GOVERNMENT INVOLVEMENT IN GLOBAL BUSINESS

Unit 5

 GOVERNMENTS CAN BE INVOLVED AT THE:

MUNICIPAL LEVEL; PROVINCIAL/STATE LEVEL; FEDERALLY/NATIONAL LEVEL; INTERNATIONALLY (E.G., EUROPEAN

UNION).

WITHIN THE HOME COUNTRY, GOVERNMENTS MAY ATTEMPT TO:

CONTROL BUSINESS ENTRY INTO AN INDUSTRY;

SET EXPECTATIONS OF BUSINESS BEHAVIOUR;

REGULATE BUSINESS BEHAVIOUR; INSURE THAT CUSTOMERS AND EMPLOYEES

ARE PROTECTED AGAINEST UNFAIR BUSINESS PRACTICES.

SUCH LEGISLATION CAN BE SEEN AS RESTRICTIVE BY FORIEGN COMPANIES WISHING TO INVEST IN THE HOST COUNTRY.

 INTERNATIONAL EXPECATATIONS:

GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) COMMENCED MEETING IN 1948.

TWENTY THREE COUNTRIES (INCLUDING CANADA) SIGNED THE ORIGINAL AGREEMENT.

WAS ESTABLISHED TO SET SOME GROUND RULES FOR THE INTERNATIONAL CONDUCT OF TRADE.

IN 1995, GATT WAS REPLACED BY THE WORLD TRADE ORGANIZATION (WTO) WITH OVER 140 MEMBER COUNTRIES.

WTO HAS A NUMBER OF GOALS:

LOWER/ELIMINATE TARIFFS; ELIMINATE IMPORT QUOTAS, SUBSIDIES, AND

UNFAIR TECHNICAL STANDARDS THAT COMPROMISE COMPETITION.

RECOGNIZE AND PROTECT PATENTS, COPYRIGHTS, TRADEMARKS, ETC;

ASSIST POORER MEMBER COUNTRIES IN CREATING TRADE POLICIES AND STIMULATING ECONOMIC GROWTH;

SETTLING DISPUTES BETWEEN MEMBER COUNTRIES.

MEANS BY WHICH GOVERNMENTS ENCOURAGE GLOBAL BUSINESS:

1) CREATE FREE TRADE ZONES:  THESE ARE DESIGNATED SREAS IN A COUNTRY

(E.G., SEAPORTS, BORDERS) WHERE PARTS AND RAW MATERIALS CAN BE IMPORTED DUTY-FREE (AND ASSEMBLED, STORED, ETC). ONLY WHEN PRODUCT LEAVES THE ZONE MAY SOME DUTY BE PAID.

FREE TRADE ZONES MAY PROVIDE VERY CHEAP LABOUR WHICH ATTRACTS FORIEGN MANUFACTURERS TO THE ZONES.

MEANS BY WHICH GOVERNMENTS ENCOURAGE GLOBAL BUSINESS:

2) MOST FAVOURED NATION (MFN) STATUS:› MFN COUNTRIES ARE ENCOURAGED TO TRADE BY

CHARGING LOWER TARIFFS. (E.G., CANADA-FRANCE)  3) FREE TRADE AGREEMENTS:

› MEMBER COUNTRIES AGREE TO ELIMINATE (OVER TIME) DUTIES AND OTHER TRADE BARRIERS ON PRODUCTS/SERVICES (E.G., NAFTA)

4) ECONOMIC COMMUNITIES OR MARKETS OR UNIONS:› COUNTRIES COME TO-GETHER TO, IN ESSENSE,

CREATE ONE “ECONOMIC COUNTRY”.

  BENEFITS INCLUDE:

EXPANDED TRADE OPPORTUNITIES; REDUCED OR ELIMINATED TARIFFS; LOWER PRICES FOR CONSUMERS; EXPANDED EMPLOYMENT AND

INVESTMENT OPPORTUNITIES.

BENEFITS INCLUDE:

THESE COMMOM MARKETS ARE EXTENSIONS OF FREE TRADE AGREEMENT.

AN EXAMPLE IS THE EUROPEAN MARKET AND WITHIN THAT MARKET THE EUROPEAN UNION (WHICH HAVE THE COMMON EURODOLLAR).

  HOW GOVERNMENTS DISCOURAGE GLOBAL BUSINESS:

BY CREATING TRADE BARRIERS AND PRACTICING “PROTECTIONISM”.

THIS INCLUDES:› 1) TARIFFS/DUTIES: TAXES ON PRODUCTS

ENTERING THE COUNTRY. THIS HAS THE IMPACT OF HIGHER PRICES FOR FORIEGN GOODS ALLOWING DOMESTIC COMPANIES TO BETTER COMPETE

  HOW GOVERNMENTS DISCOURAGE GLOBAL BUSINESS:

2) QUOTAS:› LIMIT THE AMOUNT OF A PRODUCT

(EITHER DOLLAR OR QUANTITY LIMIT) THAT CAN ENTER THE COUNTRY.

3) BOYCOTTS:  › ABSOLUTE RESTRICTION ON IMPORTING A

PRODUCT (JAPAN BOYCOTTS IMPORTED RICE);

  HOW GOVERNMENTS DISCOURAGE GLOBAL BUSINESS:

 4) LICENSING: › FORIEGN COMPANIES ARE REQUIRED TO

HAVE A LICENSE TO OPERATE WHICH CAN BE WITHDRAWN AT ANY TIME.

 5) SPECIAL REQUIREMENTS FOR FORIEGN IMPORTS:› EXTRA REQUIREMENTS ARE SPECIFIED FOR

FORIEGN IMPORTS THAT ARE NOT FOR LOCAL PRODUCTS.

 POLITICAL ELEMENTS AND RISK IMPOSED BY A GOVERNMENT:

3)  ECONOMIC NATIONALISM:› SOME COUNTRIES RESTRICT FORIEGN

OWNERSHIP OF LOCAL BUSINESSES AND PROPERTY. (MEXICO; THAILAND).

4) CIVIL UNREST AND WAR:› CREATES SOCIAL DISORDER, EXTREME

INCOME UNEVENESS (E.G., RUSSIA, EGYPT) AND FREQUENT POLITICAL/MILITARY CHANGE.

 A NOTE ON TAXES:

FORIEGN INVESTORS ARE LOOKING FOR COUNTRIES TO INVEST IN WITH LOW TAXES (E.G., IRELAND).

  POSSIBLE TAXES:

TARIFFS/DUTIES; EXCISE TAXES (ON SPECIAL PRODUCTS: ALCOHOL,

TOBACCO, GASOLINE); SALES TAXES (AT TIME OF PURCHASE);  PAYROLL RELATED TAXES TO WHICH BUSINESSES

CONTRIBUTE (E.G., E.I, CPP, WORKER’S COMPENSION, ETC) 

VALUE ADDED TAX (VAT): THIS IS A TAX APPLIED TO EACH STAGE AS A PRODUCT PROGRESSES FROM ITS RAW FORM TO THE FINISHED PRODUCT.

INCOME TAX BASED ON THE “ABILITY TO PAY. CORPORATE TAXES WHICH IS A FIXED PERCENT (E.G.,

15%).