. Antidumping policies are designed to prevent dumping from
occurring, or by instituting import taxes in order to bring prices of “dumped” goods back up to fair
levels.
ADMINISTRATIVE ACTIONS
- A wide range of administrative barriers can be enacted. Taking so much time to inspect goods that
they spoil or setting down specific regulations on "product standards" that are very expensive to
meet.
Read more: MGT520 - International Business - Lecture Handout 26