MKT 451 International Marketing

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MKT 451 International Marketing

• Lesson 3 Institutions and Incoterms
• (13th Ed. Ch. 2, 15)

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What We Shall Study ..

• Institutions in International Trade
• GATT
• WTO
• IMF
• The World Bank

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What We Shall Study

• Foreign Trade Zones and Maquiladoras
• Incoterms (CIF, FOB, etc.)

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GATT ..

• GATT General Agreement on Tariffs and Trade
• Set up after WW-II
• Signed by US and 22 other countries initially

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GATT

• Provides a process to reduce tariffs
• Provides a mechanism to resolve trade disputes

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GATT

• Principles
• Trade shall be non discriminatory
• Tariffs not quotas shall be used to protect
  domestic industry
  
• Consultation shall be the primary method to
  resolve trade disputes
  

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GATT

• Eight rounds of negotiation, from Tokyo 1974 to
  Uruguay 1994
  
• Finally GATT considered multiple problems
• Tariffs
• Subsidies and countervailing measures
• Services, agriculture IP Rights

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GATT

• Uruguay Round Achievements
• GATS General Agreement on Trade in Services
• TRIMS Trade Related Investment Measures
• TRIPS Trade Related Aspects of Intellectual
  Property Rights

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World Trade Organization

• Initiated by USA at the Uruguay Round of GATT
• The WTO is an organization rather than an
  agreement, unlike GATT
  
• All member countries have equal representation in
  the conference

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World Trade Organization

• Trade disputes heard by a panel
• The country favored is allowed to retaliate
  with trade sanctions against an offending
  country
  
• Countries wishing to join the WTO have to work in
  consistency with WTO objectives

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World Trade Organization

• China - modifying the use of standards as a
  barrier to imports, through WTO efforts
  
• Significant dialogues with countries that have
  been using anti dumping duties effectively as a
  barrier to trade
  

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International Monetary Fund

• The IMF provides international monetary services
• Currently about 181 member countries
• The IMF has floated SDRs -international paper
  money loans based on a basket of currencies

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International Monetary Fund

• The IMF is a bank of last resort for the foreign
  exchange needs of the central bank of countries
  
• Major trade contracts are sometimes written in
  SDRs as they are less susceptible to currency
  fluctuations

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The World Bank

• Is primarily a developmental bank, not a monetary
  institution
  
• Gives developmental loans to countries eg.
  health, electricity, roads, HIV
  
• Also lends directly to the private sector

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The World Bank

• Also, provide investors with investment
  guarantees against non commercial risk eg. war
  
• Provide facilities for arbitration and resolution
  of disputes between governments and foreign
  investors

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Some Issues

• Unintended consequences of globalization?
• Environment shift of shunned industries to
  LDCs
  
• Cultural extinction, worker exploitation
• Major traders domination
• Higher oil prices

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Foreign Trade Zones

• Also called Export Processing Zones, Free Trade
  Zones
  
• Duties and tariffs are not payable on raw
  materials and components used in goods that are
  exported
  
• Eliminates duty drawback

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Maquiladoras

• US-Mexican agreement facilities for manufacture
  in Mexico
  
• Taxes and tariffs not payable
• Goods have to be exported (mainly to USA) and low
  tariffs are applied
  

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Terms of Sale - Incoterms

• CIF Cost of goods Insurance Transport etc.
  till debarkation
  
• C F Insurance costs are borne by the buyer
• FAS Costs borne by the seller till goods are
  brought alongside the transport craft

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Terms of Sale - Incoterms

• FOB All costs are borne till the goods are
  loaded onto the transport craft
  
• EX The price covers costs only till the point
  of origin. All other costs are borne by the buyer

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Self Quiz

• What was the major role of GATT and how did it
  lead to the development of the WTO?
  
• How do the roles of the IMF and World Bank
  differ?
  
• What are foreign trade zones and why are they
  becoming increasingly popular?

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Self Quiz

• What are Maquiladoras?
• What are the standard terms of sale adopted in
  international commerce?
  
• Which of these is most useful to the buyer and
  why?

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